Shri Subash Agarwal, Advocate
(A) HIGH COURTS
1. DIT (International Taxation) vs. Credit Suisse First Boston
(Cyprus) Ltd. 351 ITR 323 (Bom.)
(Cyprus) Ltd. 351 ITR 323 (Bom.)
Consideration received by assessee in respect of sale of securities is capital gains and exempt in terms of DTAA
The Assessing Officer further held Rs. 40.53 crores being gains in transactions of Government debt-securities to be interest within the meaning of that term in Article 11(4) of DTAA between India and Cyprus and liable, to tax in India. The assessee, however, contended that the income from sale of those securities constituted capital gains which fell within Article 14(4) and was, therefore, exempt from tax in India. The Commissioner (Appeals) deleted both the additions. The ITAT upheld the order of the Commissioner (Appeals).
On revenue's appeal:
(i) Clauses (1) and (2) of Article 11 merely provide which of the States is entitled to tax interest arising in a Contracting State and the rate at which such interest may be taxed. It is necessary first, however, to determine what constitutes interest under the DTAA.
(ii) The principle or governing words in Article 11(4) are 'interest means income from debt-claims of every kind'. These words predicate the existence of a debtor-creditor relationship. Clause 4 relates to interest 'from' debt-claims. In other words, the income must arise out of, on account of a debt-claim. It is important to note the difference between the debt-claim itself and any accretion thereto, such as interest. Once this distinction is noted, it is easy to appreciate that the price realised upon the sale of the debt-claim itself is not interest. Interest arises from and on the terms of the debt-claim/security and would be on revenue account. The sale proceeds upon a transfer or assignment of the security arise not from but on account of and represents the debt claim/security itself.
(iii) The words in clause 4 'whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits' appear after the opening words 'The term interest as used in this Article means income from debt-claims of every kind' and, therefore, clearly relate to income from debt-claims. Thus, if and only if the transaction is a debt-claim, it matters not whether it is secured by a mortgage and whether or not it carries a right to participate in the debtor's profits.
(iv) The subsequent words in Article 11(4) 'in particular, income from Government securities and income from bonds or debentures' constitute merely an inclusive provision which by way of illustration refer to Government securities and income from bonds or debentures which, in turn, include the further and other accretions thereto as stated therein viz premiums and prizes attaching to securities, bonds or debentures.
(v) Thus, under the Income-tax Act, 1961, as well as under the DTAA, the position remains the same at least so far as such securities are concerned viz . securities which provide for payment of interest on a particular date or at stated intervals.
(vi) The consideration received by the assessee in respect of the sale of the said securities is, therefore, a capital gain.
(vii) The revenue's case is that the assessee's case does not fall within Article 14(4) only because it falls within Article 11(4). Having rejected the submission that the gain from the sale of the said securities falls under Article 11(4), it follows that the same falls under Article 14(4) as 'Capital gain'.
(viii) The assessee is, therefore, entitled to the benefit of the exemption under Article 14 of the DTAA.
2. Pardesi Developers and Infrastructure Pvt. Ltd. Vs. CIT 351 ITR 8 (Del.)
Re-assessment u/s. 147 : Where the A.O has applied his mind to the information received by him and made enquiries, the very foundation of the notice u/s. 148 i.e “reasons to belief about escapement of income is not established even ex facie. The reassessment order is liable to be quashed.
In the course of assessment proceedings u/s. 143(3), the A.O. issued a questionnaire to furnish the details of the share capital introduced and the share application money received but there was no response from the assessee to the questionnaire till December, 2009. On August, 2009, the Addl. CIT circulated a letter to all A.O. including the A.O. of the instant assessee. The letter was on the subject of a list of beneficiaries of accommodation entries. Thereafter, on November 9, 2009, the assessee furnished a reply to the questionnaire and gave details of the share capital raised by it and furnished confirmations from the parties. The A.O. issued notices u/s. 133(6) to the share applicants directly and all the five companies responded to those notices and reaffirmed their respective confirmations. Thereafter, assessment was completed u/s. 143(3). Then the assessment was re-opened on the alleged ground that there were bogus accommodation entries and the assessee was one of the beneficiaries of the accommodation entries to the extent of Rs.1,35,000/-. The reasons also indicated that the information that the entries were accommodation entries and were provided by bogus companies were not available with the A.O. at the time the original assessment was done.
There was nothing to show that the A.O. did not receive the said information. And, there was nothing to show that the A.O. had not applied his mind to the information received by him. On the contrary, it is apparently because he was mindful of the said information that he issued notices u/s. 133(6) directly to the parties to confirm the factum if application of shares and the source of funds of such shares. Therefore, the very foundation of the notice u/s. 148 is not established even ex facie. Consequently, it cannot be said that the A.O. had the requisite belief u/s. 147 of the Act and, as a consequence, the impugned notice u/s. 148 and the reassessment order are liable to be quashed.
3. CIT vs. UTI Bank Ltd 32 taxmann.com 282 (Gujarat)
Reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the IT department
The assessee had contracted with a landlord to take premises on lease for opening its branch, but no formal agreement was entered into. The landlord started the construction of the premises as per assessee's requirements. However, before completion of construction, assessee came to know of the proposed construction of an overbridge over the said property which would cause hindrance to conduct its business and services. The assessee, therefore, terminated the understanding with the landlord and paid compensation to the landlord for the work done, in lieu of withdrawing all claims against the assessee. The assessee claimed such amount paid as revenue expenditure. The Assessing Officer disallowed the amount. The Commissioner (Appeals) and the Tribunal deleted the disallowance as the compensation was paid in the course of business and for the purpose of business, to protect the assessee's interest and in lieu of the claims that could have been raised by the landlord.
The Tribunal referred to the case of J.K. Woollen v. CIT  72 ITR 612 (SC) in which it was held that in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the IT department.
No question of law arises. Tax appeal is, therefore, dismissed
5.Court On Its Own Motion vs. CIT 352 ITR 273 (DELHI)
Strict guidelines issued to end Dept’s TDS credit & refund adjustment harassment
Anand Parkash, FCA, addressed a letter dated 30.4.2012 to the High Court in which he set out the numerous problems being faced by the assesses across the Country owing to the faulty processing of the Income Tax Returns and non-grant of TDS credit & refunds. He claimed that because of the department’s fault, the assessees were being harassed. The High Court took judicial notice of the letter, converted it into a public interest writ petition and directed the CBDT to answer each of the allegations made in the letter and certain other queries that the Court raised. The Court also appointed eminent senior counsel to assist it. The department accepted that tax payers are facing difficulties in receiving credit of TDS & refunds on account of adjustment towards arrears. Thereafter, as an interim measure to provide immediate relief to the assessees, the Court passed an order dated 31.08.2012 by which it gave detailed directions.
(i) Re Uploading of wrong or fictitious demand: The CBDT has accepted that incorrect and wrong demands have been uploaded on the CPC arrears portal. In his letter dated 21.08.2012, the CIT, CPC, has expressed his concern and anguish on account of uploading of incorrect and wrong data in the CPU and the problem faced by them and by the assesses. The CBDT has issued Circular No. 4 of 2012 in which the burden is put on the assessee to approach the AOs to get their records updated and corrected by filing s. 154 applications. While this may be the easiest option available, it should not be a ground for the AO not to suo motu correct his records and upload correct data. Each assessee has a right and can demand that correct and true data relating to the past demands should be uploaded. Asking the assessee to file s. 154 applications entails substantial expenses and defeats the main purpose behind computerisation. Also, the AOs do not adhere to the time limit prescribed for disposal of the s. 154 applications. To ensure transparency (and accountability), a register must be maintained with details and particulars of each application made u/s 154, the date on which it was made, date of disposal and its fate. The s. 154 application has to be disposed of by a speaking order and communicated to the assessee. There must be full compliance of the said requirements;
(ii) Re Adjustment of refund contrary to s. 245: S. 245 postulates two stage action; first a prior intimation to the assessee and then, if warranted, the subsequent adjustments of the refund towards arrears. This is not being followed by the CPC because the computer itself adjusts the refund due against the existing demand. To prevent this breach of the law, the department must follow the procedure prescribed u/s 245 and give the assessee an opportunity to file a reply which should be considered by the AO before giving the direction for adjustment. As regards the cases where such (illegal) adjustment has been made in the past, the cases must be transferred to the AOs for issue of notice to the assessee seeking adjustment of refund. The assessees will be entitled to file a reply to the notice and the AO will then pass an order u/s 245 allowing the refund. The CBDT has to fix a time limit and schedule for completing the said process. Though the process involves expenditure and paper work, the situation has arisen due to the lapses on the part of the AOs and the assessees cannot be made to suffer for the wrong uploading of arrears and wrong adjustment of refund. The question of the assessee’s entitlement to interest on the SA tax is left open though when the delay is due to the fault of the Revenue, interest should be paid u/s 244A. False uploading of past arrears and failure to follow the mandate of s. 245 is a lapse on the part of the AO;
(iii) Re non-communication of adjusted s. 143(1) intimations: The non-communication of s. 143(1) intimations, where adjustments on account of rejection of TDS or tax paid has been made, is a matter of grave concern. When there is failure to dispatch the intimation within a reasonable time to the assessee, the return shall be deemed to have been accepted and the intimation will be treated as non est or invalid for want of service. The onus to show that the order was served on the assessee is on the Revenue and not upon the assessee. If a TDS or tax credit claim has been rejected on a technicality but there is no communication to the assessee of the order/intimation u/s 143(1), the AO cannot enforce the demand created by the said order/intimation;
(iv) Re non-grant of credit for TDS: The problem regarding rejection of TDS credit is in two categories. The first is those where the deductors fail to upload the correct particulars of the TDS which has been deducted and paid and the second is where there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the ROI. As regards the first, the CBDT had earlier directed that the AOs to accept the TDS claims without verification where the difference between the TDS claimed and the TDS as per AS26 did not exceed rupees one lakh. This figure has now been reduced to a mere Rs.5,000. Ex-facie, there is no justification for the reduction because credit is being given only if the three core fields match. The CBDT must re-examine this aspect and take suitable remedial steps if they feel that unnecessary burden or harassment will be caused to the assessees. As regards cases of mismatch because of different methods of accounting, or offering income in different years, the department must take remedial steps and ensure that in such cases TDS is not rejected on the ground that the amounts do not tally. The department should also fix a time limit within which they shall verify and correct all unmatched challans. An assessee as a deductee should not suffer because of fault made by deductor or inability of the Revenue to ask the deductor to rectify and correct. Once payment has been received by the Revenue, credit should be given to the assessee. The CBDT should issue suitable directions in this regard. The department’s response on the action taken against deductors for non-compliance is unfortunate and unsatisfactory and it purports to express complete helplessness on the part of the Revenue to take steps and seeks to absolve them from any responsibility. Denying benefit of TDS to a taxpayer because of the fault of the deductor causes unwarranted harassment and inconvenience. The deductee feels cheated. The Revenue cannot be a silence spectator, wash their hands and pretend helplessness. S. 234E has now been inserted by the Finance Act, 2012 to levy a fee of Rs.200 per day for default of the deductor to file TDS statement within due date. It is unfortunate that the Board did not take immediate steps after even noticing lacuna and waited till FA 2012. The stand of the Revenue that they can only write a letter to the deductor to persuade him to correct the uploaded entries or to upload the details is not acceptable. The AO must use his power and authority to ensure that the deductor complies with the law.
6. Hardayal Charitable & Educational Trust vs. CIT 214 TAXMAN 655 (ALL.)
Non commencement of charitable or educational activities- refusal of registration was not justified