-
CASE STUDIES ON INCOME TAX
organised by Gandhidham Branch of WIRC of ICAI
&
The Gandhidham Chamber of Com. & Ind.
By CA. Kalpesh S. Doshi
KSD & Associates 1
id3570550 pdfMachine by Broadgun Software - a great PDF writer! - a great PDF creator! - http://www.pdfmachine.com http://www.broadgun.com
-
KSD & Associates 2
Assessee AuthoritiesTax
Professional
-
KSD & Associates 3
CASE STUDY 1TDS ON CLEARING & FORWARDING
M/s. P. P. Overseas,(I.T.A. No.733/Mum/2010)
-
Issue Involved
KSD & Associates 4
Applicability of Sec. 194C for clearing andforwarding expenses paid and disallowanceu/s 40(a)(ia)
-
A has debited expenses under the head C & F expenses.
TDS u/s. 194C was not deducted on such expenses.
The A claimed that expenses were paid as charges toparties for being agent of the assessee, and C & Fexpenses were merely reimbursement of expense.
KSD & Associates 5
Facts of the Case
-
The AO relied on circular no. 715 dated 08/08/1995 andconsidered liability u/s 194 C
The AO disallowed expenses u/s 40(a)(ia) as no TDS isdeducted
KSD & Associates 6
Facts of the Case
-
KSD & Associates 7
In section 194C carrying out any work is limited to anywork which on being carried out culminates in a product orresult.
Work in Sec 194C has to be taken in limited sense andwould cover only those service contracts specificallymentioned in Explanation III.
S.194 C will not apply to services other than specified inExp. III
Key learning points
-
KSD & Associates 8
The Tribunal has held that such payments are not liablefor TDS u/s. 194 C.
The Tribunal followed the decision of the Bombay HighCourt in the case of East India Hotels. 320 ITR 526
Reliance on the decision of Supreme Court in case ofBirla Cement Works 248 ITR 216.
Key learning points(cont.)
-
KSD & Associates 9
CASE STUDY 2 REMUNERATION PAID TO PARTNERS
M/s Durga Dass Devki Nandan
-
KSD & Associates 10
Where the partnership deed does not specify theamount of remuneration and the manner in which it isto be paid, whether the same can be disallowed as perCircular No. 739 dated 25.3.1996 ?
Issue Involved
-
KSD & Associates 11
The Partnership deed has simple provision of payment ofremuneration to both the partners on monthly basis as persection 40(b)(v)
As per circular no. 739 dated 25-03-1996 , the remunerationis allowable if deed specified the amount to individualpartner or lays down manner of quantifying theremuneration
The AO disallowed remuneration as the it is not paid as percircular
Facts of the Case
-
KSD & Associates 12
It is settled law that CBDT cannot issue circular which goes againstthe provisions of Act.
The CBDT can only clarify issues but cannot insert terms andconditions which are not part of the statute.
The circular has to be read along with Sec 40(b)(v) and be madesubject to the section.
The section doesnt lay down any condition of fixing theremuneration in partnership deed.
Key learning points
-
KSD & Associates 13
The section only states that when remuneration is paid topartners is accordance of the deed and is not more thanmaximum amt. permissible by the Act, the same is deductible.
If in a partnership deed it is clearly mentioned thatremuneration was paid as per the provisions of the I.T. Act,then it would not exceed the maximum amount provided inthe Act.
Therefore, the disallowance was not justified.
Key learning points(cont.)
-
KSD & Associates 14
Radha Rani holding(P) ltd. 110 TTJ 920
CASE STUDY 3 PLACE OF EFFECTIVE MANAGEMNT AND CONTROL(POEM)
Radha Rani holding(P) ltd. 110 TTJ 920
-
Taxability of shipping business income is arising and thesame is resolved with the help of DTAA between twocountries.
Artilce 4 of UAE treaty and Art. 9 of Denmark treaty talksabout POEM
Art. 9 in some treaty states Profits derived from theoperation of ships in international traffic shall be taxableonly in the Contracting State in which the place ofeffective management of the enterprise is situated.
KSD & Associates 15
POEM
-
KSD & Associates 16
True Test of Place of Effective management is based on manyaspects .
The expression Place of Management means the place wherethe brain of the organization is situated, a place from where theorganization is managed.
In fact, in the view of Klaus Vogel, If the place of effectivemanagement cannot be determined by application of generalcriteria, the top managers residence will regularly determinethe residence of the company.
POEM
-
KSD & Associates 17
A company is incorporated in Singapore.
The return was filed in the status of non-resident company.
The Indian share holder is holding 99 % of shares and Singapore
residence holding 1 %
There was no employee in Singapore
The day to day operation is from India
Source of Investment is also from India
Facts of the case
-
KSD & Associates 18
To prove POEM the CO filled following documents
i. The Incorporation Certificate
ii. Registered Office at Singapore
iii. All Board Meeting at Singapore
iv. The control means central control
v. Control does not mean day to day affairs
vi. A company is incorporated in Singapore.
Facts of the case (cont.)
-
KSD & Associates 19
A company is incorporated in Singapore.
All the Board meetings of the Assessee company were held
at Singapore.
The head and brain of the company is where the important
decisions are taken
Therefore POEM is in Singapore
Key learning points
-
KSD & Associates 20
American Thread Co v Joyce HL (1913) 6 TC 163
Minority of directors of a company operating in USA wereresident there and directed current business, but majority ofdirectors were resident in the UK and exercised overallcontrol in UK.
DeBeers Consolidated Mines Ltd (1906 AC 455) HL
South African company, whose important affairs werecontrolled from the UK, was held to be resident in the UK
International Cases of POEM
-
KSD & Associates 21
Wood v Holden 2006 STC 443
Management & control found not be in UK for a Dutchincorporated company as board meetings where thedecisions were taken were held outside UK.
Fact that they had taken advice and recommendations fromparties in UK was not relevant.
International Cases of POEM
-
KSD & Associates 22
Issues related to Search Assessments
-
KSD & Associates 23
CASE STUDY 4 VALIDITY OF SEARCH ASSESSMENT
Vandana Verma(I.T.A. No.21 of 2009)
-
When search warrant issued u/s 132 in the jointname of husband and wife, income assessed u/s153A in Individual name , whether assessment isa valid assessment ???
KSD & Associates 24
Issue Involved
-
KSD & Associates 25
Warrant of authorization was issued in the name of Mr. Mudit Vermaand Mrs. Vandana Verma u/s 132(1)(C)
Notice u/s 158BC was issued to file return in the above twoIndividuals.
Conditions u/s 132 arei) information in possession by authority,ii) in consequence of which has reason to believe that person is inpossession of valuables.
Meaning of any person defined u/s 2(31) of I.T. Act which is inclusiveand wide & includes AOP and BOI as person
Facts of the Case
-
KSD & Associates 26
The warrant issued in joint name suggest the authority hasreason to believe the income is undisclosed in Joint name.
AO can not assess in Individual Capacity.
The assessment in the name of Individual is Bad-in-law u/s158BC.
The warrant of authorization must be issued in Individualname to assess the Individuals.
Key learning points
-
KSD & Associates 27
There are also contrary view :
Jose Cyriac 238 CTR 207 ( Ker.)
Not referred Vandana Verma
Not considered the provisions of sec. 132(1)(c )
Not defined the various provisions of law
Key learning points(cont.)
-
KSD & Associates 28
CASE STUDY 5 ISSUE ON 153C ASSESSMENT
Vijaybhai N. Chandrani231 CTR 474( Guj)
-
KSD & Associates 29
Whether proceedings u/s 153C can be initiated on thebasis of loose material found from the premises of thirdparty???
Issue Involved
-
KSD & Associates 30
A search u/s 132 took place at the residence of third party.
During the search, some loose papers were found
In the said loose paper reference of the A was made
on the basis of such loose papers proceedings u/s. 153 Cwas initiated.
Facts of the Case
-
KSD & Associates 31
There is distinction between the provision of sec. 158BDand 153C
S. 153C states that money, bullion, jewellery or othervaluable article or thing or books of account or documentsseized or requisitioned belong to such other person,
S. 158BD states if the AO is satisfied that any undisclosedincome belongs to any other person
Key learning points
-
KSD & Associates 32
Loose papers found do not belonged to A
There is a reference to A in the loose paper and it maypertain to A
It is not in the handwriting of A
Loose paper do not belong to A
The Notice u/s 153 C is quashed
Key learning points(cont.)
-
15/09/2011 C.A. Kalpesh Doshi
Reopening Assessment & Paper Work Reopening Assessment & Paper Work
No job isfinished till the
paperworkis done !!!
-
KSD & Associates 34
CASE STUDY 6REOPENING WITHIN 4 YRS W.R.T. 143(1)(A)
Balkrishna Hiralal Wani,WRIT PETITION NO.191 OF 2010
-
KSD & Associates 35
The original assessment is done u/s 143(1)(a)
The reopening notice issued with in 4 years .
As per reasons recorded , the reopening is done as theretiring partner has received certain amount on account ofretirement as per partnership deed, therefore it is escapingincome .
The AO was of the opinion that the said amount is taxableu/s 28(va)
Facts of the case
-
On verification of reason recorded it is found that there areno valid reasons
As per section 147 the AO must have reason to believe
The reason to believe is different than reason to suspect
The AO cannot reopen any assessments even they are u/s143(1) , if there are no sufficient reason to believe
KSD & Associates 36
Facts of the case(cont.)
-
As per Kelvinator of India Ltd 320 ITR 561(SC) has held thatthe words reason to believe in the section have to be givenschematic interpretation.
Mere change of opinion cannot be a reason to believe.
There should be tangible material to come to conclusion thatthere is escapement.
Reasons must have a live link with the formation of the belief.
KSD & Associates 37
Key learning points
-
Clause 35 has no application whatsoever to a situation wherea partner has retired mandatorily upon attaining the age ofsuperannuation of seventy years.
Hence the basis and foundation for the formation of the beliefthat income has escaped assessment ceases to exist
Therefore , the reopening is bad-in-law and notices arequashed.
KSD & Associates 38
Key learning points
-
15/09/2011 C.A. Kalpesh Doshi
-
KSD & Associates 40
CASE STUDY 7 ALLOWABILITY OF RANSOM MONEY TO KIDNAPER
M/s Khemchand Motilal Jain, Tobacco Products(P) Ltd.,ITR NO.42/1998
-
Whether ransom money paid to the kidnappers of aDirector is an allowable expenditure u/s 37(1) ofthe Income Tax Act
KSD & Associates 41
Issue Involved
-
A is Pvt. Ltd Company engaged in business ofmanufacturing and sale of bidis.
Director was on business trip where he was kidnapped forransom by a dacoit gang. FIR was filed with the police.
KSD & Associates 42
Facts of the Case
-
KSD & Associates 43
Police was unsuccessful and 20 days after Director waskidnapped , ransom money was paid to release.
The company claimed the amount paid as ransom moneyunder General Expenses
Facts of the Case(cont.)
-
. Expl. to Sec. 37(1) any expenditure incurred which is an
offence or prohibited by law shall not be deemed to be incurred for business.
To ascertain whether any expenditure incurred by the assessee for any purpose which is an offence or prohibited by law is to be seen.
Kidnapping for ransom is an offence under section 364A ofI.P.C.
KSD & Associates 44
Key learning points
-
Nowhere, it is provided that to save a life of the person if aransom is paid, it will amount to an offence or action which isprohibited under law.
No provision is brought to our notice that payment of ransomis prohibited by any law.
Hence, Explanation of sub-section (1) Section 37 will not beapplicable in the present case.
KSD & Associates 45
Key learning points(cont.)
-
Thank You . . . .
These are our personal views and can not be construed as professional advice. This presentationshould not be reproduced in part or in whole, in any manner or form, without our permission.
KSD & Associates 46
