REPORTED DECISIONS

1. Appellate Tribunal – Sec. 255 – Procedure for – Third Member has power to admit additional evidence – Provided same was tendered before original Bench

Ichalkaranji Co-op. Spg. Mills Ltd. vs. Dy. CIT (2006) 102 ITD 177 (Pune) (TM); Order dated 30-3-2006

The third member has power to take into consideration the additional evidence, if it is very essential to dispose of the question referred to it on merit, provided the additional evidence was tendered before the original Bench.

Without consideration of additional evidence, answering the question referred to the third member will tantamount to failed to do justice and will amount to non-consideration of entire facts.

2. Wealth Tax Act – Sec. 3 r.w.s. 40 of Finance Act, 1983 – Property does not belong to assessee unless legal title absolutely vests in assessee even though assessee may be owner of property as per sections 22 & 27 of I. T. Act – A.Y. 1990-91

Pallonji Shapoorji & Co. (P.) Ltd. vs. Dy. CIT (2006) 102 ITD 101 (Mum) (SB); Order dated 7-6-2006

A property cannot be said to be belonging to the assessee unless the legal title absolutely vests in the assessee despite the fact such assessee may be the owner of the property in terms of section 22 and section 27 of the Income-tax Act. Section 40 of the Finance Act, 1983 and section 3 read with section 2(m) of Wealth-tax Act are differently worded and therefore certain assets falling under section 4 of the Wealth tax Act cannot be included in the net wealth of a company even though such assets are includible in the net wealth of non-company assessee.

The provisions of Wealth-tax Act would apply to the assessment of companies to the extent they are in conformity of section 40(2) of the Finance Act, 1983. In the facts of the present case, the land was registered in the name of the society and the building was constructed thereon by it. The property tax was levied on the society. The water supply bill, electricity bill and insurance policy of the premises were in the name of society.

Therefore, the flat occupied by the assessee continued to belong to the society and therefore the value of the same could not be included in the net wealth of the assessee-company.

3. Depreciation – Section 32 – Business of hiring out of machinery – Machinery is used for business purposes – Machinery not put to use by lessee is not relevant – A.Ys. 1991-92 to 1995-96

JCIT vs. Investment Trust of India Ltd. [2006] 102 ITD 135 (Chennai) (TM); Order dated 6-4-2006

The assessee-company engaged in the leasing business purchased two bio-gas generating systems and leased out the same to third parties and claimed 100% depreciation thereon. The AO disallowed the claim on the ground that the machinery was neither installed nor put to use for commercial production by concerned lessees. The CIT(A) allowed the depreciation on the ground that the assessee could not be deprived of from claiming depreciation merely because the lessees could not use/install the machinery after taking it on lease.

It was held by the third member of the Tribunal that once a leasing or finance company, which owns machinery and leases it out to third party, is found to have satisfied the other requirements of the provision, it would be entitled to the deduction of depreciation in respect of such machinery or plant. Where the business of the assessee consists of hiring out machinery and/or where the income derived by the assessee from hiring of such machinery is business income, the assessee must be considered as having used the machinery for the purpose of its business.

4. Business – Sec. 28(i) – Commencement of – Existing undertaking purchased by new assessee – New assessee formed for completion of already existing project or for further entrusted projects – Assessee is said to have commenced business – A.Y. 1998-99

Vidarbha Irrigation Development Corporation vs. JCIT (2006) 102 ITD 1 (Mum); Order dated 22-7-2005

The assessee corporation was formed for completion of the already existing projects or for further entrusted projects. There was no doubt that even before the projects were entrusted to the assessee, some portion of the projects were completed and water supplied to various fields and water charges were being collected by the Irrigation Department of the State. Merely because the assessee had taken over the construction activities, it did not mean that it had not commenced the business. It was almost exactly like an industrial undertaking. If an existing industrial undertaking is purchased by a new assessee, it does not mean that new assessee has not commenced its business. The new owner may expand the existing undertaking and its capacity. To say that only when it is in full swing and has completed the entire expansion that the business commences, is an incorrect appreciation. Thus, the business activities of the assessee already commenced and its income ought to be computed u/s. 28 of the Act.

5. Deductions – Section 80M – Inter-corporate dividends – Deduction to be allowed on net dividend income – Only actual expenditure incurred is to be taken into consideration and not estimated expenses – A.Ys. 1994-95 to 1997-98

Punjab State Industrial Development Corporation Ltd. vs. Dy. CIT (2006) 102 ITD 1 (Chd) (SB); Order dated 10-4-2006

The following propositions are laid down for allowing deduction u/s. 80M of the Act in respect of inter-corporate dividend income-

1. The deduction u/s. 80M is to be allowed on net dividend income computed as per the provisions of sections 57 to 59 of the Act. The deduction is not to be allowed on gross dividend receipt;
    

2. The net dividend income is to be computed under the head ‘Income from other sources’ after deduction of expenditure incurred for purposes of earning, making or realizing dividend income;
    

3. The deduction to be allowed out of dividend income is as per the specified provisions of the statute. These cannot be allowed on general commercial considerations;
    

4. The actual expenditure incurred is to be taken into consideration. There is no question of taking expenditure on estimate or presumption basis while computing dividend income or while allowing deduction under section 80M;
    

5. Where the shares are acquired out of borrowed funds, on which dividend is received, deduction of interest paid can be allowed under section 57 provided loan was taken for making and earning dividend income. There is no question of deduction of any amount paid as interest, to which provisions of section 36(1)(iii) are applicable, while computing deduction under section 80M.