supplying seed and buying back the produce and market them seeds will fall under agricultural income? Whether it is an exempted Income?

CIT v. Namdhari Seeds P. Ltd ( 2012) 341 ITR 342 (Karn) (High court) 

S.2(1A):Agricultural income- Seeds-Company- Company supplying seeds to farmers under agreement income derived by company is not agricultural income.

The assessee company is in the business of cultivation, production and marketing of open-hybrid seeds both for the domestic and international market and entered in to agreement with the farmers for production of open –hybrid seeds for its own benefit or on behalf of its overseas principals. Assessee Company supplied the seeds, supervised the cultivation of seeds. After harvesting, the company purchased from farmers at fixed price. Assessee company has done the process of cleaning, grading and converted into certified seeds. Assessee has claimed entire income is exempt under section 10(1). Assessing Officer denied the exemption. On appeal before the Tribunal the tribunal opined that 10 percent of the net profit should be treated as business income and balance 90 percent of the net profit as agricultural income exempt from tax. On appeal to High Court by revenue the court held that the income is not agricultural income.( A.Y. 1998-99 to 2004-05)

REVOCATION OF A TRUST'S REGISTRATION of a TRUST UNDER SECTION 12 AA (1) (B)(II)

Once Commissioner grants registration to a trust under section 12AA(1)(b)(ii) after satisfying himself about activitiesof trust, such a registration cannot be cancelled by following very sameprovision of section 12AA(1)(b) to go into genuineness of activities of trust

HIGH COURT OF MADRAS

Commissioner of Income -tax-I, Madurai

v.

Sarvodaya Ilakkiya Pannai

Section 12AA of theIncome-tax Act, 1961 - Charitable or religious trust - Registration procedure -Assessment years 2008-09 to 2010-11 - Whether once Commissioner grantsregistration to a trust under section 12AA(1)(b)(ii) after satisfying himselfabout activities of trust, such a registration cannot be cancelled by followingvery same provision of section 12AA(1)(b) to go into genuineness of activities of trust - Held, yes - Whether, however, Commissioner is empowered to revokecertificate in terms of section 12AA(3) in event Commissioner is satisfied subsequently, i.e., after registration that activities of such trust orinstitution are not genuine or not being carried out in accordance with objectsof trust or institution as the case may be - Held, yes - Assessee-trust was formed with object of publishing and selling Sarvodaya Literature as also Gandhian and Sarvodaya ideologies - Commissioner granted registration toassessee-trust under section 12A - Subsequently, Commissioner passed an order under section 12AA(3) cancelling registration on ground that assessee wasengaged in purchase and sale of books which was a commercial activity - Onappeal, Tribunal set aside order of Commissioner holding that none ofconditions under section 12AA(3) were violated and therefore, satisfaction whichwas arrived at by Commissioner was not justified - Whether on facts and, having regard to aforesaid legal position, impugned order passed by Tribunal did not require any interference - Held, yes [In favour of assessee]

Where sum recovered during search was notreflected in books of account of assessee, same could be brought to tax asundisclosed income in block assessment even though regular assessment continuedseparately

Commissioner of Income-tax

v.

Kanti Bhai Damani

Section 68 of the Income-tax Act, 1961 - Cashcredit - Block period 1-4-1988 to 27-10-1998 - A search was conducted atpremises of assessee-agent and certain sum was found by search party - Inresponse to notice under section 158BC, assessee filed return declaring nilundisclosed income and submitted that said sum was not found but wasvoluntarily disclosed by him under VDIS, 1997 - Assessing Officer found thatsaid sum was not reflected in assessee's books and treating same as undisclosedincome of assessee, made addition - However, Assessing Officer had also made anaddition of similar amount on protective basis - Therefore, Tribunal held thatsaid addition could not be made in block assessment proceedings though itopined that in view of time gap between voluntary disclosure and date of searchsaid amount could not be attributed to voluntary disclosure - Division Bench of Calcutta High Court in Dy. CIT v. Shaw Wallace & Co. Ltd. held that both regular assessment and block assessment can becontinued separately - Whether in view of said decision and factual positionthat said sum had been found at time of search, addition of same as undisclosedincome was justified - Held, yes [In favour of revenue]

Tax was to be deducted at source undersection 194A where due to losses no interest was paid by assessee to its creditor but credit entry was made as if interest was paid to creditors

Sections 194A, read with section 201, of the Income tax Act, 1961 -Deduction of tax at source - Interest other than interest on securities -Assessment years 2004-05 to 2006-07 - Assessee-company borrowed money fromcreditors and was liable to pay interest - As assessee was running under loss,it did not make any payment of interest - However, for purpose of complyingwith provisions of Companies Act, credit entry was made as if interest was paidto creditors - At time of making credit entry assessee did not deduct tax atsource under section 194A - Assessing Officer thus treated assessee asassessee-in-default and levied interest under sections 201 and 201(1A) -Whether by virtue of amendment of section 201 by Finance Act, 2008, withretrospective effect from 1-6-2002, assessee was required to deduct tax atsource under section 194A - Held, yes - Whether therefore, impugned orderpassed by Assessing Officer was to be upheld - Held, yes [In favour of revenue]

Section 80-IA of the Income-tax Act, 1961 Deductions

Eveready Spinning Mills (P.) Ltd.

v.

Assistant Commissioner of Income-tax, Circle-I, Tirupur

Section 80-IA of the Income-tax Act, 1961 - Deductions - Profitsand gains from infrastructure development undertakings - Assessment year2007-08 - Assessee was in business of manufacturing of yarn - It had alsoinstalled three windmills for which it had adopted impugned assessment year asinitial assessment year for purpose of claim of deduction under section 80-IA -Windmills of assessee were disparately situated vis-Ã-vis its yarnmanufacturing activity - State Electricity Board purchased power produced bywind mills of assessee at rate of Rs. 2.70 per unit and when it sold electricityto assessee's textile units, it had charged assessee a rate of Rs. 3.50 perunit - Assessee while computing its claim for deduction under section 80-IA inrespect of windmills, had adopted price of Rs. 3.50 per unit - AssessingOfficer was of opinion that assessee could not be permitted to inflate profit from its windmills unit and he, therefore, adopted price of Rs. 2.70 fixed byState Electricity Board for purchase of power from windmills, to be correctpricing for computing profits of windmills - Accordingly, assessee's claim for deduction was substantially reduced - It was apparent from records thatassessee was an industrial consumer and Board supplied power to such industrialconsumers at rate of Rs. 3.50 per unit - It was also undisputed that hadassessee not been saddled with restrictions of supplying surplus power to StateElectricity Board, it would have supplied power to ultimate customers at aprice not less than Rs. 3.50 per unit, being rate charged by Board from itsindustrial consumers - Whether in view of aforesaid, profits of eligibleundertaking had to be determined on basis of annual landing cost of electricitypurchased by assessee from State Electricity Board, i.e., Rs. 3.50 per unit -Held, yes [In favour of assessee]

Sec. 10A deduction to be computed before setting off the brought forward losses

CIT v. BLACK & VEATCH CONSULTING (P.) LTD

Deduction under section 10A has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of section 72 which deals with the carry forward and set off of business losses. Therefore, the approach of AO in deducting brought forward losses of ineligible units from section 10A unit is impermissible

54EC of Income-Tax - limit of Rs. 50L does not apply to the transaction but financial year

Aspi Ginwala vs. ACIT (ITAT Ahmedabad)(96.5 KiB, 680 DLs)

. 54EC limit of Rs. 50L does not apply to the transaction but financial year. Delay in investing within 6 M owing to non-availability of bonds to be excused 

The assessee sold property on 22.10.2007 and computed long-term capital gains. The s. 54EC investment was required to be made within 6 months i.e. on or before 21.04.2008. The assessee invested Rs. 50 lakhs in REC bonds on 31.12.2007 (FY 2007-08, within the 6 M time limit) and Rs. 50 lakhs in NHAI bonds on 26.5.2008 (FY 2008-08, beyond the 6 M time limit) and claimed a deduction of Rs. 1 crore. The assessee claimed that no eligible scheme was available for subscription from 1.4.2008 to 28.5.2008 and that he applied in the NHAI bonds as soon as it opened and that he was prevented by sufficient cause from investing within the time period of 6 months. The AO & CIT (A) rejected the claim for exemption of Rs. 50 lakhs in respect of the NHAI bonds on the ground that (i) it exceeded the monetary limit of Rs. 50 lakhs prescribed in s. 54EC and (ii) it was made beyond the time limit of 6 months. On appeal to the Tribunal, HELD allowing the appeal:

(i) The Proviso to s. 54EC provides that the investment made in a long term specified asset by an assessee “during any financial year” should not exceed Rs. 50 lakhs. It is clear that if the assessee transfers his capital asset after 30th September of the financial year he gets an opportunity to make an investment of Rs.50 lakhs each in two different financial years and is able to claim exemption upto Rs.1 crore u/s 54EC. The language of the proviso is clear and unambiguous and so the assessee is entitled to get exemption upto Rs.1 crore in this case;

(ii) Though the time limit of 6 months for making the investment u/s 54EC expired on 21.4.2008, no bonds were available for subscription between 1.4.2008 to 28.5.2008. The investment was made as soon as the subscription opened on 26.5.2008. The assessee was accordingly prevented by sufficient cause which was beyond his control in making investment in these Bonds within the time prescribed. Exemption should be granted in cases where there is a delay in making investment due to non-availability of the bonds (Ram Agarwal 81 ITD 163 (Mum) followed)

S. 2(22)(e) : Dividend – Deemed dividend – Credit balances in the normal course of business cannot be assessed as deemed dividend

 S. 2(22)(e) : Dividend – Deemed dividend – Credit balances in the normal course of business cannot be assessed as deemed dividend

Only a genuine buyback is excluded from definition of 'dividend' by section 2(22)(iv) and exempt from DDT under section 115-O; a colourable buyback of will attract DDT
• Buyback held to be a colourable device for tax avoidance to distribute dividends in guise of buyback to avoid payment of DDT in view of following facts

(i) 98.24% of applicant-company's shares held by three overseas companies of "A" group-A(USA),A(Mauritius) and A(Singapore) and only 1.76% were held by general public

(ii) Dividends were regularly paid by applicant-company prior to introduction of DDT; no dividend paid by application company after introduction of DDT

(iii) Instead of distributing dividend regularly which would have entailed payment of DDT, applicant allowed reserves to accumulate from Rs.1crore(March 2003) to Rs.4 Crores (March2010) and proposed a buyback offer by Board of Directors passing a resolution under section 77A of Companies Act,1956 on 15.6.2010

(iv) Applicant had announced a buyback in 2008 also which was accepted only by A(Mauritius) as under DTAC with Mauritius, capital gains is totally not taxable in India; A(USA) and A(Singapore) did not accept buyback offer obviously because amount received by them under buyback would have been taxable as capital gains in India; it was not known whether anyone from general public accepted offer; it was expected that same would be case with proposed 2010 buyback as well

• In view of finding that proposed buy-back is a colourable transaction, receipt of buyback consideration by A(Mauritius) will satisfy definition of dividend under Act and consequently attract tax in India as such -

Disallowance Cannot Exceed Total Expenditure under S. 14A & Rule 8D

Gillette Group India Pvt.Ltd. vs. ACIT (ITAT Delhi)(155.4 KiB, 807 DLs)

S. 14A & Rule 8D Disallowance Cannot Exceed Total Expenditure
 

 

In AY 2008-09, the assessee earned tax-free dividend income. Its’ total expenditure as per the P&L A/c was Rs. 49 lakhs. The AO applied Rule 8D and made a disallowance u/s 14A of Rs. 2.37 crores which was reduced by the CIT (A) to Rs. 1.78 crores. Before the Tribunal, the assessee claimed that even assuming that the entire expenditure had been incurred to earn the dividend, the disallowance u/s 14A & Rule 8D could not exceed the expenditure incurred. HELD accepting the plea:
 

U/s 14A read with Rule 8D, disallowance can be made for the expenditure incurred for earning of exempt income. From the assessee’s P&L A/c, it is evident that the total expenditure incurred was Rs. 49 lakhs only which was claimed as a deduction. The disallowance u/s 14A & Rule 8D cannot exceed the expenditure actually claimed by the assessee. Accordingly, the action of the AO & CIT (A) in making disallowance in excess of total expenditure debited to P&L A/c is unjustified.

The other judgements on the subject:

Search Enviro Ltd (ITAT Mumbai)

Tecumseh India vs. ACIT (ITAT Delhi Special Bench)

Quippo Telecom Infrastructure Ltd vs. ACIT (ITAT Delhi)

ACIT vs. Punjab State Coop & Mktg (ITAT Chandigarh)

Courtesy: ITATonline.org

deduction under section 80-IB(10) of Income-Tax Act

CIT v. VANDANA PROPERTIES [2012] 19

To avail deduction under section 80-IB(10) of Income-Tax Act , it is not necessary that housing project must be on size of a vacant plot of land which has minimum area of one acre. Section 80-IB(10)(b) specifies size of plot of land but not size of housing project; size of plot of land, as per section 80-IB(10) must have minimum area of one acre; section does not lay down that plot having minimum area of one acre must be a vacant plot. Moreover, plain reading of section 80-IB(10) does not even remotely suggest that plot of land having minimum area of one acre must be vacant

WHETHER INTANGIBLE ASSETS ARE ELIGIBLE FOR DEPRECIATION UNDER SECTIONS. 32(1)(ii) OF INCOME-TAX ACT

Areva T&D India Ltd vs. DCIT (Delhi High Court)  (430.9 KiB, 610 DLs)

S. 32(1)(ii): Business information, contracts, records etc are “intangible assets” & eligible for depreciation
The assessee, vide slump sale agreement, acquired a transmission and distribution business as a going concern for a lump sum consideration of Rs.44.7 crores. The net tangible assets were valued at Rs.28.11 crores and the balance Rs. 16.58 crores was allocated by the transferee towards acquisition of bundle of “business and commercial rights” being business information; business records; contracts; employees etc, compendiously termed as “goodwill”. The assessee claimed that the said “business and commercial rights” were an “intangible asset” and eligible for depreciation u/s 32(1)(ii). The assessee’s claim was rejected by the AO, CIT(A) & Tribunal on the ground that depreciation was not allowable on “goodwill”. On appeal by the assessee, HELD reversing the lower authorities:
 

S. 32(1)(ii) allows depreciation on “intangible assets” which are defined to mean “know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature”. Applying the principle of ejusdem generis, the expression “business or commercial rights of similar nature” need not answer the description of “knowhow, patents, trademarks, licenses or franchises” but must be of similar nature as the specified assets. The specified intangible assets are not of the same kind and are clearly distinct from one another. The nature of “business or commercial rights” cannot be restricted to only the aforesaid six categories of assets but can be of the same genus in which all the aforesaid six assets fall and form part of the tool of trade of an assessee facilitating smooth carrying on of the business. The intangible assets, viz., business claims; business information; business records; contracts; employees; and knowhow, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee without any interruption. These intangible assets are comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. Accordingly, the intangible assets acquired under slump sale agreement were in the nature of “business or commercial rights of similar nature” and eligible for depreciation u/s 32(1)(ii) (Techno Shares 327 ITR 323 (SC) followed) (Q whether goodwill per se is eligible for depreciation u/s 32(1)(ii) left open).

Courtesy: ITAT online.org

Whether IT to be deducted for interest payments made by a Foreign PE in India to its Parent company abroad under DTAA ?

Sumitomo Mitsui Banking Corporation vs. DDIT (ITAT Special Bench) (5 Member)(341.0 KiB, 423 DLs)

 While interest paid by PE of foreign bank to H.O. is deductible in hands of PE, same interest is not taxable in hands of H.O.
 

 The assessee, a Japanese bank, carrying on business through a PE in India, paid interest of Rs. 5 crores to its H.O. & other branches. The assessee, in computing the profits assessable to tax in India, claimed that while the interest received by the H.O. & other branches from the PE was not chargeable to tax in India on the principle that the PE & H.O. were one & the same entity, the PE was entitled to claim a deduction under Article 7 of the DTAA. The AO held that the PE & the H.O. were deemed to be separate entities and that while the interest received by the H.O. from the PE was taxable under Article 11, deduction for that interest could not be allowed to the PE u/s 40(a)(i) as it had failed to deduct TDS. The CIT (A) followed the verdict of the Special Bench in ABN Amro Bank 98 TTJ 295 (Kol) (partly affirmed in ABN AMRO 198 TM 376) and held that the interest was neither chargeable to tax nor allowable as a deduction. On appeal to the Tribunal, the matter was referred to a 5 Member Special Bench. HELD by the Special Bench:

(i) On the question whether the interest paid by the PE to the H.O. is deductible, while such interest is not deductible under the Act because the payer & payee are the same person, Article 7(2) and 7(3) of the DTAA & its Protocol makes it clear that for the purpose of computing the profits attributable to the PE in India, the PE is to be treated as a distinct and separate entity which is dealing wholly independently with the general enterprise of which it is a part and deduction has to be allowed for, inter alia, interest on moneys lent by the PE of a bank to its H.O.


(ii) On the question of taxability of the interest received by the H.O. from the PE, such interest is not taxable under the Act as both are, under the Act, the same person and not separate entities & one cannot make profit out of himself. The fiction created in Article 7(2) of the DTAA treating the PE as separate and independent entity does not extend to Article 11. Also, the interest paid by the PE is not interest paid in respect of debt claims forming part of the assets of the PE so as to attract Article 11(6). The DTAA, even assuming that it does create a liability, cannot be applied u/s 90(2) as it is contrary to the Act and less favourable to the assessee (Q whether the interest paid by the PE should be netted off against the interest received left open).
Courtesy - www.ITATonline.org