Direct Taxes

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For further reading please refer the attachment.

·         The petitioner had challenged the order passed by ITAT dismissing the appeal on the ground of default as none had appeared on behalf of the assessee, nor any adjournment application was filed on their behalf.

·         The High Court observed that section 254(1) of the Act provides that the ITAT, after giving both the parties an opportunity of being heard, should pass such orders as it deems fit.

·         The High Court further observed that Rule 24 and Rule 25 of the Income Tax (Appellate Tribunal) Rules, 1963 cast an obligation on the Tribunal to dispose of an appeal on merits, irrespective of whether the appellant appears before it or not.

·         Thus, the High Court concluded that the impugned order could not have been sustained and therefore, the same was to be set aside.

·         The ITAT was directed to consider the matter on merits and take a fresh decision in accordance with law.

For further reading, refer the attachment.

·         During the year under consideration, assessee obtained a sum of Rs.15,76,77,411/- from M/s Bright Advertising (P) Ltd., in which she had 25.24% equity stake. This company had disclosed Rs.1,92,85,832/- as general reserve and Rs.1,17,97,802/- as surplus profit during the year. Therefore, the AO made the addition of Rs.3,10,83,635/- [1,92,85,832 + 1,17,97,802] holding the said amount to be the deemed dividend as per the provisions of section 2(22)(e) of the Act.

·         The CIT(A) deleted the addition made by the AO by holding that the said sum did not represent any loan or advance so as to attract the provisions of deemed dividend, but the same were merely transactions in mutual or current account.

·         The Appeal filed by the Revenue before ITAT was also dismissed on similar factual findings.

·         The Counsel for the Revenue argued that mere inflow of funds from the company to the assessee by itself attracted the deeming provisions of section 2(22)(e) of the Act.

·         The counsel for the assessee submitted that the transactions between the assessee and the company bore the character of mutual running or current account. It was further submitted that concurrent findings in this regard were also made by the CIT(A) and the ITAT after appreciating the evidences filed by assessee.

·         The High Court took note of the fact that the ITAT had analyzed the ledger account of the company with regard to the payment made and received from the assessee. The High Court also took note of the fact that the Tribunal had given categorical findings to the fact that mutual transactions were carried out between the assessee and the company throughout the year, and at some points the company was the beneficiary of the sums given by the assessee while at another point of time during the previous year, the assessee was the beneficiary of the sums given by the company.

·         Thus, the Court concluded that the transactions were only of the nature of a running or current account which created independent obligations and were not the transactions of loan or advance, which created obligations only on the other side.

·         Therefore, the Court held that the payment of the sum by the company to the assessee could not be treated as deemed dividend distributed out of profits.

For further reading, refer the attachment.

·         The AO made an addition of Rs.131.81 Crores on account of Advance Against Depreciation (AAD), which was deleted by the CIT(A), and the order of the CIT(A) was further upheld by the Tribunal.

·         The High Court was of the view that the matter was covered in favour of the assessee by the judgment of the Supreme Court in assessee’s case cited as National Hydroeletric Power Corporation Ltd. v. CIT [2010] 320 ITR 374.

·         The Court was of the view that though the Apex Court had considered the effect of Explanation 1 to Section 115JB in the said case, however, the moot question which was answered was whether AAD constitutes income of the assessee.

·         The Court has further followed the ratio laid down by the Apex Court and has reiterated that AAD is income received in advance, i.e. it is not the income received for the relevant accounting year, but represents the adjustment to be made in future and thus, is not even carried through the Profit and Loss Account.

·         Therefore, the appeal of the Revenue was dismissed.

For further reading, refer the attachment.

·         During the year under consideration, assessee sold the first floor of a property in Sundar Nagar. Out of the total capital gain earned, assessee invested certain amount in the capital gain scheme and offered the balance amount towards tax.

·         The AO, however, was of the view that the said property was not a residential property, and hence, did not allow the assessee the benefit of section 54 of the Act. The action of the AO was further confirmed by the CIT(A).

·         The Tribunal took note of the fact that during the year the assessee has only sold the first floor, which is a residential property, and not the ground floor, which is a shop. The Tribunal further observed that the lease agreement clearly stated that the ground floor was to be used as a shop and the first floor as a residence. The Tribunal was also of the view that the photographs forming a part of the assessment order were of the shop on the ground floor, and the assessee has sold the first floor during the year, which was a residential property only.

·         The Tribunal has further set out that the subsequent change in the end use, even if it is there, cannot disentitle the seller from claiming the exemption in the absence of any evidence that the seller has been using the property before sale for any commercial purposes.

·         The Tribunal also took note of the fact that the mandate of Section 54 is that the property should be residential and there is no condition that such property should have been occupied for the purpose of residence at the time of sale so as to claim the benefit. The Tribunal further referred to the provisions of section 54B of the Act which specifically provide for exemption in respect of agriculture land in case such agriculture land was being used for agricultural purposes. In the absence of any such specific condition in Section 54, the Tribunal has held that no such condition can be read.

·         The Tribunal, therefore, concluded that the use of the property is not the relevant criteria to consider the eligibility of the benefit of section 54 of the Act, and thus, directed the AO to allow the deduction as claimed by the assessee u/s 54 of the Act.

For further reading, refer the attachment.

·         During the year under consideration, assessee sold the first floor of a property in Sundar Nagar. Out of the total capital gain earned, assessee invested certain amount in the capital gain scheme and offered the balance amount towards tax.

·         The AO, however, was of the view that the said property was not a residential property, and hence, did not allow the assessee the benefit of section 54 of the Act. The action of the AO was further confirmed by the CIT(A).

·         The Tribunal took note of the fact that during the year the assessee has only sold the first floor, which is a residential property, and not the ground floor, which is a shop. The Tribunal further observed that the lease agreement clearly stated that the ground floor was to be used as a shop and the first floor as a residence. The Tribunal was also of the view that the photographs forming a part of the assessment order were of the shop on the ground floor, and the assessee has sold the first floor during the year, which was a residential property only.

·         The Tribunal has further set out that the subsequent change in the end use, even if it is there, cannot disentitle the seller from claiming the exemption in the absence of any evidence that the seller has been using the property before sale for any commercial purposes.

·         The Tribunal also took note of the fact that the mandate of Section 54 is that the property should be residential and there is no condition that such property should have been occupied for the purpose of residence at the time of sale so as to claim the benefit. The Tribunal further referred to the provisions of section 54B of the Act which specifically provide for exemption in respect of agriculture land in case such agriculture land was being used for agricultural purposes. In the absence of any such specific condition in Section 54, the Tribunal has held that no such condition can be read.

·         The Tribunal, therefore, concluded that the use of the property is not the relevant criteria to consider the eligibility of the benefit of section 54 of the Act, and thus, directed the AO to allow the deduction as claimed by the assessee u/s 54 of the Act.

For further reading, refer the attachment.

1.     Supreme Court in the case of CIT v. Calcutta Export Company in Civil Appeal Nos. 4339-4340 of 2018 dated 24.04.2018

• The amendment to section 40(a)(ia) by the Finance Act, 2010 with effect from 01.04.2010 which provides that all TDS made during the previous year can be deposited with the Government by the due date of filing the return of income, should be interpreted liberally and equitably and should be applied retrospectively from the date when section 40(a)(ia) was inserted in the Act, i.e. with effect from the A.Y. 2005-2006, so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. The Apex Court has concluded that the amendment was curative in nature and should be given retrospective operation as if the amended provisions existed even at the time of its insertion.

2.     Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal Nos. 8489-8490 of 2013 dated 24.04.2018

• If deductions on account of freight, telecommunication and insurance attributable to the delivery of computer software u/s 10A of the Act are allowed only from the Export Turnover, i.e. the numerator, but not from the Total Turnover, i.e. the denominator, it would give rise to an inadvertent, unlawful, meaningless and illogical result, which would cause grave injustice to the assessee, which could have never been the intention of the legislature. The Apex Court has held that as the object of the formula is to arrive at the profit from the export business, expenses excluded from the export turnover, i.e. the numerator, have to be excluded from total turnover, i.e. the denominator also.

3.     Supreme Court in the case of CIT v. Mahindra and Mahindra Ltd. in Civil Appeal Nos. 6949-6950 of 2004 dated 24.04.2018

• The short issue in the instant case was weather waiver of loan by the creditor is taxable as a perquisite u/s 28(iv) of the Act or as a remission of liability u/s 41(1) of the Act. The Apex Court in this regard held as under:

(a)  Section 28(iv) which specifically says that the benefit or perquisite shall be in a form other than money, is not applicable in this case, therefore, the said amount could not be taxed under the provisions of section 28(iv) of the Act.

(b)  Section 41(1) particularly deals with remission of trading liability only, whereas in the instant case, waiver of loan amounts to cessation of a liability other than a trading liability, hence the present case would not fall under section 41(1) of the Act.

·         The Finance Act, 2018 has introduced a new Section 112A which provides that long-term capital gains arising from transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, shall be taxed at 10% of such capital gains exceeding Rs. 1 lakh.

·         Section 112A provides that the concessional rate of 10% shall be available if STT is paid both on acquisition and transfer of long-term capital asset, being listed equity shares. Therefore, in case STT is not paid at the time of acquisition of equity shares, the resultant long-term capital gains arising from its sale shall be governed by Section 112 and not by Section 112A.

·         However, there are certain genuine off-market transactions which cannot be subject to STT at the time of acquisition. Therefore, in such scenario Section 112A(4) provides that the CG may notify the nature of acquisitions in respect of which the payment of STT at the time of acquisition shall not apply. Accordingly, CBDT has issued a draft notification under Section 112A.

·         The exemption from payment of STT has been given for the following off-market transactions:

(a)   Acquisition approved by the Supreme Court, High Court, National Company Law Tribunal, SEBI or RBI

(b)   Acquisition by any non-resident in accordance with FDI guidelines

(c)   Acquisition by an investment fund

(d)   Acquisition through preferential issue to which Chapter VII of the SEBI Regulations does not apply

(e)   Acquisition through an issue of share by a company

(f)    Acquisition by scheduled banks, reconstruction or securitisation companies or public financial institutions during their ordinary course of business

(g)   Acquisition under ESOP

(h)   Acquisition under the SEBI Regulations 2011

(i)     Acquisition from the Government

(j)     Acquisition by mode of transfer if previous owner has acquired shares by any of the modes given in this list

(k)   Acquisition by an investment fund referred to in clause (a) of the Explanation 1 to section 115UB or a venture capital fund referred to in section 10(23BF) or a Qualified Institutional Buyer

For further reading, refer the attachment.