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Direct Taxes
Tribunal
Reepal Tralshawala
Chartered Accountant
REPORTED DECISIONS
1. Business expenditure – Disallowance under s. 40(a)(i) – Applicability of
proviso to s. 40(a)(i) vis-à-vis absence of claim for deduction in earlier year
– There is no condition that the payment should have been claimed as deduction
in the earlier year – Such a restriction cannot be read in the language of s.
40(a)(i) nor it can be inferred
ABN
AMRO Bank NV vs. JCIT [2005] 96 TTJ 1041, 1043 (Cal)(TM)
A sum chargeable under this Act (remuneration in this case) which
is payable either outside India or in India to a non-resident, is not allowable
as a deduction because of the provisions of s. 40(a)(i) if the tax has not been
deducted or after deduction has not been paid before the expiry of the time
prescribed under sub-s. (1) of s. 200 and in accordance with the other
provisions of Chapter XVII-B. When a deduction is not allowable because of the
statutory provisions, it would make no difference whether the same was claimed
or not by the assessee. Because the proviso to s. 40(a)(i) such sum has to be
allowed as a deduction in computing the income of the previous year in which
such tax deducted at source has been paid in subsequent year. On a bare reading
of the provision, it is evident such sum shall be allowed as a deduction in
computing the income of the previous year in which such tax has been paid if tax
has been deducted in subsequent year or, has been deducted in the previous year
but paid in subsequent year after the expiry of the time prescribed under sub-s
(1) of s. 200. No restriction is placed for allowability of deduction of the
remuneration paid in the subsequent year that it should have been claimed in the
earlier year. On the contrary it would be futile rather exposing the assessee to
penal consequences if he made a wrong claim which is not allowable due to
specific prohibition. Such a restriction therefore, cannot be read in the
language of s.40(a)(i) nor could it be inferred so.
2. Capital gains – Exemption u/s. 54F in case of investment
in residential house – Claim made also for payment made to tenants for
relinquishing their tenancy rights – Payments made to tenants were not eligible
for exemption under section 54F – Asst. Year 1995-96
DCIT
vs. Uday S. Kotak [2005] 96 ITD 177 (Mum); order dated 28-6-2004
The assessee earned long-term capital gains on sale of shares and
claimed the benefit of exemption under section 54F in respect of purchase
consideration paid for acquisition of half undivided share of a house property
from his brother plus the amounts paid to the two tenants for relinquishing
their tenancy rights. The Assessing Officer, however, restricted the claim to
the purchase consideration only and held that any payment made thereafter to the
tenants could not be said to be acquisition or improvement cost so as to extend
the benefit of section 54F to the payments made to the tenants. On appeal, the
Commissioner (Appeals) allowed the assessee’s claim holding that the assessee,
by removing tenancy, had improved his right/interest in the title of property
and, therefore, the cost incurred by assessee for clearing the encumbrance
created by the tenancy should be considered as cost of acquisition or
improvement cost.
The Tribunal held that an asset (particularly immovable asset)
can be sold by a person, who has legal title over the asset. Without having
legal title, one cannot affect sale of the immovable property. The legal title
in the instant case, undisputedly, was vested in the brother of assessee who had
sold his share in the residential house to the assessee on ‘as is where is’
basis. Erstwhile tenants of the residential house did not have the ownership
right in the residential house. Thus, any payment made to them after the
completion of sale did not tantamount to purchase money paid for ‘purchase’ of a
residential house. Such payment might be cost of acquisition within the meaning
of section 48 which was relevant only for computing capital gain. The word
‘purchased’ found place in section 54F could not be interpreted in a manner to
include within its ambit the words ‘cost of acquisition and cost of
improvement’.
3. Cash credit – Sale of gold jewellery and coins declared
under Voluntary Disclosure Scheme – AO not brought any evidence on record to
contradict the evidence led by the assessee – Material considered by the AO
against the assessee were never confronted to the assessee and, therefore, same
cannot be read as evidence against the assessee – Addition not sustainable –
Sec.68; A.Y. 1998-99
Jagdish Mitter vs. DCIT, (2005) 96 TTJ 1027 (Asr); order dated
27-6-2005
The
Tribunal held that there was no dispute that the assessee owned and possessed
gold coins and gold jewellery and silver which were disclosed under the VDS. BC
confirmed the transaction with the assessee by sending confirmatory report to
the AO directly and this fact is admitted by the AO in the assessment order. It
is admitted fact that the report of the Inspector indicates that the purchaser
existed at the given address and that the same is also assessed to income-tax,
as is observed by the CIT(A) in the appellate order. The assessee filed sale
bill before the AO and showed that payment of the sale consideration is received
through cheque. Therefore, this evidence on record clearly established that the
assessee has sold gold jewellery and coins to BC, who has also confirmed this
fact to the AO in the confirmatory letter. The assessee has, therefore,
discharged the onus of proving that he has sold the gold jewellery and gold
coins to the purchaser. On the other hand, the AO has not brought any evidence
on record to contradict the evidence led by the assessee. The AO has made
certain queries directly from the concerned party through issue of letters as
well as through DDI, Delhi. The letters of the AO did not return unserved which
indicated that the party existed at the given address. The purchaser also
confirmed directly purchase of gold to the AO. Only the DDI submitted in the
report that the party is not co-operating. The AO also observed that signature
did not tally. However, those materials on record were never confronted to the
assessee. Therefore, these circumstances considered by the AO against the
assessee cannot be read as evidence against the assessee. There is no other
evidence available on record to justify the findings of the authorities below.
There was sufficient material available on record to prove that the assessee
sold the jewellery to BC. Whatever enquiry was conducted by the AO was conducted
at the back of the assessee and even observation with regard to the handwriting
of the assessee also done at the back of the assessee without giving any
opportunity to the assessee to explain the point therefore, such evidence is not
legally admissible against the assessee. Even the AO has not made out a case
that gold jewellery and coins were available with the assessee. The AO conducted
the enquiry at the back of the assessee and merely compared the handwriting and
made the addition against the assessee. Therefore, there is no justification to
sustain the addition against the assessee.
4.
Deduction under s. 80-IA – Computation – Adjustment of brought forward losses,
etc. – The profits and gains of the eligible business are to be computed as if
the eligible business were the only business of the assessee right from the
initial year – There was no profit in respect of two units after set off of
brought forward losses of these units – AO was therefore justified in denying
deduction under s. 80-IA – A.Y. 1998-99
ACIT vs. Ashok
Alco Chem Ltd. (2005) 96 ITD 160 (Mum); order dated 30-6-2004
The legislature by introducing sub-s.(7) of s. 80-IA, has created
a legal fiction that for the purpose of applying the provisions contained in
that sub-section, the profits or gains of the eligible business shall be
computed as if the eligible business were the only business of the assessee
right from the initial year and the losses, depreciation allowance or
development rebate in respect of such eligible business for the past assessment
years were not set off against the profits from other business. The language of
s. 80-IA(7) is clear, according to which, taxable income of eligible business of
the industrial undertaking is to be ascertained as if such undertaking were an
independent unit owned by the assessee and the assessee had no other source of
income. It is only consequential that the unabsorbed losses, unabsorbed
depreciation, etc. relating to eligible business are to be taken into account in
determining the quantum of deduction under s. 80-IA, even though these may have
actually been set off against the profits of the assessee from other sources. In
this view of the situation, the AO had rightly denied the deduction under s.
80-IA in respect of these units, there being a loss in respect of the said unit
as computed within the meaning of s. 80-IA(7).
UNREPORTED DECISIONS
5. Depreciation on Motor-car – Registration of Motor car in
the name of the Director of the assessee company – Purchase price paid by
company – Director having his own personal car – Motor car appearing in balance
sheet of assessee company – Depreciation allowable – S.32; A.Y. 1996-97
M/s. Chhabria Textile Mills P. Ltd. vs. ACIT, ITA No.
2947/Mum/2000, A.Y. 1996-97, Bench ‘E’, Order dated 7-4-2004
Assessee by Shri Sunil Lala
Department by K.L. Maheswari
In this case the car was purchased by the assessee-company and
payment was made by the company. The registration of the car was in the name of
the Director of the assessee company. The purchase price paid by the assessee
company was duly reflected in the balance sheet of the assessee company. The
Director in whose name registration was done was having his own car and the same
was reflected in the personal balance sheet of the Director. The learned DR
contended that the assessee company already had two cars for the purpose of its
business and this new car was owned by the Chairman of the company; and its use
for business purpose of assessee-company is not supported by any document.
The Tribunal held that the registration of the car in the name of
the assessee-company itself is not a pre-requisite for holding the car to be
belonging to assessee nor for allowing depreciation thereon. The payment of
purchase price of the new car which stands registered in the name of the
Director was made by the assessee-company and this has also been shown in the
balance sheet of the assessee company. It is also revealed that the Director was
having his own different personal car. Further the expenditure for running and
maintenance of this car has also been shown by the assessee company. In the case
of limited company there can be no question of any personal user, thus, the
assessee company was entitled to depreciation on the car.
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