Outotec India Pvt. Ltd vs. ACIT (ITAT Delhi) Articles 13 & 15 of DTAA: Law on whether if a sum cannot be assessed as "fees for technical services" under the "make available" clause of Article 13, it can still be assessed as "Independent personal services" under Article 15 explained The assessee’s contention that since the services contracted for the by the assessee with non-residents fall within the meaning of Article 13 but get excluded because of not `making available’ any technical knowledge etc., then such services cannot be once again considered under Article 15 is not acceptable. The precise question is that which of the two Articles, namely, 13 or 15, should have primacy in the facts and circumstances as are instantly prevailing?

 para 1 of Article 15 of the DTAA, we find that the income derived by a resident of Finland in respect of professional services or other independent activities of a similar character performed in India can be taxed in India if he is present in India for a period or periods aggregating to 90 days or more in the relevant fiscal year or has a fixed base regularly available to him in India for the purpose of performing his activities. It is noticed that the CIT(A) has computed the period of 90 days by considering the presence of these persons in India from 24.11.2008 to 24.4.2009. The AR contended that the CIT(A) has considered total period of stay of all the five persons taken together without considering it on individual basis. We find force in the submission of the ld. AR in this regard. Once it is held that five individuals from Finland were not representing IPS and, in fact, there was no valid agreement between the assessee and IPS, then, what remains to be examined is such five residents of Finland on individual basis. The amounts payable to each of such five persons satisfying the duration test on individual basis would enable the ultimate triggering of Article 15 of the DTAA. In other words, only those Finland residents out of such five persons who independently and individually satisfy the condition about their presence in India for a period of 90 days or more in the relevant fiscal year or having a fixed place regularly available to them in India for the purpose of performing the supervisory functions, can be brought within the purview of Article 15. If, however, this condition is found wanting qua some individuals, then the amount payable to such individual residents of Finland, would cease to be chargeable to tax in terms of Article 15 of the DTAA notwithstanding its taxability under section 9(1)(vii) read with section 5 of the Act.

A licensee who is in full control of the building and can exercise the rights of the owner in his own right is entitled to depreciation

CIT vs. Bharat Hotels (Delhi High Court)

(i) Explanation (1) to Section 32 of the Act also acknowledges that depreciation would be claimed by assessee who carries on business “in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work or in relation to……. the building.” In such event, Section 32 (1) would apply “as if the said structure or work is a building owned by the assessee.

Having held that the sundry creditors are not payable and fictitious, the next question that comes up for our consideration is the year in which the amount is taxable under what provisions of law either under Section 41(1) or 68 of the Act. We are required to examine whether this amount should be brought to tax in the year in which credit was made first time in the books of account or in the year in which these are found not payable. An identical issue had come up for consideration before the Hon’ble Gujarat High Court in the case of CIT Vs Bhogilal Ramjibhai Atara in Tax Appeal No. 588 of 2013, dated 04.02.2013, in which it was held that that even if the debt itself is found to be non-genuine from the very inception there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(1) of the Act. The Jurisdictional High Court in the case of CIT Vs. Shri Vardhman Overseas Ltd., (2012) 343 ITR 408 (Del), has dealt with the issues of taxability under section 41(1) of the Act in a case where long outstanding sundry creditors were treated as taxable. The High Court after referring to the decisions of Hon’ble Supreme Court in the cases of CIT(Chief) Vs. Kesaria Tea Co. Ltd., (2002) 254 ITR 434(SC) and CIT Vs. Sugauli Sugar Works P. Ltd (1999) 236 ITR 518 (SC, has held that such amounts cannot be brought to tax under Section 41(1) of the Act. The Hon’ble Suprme Court in the case of CIT Vs. Sugauli Sugar Works P. Ltd. (supra) held that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt. (ii) Applying the ratio in the cases mentioned supra, the amount in question cannot be brought to tax in the year under appeal under the provisions of Section 41(1) of the Act. It is trite law that an addition under Section 68 can be made only in the year in which credit was made to the account of the creditors in the books of account maintained. Kindly refer to the Supreme Court in the case of Damodar Hansraj Vs. CIT, (1969) 71 ITR 427 (SC). Admittedly, in this case the credit to the account of creditors was made in the earlier years and therefore, the amount even cannot be brought to tax under Section 68 in the year under appeal. However, it is open to the Department to levy tax on such amount by resorting to the remedies available under the provisions of Act by duly following the procedure known to the law.

Cheil India Pvt. Ltd vs. ITO (ITAT Delhi)

The ITAT directed that the assessee be granted sufficient opportunity to rebut the evidence used by the Assessing Officer regarding the addition of Rs.89,39,92,188 made by the Assessing Officer on account of alleged short receipts declared in the profit and loss account violating the principles of natural justice. In compliance, the Assessing Officer made the assessment on the issue afresh under sec. 254 read with 143(3) of the Act making the addition of Rs.4,55,41,557 out of Rs.89,39,92,188 which was questioned before the CIT(Appeals). The CIT(Appeals) not only upheld the addition of Rs.04,55,41,557 made on account of short receipts declared in profit and loss account but enhanced the income by directing the Assessing Officer to disallow payments made by the assessee under sec. 40(a)(ia) of the Act. The assessee claimed that by directing the Assessing Officer to make the disallowance of payments made by the assessee under sec. 40(a)(ia) of the Act, the CIT(Appeals) has introduced in the assessment a new source of income, which is not allowed in an assessment which was made by the Assessing Officer strictly in compliance of the order of the ITAT for reconsideration of addition of Rs.89,39,92,188 after examining the evidence and upholding opportunity of being heard to the assessee. HELD by the Tribunal:

(i) The direction to the Assessing Officer by the CIT(Appeals) to disallow payments made by the assessee under sec. 40(a)(ia) of the Act was a question of taxability of income from a new source of income which has not been considered by the Assessing Officer, hence it was exceeding of jurisdiction by the CIT(Appeals) in a set aside matter by the ITAT in the present case. Though the CIT(Appeals) has co-terminus powers as of the Assessing Officer and is empowered to do what an Assessing Officer can do for the assessment, the directed disallowance was new source of income, which was not the subject matter of setting aside order by the ITAT, in compliance of which assessment under sec. 254 read with section 143(3) was framed.

(ii) The power of the CIT(Appeals) to set aside assessment, which does not involve a proposal for enhancement cannot be used for the purpose of expending the whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under sec. 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the appellate authority (CIT vs. Sardari Lal & Co. – 251 ITR 864 (Del) followed).

Unclaimed liabilities to creditors, even if fictitious and bogus, cannot be assessed u/s 41(1) in the absence of a write-back. The bogus credits can be assessed u/s 68 only in the year the credits were made and not in the year they are found to be not payable

Perfect Paradise Emporium Pvt. Ltd vs. ITO (ITAT Delhi)

 Having held that the sundry creditors are not payable and fictitious, the next question that comes up for our consideration is the year in which the amount is taxable under what provisions of law either under Section 41(1) or 68 of the Act. We are required to examine whether this amount should be brought to tax in the year in which credit was made first time in the books of account or in the year in which these are found not payable. An identical issue had come up for consideration before the Hon’ble Gujarat High Court in the case of CIT Vs Bhogilal Ramjibhai Atara in Tax Appeal No. 588 of 2013, dated 04.02.2013, in which it was held that that even if the debt itself is found to be

Loss suffered on account of forex derivative contracts (Exotic Cross Currency Option Contracts cannot be treated as speculative loss to the extent that the derivative transactions are not more than the total export turnover of the assessee. If the derivative transaction is in excess of export turnover, the loss in respect of that portion of excess transactions has to be considered as speculative loss because the excess derivative transaction has no proximity with export turnover

M/s. Majestic Exports vs. JCIT (ITAT Chennai)July 24, 2015 (Date of pronouncement)

The Mumbai High Court in CIT vs. M/s SMSL-UANRCL (JV) has held that even if contract is awarded to the Joint Venture, the income is assessable only in the hands of the person which has executed the work - [2015-ITRV-HC-MUM-120]

The Mumbai High Court in CIT vs. Hariram Bhambhani has held that the entire unaccounted sales cannot be assessed as undisclosed income particularly if the purchases have been accounted for. Only the net profit on such unaccounted sales can be taken as income - [2015-ITRV-HC-MUM-115]

The Mumbai ITAT in Vardhman Developers Ltd vs. ITO has held that expenditure towards repair and renovation of leased premises is capital in nature. It has also explained the method for allocation of common expenses to different WIP projects of a builder - [2015-ITRV-ITAT-MUM-111]

The Mumbai ITAT in Fardeen Khan vs. ACIT has held that land ceases to be a capital asset on date of application for conversion into N. A. land. Pursuant to amendment to s. 53A of TOP Act , non-registered development agreement does not result in transfer u/s 2(47)(v). Law in Chaturbhuj Dwarkadas Kapadia 260 ITR 461 (Bom) does not apply after amendment to s. 53A - [2015-ITRV-ITAT-MUM-121]

The Pune ITAT in M/s. Chakrabarty Medical Centre vs. TRO has held that property introduced by a partner into firm becomes the asset of the firm even if there is no registered deed. Though the asset is held by the firm as a depreciable asset and though the investment in s. 54EC bonds is made in the names of the partners, the firm is eligible for s. 54EC exemption - [2015-ITRV-ITAT-PUNE-110]

The Delhi High Court in CIT vs. Taikisha Engineering India Ltd has held that no disallowance can be made u/s 14A if AO does not record satisfaction with reference to accounts that assessee's claim is improper. However, if Rule 8D applies, assessee's claim that interest is not disallowable on ground of "own funds" is not acceptable - [2015-ITRV-HC-DEL-118]

The Pune ITAT in Kul Foundation vs. CIT has held that CIT, while granting registration or renewal u/s 12AA / 80G(5), can only look at the nature of activities and is not concerned with potential violation of s. 11(5) or s. 13. Registration cannot be denied on ground that activities have not commenced - [2015-ITRV-ITAT-PUNE-112]

The Mumbai High Court in Rashmikant Kundalia vs. UOI holding the constitutionally valid the levy of fee u/s 234E has held that the late filing of TDS returns by the deductor causes inconvenience to everyone and s. 234E levies a fee to regularize the said late filing. The fee is not in the guise of a tax nor is it onerous - [2015-ITRV-HC-MUM-114]

The Delhi High Court in CIT vs. M/s Muthoot Financiers has held that transaction of loan between a firm and its partner does not attract s. 269SS. If other High Courts have taken a consistent view, that should be followed even if opposite view is possible - [2015-ITRV-HC-DEL-109]

The Mumbai High Court in CIT vs. Fine Jewellery (India) Ltd has held that fact that assessment order is silent on a point does not mean that there is no application of mind by AO u/s 263 if he has raised a query during the assessment proceedings and assessee has replied - [2015-ITRV-HC-MUM-116]

The Mumbai High Court in CIT vs. State Bank Of India has held that uniformity in treatment is the basis premise of rule of law. The Dept cannot arbitrarily pick and choose which orders of the ITAT should be challenged in the High Court. If ITAT has followed an order which is not challenged by the Dept then an affidavit must be filed explaining the distinguishing features which warrants the different view - [2015-ITRV-HC-MUM-117]

The assessee received 45% of total sale consideration for sale of immovable property and offered the same for capital gains. However, he took cost at 50%, which he accepted as done mistakenly. The other co-owner had offered balance 55% towards tax. The sale consideration in the hands of assessee can not be taken at 50%

ANIRUDHA V. PATEL AHMEDABAD TRIBUNAL Jul 17, 2015 (2015) 44 CCH 0359 AhdTrib

Amount deposited in bank account can not presumed to have been taken from buyer of the property as excess consideration over sale deed. It is for vendor to prove the deposit

LATE SHRI JASRAJ MULTANMAL JAIN AHMEDABAD TRIBUNAL Jul 17, 2015 (2015) 44 CCH 0387 AhdTrib
Assessee had purchased a piece of land for consideration which was mortgaged with the bank before the sale— Vendors paid Rs. 65 lacs to the bank and get the property released—AO held a belief that assessee must have paid unaccounted money over and above the consideration stated in the sale deed to the vendors which was ultimately deposited in bank and got released the land—AO had assumed that assessee has made unexplained investment in purchasing the property on the ground that vendors have got the property released from the bank and it was sold to the assessee and for same assessee had paid undisclosed sum—It was for the vendors to explain the source of what amount which they have discharged towards their loan liability and it cannot be presumed that it must be taken from the assessee in cash over and above the amounts stated in the sale deed—But AO had failed to make reference of any evidence which demonstrate that assessee has made unexplained investment—There was no direct co-relation between the discharge of loan liability vis-à-vis sale of plot—No evidence was with the AO to suggest that assessee had made unexplained investment in the purchase of the property—Revenue’s appeal dismissed

For Computing Rental Income of Trust registered u/s 12A, actual expenditure incurred shall be allowed as deduction and not the deductions u/s 23 and S. 24

Anjuman-E-Himayath-E-Islam [2015] 59 taxmann.com 379 (Chennai - Trib.) JUNE  2, 2015 

Treatment of Excess of Expenditure over Income in Trust

Where expenditure of trust exceeds its income, the excess can not be carried forward for application in subsequent years. While Computing excess, 15% of Income also not to be set aside. However, since excess expenditure is met out of corpus, loans, sundry creditors, the application in subsequent years shall be considered in the year of repayment of loan etc. Anjuman-E-Himayath-E-Islam [2015] 59 taxmann.com 379 (Chennai - Trib.) JUNE  2, 2015

 However in Maharashtra Industrial Development Corporation, ITA 6129/MUM/2013, dtd 05-03-2015, ITAT Mumbai relying upon assessee’s on case in (ITA No. 6752/Mum/2011 dated 15.03.2013) decided that excess of expenditure over income can be carried forward relying upon decision of Bombay High Court in Institute of Banking Personnel Selection 264 ITR 110