PGBP
Case Law # 1: Discount on ESOP is
allowable as an expenditure:
Object
of issuing ESOPs at a discounted price is not to raise share capital but to
earn profit by securing the consistent and concentrated efforts of its
dedicated employees during the vesting period. Such discount is construed, both
by the employees and the company, as nothing but a part of package of
remuneration. Thus, it is allowable as an expenditure U/S 37(1). [Biocon Ltd Vs Dy CIT (LTU)] [2013] [35
Taxmann.com 335] [Bangalore-Tribunal] [SB]
Case
Law # 2: Scope of the word ‘Payable’ U/S 40a(ia):
The
provisions of Sec 40a(ia) are applicable not only to the amount which is shown
as payable on the date of the balance sheet, but it is applicable to such
expenditure, which become payable at any time during the relevant previous year
and has been actually been paid within the previous year. Thus, the Tribunal’s
judgment in the case of ‘Merilyn Shipping & Transports Vs ACIT” [2012] [20
Taxmann.com 244] was overruled.
[CIT Vs Crescent Export Syndicate] [2013] [33
Taxmann.com 250] [Kolkatta - HC]
[CIT Vs Md.Jakir Hossain Mondal] [2013] [33
Taxmann.com 123] [Kolkatta - HC]
[CIT Vs Sikandarkhan N Tunvar] [2013] [33
Taxmann.com 133] [Gujarat - HC]
Case
law # 3: ‘Principle of Mutuality’
Interest
on FDs placed by a club with its member banks will not be exempt under the
principle of mutuality as such arrangements lack complete identity between the contributors and participators.
Also, such arrangements do not satisfy other conditions of mutuality. For
instance, the deposits received by the member banks were used to be advanced to
their own clients as loans rupturing the
principle of ‘Mutuality’.
[Bangalore Club Vs CIT] [2013] [29 Taxmann.com 29]
[SC]
Exemptions / IOS
Case Law #4: Awards, Rewards / Prizes
received by ‘Amateur Sportsperson’ are not ‘Income’ as per CBDT Circular No
447/1986 and hence free from income tax.
Thus,
where ‘Shree Abhinav Bhindra’ received Awards / Rewards / Prizes mainly from various governments, local
authorities, trusts and institutions, some
private corporate and individuals, it was held that such receipts are not
‘Incomes’ and hence the same cannot be taxed. It is so because, he was pursuing
‘Shooting’ as hobby but never pursued the same with the prospect of monetary
gain or as a professional. Also, the same cannot be taxed as ‘Gifts’ under the
provisions of Sec 56 as they are capital receipts.
[Abhinav Bindra Vs Dy CIT] [2013] [35
Taxmann.com 575] [Delhi – Tribunal]
TRUSTS
Case Law # 5: Sec 2(15) read with Sec
10(23C):
Exemption
U/S 10(23C)(iv) could not be denied to ICAI on account of fees received for
providing coaching classes and campus
placement of its students as the
predominant objective is not profit motive.
[ICAI Vs DGIT(Exemptions)] [2013] [35 Taxmann.com
140] [Delhi-HC]
Case
Law # 6: “Objects of Cricket Associations organizing IPL Matches are not
charitable in nature”
Though
the game of cricket, its promotion or advancement will remain a charitable, as
such, yet where matches were organized on a commercial basis, various avenues
of generating revenues were discovered and exploited, whether by itself or
through BCCI, there was clearly a ‘Profit
Motive’ involved in entire activities of the association and hence, the Association cannot claim the
benefit of Sec 11/12/13.
[Tamilnadu Cricket Association Vs DIT (Exemptions)]
[2013] [32 Taxmann.com 50] [Chennai – Tribunal]
MAT and Company
Assessment
Case
Law # 7: Sec 115JB:
Where the assessee company had set aside certain
amount out of profits as debenture redemption reserve, said amount was
deductible in computation of book profit U/S 115JB.
[JSW Energy Ltd Vs ACIT] [2013] [34 Taxmann.com 152]
[Mumbai-Trib]
ASSESSMENT PROCEDURES
Case
Law # 8: “Principle of Res Judicata”
Where
High Court, while considering appeal for preceding assessment year in
assessee’s own case, found that appellate authorities had deleted addition
after analyzing material on record, said decision would equally apply to year
under consideration where addition was based on self same grounds.
[CIT Vs Dr.Suresn Sharma] [2013] [36 Taxmann.com 4 /
217 Taxman 44] [Mag] [Rajasthan]
Case Law # 9: “Change of opinion” does
not entitle the AO to re-open the case U/S 147
The
assessee, engaged in wholesale business of gold and silver, claimed loss on
hedging of metals in commodity exchange to insure against price fluctuation.
The said loss was allowed in the course of assessment proceedings U/S 143(3).
The AO proposed to reopen the assessment on the ground that the exchange was
recognized only in a later year.
The
HC held that any post assessment attempt on part of AO to fall back on
conditions required to be satisfied for application of sub clause (a) of Sec
43(5) would amount to change of reasons recorded for reopening and hence
reopening was not permitted.
[Jayesh Raichand Shah Vs ACIT] [2013] [212 Taxman
306] [Guj-HC]
Case
Law # 10: “Change of opinion” does not entitle the AO to re-open the case U/S
147:
The
assessee (Mc Donalds Corpn), a
non-resident company had entered into a master licensing agreement with (Mc Donalds India Private Limited) in
terms of which the Indian entity was granted non-exclusive right to use the
assessee’s system at agreed locations in India. The terms also required the
Indian entity to pay “Initial Franchise Fees” and also “Royalty” on recorded
monthly sales of each restaurant during the period.
The
scrutiny assessments were completed for the relevant assessment years treating
the same as “Royalty Income” in the hands of the non-resident entity. [i.e
Taxed at 15%]
After
that, notices were served U/S 148 attributing the receipts to Permanent
Establishment to India. [i.e Proposed to
tax at 30% the then prevailing rate for business income.]
The
HC held that since all facts relating to Royalty Income had been placed on
record in course of assessment, initiation of reassessment proceedings on basis
of change of opinion was not sustainable. [Mc
Donalds Corpn] [2013] [213 Taxman 26] [Delhi-HC]
Case Law # 11: Withdrawal of a deduction
by retrospective amendment does not warrant invocation of Sec 147:
When
Legislature amends provisions of the Act with retrospective effect, it cannot
be said that there has been a failure on part of assessee to disclose fully and
truly all material facts at relevant time and, thus, reassessment proceedings
cannot be initiated in such a case.
[CIT Vs K.Mohan & Co (Exports) (Regd)] [2013]
[31 Taxmann.com 278] [Mumbai]
Case Law # 12: Audit Party Remarks
cannot be the sole criterion to invoke provisions of Sec 147:
Where
Assessing Officer has acted only under compulsion of Audit Party and not
independently, action of reopening assessment in such a case would be vitiated.
[Vijay Rameshbhai Gupta Vs ACIT] [2013]
[32 Taxmann.com 41] [Gujarat]
APPEALS
Case Law #13: Writ Jurisdiction:
Writ
petitions cannot be entertained when alternate remedy of filing an appeal
before CIT (A) is available. [CIT Vs
Chabil Dass Agarwal] [2013] [36 Taxmann.com 36] [SC]
TDS
Case Law # 14: Sec 194J: Charges paid to
Depositories:
Charges
paid to Depositories, i.e NSDL / CDSL by share transfer agents would fall under
professional managerial services and, therefore, tax was deductible at source
on such payments.
[ACIT Vs Karvy Computershare (P) Ltd] [2013] [35
Taxmann.com 403] [Hyd – Trib]
Case law # 15: Sec 194H:
TDS
provisions are not attracted on the commission / brokerage received by the stamp vendors from
the state government as it is in the nature of discount.
[CIT
Vs Ahmedabad Stamp Vendors Association] [2012] [25 Taxmann.com 201] [SC]
Case Law # 16: ‘Royalty / Fees for
Technical Services’ [Sec 195]
Payment
for online advertisement is not ‘Royalty’ or ‘Fees for Technical Services’.
Hence, where a ‘Florist’ pays sums to search engines like ‘Google and Yahoo’ to
promote its business, TDS provisions are not applicable as the recipients do
not have Permanent Establishment in India.
[ITO Vs Right Florists (P) Ltd] [2013]
[32 Taxmann.com 99] [Kolktatta –Tribunal]. Similar judgments were given in
‘Yahoo India (P) Ltd Vs Dy CIT’ [2011] [46 SOT 105] and also in ‘Pinstorm
Technologies P Ltd Vs ITO’ [2012] [54 SOT 78] [Mumbai]
Case Law # 17: “Sums paid to a ‘Model’
is liable to TDS U/S 194C but not U/S 194J”
To
fall U/S 194J, Film Artists should be engaged in the production of a
‘CINEMATOGRAPHIC FILM’. Also, the professional should be a ‘Film Artist’. Where
the professional is not a ‘Film Artist’ then it is not liable to TDS U/S 194J.
Film Artist means (i.e
the definition is exhaustive) any person engaged in his professional capacity
in the production of a CINEMATOGRAPHIC FILM, whether produced by him or by any
other person, as
i.
An
Actor;
ii.
A
Cameraman;
iii.
A
Director, including an Assistant Director;
iv.
A
Music Director, including an assistant music director;
v.
An
Art Director, including an Assistant Art Director;
vi.
A
Dance Director, including an Assistant Dance Director;
vii.
An
Editor;
viii.
A
Singer;
ix.
A
Lyricist;
x.
A
Storey Writer;
xi.
A
Screen Play Writer;
xii.
A
Dialogue Writer; and
xiii.
A
Dress Designer.
Thus,
where ‘Katrina Kaif’ received sums from ‘Kodak, Rochester (USA)’ for acting as
a ‘Model’ for the promotional material created by Kodak, including posing for
photographs or promotion of products of Kodak, the same is liable to TDS U/S
194C as ‘Model’ is not covered within the definition of ‘Film Artist’.
Thus, sums received by
her as an ‘Actress’ for acting in movies are liable to TDS U/S 194J whereas
sums received by her as a ‘Model’ are liable to TDS U/S 194C.
Note: On similar
reasoning, sums paid to ‘Stunt Masters’ also fall U/S 194C.
[Kodak
India (P) Ltd Vs Dy CIT] [2013] [32 Taxmann.com 88] [Mumbai – Tribunal]
Transfer Pricing
Case
Law # 18: Transfer Pricing – Marketing Intangibles: [292/Mar 2012 – Intl
Taxation] [267/Sep 2012 – Intl Taxation]
Segregate the routine and Non-Routine AMP
[Advertising; Marketing; Promotion] Spend. i.e It needs to satisfy the bright line test based on which one
needs to segregate the routine marketing spend and the non-marketing spend.
The
entity incurring non-marketing spend should charge the AE at ALP as it is
creating a marketing intangible. Thus, it is argued by the revenue that the
Indian entity should be compensated in the form of a “Reimbursement of Excessive Costs incurred along with a Fixed Profit
Margin”.
In this case, the Indian entity is incurring huge
non-routine outlay on one hand and paying the AE towards usage of brand on the
other hand. Such payment to the AE is disallowed as “Nil” arm’s length value by
the revenue on the premise that local market development undertaken by the
Indian tax payer has enhanced the value of brand / trademark legally owned by
the foreign affiliate, thereby necessitating a PAY IN rather than a PAY OUT.
The
crux is the non-routine spend is in the nature of brand building rather than in
the nature of promoting a particular product. [Maruti Suzuki India Ltd Vs Addl CIT] [2011] [198 Taxman 102]. Similar
rulings were now given in “L.G.Electronics India (P) Ltd Vs ACIT” [2013] [29
Taxmann.com 300] [Delhi-Trib-SB] and in
“Ford India Private Limited Vs Dy CIT” [2013] [34 Taxmann.com 50]
[Chennai-Trib]
Refunds
Case Law # 19: ‘Refunds’:
Where
there is no intimation in writing to assessee before making an adjustment of
refund, impugned order is to be set aside.
[Cognizant Technology Solutions India P Ltd Vs Dy
CIT] [2013] [34 Taxmann.com 204] [Madras]
Recoveries
Case Law # 20: Sec 222: Primacy of
certain debts over the dues under the IT Act:
Dues of a State
Owned Financial Corporation in case of mortgage
will have primacy over realization of dues under the Income Tax Act.
[Karnataka
State Industrial Investment Development Corporation Ltd Vs CIT] [2013] [33
Taxmann.com 93] [Karnataka]
Penalties
Case law # 21 : Applicability of Sec
269SS with regard to loans taken by partner from firm:
In
case of a partnership firm, there is no separate identity of partners and firm
and, therefore, where a partner took loan in cash from firm, there was no
violation of Sec 269SS so as to invoke penal provisions of Sec 271D. [CIT Vs Sivakumar] [2013] [32 Taxmann.com
62] [Madras]
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