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Direct Taxes
Tribunal
| Reepal Tralshawala, |
| Chartered Accountant |
REPORTED DECISIONS
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Capital Gains – S. 54F – Exemption – New
residential flat purchased – Used for coaching classes – Exemption available
– A. Y. 1994-95
S.L. Luthra vs. ITO (2007) 11 SOT 646
(Mum); Order dated 30-8-2006
The only condition laid down in section
54F is that the assessee must either purchase or construct a residential
house within the specified period. There is nothing more in the section with
respect to the usage of the property. The exemption could not be denied on
the ground that the assessee or his family did not stay in that property or
that the said property was used for purposes other than residence; i.e., for
coaching classes. Once the conditions stipulated in the section are
fulfilled, the exemption to the assessee could not be denied.
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Charitable or Religious Trust –
Exemption of income from property – Sections 11, 2(15), 13 – Profit of
business carried on by Trust used for Charitable objects – Activity carried
on by Trust not guided solely by profit motive – Application of surplus
towards Charitable purpose – Entitled to Exemption u/s.1 1 – A.Ys. 1977-78,
1980-81 & 1981-82
Samaj Kalyan
Parishad, Modinagar vs. ITO (2007) 105 ITD 29 (Del) (SB); Order dated
12-1-2007
If the profits of the business carried on by the trust feed the charitable
objects then it can be said that the activity carried on by the trust is not
guided solely by a profit motive. Since the major source of income was
surplus from the activity carried out and which had been applied entirely in
giving grants-in-aid, condensed course education, buildings and other
capital expenditure, application of surplus was towards charitable purpose
and therefore it could not be said that the predominant object in carrying
on the business activity was to make profit and hence, the exemption under
section 11 could not be denied.
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Income escaping assessment – Sec. 147 –
Expression ‘reason to believe’ does not mean ‘reason to suspect’ – Evidence
and material required for reopening of the assessment must be specific and
direct and not vague – Reopening of assessment could not be made merely for
further verification – A.Y. 1994-95 to 1996-97
Pyramid Software & Technologies vs. DCIT
[2007] 105 ITD 305 (Asr); Order dated 16-6-2006
The AO
could not initiate the reassessment proceedings on the basis of suspicion
and vague or unspecific information. It is a trite law that where the AO has
no specific basis for his belief that income chargeable to tax has escaped
the assessment, the reassessment proceedings initiated by the AO, simply for
the purpose of making further verification of the claim of the assessee,
will be without jurisdiction, illegal and invalid. If the AO wants to verify
such a claim, he can do so by issue of notice under section 143(2) within
the period prescribed under the Act. The machinery of the reassessment
proceedings cannot be resorted to, for covering the legal lacuna/procedure
or even for patch up work by the AO.
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Income – Chargeability – Sec. 4 – Losing
a source of income – Not in business of buying and selling businesses –
Amounts to transfer of capital asset – Compensation received falls within
the ambit of capital receipt – A.Y. 1996-97
JCIT vs. Kwality Café & Restaurant (P.) Ltd.
(2007) 105 ITD 169 (Chd); Order dated 7-4-2006
Assessee was in business of manufacturing ice cream and other allied
products under name of ‘Kwality’ right from the year 1948. In 1981 it
specifically acquired user rights in respect of three trademarks, including
‘Kwality’ from ‘L’ Group, being another branch of same family. The assessee
subsequently entered into an agreement with ‘L’ group to give away its
rights in trademarks/trade name/goodwill as well as its right to manufacture
ice cream under the name of ‘Kwality’ for certain compensation. It was held
that the relinquishment of trademark/goodwill by assessee for consideration
would amount to transfer of capital assets and therefore the receipt was
capital receipt and not revenue receipt as held by AO. The compensation
received for giving up the right to manufacture ice cream was of capital
nature.
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Speculation business – Section 73 –
Losses – Entire business activity consisting of purchase and sale of shares
– To be treated as speculation business – Loss on share transactions where
delivery of shares not taken – Profit on share transactions where delivery
taken – Profit to be treated as profit from speculation business and
accordingly loss to be set off – A.Y. 2000-01
ACIT vs. Sucham Finance & Investments (I)
Ltd. [2007] 105 ITD 353 (Mum); Order dated 25-4-2006
The business activity consisting of purchase and sale of shares has to be
treated as speculation business even if the entire business activity of a
company consists only of purchase and sale of shares. The entire business
will be treated as speculation business. The loss as well as the profit
arises from trading in shares. Even if the loss arise from the transaction
which are settled without actual delivery and the profit earned from
transaction wherein actual delivery has taken place, both the activity fall
within the purview of speculation business and accordingly, the loss was to
be set off against the profit.
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