REPORTED DECISIONS

1. Appeal to Tribunal – Sec. 253(5) – Condonation of delay – Reasonable cause – Affidavit stating CIT(A) order misplaced and forgotten and was traced later – Delay in filing appeal due to negligence – Not sufficient and good reason for the delay – Delay cannot be condoned – A.Y. 1996-97

JCIT vs. Tractors and Farm Equipment Ltd. (2006) 105 TTJ 705 (Chennai) (TM); Order dated 25-8-2006

Delay of 310 days in filing appeal before the Tribunal occurring solely due to misplacement of CIT(A)’s order by the appellant is attributable to negligence and inaction on the part of the appellant which could have been avoided by exercise of due care and attention and the same did not constitute sufficient and good reason for condonation of delay.

2. Book profit – Section 115JA – Provision for doubtful debts – Does not fall within clause (b) of Explanation to s. 115JA – Not to be added to book profit – Similarly, provision for Wealth tax does not fall with items of Explanation and hence, not to be added in book profit – A.Y. 1997-98

JCIT vs. Usha Martin Industries Ltd. (2006) 105 TTJ 543 (Kol)(SB); Order dated 6-10-2006

Provision for bad and doubtful debts not being a provision for liability but a provision for diminution in the value of the assets; i.e., debts, clause (c) of Explanation to section 115JA is not applicable. The provision made by assessee not being excessive or unreasonable, it cannot be considered as ‘reserve’ under clause (b) of Explanation and therefore, same could not be added back to the net profit for computing the book profit within the meaning of section 115JA. Similarly, provision for wealth-tax does not fall within any of the items of the Explanation to section 115JA and therefore, same cannot be added back to arrive at book profit.

3. Business loss – Loss on account of exchange rate fluctuation – Foreign currency loan taken for working capital requirements – Loss allowable notwithstanding that no actual repayment of loan made during the year – A.Y. 2001-02

Silicon Graphics Systems (I) Ltd. vs. ACIT (2006) 105 TTJ 591 (Del); Order dated 6-10-2006

Assessee is entitled to claim deduction of exchange fluctuation loss in respect of foreign currency loan taken by it for working capital requirements in the relevant year, notwithstanding that no actual repayment of loan was made during the year.

4. Capital Gains – Sections 2(14); 2(47) & 45 – Relinquishment of life interest in immovable property – Right in immovable property amounted to capital asset – Liable to tax under the head Capital gains – A.Y. 1997-98

Smt. Nargins A. Irani vs. ITO [2006] 105 TTJ 718 (Pune); Order dated 2-9-2005

Life interest in an immovable property amounted to immovable property and constituted a capital asset and, therefore, money received by the assessee in lieu of relinquishment of said interest is exigible to tax under the head ‘Capital gains’. If life interest is acquired without paying the cost, its cost of acquisition can be taken as the cost to the previous owner in view of section 49 and valued in accordance with Schedule III to WT Act.

5. Capital Gains – Section 45(4) – Transfer of assets by way of distribution of assets between firm and its partners – No transfer of assets by firm but only revaluation – Not liable for Capital gains tax – A.Y. 1996-97

Girish Textile Industries vs. ACIT [2006] 10 SOT 474 (Mum); Order dated 17-5-2006

The capital gain can only be assessed to tax in case of gains on transfer of capital asset. Section 45(4) was not applicable when there was no transfer of any asset, being tenancy rights, in the hands of the firm upon revaluation of the asset consequent to which capital gains had been assessed and that the asset remained to be in ownership of the firm both before revaluation and after revaluation. In order that there is capital gain liable to tax under the provisions of section 45(4), there has to be transfer of assets by way of distribution of assets between the firm and its partners and in this case, the firm had not transferred its right in any capital asset to the retiring partners.

6. Double taxation relief – Agreement between India and Australia – Payment for data processing of information supplied by Indian company – Not covered by expression ‘royalty’ under Article 12(3) and since no PE in India, the payment cannot be taxed as business profit under Article 7(1) – Payment not taxable in India

Kotak Mahindra Primus Ltd. vs. DDIT (2006) 105 TTJ 878 (Mum); Order dated 13-10-2006

Payment made by an Indian company to an Australian company for specialized data processing of information supplied by Indian company cannot be said to be a payment of the use of specialized software on which data is processed or for the use of mainframe computer as the assessee does not have any independent right to use the computer or even physical access to the mainframe computer in Australia. The payment is therefore not covered by expression ‘royalty’ under any of the clauses of Article 12(3) of the DTAA between India and Australia. Since the Australian company also admittedly does not have any Permanent Establishment in India, the payment also cannot be taxed as business profit of the Australian company in India. Thus, the payment made is not taxable in India and consequently the Indian company did not have any tax withholding liability in respect of such payment.

7. Penalty for concealment – Section 271(1)(c) – Disallowance of expenses – Does not lead to inference that particulars of income has been concealed – Penalty not leviable – A.Y. 2001-02

DCIT vs. Indiahit Com (P) Ltd. (2006) 105 TTJ 501 (Del); Order dated 22-9-2006

Disallowance of expenses per se does not mean that the assessee has furnished inaccurate particulars of its income. Penalty under section 271(1)(c) is not leviable on account of disallowance of certain expenses particulars whereof were correctly furnished along with the return.

8. Penalty for concealment – Section 271(1)(c) – Estimated addition made on account of GP – Does not lead to inference that particulars of income has been concealed – Penalty not leviable – A.Y. 1989-90

Rajan H. Shinde vs. DCIT (2006) 103 ITD 360 (Pune)(TM); Order dated 11-5-2006

Estimation of GP made by AO was not completely and clearly on the basis of seized material and there were various discrepancies in calculation of the GP. Thus, there could not be any penalty leviable for concealment of income under section 271(1)(c) of the Act in respect of gross profit addition made on estimation basis.