CA Ashok Seth 127th Feb 2015. PRECEDENT A judgment of SC is binding. It is the principle laid down in the judgment, and not every word appearing therein,

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CA Ashok Seth

Organised by:

Seminar on Taxation

Recent Important Judgmentson Direct Tax

CA. Ashok SethLucknow

27th Feb 2015

PRECEDENT

A judgment of SC is binding. It is the principle laid down in the judgment, and not every word appearing therein, that becomes the law of the land.

Between two decisions of benches of equal strength of the Supreme Court, the later decision should be followed, provided the earlier decision is considered

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Acceptance or Rejection of SLP by SC

SC dealt the effect of acceptance or rejection of a SLP in Kunhayammed v. State of Kerala, (245 ITR 360) and held that when there is a refusal of SLP in non - speaking order, it does not amount to a declaration of the law as laid down by the SC. If the refusal is a speaking order, it then becomes a declaration of law.

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Reliance of Decision

Sun Engineering Works Pvt. Ltd. (198 ITR 297) SC observed

It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court.

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Contd.

The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision.

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Ratio Decidendi, Obiter Dicta, and Casual Observations

The question which was necessary for determination of the case would be the ratio; the opinion of the court on the question which was not necessary to decide the case would be only obiter dictum. ‘casual observations’ of the SC is that observation are made on points which do not arise for the determination of the court at all. 27th Feb 2015 CA Ashok Seth 6

Sec 147-The Indian Hume Pipe Co Ltd (S.C.)- Dt 19-2-2015

Indian Hume Pipe Co Ltd 348 ITR 349 (Bom.)reversed Held as under by HC

“Full and true disclosure of material facts” means that the disclosure should not be garbled or hidden in the crevices of the documentary material which has been filed by the assessee with the AO. The assessee must act with candor. A full disclosure is a disclosure of all material…

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115JB- Difference – Reserve & Provision

Srei Infrastructure Finance Ltd vs. ACIT – Delhi HC (still not reported decided 11th Feb 2015

Statutory reserve created u/s 45-IC of RBI Act is not a "diversion of income at source

GN of ICAI refereed to by HC

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Registration U/s 12AA- Violation of 13(1)(b)

Kul Foundation v. CIT - (2015) 54 taxmann.com 143 (Pune - Trib.)

S. 12AA/80G(5): CIT, while granting registration or renewal, 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

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Development agreement, real income theory

CIT v Chemosyn Ltd (Bom HC) Even if gains have accrued on

execution of the development agreement as per Chaturbhuj Dwarkadas, the subsequent modification/ supercession of the agreement means that gains are not taxable as per real income theory

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CIT vs. Excel Industries Ltd. 358 ITR 295 (SC)- Real Income

Accrual of Income- Test- Whether income accrued to assessee is real or hypothical, whether corresponding liability to pay of other party and probability of realisation- seen from practical point of view.

AO to take pragmatic view rather than pedantic approach.

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Accrual of Income

Vinay Vasudeo Kulkarni BCAJ–June P 26 (Pune)(Trib.)

Income is taxable in the year when right to receive accrues-Commission [S.4].

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Contd.

Though the Schedule VI requires income accrued but not due as part of profit, for income tax purpose ‘income accrued but not due‘ is a contradiction terms , since what was not due could not have accrued. What is not due cannot be subjected to legal action to enforce recovery and hence , income in legal sense could not be treated as accrued so as to require its inclusion in taxable income.

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Real Income Theory

Excess Bill- Not an income Tyco Sanmar Ltd 370-ITR 173 (Mad)

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“Charitable Purpose” S. 2(15)/ 10(23C)(iv)

India Trade Promotion Organization vs. DGIT (E) (Delhi High Court)

If the definition of "charitable purpose" is construed literally, it is violative of the principles of equality & unconstitutional. If the dominant object is not to carry on business or trade or commerce, then an incidental or ancillary activity for which a fee is charged does not destroy the character of a charitable institution

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Deemed Dividend 2(22)(e) CIT vs. Jignesh P. Shah (Bombay High Court

) Held: - S. 2(22)(e) has to be construed strictly. If

assessee is not a shareholder of lending co, s. 2(22)(e) does not apply even if funds are ultimately paid by Co in which assessee is a shareholder –

Vatika Township (1) SCC 1, Universal Medicare Pvt. Ltd. 324 ITR 263 Impact Containers Pvt. Ltd. 367 ITR 346 followed

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54 taxmann.com 67 (Allahabad) February 21, 2015

AO couldn't make partial disallowance of exp. After accepting the genuineness

Where Assessing Officer had accepted genuineness of payment of consultancy charges to architect, entire amount should have been allowed and allowing part payment was not justified

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Claim for Bad Debts- [2015] 54 taxmann.com 28 (Gujarat)

Once amount of bad debt is debited to profit and loss account and simultaneously reduced from asset side, same is to be allowed; it was not necessary for assessee to close individual account of each of its debtors in its books

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Service of Notice- Affixture

Godavari Electrical Conductors (Andhra Pradesh High Court)

Issue of notice straightaway through affixture is not proper & renders proceedings void.

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142-A Reference to VO- Nirpal Singh 220 Taxmann 152 (P&H)

Reference by AO to valuation officer without rejecting books of account or referring to any material/ evidence/ information on basis of which it could be said that investment reflected by assessee was understated or suppressed, reference was not justified

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Re-assessment

CIT v P.N. Sharma All HC 43 Taxmann.com 131

Where no assessment order was passed either u/s 143(1)(a) or 143(3) or 144 there was no occasion to pass re-assessment order u/s 147

Followed UP Rajya Utpadan Nigam 202 ITR 93 (All)

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Capital Gain- Holding Period

Smt Rama Rani Kalia 221 Taxman 72 (All)

Conversion from Lease Hold to Free Hold

Entire period to be seen

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Holding Period- K Rama Krishnan 225 Taxman 123 (Del)

A plot allotted on 3-08-1999, a conveyance deed and possession of plot was given on 12-12-2005- sold plot through registered sale deed on 9-01-2008- jitendra Mohan v/s ITO [2007] 11 SOT 594 (Delhi),

It is date of allotment which is relevant for purpose of computing holding period and not date of registration of conveyance deed- Held, yes

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Addition on AIR information

M/s. ANS Law Associates vs. ACIT (ITAT Mumbai)

Additions made solely on the basis of AIR information are not sustainable in law. The AO has to prove that assessee has received income from a particular source. The assessee cannot be expected to prove the negative

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50-C

Pradeep Steel Re-Rolling Mills (P.) Ltd 61 SOT 104 (URO)

section 50C applies only to capital assets being land or building or both; it does not in terms include leasehold rights in land or building within its scope

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50C- Chandra Narain Chowdhri 219 Taxman 60 (Alld)111

Where assessee objects before Assessing Officer that value adopted by stamp valuation authority under section 50C(1) exceeds fair market value of property on date of transfer, Assessing Officer may either accept valuation of property on basis of report of approved valuer filed by assessee or he may refer question of valuation of capital asset to DVO in accordance with section 55A

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Property Trf. by Partner to firm

M/s. Chakrabarty Medical Centre vs. TRO (ITAT Pune)

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

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Institute’s Publication

CIT vs. Virtual Soft Systems Ltd 18 Taxman 119 (Delhi)

Method for accounting for lease rentals was based on the Guidance Note “Accounting for Leases” issued by the ICAI, the AO was not entitled to disregard the same. The Guidance Note reflects the best practices adopted by accountants the world over and the fact that it was not mandatory is irrelevant

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Development Agreement

CIT v Ved Prakash Rakhra 370 ITR 762 (Kar)

Exchange Value- How determined Should be estimate cost of

construction. Where development agreement

specifies a figure as a cost of construction to be incurred by developer, it could be taken as basis

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THANK YOU

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