Indirect tax amendment sheet for CA Student

 Just click here to download
http://www.ziddu.com/download/7023834/20_idt_ammendments.pdf.html 


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OFFSHORE—CONCEPTS & TAXABILITY

OFFSHORE—CONCEPTS & TAXABILITY

Going offshore nowadays is the most popular way of starting or managing your business. Offshore companies do not only offer tax exemption. That's surely what made them famous and popular. More important however is the freedom of operations, confidentiality and ease of running your business. There will be no paperwork, no hassle with filings and auditing.

RECENT VODAFONE-HUTCH CASE WAS OF THIS KIND WHICH COMPANY HAS FOUGHT AGAINST INCOME TAX DEPARTMENT-BUT NO PROPER CONSULIONS ARISE.

- Why might an offshore investment be superior to an onshore investment? - The first answer, is, because it is often more lightly regulated, meaning that the behaviour of the offshore investment provider, whether he be a banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated environment. Any regulator in a high-tax country will immediately say, oh, of course, if it's unregulated, then it is riskier. Well, they would say that, wouldn't they?

- Who can benefit from offshore investment? - Anyone can benefit from the greater returns to be derived from offshore investments simply by choosing to invest offshore rather than onshore. But to benefit from the low individual taxation regimes available offshore, one of two things has to be true: either the individual must have residence offshore, or, for a resident in a high-tax area, there must be an offshore structure which (legally) distances offshore gains from the onshore tax net.

- How much money do I need to invest offshore? - There is no absolute low limit, but the extra costs of taking advice, opening new bank acocunts, phone communication at a distance, etc, etc mean that offshore investment is unlikely to be worthwhile for less than say $25,000. Still, costs are coming down all the time because of the Internet. Offshore banks will take deposits down to $1,000, but for a personalised 'private banking' service, you will need to deposit $100,000 or more.

- Should I use more than one offshore centre? - Different jurisdictions have different advantages. Depending on your agenda, you may find it useful to use two, three, four, or even five different jurisdictions in your offshore structure. Using two or three jurisdictions in an average offshore structure is very common for substantial offshore investors - one for the corporations, one for the trust, and one for the bank account. This three-level arrangement allows your offshore structure to take advantage of the best laws of each country and provides the maximum level of privacy.

- Is it easy to dissolve an offshore fund structure? - Most offshore structures can be revoked or dissolved very easily. Either the corporate documents or the offshore jurisdiction's corporate or trust laws should specify the dissolution procedure. Dissolving a trust usually costs no more than a small filing fee or a few hours of a lawyer's time. If it would be costly to dissolve a given structure, you can simply remove all the assets from the structure, so it has zero value. You can then leave the empty structure to be stricken from the jurisdiction's register - a cost-effective way to eliminate it. Obviously it would be wise to check dissolution procedures before entering into any offshore engagements.

- What is a trust? - A trust works by taking assets out of the ownership of the person establishing ('settling') the trust and putting them into the hands of a trustee. An offshore trust is simply one based in an offshore jurisdiction and its profits are usually not taxable there. The trustee normally follows the wishes of the settlor. Trusts, which are based in 600-year old English common law, have been in common use for offshore asset protection for nearly 100 years. Unfortunately, the high-tax countries have therefore had plenty of time to defend themselves against trusts, and by now their usefulness has been severely compromised for the residents of many high-tax countries.

- What is an asset protection trust? - A trust designed to accomplish a number of estate planning goals of its settlor, before and after death, including planning for the preservation of the settlor's estate from a variety of risks which would threaten to dissipate the estate if one or more of the risks materialised. An APT is typically established in a jurisdiction other than the settlor's home country.

- Why are investments regulated more than other types of purchase? - Regulation covers the avoidance of fraud (to protect investors from their own ignorance or cupidity), the avoidance of money-laundering (nothing to do with bona fide investors) and has prudential aspects, ie it tries to prevent investment managers from making risky investments that could lead to loss for investors. Regulators believe that people's savings are so important they must be given special protection.

- What is money-laundering? - The conversion of 'illegal' money into 'legal' money. Thus, a drug-runner who walks into a Caribbean bank with $1m, opens an account, and the next day transfers the money into a Swiss bank account where he invests it into Nestle shares has 'laundered' the money successfully. Nowadays banks are much more careful about accepting large sums of unaccountable cash.

- Is it legal for me to make offshore investments? - This depends first on where you live. Many countries, including the US, Canada, the UK, France and some other EU countries, make it illegal for offshore investment providers to advertise their products domestically. Despite this, generally speaking it is not illegal for you to make offshore investments (although the US is particularly restrictive). You must check carefully with local advisers as to your rights. It is illegal in almost all jurisdictions for you not to declare the income or gains from offshore investments to your local tax authorities, and in those very few countries with remaining capital controls, to the monetary authority.

- What is meant by the terms 'domicile' and 'resident'? - 'Domicile' normally relates to the country or state which an individual regards as their permanent/ultimate home location. A person's domicile is established at birth and this remains until an individual resettles with the firm intention of remaining in that new location. 'Residence' is normally determined by an individual's status at a particular time. The rules vary from country to country, but in many cases presence in a country for more than 183 days in any one year is enough to constitute residence for tax purposes.

- What is withholding tax? - When a dividend (or royalties or interest) is paid internationally, the country from which the payment is made usually taxes the payment as it leaves, by 'withholding' a proportion of it, usually between 10% and 30%. If there is a double tax treaty between the two countries concerned, it is often possible to reduce the tax, or to reclaim some or all of the money. Some receiving countries allow the withheld tax to be set off against domestic tax liabilities.

- What is a double taxation treaty? - An agreement between two countries intended to relieve persons who would otherwise be subject to tax in both countries from being taxed twice in respect of the same transactions or events. By and large, most offshore jurisdictions have traditionally not had double taxation treaties, since they don't have much local taxation. Offshore jurisdictions which do have double tax treaties usually cannot use them to benefit investors receiving complete local tax exemption.

 Shared by Pappu Mishra (CA Final Student)

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Article on incorporation of company

Friends,

Just click here to download the article on incorporation of the company

http://www.ziddu.com/download/7144413/incorporationprocedurecompany.pdf.html


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Direct tax & indirect tax case laws (Chapter wise)--Students

Friends,

Hereby i m uploading herewith the direct & indirect tax case laws in (PDF format)
Hope this will help you to score well in exams

just click here to download
1.http://www.ziddu.com/download/7144294/directtaxcaselaws.pdf.html

2.http://www.ziddu.com/download/7144297/indirecttaxcaselaws.pdf.html 

Contributed by Pappu mishra 

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Important aspects of new MVAT audit form 704.

I owe this information to Western indian regional council (WIRC of ICAI) and speaker sir CA C.B.THAKAR

Friends,
               On October 29 2009 at IMC Churchgate, Mumbai there was a seminar on Important aspects of new MVAT audit form 704 by Speaker CA C.B.Thakar.

So hereby i am giving the details what was discussed and attaching a very good sheet which was compiled and given to us at that seminar

I hope this will help you a lot

The important details discussed are as under:
1. Another template of new vat audit form will be released by 2nd nov 2009.

2. During filling the Form 1st enter the annexure part then many amts will be directly added in schedules.

3. Read the instruction carefully before filling the form 704.

4.In the Form 704 (only one part is applicable)
Part 1A -------------- For tax audit dealer (and tax audit report also to be submitted)
Part 1B--------------- For statutory audit dealer (and statutory audit report also to be submitted)
Part 1C--------------- For other cases (here also we have to submit profit & loss A/c and balancesheet but as certified by dealer)

5.There is difference in Stock statement and maintenance of stock records.

6.local H Form part to be shown in -----------Annexure H
   OMS H Form part to be shown in ----------Annexure I

7. Earlier------------Main thrust of report was certify the corectness and completeness of returns filled
 NEW Form --------Main thrust is on certification of tax liability of the dealer

8.(Part 1)Para 3------------ negative remarks
   (Part1)Para 5-------------other obervation

9.Auditor has to certify that he has read & understood the instructions and followed the same while filling the return

10.Now if the returns are revised difference cant be adjusted in last return (Circular 26T of 2006 dated 18.09.2006 not applicable for new form) Therefore mostly all returns to be revised

11.Read the attachments it has all the additional information

Hope this will help you while auditing.

-Thanks & regards  
Dhaval Desai  

Just click here to download:http://www.ziddu.com/download/7143731/vatauditsheet.zip.html  


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AS-22: ACCOUNTING FOR TAXES ON INCOME

AS-22: ACCOUNTING FOR TAXES ON INCOME

Meaning and Glance to Its Recognition, Presentation & Disclosures.

MEANING:

             Taxable income is calculated in accordance with tax laws. In some circumstances, the requirements of these laws to compute taxable income differ from the accounting policies applied to determine accounting income. The effect of this difference is that the taxable income & accounting income may not be the same. Such a Difference results in DEFFERED TAX as ASSETS or LIABILITY.

Difference is Due to two Reasons:

1) Timing Difference: Are Difference between Accounting & taxable income that originate in one period & are capable of reversal in one or more subsequent period.

2) Permanent Difference: Are Difference between Accounting & taxable income that originate in one period & do not reverse in subsequently.

RECOGNITION:

Tax expense for the period, comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period. Such recognition will be based on matching concept resulting in timing differences.

Permanent differences do not result in deferred tax assets or deferred tax liabilities.

PRESENTATION & DISCLOURES:

An Enterprise should offset deferred tax assets and deferred tax liabilities if:

i)  The enterprise has legally enforceable right to set off assets against liabilities representing current tax;

and

ii) The deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.             

     Deferred tax assets and liabilities should be distinguished from assets and liabilities,it should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities.

     The break-up of deferred tax assets and deferred tax liabilities into major components of respective balance should be disclosed in the notes to accounts.

Examples:

TIMING DIFFERENCES: Expenditure of the nature of section 43B, where book & tax depreciation differ, Differences in amortization of expense of section 35D,35DD etc.

PERMANENT DIFFERENCES: Tax laws allows only part of an item of expenditure, the disallow amount would result in permanent differences.

 Articles is written by PAPPU MISHRA (CA Final Student) 

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ITAT, ‘H’ BENCH Assessability of capital gains on transfer of shares

Assessability of capital gains on transfer of shares


Sale as contemplated u/s 2(47)(i) and extinguishment of rights as contemplated u/s 2(47)(ii) are not mutually inter-changeable; if a particular transaction is the transaction of sale then unless the sale is complete, no transfer can be said to have taken place because there will always be extinguishment of rights in case of sale and if a single right out of the entire bundle of property in capital asset is extinguished, then, the transfer would be taken as complete; this will lead to absurd situation; thus, the transfer of share is complete when the share certificate along with duly executed transfer deed is handed over to the transferee.


ITAT, ‘H’ BENCH, MUMBAI

Hami Aspi Balsara

v.

ACIT

ITA No. 6402 & 6403/Mum/2008

May 22, 2009
RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **



9. We have considered the rival submissions and perused the record of the case. The facts as noted earlier in detail in the arguments of Ld Counsel for the assessee are not disputed. Admittedly, it is a case of sale of shares. In this regard, share purchase agreement was entered into on 27.1.2005 and final delivery of shares took place on 1/15.4.2005. In the share purchase agreement, detailed provisions were made restricting the vendors from exercising various rights in relation to shares. Revenues' main contention is that on account of substantial extinguishment of rights in pursuance to share purchase agreement, the transfer took place on 27.1.2005. Per contra, the assessee's claim is that when the delivery of shares was over and all the convents contemplated in the share purchase agreement became irrevocable on 1.4.2005 then only transfer was complete and, accordingly, the investment made by the assessee in the specified securities within six months reckoned from 1.4.2005 entitled the assessee for exemption under section 54EC. In the first place, we are in agreement with the contention of Id Counsel for the assessee that sale as contemplated u/s. 2(47)(i) and extinguishment rights as contemplated u/s. 2(47)(ii) are not mutually inter changeable. If a particular transaction is the transaction of sale then unless the sale is complete, no transfer can be said to have taken place because, as rightly pointed out by ld Counsel for the assessee, there will always be extinguishment of rights in case of sale and if a single right out of the entire bundle of property in capital asset is extinguished, then, the transfer would be taken as complete. This will lead to absurd situation. Had it been the intention of legislature to treat the transfer on the basis of extinguishment of any right in capital asset then there was no necessity of including sale and exchange in the definition of transfer under section 2{47). It is well settled principle of interpretation that no word in an statute is superfluous and each word has to be assigned specific meaning in the context in which it is used. We further find lot of substance in the argument of Id Counsel in this regard with reference to inclusion of clause (v) in the definition of transfer under section 2(47} only with reference to immovable property and not with reference to movable property. In the present case when final delivery of shares took place on 1/15-4-2005 and, therefore, in view of the decision in the case of M.Ramaswamy (supra) and Rajgiri Rubber and Produce Co.(supra), in our opinion, transfer of shares took place on 1/15.4.2005. This view is fully supported by the decision of the Hon'ble Supreme Court in the case of Shellate VR v. PJ Thakkar, 45 Company case 43 wherein, it was held that procedure required by law was to be complied with and, accordingly, delivery of share certificate alongwith transfer deed had to be handed over to purchaser in order to complete the transfer.

11. The AO has pointed out that assessee had received substantial part of sale consideration at time of share purchase agreement which was not refundable. In this regard, Ld Counsel has referred to section 65 of Indian Contract and Specific Relief Act, which reads as under:

"Section 65. Obligation of person who has received advantage under void agreement or contract that becomes void - When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."

This section makes it very clear that if, for any reason, the terms of contract can not be fulfilled then assessee is bound to restore the benefits she had received including consideration to the purchaser.

12. Now coming to the decision of the Amritsar ITAT in the case of Maxtelecon Ventures (supra). We are of the opinion that the said decision was rendered with reference to KN Narayanan (supra) without considering the subsequent decision of the same High Court in the case of 203 ITR 663(supra). Moreover, said decision has not taken into consideration the ratio laid down by the Hon'ble Supreme Court in the case of Shellate VR v. PJ Thakkar, 45 Company case 43(supra). in this case the Supreme Court has clearly laid down that where, as between the transferor and the transferee, all formalities have been gone through, such as the execution of document of transfer and a physical handing over of the shares by the transferors to the transferee, the shares should be taken to have been transferred to the transferee, though until the transfer of share is registered in accordance with the Companies Law, the transfer could not enable the transferee to exercise rights of the shareholder vis-a-vis the company. Thus, in sum and substance, the transfer of share is complete when the share certificate alongwith duly executed transfer deed is handed over to the transferee. Therefore, we, respectfully, do not agree with the proposition laid down in the said decision.

13. Now coming to the Circular No.704 dt.28.4.1995. This circular deals with two situations. Firstly, shares listed on stock exchange and transfer taking place through brokers. Secondly, transactions taking place directly between the parties and not through stock exchange. We are concerned with the second situation. In this regard, it is mentioned in the circular as under

"In case the transactions take place directly between the parties not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by the actual delivery of shares and the transfer deeds."

This clearly shows that the date of contract of sale will be the date which the parties have agreed to. No other date can substitute the date as declared by the parties. In the present case, the date of contract of sale as understood by the parties is 1.4.2005 and the same cannot be substituted by the date of share purchase agreement because completion date was specified in Article 6 of the Share purchase agreement, which was not later than 4.4.2005 or such other later date that was mutually agreed in writing. As per Article 6, on the completion date the attorney was to receive letters of discharge from the lenders recording the unconditional and irrevocable discharge of the guarantees and the cancelled the original guarantees. This occurred on 1.4.2005. Therefore, the date of contract of sale as declared by the parties in the share purchase agreement was 1.4.2005. The directors resigned on the date as per the said Article. Therefore, the contract was completed on fulfillment of conditions contemplated in Article 6 which took place on 1.4.2005. Thus, from the very beginning, the parties had declared the date of contract of sale subject to fulfillment of conditions and, therefore, on the date of fulfillment of above conditions, the date of contract of sale crystallized. We are, therefore, of the opinion that this circular in no way prejudice the asses see's claim. It is pertinent to note that Dabur India Limited, the purchaser has also recognized the purchase of shares in F.Y. 2005-06 and not F.Y. 2004-05. The Ld CIT(A) has observed that the entire sale consideration was Rs. 10,65,06,753/- but the fact is that it was not the entire sale consideration as the assessee had received Rs.5 lakhs on completion of sale. In view of the above discussion, we are of the opinion that as the transfer of shares of target companies was completed on 1/15-04-05, the capital gains were to be taxed in assessment year 200&-07 and there is no merit in including the income from capital gain on sale of shares of target companies in the A.Y 2005-06. Ground Nos.l, 2& 3 stand allowed.

** ** ** ** ** ** ** ** ** ** ** **


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NEW TDS rate chart applicable from 1st october 2009 (Rectified)

Enclosing herewith the new tds rate chart effective from 01.10.2009 (rectified)



I regret the error and after verfiying from the finance bill and receiving comments from many members
This is the final rate chart

"Interest other than interest on securites (sec 194A) when recipent is a company the TDS rate was shown as 10% and it is correct and so was uploaded first"

Just click here to download the tds rate chart
http://www.ziddu.com/download/7049526/TDSRATECHART.pdf.html

THE ERROR IS REGRETTED
Dhaval Desai
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Revised procedure for acceptance of proof Address.(PAN)

Kindly go through the revised procedure for acceptance of proof Address.
>
> AS per the circular no 321 the additional procedure for acceptance of proof
> of address alongwith PAN applications received from Individuals and HUF are
> as under:
>
> 1. While accepting “Application for allotment of PAN (Form 49A)” if both
> the addresses (residence and office) are mentioned in the application form
> and office address has been selected as communication address, then POA has
> to be collected for residence as well as office address.
>
> 2. While accepting “Request for New PAN card or/and changes or
> correction in PAN data” applications, proof of all addresses provided in the
> application have to be collected.
>
> 3. Documents as per Rule 114(4) of Income Tax Rules will only be
> accepted as valid proof for both the abovesaid addresses.
>
> 4. Both proof of addresses will have to be in the name of applicant and
> should contain the name in the expanded form as given in the application.
> The exception provided for ration card communicated vide our circular
> TFCID/TIN/08/255 dated February 18, 2008 will continue to be applicable.
>
> We hereby informed that the above will be effective for all PAN applications
> received on or after November 1, 2009.

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ITAT, ‘A’ BENCH Allowability of expenditure incurred for compliance of law

Allowability of expenditure incurred for compliance of law
If the payment is incidental to the carrying on the business then the same has to be allowed; the compliance of law is incident of every business carried on by a person; therefore, any payment made for the purpose of compliance of the provisions of law would tantamount to payment incidental to the carrying on the business.


ITAT, ‘A’ BENCH, MUMBAI

Kaira Can Company Ltd.

v.

DCIT

ITA No. 820/Mum./05 & 3452/Mum/2006

January 9, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

21. In the present case, admittedly, the assessee is governed by the provisions of SEBI Act. Certain regulations were made under this Act which are called as SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 1997. Under these regulations, the assessee was admittedly required to make certain disclosures and noncompliance of the same was liable to penalty not exceeding Rs.5,000/- for every day during which such non-compliance continued. In addition, such persons are also liable for prosecution u/s. 24 of the SEBI Act. In view of the above provisions, it is clear beyond doubt that non-disclosure under the Regulations of 1997 would amount to violation of law or the Rule which, in turn, would amount to an offence. Therefore, if any payment is to be made by way of penalty under the provisions of section 15A of SEBI Act. than such payment cannot be allowed as deduction u/s. 37 read with Explanation.

22. However, the contention of the learned counsel for the assessee is that the payment has not been made by the assessee u/s. 15A of SEBI Act. According to him, the payment was under an option given under the scheme of 2002 and therefore such payment cannot be said to be either as a penalty or akin to penalty. Hence, no disallowance could be made as per the decision of the apex court in the case of Ahmedabad Cotton Manufacturing Company Ltd. (supra). After going through the scheme, we find force in the contention of the learned Counsel for the assessee for the reasons given hereafter. In order to appreciate the controversy, it would be appropriate to reproduce the relevant provisions of the scheme as under:

SEBIREGULARIZA TION SCHEME, 2002 FOR NON-COMPLIANCE

WITH REGULA TIONS 6 AND 8 OF THE SEBI (SUBSTANTIAL

ACQUISITION OF SHARES AND TAKEOVERS)

REGULATIONS, 1997

In terms of Chapter II of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as 'the Takeover Regulations, 1997') certain categories of persons are required to disclose their shareholding and/or control in a listed company to that company. Such companies, in turn, are required to disclose such details to the stock exchanges where shares of the company are listed. If has been observed that many listed companies and/or their promoters/shareholders have either not complied at all or have complied with the said requirements after the expiry of the time specified in the said regulations.

In terms of section ISA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'the SEBI Act'), such persons are liable to a penalty not exceeding five thousand rupees payable for ever day during which such failure to furnish information, return, report, or document etc. continues. Besides, such persons are also liable for prosecution under section 24 of the SEBI Act.

It has also been brought to the notice of the Securities and Exchange Board of India (SEBI) that the disclosures were not made either on account of oversight or lack of knowledge. The monetary penalty under Section 15A of the SEBI Act may be imposed after adjudication and enquiry under Chapter VIA of the SEBI Act. Further, the prosecution proceedings involve considerable time and even if concluded in conviction, the penalty, monetary or otherwise, may be very nominal.

In view of the above, SEBI has decided to introduce a scheme, namely, SEBI Regularization Scheme, 2002' (hereinafter referred to as the Scheme') to enable such persons and companies to comply with these requirements. Under the Scheme, the persons and companies who have not made disclosures or who have made disclosures after expiry of the period as specified in the Takeover Regulations, 1997 are permitted to make disclosures to the company and the stock exchange as the case may. be, and pay the lump-sum amount specified herein.

This is to provide one time opportunity to enable the companies and the specified persons to comply with the law of land. By implementation of the Scheme, the listed companies as well as the stock exchanges shall have the required information. Besides, the public will also have access to the necessary information about the shareholding etc. of such persons in the company.

The Scheme will be in operation for a limited period as specified hereinafter. The persons and the companies may, therefore, take fidl advantage of this Scheme. It is also clarified that after the expiry of the Scheme, SEBI may have to initiate appropriate action against defaulting persons and the companies, which may result in heavy penalties against such persons and companies, as per the provisions of the SEBI A ct.

Therefore, in exercise of the powers under section 11 of the SEBI Act read with regulations 6 and 8 of the Takeover Regulations, 1997, SEBI hereby introduces the said Scheme. The salient features of the Scheme are as under:-

Regularization of the Defaults

L Under the Scheme, the eligible persons and companies may make

disclosures and pay the lump-sum amount within the period specified under the Scheme.

Eligibility

2. Following are eligible for availing benefit under this scheme -

a) Persons who have failed to comply with or who have complied with the requirements of regulations 6(1), 6(3), 8(1) and 8(2) of the Takeover Regulations, 1997. after expiry of the period specified in the said regulations.

b) The listed companies which had failed to comply with or complied with the requirements of regulations 6(2), 6(4) and 8(3) of the Takeover Regulations, 1997, after expiry of the period specified in the said regulations.

c) In respect of the listed companies where there was no change in the shareholding of persons specified under regulations 8(1) and 8(2) of the Takeover Regulations, 1997. in a particular year, the disclosure under regulation 8(3) for that year if not made earlier, can be made under this scheme specifying that there was no change in shareholding of the said persons. Such companies will not be required to pay any amount. This benefit will not be available to persons covered under regulations 8(1) and 8(2)."

d)

Scheme not to apply in certain cases

3. The benefit of this Scheme will not be available I cases where penalty under the SEBI Act read with Takeover Regulations, 1997 has already been imposed.

However, where such proceedings under the SEBI Act read with Takeover Regulations arc in progress, persons/companies may avail the benefit of the Scheme.

The other provisions are not of much significance and it would be suffice if their contents are noted briefly. Rule 4 prescribes the procedure for making disclosure. Rule 5 prescribes the lump sum amount which is to be paid. Rule 6 provides the mode of payment and Rule 7 prescribes the period during which such disclosure could be made.

25. The perusal of the above clearly shows that if the amount paid is in the nature of penalty or akin to penalty then the amount paid can be disallowed. Otherwise, such payment has to be allowed if the payment is incidental to the carrying on the business. The word 'penalty' has been defined by various dictionaries including Black's law dictionary as punishment imposed on a wrongdoer for violation of law. In the present case, the payment has not been made u/s. 15A of the SEBI Act but under a scheme for regularizing the default. The object of the scheme was lo provide a one time opportunity to defaulters for regularizing the default which might have been committed by oversight or lack of knowledge. The purpose was, therefore, not to punish the person but to enable him to comply with the provisions of Regulations of 1997. Thus, in our humble opinion, the payments made by the assessee under the scheme of 2002 could not be treated as penalty or akin to penalty..

26. The only question which remain for our consideration is whether such payment is incidental to the carrying on the business. As already observed, the payment was made under the scheme to regularize the default. The object of the scheme was to enable the companies one time opportunity to comply with the law of land. The compliance of law is incident of every business carried on by a person. Therefore, in our opinion, any payment made for the purpose of compliance of the provisions of law would tantamount to payment incidental to the carrying on the business.

** ** ** ** ** ** ** ** ** ** ** **
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ITAT, HYDERABAD BENCH ‘B’ Allowability of deduction under section 80-IB of IT Act, 1961 to a manufacturer and trader of wheat products

Allowability of deduction under section 80-IB of IT Act, 1961 to a manufacturer and trader of wheat products


Milling of wheat into Rawa, bran, Atta, and Maida has to be considered as amounting to manufacture or production and as such, the assessee-manufacturer of such items is entitled for deduction u/s 80-IB.

ITAT, HYDERABAD BENCH ‘B’ HYDERABAD

DCIT

v.

Sri Sai Roller Flour Mills Pvt. Ltd.

ITA No. 1440/Hyd/08

January 30, 2009

RELEVANT EXTRACTS:

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We have considered the rival submissions and perused the material available on record, in the light of the case-law relied upon by the parties We find that the deduction under section 801A had been denied by the assessing officer on the ground of use of old machinery by the assessee. However, the CIT(A) granted the same since no infringement of provisions of the Act was subsequently found by him. As per the provisions of Sec. B01B, the deduction is available to an assessee who 'manufactures or produces any article or thing'. It: is clear from the "process flow diagram for milled wheal, products" furnished by the assessee that the said manufacturing/production activity carried on by the assessee consists of several processes which are integrally connected. As demonstrated by the learned counsel, the entire processing is done with the help of specific and sophisticated machinery and but for such processing, mere grinding of wheat cannot produce the same end products. It is not the case of the Revenue that wheat is simply pulverized while being milled and then-graded into the four end products. Rather, a specific procedure has been followed with the aid of specific machinery utilized in a systematic manner so as to obtain the specific end product(s) "the process so undertaken results in value addition to the raw materials, which basically is wheat. The end products 'liny from such process i.e. Atta, Maida, Rawa and bran have from wheat, not only in terms of usage, but also on account pi /steal attributes etc. and each of them have distinct commercial identity. In the circumstances, processing of wheat in the instant case not result in 'wheat powder' simplicitor, just as the processing of ‘chicory' resulting in 'chicory powder'. Processing of wheat in the instant results in Maida, Rawa, Atta and bran which are capable of being ; independently in the production of edible; items in their own identity. It is obvious that Maida cannot in the normal course substitute Rawa or Atta for making upma or chapatti, while Rawa cannot, in the normal course be used for making biscuits or bread. Similarly, cattle feed /bran in no way can be a substitute for Maida, Rawa and Atta. It is also a common knowledge that Maida, Rawa, Atta, and bran, as also the raw material wheat, are known and available as distinct articles in commercial parlance and any person willing to buy any one of these items will not accept any other of these items as a substitute, since the end use of each of these items is totally different. Therefore, it is clear that the activities undertaken by the assessee results in production or manufacture of distinct, articles/things, which are new and different from the raw material used for the production of such items, as contemplated by Sec. 80113. Such activity cannot be equated with mere processing wherein, the item processed though undergoes some change, the commercial identity of the end product continues to retain a substantial identity of the raw material. Rather the processes carried on by the assessee using wheat as raw material result in the end products having different physical and chemical properties and the products are recognized in the commercial parlance as distinct commodities, having different value for each of them.

12. Further, in the case under consideration, the wheat (raw material) purchased by the assessee was different from the end products i.e. Atta, Rawa, Maida and bran and the uses of the end products vis-a-vis the raw material was different and served entirely different purposes. There is no dispute with regard to the fact that the process of manufacturing of these products once produced back into wheat. The end products are known differently in the commercial world on their own and their usage are also qualitatively different. It can, therefore, not be said that the wheat had been simply crushed and converted into small particles of the same thing like chicory powder or the soap stones, as in the cases relied upon by the Assessing Officer. The manufacturing process is a combination of one or more processes through which the original commodity is made to pass and with each process the original commodity experiences change but if is only when the change takes the commodity lo the point where commercially it can no longer be regarded as the original commodity, but. instead is recognized as a new and distinct article then manufacture can be said to have taken place. In the case under consideration, due to various processes the product gets a distinct name, shape and usage; while raw material looses its identity and the new product coming into existence is commercially recognized as a new product and also the end products are different in character and usage vis-a-vis the raw materials. Also the raw material i.e. wheat loses its identity as Atta, Maida, Rawa and bran put together after such processing cannot regain the shape and attributes of wheat. The physical attributes of the end products are different from raw material and until the wheat is put to such process it cannot be put to any purposeful use.

15. In view of the above discussion, we hold that milling of wheat into Rawa, bran, Atta and Maida has to be considered as amounting to manufacture or production and as such, the assessee is entitled for deduction u/s 80IB.



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ITAT, HYDERABAD BENCH ‘B’ Allowability of deduction under section 80-IB of IT Act, 1961 to a manufacturer and trader of wheat products

Availability of depreciation under section 32(1)(iii) of IT Act, 1961 to a manufacturer of pistons

Terminal allowance as allowed under clause (iii) of section 32(1) is available only to power generating units and not to other assessees like the one in question.

ITAT, HYDERABAD BENCH ‘B’, HYDERABAD

DCIT

v.

SAMKRG Pistons & Rings Ltd.

ITA No. 304/Hyd/2006

January 23, 2009

RELEVANT EXTRACTS:

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8. Everything revolves around clause (iii) of section 32(1). The said clause provides that in case any of the assets specified therein on which depreciation is claimed and allowed under clause (i), is sold, discarded, demolished, and if the monies payable fall short of the w.d.v, such shortfall will be allowed as deduction provided the same is written off in the books of account. The dispute is as to which is the clause (i) which is referred in clause (iii). According to the learned counsel for the assessee, it is the first clause (i) which is referred to whereas according to the learned Departmental Representative it is second clause (i) in sub-section (1) of section 32. We are not in a position to agree with the view of the learned counsel for-{pie reasons that follow. Clause (iii) opens with the sentence "in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) ..". It can be seen that clause (i) qualifies the expression " in respect of which depreciation is claimed and allowed " Now deductions in respect of depreciation are allowed only under the subsequent set of clauses viz., clauses (i) to (iii). The first set of clauses specifies only the assets on which depreciation is allowable. But the quantum of depreciation to be allowed is specified in the second set of clauses and it is the quantum of depreciation which is material under clause (iii). Therefore, the reference to clause (i) in clause (iii) has to be understood as reference to the second clause (i). Further, power-generation and distribution units are granted depreciation on straight line basis on individual assets as per the second clause (i). Units other than power generating units are granted depreciation w.d.v. basis on block of assets. "Block of assets" is defined in section 2(11) to mean a group of assets falling within a class of as sets in respect of which the same percentage of depreciation is prescribed. Coming to clause (iii), it talks of depreciation claimed and allowed on individual assets and not on block of assets. This obviously implies that clause (iii) is applicable only in a situation where the asset individually claiming depreciation is sold, discarded etc. This is so only in the case of power generating units and not in other units. Coming to section 50, it provides that where an asset forming part of a block of assets is transferred and the consideration received exceeds the aggregate of certain amounts specified therein, the excess lias to be deemed to be short-term capital gain. It provides that even if one asset forming part of the block is transferred and the consideration received exceeds the w.d.v. of the entire block, the entire excess shall be treated as short-term capital gain. In other words, the concept of block of assets is not ignored in section 50 as argued by the learned counsel. Section 50, of course, contemplates a situation where the consideration is higher than the w.d.v. The question that may be posed is as to what happens where the consideration is lesser than the w.d.v. The learned counsel's argument obviously is that the short-fall is to be allowed as deduction under section 32(1) (iii) of the Act. However, that is not so. Clause (c) of section 43(6) gives the meaning of "written down value". It, inter alia, provides for the adjustment of the w.d.v. at the beginning of the previous year by the reduction of monies payable in respect of any asset falling within that block, which is sold, discarded etc. Now we come back to section 32(1) and refer to the second clause (ii) therein. It provides for depreciation in the case of block of assets at the prescribed percentage on the written down value. The written down value here has to mean as defined in section 43(6) of the Act. Thus, if the interpretation of the learned counsel is to be accepted, then the w.d.v. on which the assessee can claim depreciation in subsequent years will not be as mandated in section 43(6). In other words, where the net realizable value of an asset is lesser than the carrying cost of the asset, the realizable value is merely to be reduced from the opening w.d.v. The difference or the short-fall is not allowed as deduction, though the excess is to be taxed as capital gain u/s 50 of the Act. Hence, there is no force in the argument of the learned counsel that for the purpose of section 32(1) (iii), the concept of block of assets has to be ignored. Circular 772 issued by the Board also clarify the statutory provision to the effect that terminal allowance is allowed only in case of power generating and distributing units. We are unable to discern the reference to the amalgamation of banking companies in clause (2) of the Explanation to section 32(1) (iii). But it does not necessarily mean that it supports the case of the assessee. The general scheme of the Act is that after the introduction of the concept of block of assets and the introduction of section 50 w.e.f. 1-4-1988, terminal allowance is not allowed except in case of power generating and distributing units.

9. There is another aspect to the issue. It is not the assessee's case that it is entitled to depreciation on the basis of straight line method. Clause (i) specifically permits power generating units to claim depreciation on straight line basis on individual assets. This is the reason that in clause (iii) individual assets have been mentioned and then a reference is made to the depreciation claimed and allowed under clause, (i). Further, it may be noted that the so-called clause (ii) in the beginning of section 32(1) was inserted by the Finance (No.2) Act, 1998 w.e.f. 1-4-1999 to provide for depreciation on intangible assets. While adding this portion in section 32(1), the amendment was made not by stating that clause (ii) is being inserted but by stating that for the opening portion beginning with the words "in respect of , the following shall be substituted with effect from the 1st day of April, 1999." Then, the specification of tangible and intangible assets followed. On the other hand, whenever there has been an amendment in any of the clauses from (i) to (iii) in the later portion of section 32(1), such amendments have been made by referring to those clauses as clauses only. The point we are trying to drive home is that clauses (i), (ii), (iia) and (iii) appearing in the subsequent part of section 32(1) are the ones which are referred to as clauses and not the opening portion of section 32(1) in which tangible and intangible assets are specified. Thus, from the entire scheme of the Act as regards grant of depreciation as well as the scheme of drafting the legislation point only to the fact that clause (i) mentioned in clause (iii) refers to the second clause (i) only. Therefore, terminal allowance as allowed under clause (iii) is available only to power generating units and not to other assessees like the one before us. Accordingly, we disallow the claim of the assessee. Even the extent to which the CIT (A) has allowed deduction cannot be allowed and the same is withdrawn thereby allowing the ground raised by the revenue.



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ITAT, ‘I’ BENCH Determination of charge under section 115JB of IT Act, 1961

Determination of charge under section 115JB of IT Act, 1961

Charge under section 115JB is to be determined with reference to 7.5 per cent of book profits; the process of determination of book profit is to be preceded with the comparison of liability for income-tax under normal provisions of income-tax which may be nil also; the income-tax payable cannot be circumscribed by positive figure only and, therefore, to say that those companies where income-tax payable being Rs. 1/- would be covered and not the Zero tax companies, would not be correct.



ITAT, ‘I’ BENCH, MUMBAI

DCW Ltd.

v.

DCIT

ITA No. 4175/Mum/2005

January 18, 2009

RELEVANT EXTRACTS:

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13. We have considered the rival submissions and perused the record of the case. There is no quarrel with the proposition that if a charging provision fails then subject cannot be taxed. In this regard, we may reproduce the observations from the two decisions relied upon by Ld Counsel for the assessee :

1, i] C.W.T v.Ellis Bridge Gymkhana & Others, 229 ITR 1 (SC)

The rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all.

ii) Vikrant Tyres Ltd v. ITO, 247 ITR 821 (SC)

It is settled principle in law that the Courts while construing revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other., meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process the Courts must adhere to the words of the statute and the so-called equitable construction of those words of the statute is not permissible. The task of the Court is to construe the provisions of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply the meaning to the facts of the case and in that process if the taxpayer is brought within the net he is caught, otherwise he has to go free. This principle in law is settled by this court in India Carbon Ltd vs. State of Assam (1997) 106 STC 460; (1997) 6 SSC 479 wherein this Court held (page 464), "interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf. A Constitution Bench of this Court speaking through one of us (S.P. Bharucha j) in the case of V.V.Sugars vs. Government of A.P. (1999) 114 STC 47; (3 999) 4 SSC 192 reiterated the proposition laid down in the India Carbon Ltd's case (1997) 106 STC

460 in the following words (head note of (1999) 4 SCC: "The Act in question is a taxing statute and/therefore, must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise."

It is equally settled position of law that each general word appearing in a section should be given its full meaning having due regard to the context in which it is used. It should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it, and in interpreting the same it would not be reasonable to import any limitation on the same. It is also one of the cardinal principles of interpretation that a construction that will render a provision of an enactment wholly or partially meaningless or futile is not to be adopted by the court. The courts should endeavour to interpret the provisions of a statute in a manner that will achieve the object of provision, avoid mischief, advance the cause of justice, provide the remedy intended by the statute, make the law workable and enforceable instead of reducing it to a redundant or dead letter and best harmonize with and effectuate the object of legislation.

In the backdrop of this settled position of law, we proceed to examine the provisions of Section 115JB, which admittedly is a charging section. But at the same time, we have to keep in mind that Section 115JB is a code by itself and, thus, contain substantive as well as procedural provisions. Therefore, which part of the section precisely creates the charge, has to be specifically identified before arriving at any conclusion. If we closely examine section 115JB, having due regard to the punctuation, we find that there is comma between 'Income-tax' and 'payable' and further there is comma before 'is less*. Therefore, full effect will have to be given to the phrase following comma after the phrase 'Income-tax', As per the terms of this section, we find that it will be attracted if Income-tax payable in respect of total income computed under the Act is less than seven and one-half percent of its book profit. Thus, tax payable under the provisions of the Act should be less than seven and one-half percent of its book profit. Consequently, if the tax payable is more than seven and one-half percent of its book profit, then this section will not be attracted. Therefore, the dividing line for determining the applicability or non-applicability of the section is seven and one-half percent of its book profit as compared to tax payable, which actually creates the charge. The charge is not with reference to income tax payable but with reference to book profits. Charge under section 115JB is to be determined with reference to 7.5% of book profits. The process of determination of book profit is to be preceded with the comparison of liability for income tax under-normal provisions of income tax which may be nil also. The income tax payable cannot be circumscribed by positive figure only.

If we accept the interpretation as suggested by Ld. Counsel for the assessee, then full effect to the term "less" appearing after the comma cannot be given. The word 'less' will lose its relevance. The purpose of comma after the term "Income-tax" and before the term 'less' is to qualify term "payable" by tine term "less" and, therefore, to say that those companies where Income-tax payable being Rs. l/- would be covered and not the Zero tax companies, would not be correct. The term 'payable' used in the section cannot be limited only to the positive figure and if the income tax payable is zero still the requirements of section would be met. The submissions of Ld Counsel for the assessee that income tax payable should be given literal meaning cannot be accepted as the same is duly punctuated. In our opinion, the terms of section are unambiguous and literal construction of the phrase dealing with chargeability does not lead to any other interpretation than as discussed earlier.

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ITAT, LUCKNOW BENCH ‘B’ Substitution of valuation as per SVA in place of sale consideration without reference to DVO

Substitution of valuation as per SVA in place of sale consideration without reference to DVO
Where fair market value of the capital asset under transfer is less than the valuation as per SVA and such valuation as per SVA becomes final under Stamp Duty Act then the assessee is left with no choice and has to pay tax on the notional sale consideration on the valuation as per SVA.

ITAT, LUCKNOW BENCH ‘B’ : LUCKNOW

Mohd Shoib

v.

DCIT

ITA No. 431/Luc./08

November 21, 2008

RELEVANT EXTRACTS:

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8. We have considered the rival submissions and perused the material on record. In our considered view, the argument of ld.AR that the AO has to necessarily refer the capital asset for valuation to the DVO even though there is no claim made by the assessee is not acceptable. In this regard, we refer to Section 50C(2) as under:

"Special provision for full value of consideration in certain cases. SOC.

(2) Without prejudice to the provisions of sub-section (1), where—

(a) the assessee claims before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub section (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference ts made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (/) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24. section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1). of section 16A of that Act*

9. Clause (a) and (b) are placed in continuation to each other. They are not separated by the conjunction "or". Even though conjunction "an
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(ITAT Delhi Special Bench)Fee for use of satellite is “royalty” under Act & DTAA

New Skies Satellites vs. ADIT (ITAT Delhi Special Bench)
 
Fee for use of satellite is “royalty” under Act & DTAA

The assessee, a foreign company, was engaged in operating geostationary telecommunication satellites with transponder capacity which were provided to telecasting companies in India for a fee. The question arose whether the said fee was “consideration for … the use of any … secret formula or process …” so as to constitute “royalty” under Expl. 2 to s. 9 (1)(vi) and corresponding definition under the DTAA.

In Asia Satellite 85 ITD 478 the Tribunal held that the said receipts were taxable as ‘royalty’ having been paid in respect of a “process”. However, in PanAmSat 9 SOT 100 it was held that as in the term “royalty” in Art. 12 of the India-USA DTAA there was a ‘comma’ after the words “secret formula or process”, it was only a ‘secret process’ which would qualify as royalty and not what was provided by the assessee. To resolve the conflict, the issue was referred to the Special Bench. HELD, reversing PanAmSat:

(i) The provision of the transponder through which the telecasting companies are able to uplink the desired images/data and downlink the same in the desired area is a “process”. To constitute “royalty”, it is not necessary that the process should be a “secret process”. The fact there is a ‘comma’ after the words “secret formula or process” in the DTAA does not mean that a different interpretation has to be given to the DTAA as compared to the Act;

(ii) The argument that there is no “use” of the satellite by the payer as it has no control or possession of the satellite is not acceptable. To constitute “royalty”, it is not necessary that the instruments through which the “process” is carried on should be in the control or possession of the payer. The context and factual situation has to be kept in mind to determine that whether the process was “used” by the payer. In the case of satellites physical control and possession of the process can neither be with the satellite companies nor with the telecasting companies. The fact that the telecasting companies are enabled to telecast their programmes by uplinking and downlinking the same with the help of that process shows that they have “use” of the same. Time of telecast and the nature of programme, all depends upon the telecasting companies and, thus, they are using that process;

(iii) The consideration paid by telecasting companies to satellite companies is for the purpose of providing “use of the process” and consequently assessable as “royalty” under the Act and the DTAA.

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No “succession of business” u/s 170 even on 100% sale of shares

CIT vs. Panchratan Hotels (HP High Court)

No “succession of business” u/s 170 even on 100% sale of shares

S. 170 provides that where there is a “succession of business”, the predecessor has to be assessed in respect of the income upto the date of succession and the successor has to be assessed thereafter. 100% of the assessee’s shares were sold by the existing shareholders to another person. The CIT in revision took the view that the result of the said transfer of shares was that there was a “succession” and that the loss incurred prior to the date of succession could not be allowed to the “successor” assessee. The assessee’s appeal was allowed by the Tribunal. On appeal by the Revenue, HELD dismissing the appeal:

(1) The term “succession” in s. 170 has a somewhat artificial meaning. The tests of change of ownership, integrity, identity and continuity of a business have to be satisfied before it can be said that a person “succeeded” to the business of another;

(2) Even if it is accepted that by a transfer of shares u/s 2(47), there is a transfer in the right to use the capital assets of the company, still s. 170 is not attracted because there is no “transfer of business”. A company is a juristic person and owns the business. The share holders are not the owners of the company. By a transfer of the shares, there is no transfer so far as the company is concerned.

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ITAT, DELHI BENCES ‘A’ Jurisdiction of AO to proceed with assessment under section 147 of IT Act, 1961

Jurisdiction of AO to proceed with assessment under section 147 of IT Act, 1961 

If the AO has cause or justification to know or suppose that income has escaped assessment it can be said to have a reason to believe that an income had escaped assessment; at the time of recording reasons for initiating proceedings u/s 147 it is not necessary that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion; at the initial stage what is required is ‘reason to believe’ but no established fact of escapement of income.



ITAT, DELHI BENCES ‘A’ : NEW DELHI

Ms. Rainee Singh

v.

ITO

ITA No. 2474/Del/2005

July 17, 2009

RELEVANT EXTRACTS:

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22. In the present case, the notice u/s. 148 was issued on 28.03.2003, pertaining to the A.V. 1996-97. Section 147 authorizes and permit the Assessing Officers to assess or re-assess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The scope of the expression "reason" in the phrase "reasons to believe" has been considered recently by the Hon'ble Supreme Court in the case of Asst. CIT vs. Rajesh Jhavery Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 where the Hon'ble Supreme Court has observed and held as under:

"Section 147 authorizes and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income has escaped assessment, it can be said to have reason to believe that an income had escaped assessment, The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. JTO [1991 J 191 ITR 662, for initiation of action u/s. 147 (a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceedings is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only issue whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the material would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO vs. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SO; Raymond Woollen Mills Ltd. vs. ITO [1999] 236 ITR 34 (SC).

The scope and effect of section 147 as substituted with effect from April I, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (h) laid down the circumstances under which income escaping assessment for the past assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have to income tax have escaped assessment, and secondly he must also gave reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of thai year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the Assessing Officer for whatever reason has reason to believe thai income has escaped assessment it confers jurisdiction to reopen the assessment. It is. however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not proviso.

So long as the ingredient of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3 Jwill not render the Assessing Officer powerless to initiate re-assessment proceedings even when the intimation under section 143(1) had been issued"

23. From the said decision of Hon'ble Supreme Court, it is thus clear that if the A.O. has cause or justification to know or suppose that income has escaped assessment it can be said to have a reason to believe that an income had escaped assessment. At the time of recording reasons for initiating proceedings u/s. 147 of the Act, it is not necessary that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. At the initial stage what is required is "reason to believe" but no established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so case because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction.

24. In the light of the aforesaid position of law laid down by the Hon'ble Supreme Court with regard to the scope and effect of section 147 and with regard to the meaning of expression "reason to believe" used in section 147 of the Act, we have to examine and analyze the fact of the present case to decide as to whether the Assessing Officer had any relevant material on which a reasonable person could have formed a requisite belief i.e. reason to believe that income has escaped assessment within the meaning of section 147 of the Act.

25. In the present case, the Assessing Officer had received information from DD1T (Investigation), Gurgaon that the bogus claim of long term capital gains arising from transactions of sale and purchase of shares rooted through the bank account no. C.A. - 3097, Corporation Bank, Karol Bagh, New Delhi, standing in the name of R. K. Aggarwal & Co. has been made by the assessee, and certain sums, details of which has been mentioned in the reasons itself recorded by the A.O, were credited in the bank accounts maintained by the assessee. The account no. alongwiih name of bank and branch has also been mentioned. In the light of the facts supplied by the Investigation Wing to the Assessing Officer, the Assessing Officer had entertain a belief to the effect that "in view of the facts mentioned above, I have reasons to believe that the income of the assessee to the tune of Rs. 6,63,975/- chargeable to lax has escaped assessment for the A.Y. 1996-97". In the reasons recorded by the Assessing Officer, the Assessing Officer has mentioned the definite information about the amount, which were credited in the assessee's bank account during the period relevant to A.Y. 1996-97. During the investigation made by the Investigation Wing, it was revealed that no sale or purchase has actually taken place as so admitted by Shri Salish Goel, proprietor of R.K. Aggarwal & Co. At the stage of issuing notice under section 148, what is required is to see as to whether there was relevant material on which a reasonable person could have formed a belief that income had escaped assessment. In the present case, the relevant materials noted by the Assessing Officer from the information received from DDIT (Investigation) are undoubtedly relevant and sufficient material on the basis of which a reasonable person could have formed requisite believe as contemplated u/s. 147 of the Act. At that stage, it was not necessary for the Assessing Officer to conclusively prove the escapement of amount from tax, credited in the assessee's bank accounts routed through bank account no. C.A. - 3097, Corporation Hank, Karol Bagh, New Delhi, standing in the name of R.K. Aggarwal & Co. (proprietor Shri Satish Goel). In the present case, relevant facts, on the basis of which a reasonable person could have formed a belief that income to the extent of the amount credited in the assessee's bank account has escaped assessment, arc available as so mentioned in the reasons recorded by the Assessing Officer. It is not the case where the Assessing Officer has merely stated in the reasons recorded that in the light of the information received from the DD1T (Inv.), he had reason to believe that income has escaped assessment without narrating the nature of the information and mentioned relevant particulars or materials on the basis of which a reasonable man could have formed a belief that income had escaped assessment within the meaning of section 147 of the Act. We, therefore, hold that the reasons recorded by the Assessing Officer in corporating the relevant materials and facts therein are sufficient to satisfy the condition of section 147 of the Act for the Assessing Officer to issue a notice u/s. 148 of the Act.

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Change of Examination Centres for November-2009 CA Exams - (21-10-2009)

 21st October,2009

 Change of Examination Centres for November-2009 CA Exams

 Due to paucity of accommodation in some Zones opted by Candidates in the cities of Ahmedabad, Chennai, Delhi, Indore, Mumbai and Kolkata etc., some of the candidates have been allotted examination Centres in other Zones of the said cities where the accommodation is available. In view of this, it is not possible to accede to the requests of the candidates for transfer to an examination centre in a particular Zone of the City opted by them.

 Inconvenience caused in the matter is regretted.
 
 
(G. Somasekhar)
Additional Secretary(Exam.)

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Case Laws DT/IDT for Nov 09 attempt!!

Hi All!

I have uploaded the chapter wise compilation of case laws of DT/IDT applicable for Novemeber 09 attempt.
Click here to download:
1. http://www.ziddu.com/download/7023835/30_dtcase2009_nov.pdf.html

2. http://www.ziddu.com/download/7023833/36_idtcase2009_nov.pdf.html


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ITAT, BENCH ‘A’ Applicability of section 45(4) of IT Act, 1961 in case of distribution of capital asset on retirement of one partner

Applicability of section 45(4) of IT Act, 1961 in case of distribution of capital asset on retirement of one partner

The term used in section 45(4) ‘distribution of capital assets on the dissolution of a firm or otherwise’ cannot be extrapolated to bring retirement of one partner into the ambit of this section.

ITAT, BENCH ‘A’ CHENNAI

ACIT

v.

Goyal Dresses

ITA No. 1478/Mds/2007

August 22, 2008

RELEVANT EXTRACTS:

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9. Now, the core of dispute here is whether the term 'distribution of capital assets on the dissolution of a firm or other Association of Persons or Body of Individuals or otherwise' would include retirement of a partner from a firm. Hon'ble Bombay High Court in A.N. Naik's case cited above was dealing with a case of transfer of assets to retiring partners. The Hon'ble High Court had held that the transfer of assets of the partnership to the retiring partners would amount to the transfer of capital assets in the nature of capital gains and business profits which were chargeable to tax u/s 45(4). ITAT, Chennai Benches in the case of G.K. Enterprises case had held that, Section 45(4) would have no application in the case of retirement of a partner.

10. Hon'ble Kerala High Court in the Kunnamkulam case cited above was dealing with a case where there was a change in the constitution of the firm with the retirement of five partners after receiving the credit balance in their accounts, that there had been a revaluation of the assets and it was the enhanced value of the assets that was credited equally in their accounts. The Assessing Officer was of the opinion that five partners taking enhanced value for the assets on retirement amounted to a transfer of capital asset u/s 45(4). The CIT and the Tribunal were of the opinion that Section 45(4) was not applicable in this case and this view was confirmed by the Hon'ble Kerala High Court. The Hon'ble High Court on p.547 has held as under:-

"Likewise, if a partner retires he does not transfer any right in the immovable property in favour of the surviving partner because he had not specific right with respect to the properties of the firm. What transpires is the right to share the income of the properties stood transferred in favour of the surviving partners, and there is no transfer of ownership of the property in such cases."

In the background of aforesaid discussion we find that in the cases being dealt with by the Hon'ble High Courts above, there was retirement of more than one partner. However, in the present case, there is retirement of only one partner. Hon'ble Apex Court exposition on the meaning of the term 'distribution' in the Punjab Distilling Industries Ltd. case cited above is relevant here. Hon'ble Apex Court has expounded that the expression 'distribution' necessarily involves the idea of division between several persons which is the same as payment to several persons. In this view of the matter, the term used in Section 45(4) 'distribution of capital assets on the dissolution of a firm or otherwise' cannot be extrapolated to bring retirement of one partner into the ambit of this Section.

11. Though there is a decision of the Chennai Tribunal in G.K. Enterprises case cited above which favours the assessee, the decision of Hon'ble Bombay High Court in A.N. Naik's case cited above has been claimed to be in favour of Revenue. We further find that there is a decision of Hon'ble Kerala High Court in the case of CIT Vs. Kunnamkulam Mill Board 257 ITR 544 which is in favour of the assessee. Admittedly, there is no Hon'ble Jurisdictional High Court decision on the issue. It is also not the case of the Revenue that ITAT decision in the G.K. Enterprises case has been reversed by the Hon'ble High Court. It has been only claimed that the case is pending before the Hon'ble High Court. We further find that Hon'ble Apex Court has held that in cases where two views are possible, the one favourable to the assessee should be adopted. CIT v. Podar Cements Ltd. and another 226 ITR 625 (SC) and Mysore Minerals Ltd. Vs. Commissioner of Income Tax 239 ITR 775 (SC). In the background of aforesaid discussion and precedent, we are of the opinion that there is no infirmity in the order of the learned Commissioner of Income Tax (Appeals) in holding that Section 45(4) is not attracted on the facts of this case.

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