RECENT
DECISIONS ON INCOME TAX
K.S.
Satish
Chartered
Accountant, Mysore
Accrual
The
Kerala High Court has in Kerala Urban Development Finance
Corpn. Ltd. v. CIT (2004) 186 CTR 422 (Ker) opined that
administration & supervision charges collected by
the assessee acting as a nodal agent for disbursement
of loans released by the Housing & Urban Development
Corporation to various local bodies at the time of disbursal
of loans which it was entitled to appropriate accrued
to the assessee at the stage of collection and was assessable
to tax in the year in which the loan was disbursed.
DEPRECIATION
Where
the assessee, a leasing and finance company, leased motor
buses & trucks to its customers for rent, it could
not be said that the assessee is using the motor buses
& trucks in the business of running them on hire and,
therefore, it is not entitled to higher rate of depreciation
in respect of the vehicles held the Bombay High Court
in Kotak Mahindra Finance Ltd. v. DCIT (2004) 265 ITR
114 (Bom).
BUSINESS
EXPENDITURE
The
Rajasthan High Court has in Addl. CIT v. Rajasthan Spinning
& Weaving Mills Ltd. (2004) 186 CTR 117 (Raj) taken
the view that contribution made by the assessee, a manufacturer
of textiles, to Export Promotion Fund set up for promotion
of exports of textiles is allowable as a deduction under
section 37(1) as it has a direct nexus with the advancement
of the business of the assessee.
REVENUE
EXPENDITURE
Expenditure
incurred by the assessee on replacement of ring frames
which had no independent existence or utility and being
ancillary or supporting machines were incapable of functioning
independently was revenue expenditure deductible under
section 37(1) held the Madras High Court in CIT v. Gitanjali
Mills Ltd. (2004) 265 ITR 681 (Mad).
INTEREST
ON BORROWED CAPITAL
The
Calcutta High Court in Caldern Pharmaceuticals Ltd. v.
CIT (2004) 265 ITR 244 (Cal) took the view that interest
paid on capital borrowed and utilised for the purposes
of business cannot be disallowed on the ground that the
assessee has not taken steps to collect the outstanding
dues from its debtors.
VALUATION
OF CLOSING STOCK
In
CIT v. Tamil Nadu Sugar Corporation Ltd. (2004) 265 ITR
466 (Mad), the Madras High Court held that the assessee
is not entitled to value the closing stock of sugar as
on 30.9.1983 with reference to the selling price prevailing
as on 25.10.1983 when its accounts were finalised.
CHAPTER
VI-A
Rent
received from letting out a portion of the business premises
and interest received on deposit of reserve funds in Reserve
Bank of India & other Banks by the assessee-society
engaged in the business of banking are eligible for deduction
under section 80-P(2)(a)(i) held the Karnataka High Court
in CIT & Anr. v. The Grain Merchants Co-Operative
Bank Ltd. (2004) 186 CTR 166 (Kar).
PENALTY
& PROSECUTION
The
Supreme Court has in K.C. Builders & Anr. v. ACIT
(2004) 265 ITR 562 (SC) ruled that penalty levied under
section 271(1)(c) cannot survive if the additions made
in the order of assessment on the basis of which it was
levied are deleted and once the penalty is cancelled on
the ground that there is no concealment of income, prosecution
launched under section 276C is liable to be quashed automatically.
TRIBUNAL
Non-consideration
of the decision of the Supreme Court or jurisdictional
High Court constitutes a mistake apparent from the record
which the Tribunal has to rectify under section 254(2)
irrespective of the fact whether the decision was rendered
prior or subsequent to the order passed by it held the
Gujarat High Court in CIT v. Subodhchandra S. Patel (2004)
265 ITR 445 (Guj).
PRECEDENT
The
Karnataka High Court has in Munibyrappa v. CIT (2004)
265 ITR 560 (Kar) expressed the view that the Tribunal
cannot gloss over decisions of the Supreme Court cited
before it in a one sentence statement that the decisions
are distinguishable and even assuming that they are either
distinguishable or not applicable, it is necessary to
record such decisions or a brief summary of the contentions
raised and to record the findings thereon.
APPELLATE
TRIBUNAL DECISIONS
RELIEF
UNDER SECTION 89(1)
Compensation
received by the assessee under the voluntary retirement
scheme from the Bank in which he was employed being profits
in lieu of salary under section 17(3) is eligible for
relief under section 89(1) read with rule 21A(1)(c) on
the amount as reduced by the exemption under section 10(10C)
held the Panaji Bench in ITO v. Dilip Shirodkar (2004)
82 TTJ 869 (Pnj).
PRINCIPLE
OF MUTUALITY
The
Mumbai Bench (Special Bench) in Walkeshwar Triveni Co-op.
Housing Society Ltd. (2004) 88 ITD 159 (Mum) (SB)
ruled that while the premium received by the assessee-society
from the transferor on transfer of occupancy rights over
the flat in the building of the society fixed by the Government
was not liable to tax, that received from the transferee
who was not a member of the society at the time of transfer
did not satisfy the test of mutuality and, therefore,
was exigible to tax.
CAPITAL
RECEIPT
In
DCIT v. Lotus Finance & Investment (P) Ltd. (2004)
82 TTJ 559 (Asr), the Amritsar Bench took the view that
the earnest money received by the assessee in pursuance
of an agreement to sell Shares in a company held by it
as investment which was forfeited on failure of the intending
purchaser to fulfil the terms of the agreement constituted
a capital receipt even though the intending purchaser
had claimed the amount as a business loss and the assessee
had bought and sold Shares of other companies.
BUSINESS
EXPENDITURE
Legal
expenses incurred by the assessee in defending title in
respect of leasehold land on which its hotel was situated
constitutes business expenditure as it was incurred to
safeguard its right to carry on the hotel business held
the Bangalore `C' Bench in DCIT v. I.T.C. Hotels Ltd.
(2004) 82 TTJ 652 (Bang).
SECTION
40(b)
In
ACIT v. Sant Shoe Store (2004) 88 ITD 524 (Chd) where
the building owned by the assessee-firm was revalued and
the increase in value was credited to the capital accounts
of the partners, the Chandigarh Bench expressed the view
that interest was allowable on the balances standing to
the credit of the capital accounts of the partners in
the books of account after credit on account of such revaluation.
CAPITAL
GAINS
Exemption
under section 54F cannot be denied to a minor child on
the ground that the father of the minor child owned a
residential house on the date of transfer of the capital
asset held by the minor child opined the Chandigarh `A'
Bench in ACIT v. Madan Lal Bassi (2004) 88 ITD 557 (Chd).
UNEXPLAINED
INVESTMENT
In
Smt. Bhanu R. Shah & Anr. v. DCIT (2004) 82 TTJ 296
(Bang) where the assessee bought a property for Rs. 3,55,000
and the sale deed mentioned that stamp duty had been paid
on Rs. 7,00,000 being the value fixed by the Government
of Karnataka, the Bangalore `C' Bench took the view that
the value notified by the State Government for purpose
of stamp duty cannot by itself lead to the conclusion
that the assessee has paid any amount over and above the
stated consideration of Rs. 3,55,000 and that addition
of Rs. 3,45,000 could not be made merely on the basis
of the value notified by the Government of Karnataka.
BLOCK
ASSESSMENT
Section
113 being a special provision prescribing levy of tax
on the total undisclosed income of the block period determined
prevails over section 112 which is a general provision
relating to levy of tax on long-term capital gain and,
therefore, long-term capital gain assessed as undisclosed
income is chargeable to tax at 60% and not at 20% held
the Pune Bench in Krishnagopal Nagpal v. DCIT (2004) 82
TTJ 481 (Pune).
PENALTY
In
Brij Lal Goyal v. ACIT (2004) 88 ITD 413 (Del) where the
sales disclosed by the assessee in his regular books of
account was less than Rs. 40,00,000 and the documents
seized from his premises during search revealed that he
had effected additional sales of Rs. 53,41,000 which were
not recorded in the regular books, the Delhi `D' Bench
opined that penalty under section 271B could not be levied
for not getting the accounts audited as required by section
44AB even though the assessee accepted the additional
sales for the purpose of assessment as the documents do
not constitute accounts maintained in the regular course
of business.
REVISION
An
order of assessment passed following the decision of the
Commissioner (Appeals) in the case of the very assessee
for an earlier assessment year cannot be said to be erroneous
so as to enable the Commissioner to invoke his powers
under section 263 held the Mumbai `D' Bench in Indexco
International v. DCIT (2004) 88 ITD 293 (Mum).
