REPORTED DECISIONS
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Appellate Tribunal Powers of Sec. 254 Clearance from
High Powered Committee required only when litigation between two limbs of
Government of India Litigation between State Government Undertaking and
Income-tax Department Clearance not required A.Y. 1987-88
DCIT vs. Maharashtra State Road Transport Coprn. (2006) 100
ITD 187 (Mum) (SB); Order dated 20-2-2006
High Powered Committee was constituted by the Government of
India to deal only with the litigation between two limbs of the Government of
India. Any litigation with the State Government Department/Undertaking is
impliedly outside the scope of such Committee in view of the observations of
the Supreme Court in the case of Chief Conservator of Forests vs. Collector
(2003) 3 SCC 472 for setting up of separate committee to deal with the
litigation between two limbs of State Government. There is not even a single
case where litigation was between the Department of State Government and the
Department of Union of India. The direction of the Apex Court in ONGC vs.
CCE 1995 Suppl. (4) SCC 341 cannot be applied to a case where one
litigation is Department/Undertaking of State Government and the other
litigation is Department/Undertaking of Union of India.
Therefore, the Tribunal can hear appeal without any
clearance from the High Powered Committee constituted by Government of India,
where litigation is between the State Government Undertaking and the Income
tax Department.
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Appellate Tribunal Procedure Sec. 255 Sanctity of
Third Member decision and Special Bench decision is of same nature
DCIT vs. Oman International Bank SAOG (2006) 100 ITD 285
(Mum) (SB); Order dated 17-5-2006
The Third Member decision is as good as a Special Bench
decision within the territorial jurisdiction of the High Court as there is no
contrary view expressed by the that High Court on the issue in question. It
would be laying down a wrong precedent if the Third Member decision is
slighted by any other Division Bench as not being bound. The sanctity of the
Third Member decision and the Special Bench decision is of the same nature.
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Bad debts Sec. 36(1)(vii) Amendment of section
36(1)(vii) w.e.f. 1-4-1989 Allowance of Not required to prove that debt
has become bad Allowable on mere writing off in the books of account A.Ys.
1994-95 & 2000-01
DCIT vs. Oman International Bank SAOG (2006) 100 ITD 285 (Mum)(SB);
Order dated 17-5-2006
It is within the personal knowledge of the businessman
whether a debt has become bad or not. His decision, as long as it is bona
fide, cannot be disputed by demanding from him a demonstrative proof to
establish that the debt has actually become bad. The write off of a bad debt
is a prima facie evidence, on the part of the assessee with whom the
information rests, and is a sufficient requirement of the amended provision.
Therefore, as per existing provisions of section 36(1)(vii) even after its
amendment with effect from 1-4-1989, it is not obligatory on the part of the
assessee to prove that the debt written off by him is indeed a bad debt
for the purpose of allowance under section 36(1)(vii).
As per the prescription of section 43B, deduction for
statutory payments pertaining to labour, taxes, etc., are to be allowed as
deductions, if they are actually paid during the financial year. However, to
mitigate the unintended hardship, it is stipulated in the proviso that taxes
are deemed to have been paid during the financial year even if they are paid
by the due date of filing of return. In the case of statutory payment relating
to labour, it was sine qua non to make the payment any time before the
last date for payment of labour related liability. It was represented before
the Government that the delayed payment of statutory liability related to
labour should be accorded the same treatment as delayed payment of taxes, etc.
The deduction, if denied in a year, could not be claimed in subsequent year.
On account of various reasons like postal delay, strikes or long holidays, the
payment of employers contribution to the respective authorities at times
delayed even though the payment tendered before the due date. Having regard to
this unintended hardship, by the Finance Act, 2003 in the first proviso of
section 43B, the words, brackets and letters referred to in clause (c) or
clause (d) or clause (e) or clause (f) have been omitted and second proviso
was also omitted. The Legislature removed the differentiation between employee
welfare payments and others. Uniform criteria was prescribed for the
allowability of the claim. The amendment was made to eliminate unintended
consequences that caused undue hardship to the tax-payers. Therefore,
amendment in proviso to section 43B by the Finance Act, 2003 was curative in
nature. Accordingly, it should be applied retrospectively.
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Business expenditure Sec. 37(1) Expenditure incurred on
issuance of wholly convertible debentures Not revenue expenses A.Y.
1994-95
Ashima Syntex Ltd. vs. ACIT (2006) 100 ITD 247 (Ahd)(SB);
Order dated 24-3-2006
The assessee-company issued certain convertible debentures,
which were to be fully converted into equity shares on allotment or after
certain period. Said debentures, till the period of conversion, were
transferable and transmittable in the same manner and to the same extent and
subject to same restrictions and limitations as were applicable to existing
equity shareholders. The assessee set off expenditure incurred for issuing the
debentures against the share premium but claimed deduction of same as revenue
expenses. The AO disallowed the claim of deduction, which was upheld by CIT(A).
The Tribunal held that the raising of funds by issue of
convertible debentures was to raise capital by ultimately converting
debentures into equity shares without giving any option to debenture holder to
get repayment or a say in conversion. Substance of the transaction was issue
of equity capital partly on the date of allotment of debentures. The
contention of the assessee that expenditure relating to conversion partly
after 15 months could at least be held as revenue had no force as the nature
of such retention was akin to share application money pending allotment of
shares. The issue of convertible debentures is nothing but raising capital by
issue of equity shares increasing the capital base via media being issue of
convertible debentures. The loan or borrowings are not to be repaid but
retained by converting into equity shares and, therefore, it cannot be said to
be a borrowing or loan. The expenditure for raising the same could not be held
as allowable deduction.
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Refund Interest u/s. 244A Interest granted in
proceedings
u/s. 143(1)(a) Assessable in the year in which it is granted and not in the
year in which proceedings u/s. 143(1)(a) attain finality Asst. Year 1997-98
Avada Trading Co. (P.) Ltd. vs. ACIT [2006] 100 ITD 131 (Mum)(SB);
Order dated 18-1-2006
According to the charging provisions of sections 4 and 5,
the income is chargeable in the year in which it either accrues or is received
as the case may be. Income accrues when right to receive is acquired and such
right can be said to have been acquired when an enforceable debt is created in
favour of the assessee.
A bare look at the provisions of sub-section (1) of section
244A reveals that as soon as any refund becomes due under any provisions of
the Act, the assessee becomes entitled to receive the interest is respect of
such refund calculated in the manner provided in clauses (a) and (b) of such
provisions. Therefore, the moment the refund is granted, an enforceable debt
is created in favour of the assessee in respect of interest due on such
refund. Consequently, income can be said to accrue on the date of refund
itself. Therefore, when such interest is actually granted along with the
refund, then the requirements of sections 4 and 5 are fully satisfied and the
same can be taxed in the year of receipt.
Therefore, interest on refund u/s. 244A(1) granted to the
assessee in the proceedings u/s. 143(1)(a) would be assessable in the year in
which it is granted and not in the year in which proceedings u/s. 143(1)(a)
attain finality.
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Speculation business Explanation to s. 73 Loss arising
from sale of shares allotted to a dealer in public issue Is hit by
Explanation to s. 73 Explanation to s. 73 is applicable to all transactions
of purchase and sale of shares of companies whose business consists of such
purchase and sale of shares A.Y. 2001-02
AMP Spg. & Wvg. Mills (P.) Ltd. vs. ITO [2006] 100 ITD 142
(Ahd)(SB); Order dated 24-3-2006
The assessee was engaged in the business of trading in
cloth and shares. In respect of dealing in shares, the business was carried
out in three modes; i.e., purchase and sale of shares on delivery basis in
open market; purchase and sale of shares on Badla basis and making application
for allotment of shares in public issue and selling the same. Assessee
contended that loss on account of shares acquired in primary market was not
hit by Explanation to s. 73, which was negatived both by AO as well as the
CIT(A).
The Tribunal held that:
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the provisions of Explanation to s. 73 are applicable to
all the transactions of purchase and sale of shares of the companies whose
business consists of such purchases and sale of shares and the same cannot
be restricted to only those transactions which are found to be a device
sometimes resorted to by business houses controlling groups of companies to
manipulate and reduce the taxable income of companies under their control;
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when the acquisition by allotment is for a consideration,
it is a sale and thus, when a price is paid for allotment of shares, it is a
purchase of shares in general law as well as for the purpose of Explanation
to s. 73;
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the Explanation to s. 73 provides any business of a
company consists of purchase and sale of shares of another company.
Therefore, what is required to see is that whether business is of purchase
and sale of shares and not what is the nature and mode of such purchase.
Therefore the assessee was covered by the plain, clear and unambiguous
statutory language of the provisions of Explanation to s. 73, which requires
no external aid, like object, etc., to construe it differently and, therefore,
the loss suffered on account of acquisition by allotment and sale thereof
being in the nature of loss arising on purchase and sale of shares of a
company and also being in the nature of business of the assessee being
purchase and sale of shares of other companies, was to be taken as a
speculative loss.
