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Judgements

Statutes,Circulars & Notifications

Notifications

Section 35(1)(ii) of the Income-tax Act, 1961 – Scientific research expenditure – Approved scientific research associations/institutions 

The organisation(s) Institute of Liver & Biliary Sciences, New Delhi, (PAN – AAALI0055R) and Amrita Vishwa Vidhyapeetham University Kochi, (PAN – AAATM2403M) have been approved by the Central Government for the purpose of clause (ii) of sub-section (1) of section 35 of the Income-tax Act, 1961 from assessment year 2012-13 and 2013-14 and onwards respectively in the category of "University College and other Institution”, engaged in research activities subject to the
conditions mentioned in the respective notification(s).

(Notification No. 7/2014 and 8/2014 both dated
22-1-2014)

Section 115Ad, Explanation (A) of the Income-tax Act, 1961 – Income of Foreign Institutional Investors from Securities or Capital Gains arising from their transfer – Taxability of – Notified Foreign Institutional Investors

The Central Government specified Foreign Portfolio Investors registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, as Foreign Institutional Investor for the purposes of the said section 115AD.

(Notification No. 9/2014 - dated 22-1-2014)

Section 90 – Agreement for Avoidance of Double Taxation and prevention
of fiscal evasion with foreign
countries – United Kingdom & Northern Ireland

The protocol amending the convention between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland, for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital was signed in October, 2012 according to which the date of entry into force of the said protocol amending the Convention is the 27th day of December, 2013. Now the Central Government directed that all the provisions of said Protocol as set out in the Annexure thereto, shall be given effect to in the Union of India with effect from the said date.

(Notification No. 10/2014 – dated 10-2-2014)

Circulars

Finance Act, 2013 – Explanatory Notes to the provisions of Finance Act, 2013

The Finance Act, 2013 as passed by the Parliament which received the assent of the President on the 10th day of May, 2013 has been enacted as Act No. 17 of 2013. This circular explains the substance of the provisions of the Act relating to direct taxes.

2.      Changes made by the Act

2.1   The Act has-

(i)    Specified the rates of income-tax for the assessment year 2013-14 and the rates of income-tax on the basis of which tax has to be deducted at source and advance tax has to be paid during financial year 2013-14.

(ii)   Amended sections 2, 10, 36,40, 43, 56, 80C, 80CCG, 80D, 80G, 80GGB, 80GGC, 80-IA, 80JJAA, 87, 90, 90A, 115A, 115AD, 115BBD, 115-O, 115R, 132B, 138, 139, 142, 144C, 153, 153B, 153D, 167C, 179, 195, 196D, 204, 206AA, 206C, 245N, 245R, 246A, 252, 253, 271FA, 295 in the Income-tax Act, 1961;

(iii)  Omitted Chapter X-A and Section 144BA of the Income-tax Act, 1961;

(iv)  Inserted new sections 32AC, 43CA, 80EE, 87A, 194-IA and 194LD in the Income-tax Act, 1961;

(v)   Inserted Chapter X-A consisting of sections 95 – 102, Chapter XII-DA consisting of sections 115QA - 115QC and Chapter XII-EA consisting of sections 115TA – 115TC, section-144BA and section-194LD in the Income-tax Act, 1961;

(vi)  Amended rule 3 of Part A of the Fourth Schedule to the Income-tax Act, 1961;

(vii)  Amended sections 2 and 46 of the Wealth-tax Act, 1957;

(viii) Inserted sections 14A and 14B in the Wealth-tax Act, 1957

(ix)  Amended section 98 of the Finance (No.2) Act, 2004;

(x)   Introduced Commodity Transaction Tax through Chapter VII.

AMENDMENTS AT A GLANCE

Section/Schedule

Particulars/Paragraph number

 

Finance Act, 2013

First Schedule

Rate Structure, 3.1 - 3.4

 

Income-tax Act, 1961

2

Change in the definition of capital asset, 4.1 – 4.5

10

Change in the definition of Keyman insurance policy, 5.1–5.5; exemption to income of investor Protection Fund of depositors,
6.1–6.3 ; pass through status to certain Alternative Investment Funds, 7.1–7.4; exemption of income received in India in Indian currency by a foreign company, 8.1–8.4; exemption to National Financial Holdings Company Limited, 9.1–9.3.

Insertion of new section 32AC

Incentive for acquisition and installation of new plant or machinery by manufacturing company, 10.1–10.4.

36

Clarification for amount to be eligible for deduction as bad debts in case of banks, 11.1–11.8.

40

Disallowance of certain fee, charge, etc. in case of State Government Undertakings, 12.1–12.3.

Insertion of new section 43CA

Computation of income under the head “profits and gains of business or profession” for transfer of immovable property in certain cases, 13.1–13.4.

56

Taxability of immovable property received for inadequate consideration, 14.1–14.4.

80C

Raising of limit of percentage of eligible premium for life insurance policies of persons with disability or disease, 15.1–15.6.

80CCG

Expanding the scope and deduction and its eligibility under the section, 16.1–16.5.

80D

Deduction for contribution to Health Schemes similar to Central Government Health Scheme (CGHS), 17.1–17.3.

Insertion of new section 80EE

Deduction in respect of interest on loan sanctioned during financial year 2013-14 for acquiring residential house property, 18.1–18.4.

80G

One hundred per cent deduction for donation to National Children’s Fund, 19.1–19.4.

80GGB & 80GGC

Contribution not to be in cash for deduction under section 80GGB & 80GGC, 20.1–20.3.

80-IA

Extension of the sunset date under the section for the power sector, 21.1–21.3.

80JJAA

Deduction for additional wages in certain cases, 22.1–22.6.

87 and Insertion of new section 87A

Rebate of 2000 for individuals having total income up to Rs. 5 lakh, 23.1–23.4.

90 and 90A

Tax Residency Certificate, 24.1–24.5.

Omission of Chapter X-A relating to General Anti-Avoidance Rule and Insertion of new Chapter X-A, omission of section 144BA and insertion of new section 144BA, amendment of sections 144C, 153D, 245N, 245R, 246A, 253 and 295

General Anti Avoidance Rule (GAAR), 25.1–25.5.

115A

Taxation of income by way of Royalty or fees for technical services, 26.1–26.4.

115BBD

Lower rate of tax on dividends received from foreign companies, 27.1–27.3.

115-O

Removal of the cascading effect of Dividend Distribution Tax (DDT), 28.1–28.5.

Insertion of new Chapter
XII-DA

Additional income-tax on distributed income by company for buy-back of unlisted shares, 29.1–29.4.

115R

Rationalisation of tax on distributed income by the Mutual Funds, 30.1–30.5.

Insertion of new Chapter
XII-EA

Taxation of securitisation trusts, 31.1–31.4.

132B

Application of seized assets, 32.1–32.3.

138

Replacement of terms "Foreign Exchange Regulation Act, 1947" and Foreign Exchange Regulation Act, 1973” with "Foreign Exchange Management Act, 1999", 33.1–33.4.

139

Return of income filed without payment of self-assessment tax to be treated as defective return, 34.1–34.3.

142

Direction of special audit under sub-section (2A) of the section,
35.1–35.3.

153 and 153B

Exclusion of time for computing the period of limitation for completion of assessments and reassessments, 36.1–36.6; time limit for completion of assessment or reassessment where reference is made to the transfer pricing officer, 37.1–37.6

167C and 179

Clarification of the phrase “tax due” for the purposes of recovery in certain cases, 38.1–38.3.

Insertion of new section
194-IA

Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land), 39.1–39.6.

Insertion of new section 194LD, amendment of sections 115AD, 195 and 196D

Income by way of interest on certain bonds and Government securities, 40.1 - 40.2.

204

Meaning of person “responsible for paying” under Chapter XVII, 41.1–41.4.

206AA

Exemption from requirement of furnishing PAN under section 206AA to certain non-resident bond holder, 42.1–42.3.

206C

Removal of exemption from levy of Tax Collection at Source (TCS) to cash sale of any coin or any other article weighing 10 grams or less, 43.1–43.2.

252

Appointment of President of the Appellate Tribunal, 44.1–44.4.

Substitution of new section for section 271FA

Penalty under section 271FA for non-filing of Annual Information Return, 45.1–45.5.

Fourth Schedule

Extension of time for approval, 46.1–46.5.

 

Wealth-tax Act, 1957

2

Change in the definition of capital asset; exemption from wealth tax to agricultural land situated in urban area, 47.1–47.3.

Insertion of new sections 14A and 14B and amendment of section 46

Enabling provisions for facilitating electronic filing of annexure-less return of net wealth, 48.1–48.4.

 

Finance (No.2) Act, 2004

Section 98 of the Finance (No.2) Act, 2004

Rationalisation of securities transaction tax rates, 49.1–49.3.

 

Chapter VII, Finance Act, 2013

Chapter VII of the Finance Act, 2013 and amendment in sections 36 and 43 of the Income-tax Act, 1961

Commodities Transaction Tax, 50.1–50.6.2.

 

(Circular No.3/2014 - dated 24-1-2014)

Section 10(17A) of the Income-tax Act, 1961 – Awards – Awards instituted/Approved by the Central/State Government under Clause (17A) for the purpose of exemption of payment made in pursuance thereof

In pursuance of the powers conferred by sub-clause (ii) of clause (17A) of section 10, the Central Government approved any payment made, whether in cash or in kind, as a reward by the Central Government or a State Government to the medal winners of the Olympic Games or Common Wealth Games or Asian Games with effect from the date of this order.

(Order [F. No.199/03/2013-ITA.1], dated 28-1-2014)

Section 143 of the Income-tax Act, 1961 – Assessment – Non-filing of itr-v in returns with refund claims – Relaxation of time-limit for filing itr-v and processing of such returns

Several instances of grievances have come to the notice of the Board stating that a large number of returns-of-income for Assessment Year (‘AY’) 2009-2010, which were electronically filed without a digital signature in accordance with procedure laid down were not processed as such returns became non-est in law in view of Circular No. 3 of 2009 of CBDT dated
21-5-2009. Paragraphs 9 and 10 of the said Circular laid down that ITR-V had to be furnished to the (Centralised Processing Centre (‘CPC’), Bengaluru by post within 30 days from the date of transmitting the data electronically and in case, ITR-V was furnished after the stipulated period or not furnished, it was deemed that such a return was never furnished. It was claimed by some of the taxpayers that despite sending ITR-V through post to CPC within prescribed time-frame, the same probably could not reach CPC and thus such returns became non-est
. Since ITR-V was required to be sent through (ordinary) post at a 'post box’ address, there were no despatch receipts with the concerned senders in support of their claim of having furnished ITR-V to CPC within prescribed time limit.

2.     Subsequently CBDT extended the time-limit for filing ITR-V (relating to Income-tax returns filed electronically without digital signature for AY 2009-2010) upto 31-12-2010 or 120 days from the date of filing, whichever was later. It also permitted sending of ITR-V either by ordinary or speed post to the CPC. However, for the AY 2009-10, some cases were still reported where return was declared non-est due to non- receipt of ITR-V by CPC even within such extended time-frame and consequently
the refunds so arising continue to remain held up.

3.     Likewise, for AY’s 2010-11 and 2011-12, though relaxation of time for furnishing ITR-V was granted by Director General of Income Tax (Systems), it has been noticed that a large number of such electronically filed returns still remain pending with Income-tax Department
for want of receipt of valid ITR-V Certificate at CPC.

4.     In order to mitigate the grievances of the taxpayers pertaining to non- receipt of tax refunds, Central Board of Direct Taxes, relaxed and extended the date for filing ITR-V Form for Assessment Years 2009-10, 2010-11 and 2011-12 till 31-3-2014 for returns e-filed with refund claims within the time allowed under section 139 of the Act. The taxpayer concerned may send a duly signed copy of ITR-V to the CPC by this date by speed post in such cases. Central Board of Direct Taxes also relaxed the time-frame of issuing the intimation and directed that such returns shall be processed within a period of six months from end of the month in which ITR-V is received and the intimation of processing of such returns shall be sent to the assessee concerned as per laid down procedure.

5.     Provision of sub-section (2) of section 244A of the Act would apply while determining the interest on such refunds.

6.     The taxpayer may ascertain whether ITR-V has been received in the CPC, Bengaluru or not by logging on the website of income-tax Department – http:/incometaxefiling.gov.in/e-Filing/Services/ITR-V Receipt Status.html by entering PAN No. and Assessment Year or e-filing acknowledgement number. Alternatively, status of ITR-V could also be ascertained at the above website under ‘Click to view Returns/Forms’ after logging in with registered e-filing account. In case ITR-V has not been received within the prescribed time, status will not be displayed and further steps would be required to be taken as mentioned above.

(Circular No. 4/2014 [F.No.225/198/2013-ITA.II], dated 10-2-2014)

Expenditure incurred in relation to income not includible in total income – Clarification on disallowance of expenses under section 14A in cases where corresponding exempt income has not been earned during the financial year

Section 14A of the Income-tax Act, 1961 provides for disallowance of expenditure in relation to income not “includible” in total income. A controversy arose in certain cases as to whether disallowance can be made by invoking section 14A of the Act even in those cases where no income has been earned by an assessee which has been claimed as exempt during the financial year. The matter has been examined by the Board. It is pertinent to mention that section 14A of the Act was introduced by the Finance Act, 2001 with retrospective effect from
1-4-1962. The purpose for introduction of section 14A with retrospective effect since inception of
the Act was clarified
vide Circular No. 14
of 2001.

According to this the legislative intent was to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not.

The above position was further clarified by the usage of term ‘includible’ in the Heading to section 14A of the Act and also the Heading to Rule-8D of I.T. Rules, 1962 which indicate that it is not necessary that exempt income should necessarily be included in a particular year’s income, for disallowance to be triggered. Also, section 14A of the Act does not use the words “income of the year” but “income under the Act”. This also indicates that for invoking disallowance under section 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration.

The above position is further substantiated by a language used in Rule 8D (2)(ii) & 8D (2)(iii) of I.T. Rules. Thus as per this circular the Central Board of Direct Taxes clarified that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.

(Circular No.5/2014 - dated 11-2-2014)

Press Releases

Procedure for pan allotment – Decision to change procedure for pan allotment has been kept in abeyance and old procedure thereof to continue till further orders

The CBDT decided to keep in abeyance the decision to change the procedure for PAN allotment till further orders. Accordingly the operation of circular No. 11 dated 16-1-2014 issued to PAN service providers has been directed to be put on hold till further orders. In the meantime the old procedure of PAN application and allotment shall continue.

(CBDT Press Release, dated 30-1-2014)

Section 90 – Agreement for Avoidance of Double Taxation and prevention of fiscal evasion with foreign countries – Fiji

The Government of the Republic of India signed a Double Taxation Avoidance Agreement (DTAA) with the Government of Republic of Fiji for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income.

The said DTAA provides that business profits will be taxable in the source state if the activities of an enterprise constitute a permanent establishment in the source state. Profits derived by an enterprise from the operation of aircraft in international traffic shall be taxable in the country of place of effective management of the enterprise. Dividends, interest, royalty income and fees for technical or professional services will be taxed both in the country of residence and in the country of source. However, the maximum rate of tax to be charged in the country of source will not exceed the prescribed limit for such dividends, interest, royalties and fees for technical services. Capital gains from the sale of shares will be taxable in the country of source.

This agreement incorporates provisions for effective exchange of information and assistance in collection of taxes between tax authorities of the two countries including exchange of banking information and also incorporates anti-abuse provisions to ensure that the benefits of the Agreement are availed of only by the residents of the two countries and to prevent treaty abuse. The Agreement would provide tax stability to the residents of India and Fiji and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Fiji.

(CBDT Press Release, dated 30-1-2014)

 

High Court

1. Sections 10A / 10B – interest on EEFC account and interest income earned on inter-corporate deposit– Entitled to exemption – A.Ys. 1998-99 &
2001-02

CIT vs. Motorola India Electronics (P) Ltd. (2014) 98 DTR (Kar.) 81

In the instant case the assessee had borrowing by way of external commercial borrowing [ECB]. During the said period there was a restriction on the prepayment of such borrowing. The assessee had to park such surplus funds until the date of repayment of the ECB and also pay interest on such ECB. The assessee took a business decision to park these funds in inter-corporate deposits. The assessee claimed this interest income from EEFC and inter-corporate discounts as business income and claimed the same being exempt u/s 10A. The issue came up before the High Court, and the High Court while deciding the issue in favour, held that such interest derived from EEFC and inter-corporate deposits have a clear nexus with the business of the undertaking, thought it does not partake the character of a profit from the sale of article, it is the income which is derived from the consideration realised by the export of articles, and in view of the definition of income
from profits and gains incorporated in sub- section (4), the assessee is entitled to the benefit of exemption.

2.Section 11(15); 10(23AAA) – Employee welfare fund – Violation of section 11(5) – Contributions received from the member cannot be taxed – A.Y. 2000-01

The assessee is welfare fund which was approved the CIT, and the same is notified by the board in the Official Gazette for the welfare of its employees and their dependents. Admittedly, for the relevant year the investment and deposit were not invested as per the norms of section 11(5) of the Act, and therefore the AO held that any income and contributions received would not be exempt. In appeal it was held that only the income from the investments not made as per the provisions of section 11(5) should be denied exemption, but all the other income of the assessee could not be denied exemption. The High Court held that once the fund is approved by the CIT under section 10(23AAA), the contributions made by the employees could not be held to be taxable even if there is violation of section 11(5).

3. Section 4 and 2(24) – Capital or revenue – Subvention assistance from holding company to recoup anticipated losses – Capital receipt

CIT vs. Deutsche Post Bank Home Finance Ltd. (2014) 98 DTR (Del.) 144

The assessee is a 100 per cent subsidiary of a company based in Germany, and was engaged in the business of housing finance. During the year the assessee anticipated a heavy loss, and therefore the holding company granted subvention assistance to the assessee, the assessee held the same to be a capital receipt. The AO held that it is casual receipt received by the assessee as assistance for running its business in India, and held the same to be taxable. The CIT(A) held the same to be a gift by the holding company, and the same cannot be taxed. The ITAT held that it is capital receipt. The High Court held subvention assistance from holding company to recoup anticipated losses of the assessee constituted capital receipt not chargeable to tax.

4. Section 54F – meaning of construction – demolition of old house and rebuilding a new one in its place – Exemption allowable

CIT vs. Ashok Kumar Ralhan [2014] 360 ITR 575 (Delhi)

The assessee had sold a property, with which he bought a fully built property and demolished the structure and rebuilt it. The assessee claimed the money used to construct the house exempt u/s 54F. The AO denied the exemption as there was no need to reconstruct a already fully constructed house. The CIT(A) and Tribunal held in favour of the assessee. On Appeal to the High Court, the High Court held that there was a factual finding that construction was carried out with in the outer limit of 3 years, makes not difference if the same is constructed after demolishing a existing house and reconstructing the same.

5. Section 43(5) – Sale purchase of shares by stock broker on behalf of himself being 'jobbing' – Loss not speculative loss

CIT vs. Ram Kishan Gupta [2014] 41 taxmann.com 363 (Allahabad)

Assessee being stock broker incurred loss in respect of transactions done by him on floor of stock exchange with the broker. He set off same against other income. The Assessing Officer treated same as speculation loss being on account of transactions for which there was no physical delivery. He held that same could not be set off against other income and had to be carried forward whereas assessee submitted that since delivery had been effected at net basis as per stock exchange guidelines and no forward trading was allowed and further as per direction of SEBI, he had deposited turnover fee of jobbing, no question of speculation loss arose. On appeal the CIT(A) confirmed the order made by the Assessing Officer. The CIT(A) held that transaction which have been settled otherwise than actual delivery of shares in question will have to be treated as speculative transaction as provided under section 43(5). On further appeal in Tribunal, the Tribunal allowed the assessee's appeal and held that the allegation that transactions were settled without actual delivery was not fully established by the revenue. Further, it was held that if the system provides settlement at net basis in respect of jobbing and assessee had been found paying turnover fee on such transaction ever since 1991-92, assessee's entire business was of non-speculative nature. On an appeal in High Court, High Court dismissed the appeal of the revenue and held that the share trading business on behalf of oneself is known as jobbing. Further the transaction carried on by assessee for sale and purchase of shares was fully covered by term 'jobbing' and assessee was entitled for extension of benefit of proviso (c) to section 43(5) and thus, losses suffered by assessee could not be termed to be speculative loss.

6. Section 54EC – Deeming fiction – Cannot restrict application of section 54EC

CIT vs. Aditya Medisales Ltd (2014) 99 DTR
(Guj.) 92

Assessee filed its Return of Income for the A.Y: 2007-08. During the year, the assesse sold “Automatic Electric Loard Monitoring System” for a sum of Rs. 240 lakhs and the assessee invested the gain amount in Rural Electrification Bonds and claimed exemption u/s 54EC of the IT Act. The AO passed an order u/s 143(3) wherein he disallowed such exemption on the ground that the same was available on short-term capital and invocation of section 54 EC was permissible only on long-term capital gain. On an appeal before CIT(A), CIT(A) deleted said addition and allowed partly relying on the decision of CIT vs. Ace Builders (P) Ltd. (2006) 281 ITR 210 (Bom.). On Revenue’s appeal in Tribunal, the Tribunal dismissed the appeal of revenue & allowed in favour of assessee. On further appeal in High Court, wherein the question of law was whether the exemption u/s 54E cannot be denied to the assessee only on account of the fact that deeming fiction is created u/s 50 of the IT Act. The court held that legal fiction created u/s 50 though restricted to computation of capital gains; such deeming fiction cannot restrict application of 54EC of the Act which allows exemption of capital gains, if assessee makes investment in the specified assets. Thus the assessee cannot be charged to capital gains when Short Term Capital Gain of Long Term Capital assets get invested in the areas specified under the law.

7.Section 147; 148 – Reassessment –on basis of audit party – Not maintainable

CIT vs. Shilp Gravures Ltd. 220 Taxman 382 (Guj.)

Assessee company was engaged in the business of manufacturing job work in electronically engraved copper rollers. It claimed expenses on in-house research being in the nature of consumption of raw material on test production and salary/ wages of personal deployed for R&D expenses in previous year & balance amount in two succeeding previous years. AO at an instance of audit party applied 35AB and issued notice u/s 148. CIT(A) quashed the reassessment proceedings. On revenue's appeal, Tribunal confirmed the order of CIT(A). On further appeal in Tribunal, Tribunal confirmed the order of CIT(A). On appeal in High Court, High Court dismissed revenue’s appeal and held that since AO had by recording reasons for which he had no conviction, same was a colorable exercise of jurisdiction by AO and could not be sustained. Subjective satisfaction of AO was lacking in this case. AO had no belief while issuing notice and therefore as per Adani Exports vs. DCIT 240 ITR 224 (Guj.) it was a colourable exercise of jurisdiction by AO by recording the reasons for which he obviously had no conviction and had initiated the reassessment proceedings solely at the
instance of the audit party which cannot be sustained.

8. Business Income vis-a-vis Income from House property

CIT vs. Velankani Information systems (P) Ltd (2014) 265 CTR (Kar.) 250.

Assessee was real estate developer in the business of providing comprehensive facilities to IT Industry. Such facilities included provision for specifically furnished buildings, special electrical connections & special furniture. Provisions for such facilities also included letting out specialized buildings & office premises that were built to cater to the special requirements of IT industry. The assesse company filed ROI for A.Y. : 2005-06 declaring total income of Rs NIL & paid taxes u/s 115 JB of the IT Act. The assesse claimed such facilities provided as income from business on profession. The AO treated it as Income from House property since the assesse has let out the buildings and also provided several amenities. He treated the income arising from the letting out of space as independent of the other. The lessee may or may not opt for these benefits . Therefore income arising from letting out of building or lands appurtenant thereto clearly constituted as "income from House Property” and services provided as Income from other sources. On an appeal in CIT(A), the CIT(A) allowed the appeal of the assesse. On further appeal by revenue in Tribunal, Tribunal dismissed revenues’s appeal & treated it as “income from business”. On further appeal in High Court, High Court dismissed revenues’ s appeal and held that several agreements are entered into contemporaneously and the object is to enjoy the entire property building, furniture the accessories as a whole which is necessary for carrying on the business, the income derives therefrom cannot be separated based on separate agreement between the parties . What is to be seen is the intention behind the lease & the facilities provided along with the building and the document executed in respect of each of them. Further, it is to be seen if there is commercial property along with certain facilities and they are inseparable than the rental income falls under the head “Profits and gains of business or profession. Therefore the rental income of the assesse was assessable as business income and not as income from house property or as income from other sources.

Statutes,Circulars & Notifications

Notifications

Income-tax (Nineteenth Amendment) Rules, 2013 – Amendment in Rule 114 and Substitution of Form Nos. 49A and 49AA being application for allotment of Permanent Account Number

The Central Board of Direct Taxes made the rules further to amend the Income-tax Rules, 1962 as the Income-tax (19th Amendment) Rules, 2013 which shall come into force on the date of their publication in the Official Gazette.

Form No. 49A being Application for Allotment of Permanent Account Number applicable in the case of Indian Citizens/Indian Companies/Entities incorporated in India/Unincorporated entities formed in India and Form No. 49AA applicable for Individuals not being a Citizen of India/Entities incorporated outside India/Unincorporated entities formed outside India have been substituted. The documents required to be accompanied with aforesaid applications as proof of identity; address and date of birth of such applicant have been specified in the said notification.

According to the notification the Income Tax Department will now accept Aadhaar Card as a proof of identity and address for issuance of Permanent Account Number (PAN). Aadhaar is a 12-digit individual identification number issued by the Unique Identification Authority of India (UIDAI) on behalf of the Government of India. Now, Aadhaar Card can be used for getting a PAN, which is a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department. Other documents for identify accepted by the Income Tax Department include elector's photo identity card, ration card having photograph of the applicant, passport, driving licence, arms licence and photo identity card issued by Government or a public sector undertaking. Documents for address proof include electricity bill, landline telephone or broadband connection bill, consumer gas connection card or book or piped gas bill, bank account statement, passport of applicant or even spouse, among others.

Recently, the Reserve Bank of India had also notified that Aadhaar Card as a valid proof for opening of a bank account under the Know Your Customer (KYC) scheme.

(Notification No. 96/2013 dated 23-12-2013)

Section 35(1)(iii) of the Income-tax Act, 1961 – Scientific research expenditure – Approved social science or statistical research Associations or Institutions

The organisation Salim Ali Centre for Ornithology and Natural History, Coimbatore (PAN-AAATS1101Q) has been approved by the Central Government for the purpose of clause (iii) of sub-section (1) of section 35 of the Income-tax Act, 1961, from Assessment Year 2013-14 onwards in the category of 'Scientific Research Association' activities subject to the conditions mentioned in the said notification.

(Notification No. 97/2013, dated 26-12-2013)

Section 35AC of the Income-tax Act, 1961 – Eligible projects or schemes, expenditure on – Notified eligible projects or schemes

The Central Government notified two institutions in the State of Gujarat, and approved the eligible projects/schemes to be carried on by the said institutions and the estimated cost thereof and also specified the maximum amount of such cost which may be allowed as deduction under the said section 35AC for the period of approval.

The Notification shall remain in force for a period of three years in relation to financial years 2013-14, 2014-15 & 2015-16 in respect of the projects or schemes mentioned in the said notification.

(Notification No. 74/2013 dated 27-12-2013)

Section 90 of the Income-tax Act, 1961

•        Agreement for avoidance of double taxation and prevention of fiscal evasion with Albania

            An agreement between India and the Council of Ministers of Republic of Albania for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital has been signed. The Central Government directed that all the provisions of said agreement between India and the Council of Ministers of Republic of Albania for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, as set out in the Annexure to the said notification, shall be given effect to in the Union of India with effect from date of entry into force of
said agreement i.e., the 4th day of December, 2013.

            (Notification No. 2/2014 – dated 6-1-2014)

•        Agreement for exchange of information with respect to taxes with Belize

            An agreement between India and the Government of Belize for the exchange of information with respect of taxes was signed at Belmopan. The Central Government directed that all the provisions of said agreement between India and the Government of Belize for the exchange of information with respect to taxes as set out in the Annexure to the said notification, shall be given effect to in the Union of India with effect from the date of entry into force of
said agreement i.e., the 25th day of November, 2013.

            (Notification No. 3/2014 – dated 7-1-2014)

Section 80D of the Income-tax Act, 1961 – Health Insurance Premia – Deduction in respect of – Notified health service scheme

The Central Government notified the Contributory Health Service Scheme of the Department of Space for the purposes of section 80D for the assessment year 2014-15 and subsequent assessment years.

(Notification No. 6/2014 [F. No. 149/97/2013-TPL], dated 15-1-2014)

Circulars

Rent – Clarification regarding tds under Chapter xvii-b on Service Tax component comprised payments made to residents

The Board earlier vide Circular No. 4/2008 dated
28-4-2008 clarified that tax is to be deducted at source under section 194-I of the Income-tax Act, 1961 on the amount of rent paid/payable without including the service tax component. Representations/letters have been received by CBDT seeking clarification whether such principle can be extended to other provisions of the Act also.

Attention of CBDT has also been drawn to the judgment of the Hon'ble Rajasthan High Court dated 1-7-2013, in the case of CIT (TDS) Jaipur vs. Rajasthan Urban Infrastructure (Income-tax Appeal No. 235, 222, 238 and 239/2011), holding that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax component u/s 194J of the Act.

The Board now decided that wherever in terms of the agreement/contract between the payer and the payee, the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid/payable without including such service tax component.

(Circular No. 1/2014 – dated 13-1-2014)

Instructions

Section 197 of the Income-tax Act, 1961 – Deduction of Tax at Source – Certificate of lower deduction or Non-deduction of Tax at Source under section 197

As per the Citizens Charter the time line prescribed for a decision on application for no deduction of tax or deduction of tax at lower rate is one month. Instances have been brought to the notice of the Board, about considerable delay in issuing the lower/non deduction certificate under section 197 by the jurisdictional Assessing Officers.

CBDT vide these instructions directed that the commitment to tax payers as per the Citizens Charter must be scrupulously adhered to by the Assessing Officers and all applications for lower or no deduction of tax at source filed u/s 197 of the Income-tax Act, 1961 must be disposed of within the stipulated time frame as above.

(Instruction No. 1/2014 – dated 15-1-2014)

Press Releases

Gross Direct Tax Collection during April-December of F.Y. 2013-14

Gross direct tax collection during April-December of the F.Y. 2013-14 is up by 12.33 per cent as against in the same period last year. While gross collection of corporate taxes has shown an increase of 9.35 per cent, gross collection of Personal income tax is up by 18.53 per cent. Net direct tax collection is up by 12.53 per cent in the same period in the last fiscal. The collection of STT showed the growth of 4.04 per cent while the Wealth Tax has posted a growth of 11.92 per cent.

(Press Release No. 402/92/2006-MC dated 6-1-2014)

Section 2(15) of the Income-tax Act, 1961 – Charitable /religious purpose – Action taken against four specified cricket associations having been found engaged in certain activities which were considered commercial in nature in view of amended provisions of section 2(15)

The Income Tax authorities have looked into the affairs of the four cricket associations, namely Saurashtra Cricket Association, Baroda Cricket Association, Kerala Cricket Association and Maharashtra Cricket Association and have found that these cricket associations were engaged in certain activities which were considered commercial in nature in view of the amended provisions of Section 2(15) of the Income-tax Act, 1961. Consequently, the scrutiny of assessments in these cases has resulted into the withdrawal of tax-exemption. Past assessments in these cases have also been reopened by the Department to examine the correctness of their claim for income tax exemption during the periods concerned.

(CBDT Press Note, dated 9-1-2014)

Change in procedure for Pan allotment process w.e.f. 3-2-2014

The procedure for PAN allotment process will undergo a change w.e.f. 3-2-2014. From this date onwards, every PAN applicant has to submit self-attested copies of Proof of Identity (POI), Proof of Address (POA) and Date of Birth (DOB) documents and also produce original documents of such POI/POA/DOB documents, for verification at the counter of PAN Facilitation Centres. The copies of Proof of Identity (POI), Proof of Address (POA) and Date of Birth (DOB) documents attached with PAN application form, will be verified vis-a-vis their original documents at the time of submission of PAN application at PAN Facilitation Centre. Original documents shall not be retained by the PAN Facilitation Centres and will be returned back to the applicant after verification.

(CBDT Press Release, dated 24-1-2014)

Tribunal

REPORTED

1.      Assessment – issue of notice under section 143(2) of the Act at the old address despite intimation of new address – service of notice under section 143(2) of the Act at the new address after the prescribed time limit – notice under section 143(2) is barred by limitation period and therefore, assessment order is void ab initio. A.Y. 2006-07

Abacus Distribution Systems (India) (P) Ltd vs. DCIT (2014) 97 DTR (Mumbai)(Trib) 1

The assessee filed its return of income for A.Y. 2006-07 on 20-11-2006 declaring nil income. As there was a change in the communication address, the assessee filed a letter dated
22-11-2006 and intimated the A.O. new address. However, the A.O. issued notice under section 143(2) of the Act dated 28-11-2007 at the old address of the assessee which has not been served. Thereafter, the second notice under section 143(2) was issued on 11-12-2007 at the new address communicated by the assessee. The assessee before the Appellate Tribunal raised legal issue with respect to the validity of the notice issued under section 143(2) of the Act as the same was barred by limitation period. The Appellate Tribunal held in favour of the assessee by observing that the A.O. having sent the notice under section 143(2) at the old address of the assessee despite the intimation of the assessee about the change of address and failed to serve the said notice upon the assessee within the statutory time-limit as provided under second proviso to section 143(2) and the second notice which has been served upon the assessee being clearly barred by limitation, there was no compliance of the mandatory requirement of serving the notice under section 143(2) within the time-limit and, therefore, the impugned assessment order is void ab initio.

2.      Capital or revenue expenditure – Vehicle lease rental – lessor is responsible for making payment towards insurance premium, road tax and repair and maintenance –ownership of the vehicle remains with the lessor – lease is an operating lease – lease rentals paid are allowable as revenue expenditure. A.Y. 2006-07

Godrej Consumer Products Ltd vs. ACIT (2014) 97 DTR (Mumbai)(Trib.) 33

The assessee in the return of income claimed expenditure incurred on lease rental of the cars. During the course of assessment proceedings the A.O. observed that the assessee had capitalised leased assets and is writing off the cost of such assets in the books of account by way of depreciation over the period of lease. However, in computation of total income, the depreciation on such leased assets had been disallowed and added back to the total income. The A.O. after considering the explanations of the assessee considered the lease transaction as finance lease and treated the lease returns paid as capital expenditure and disallowed the claim of the assessee for treating the same as revenue expenditure. On Appeal, the first Appellate Authority confirmed the action of the A.O.

The assessee, being aggrieved by the order passed by Ld. CIT(A) preferred further appeal to the Income Tax Appellate Tribunal, Mumbai. The Appellate Tribunal held in favour of the assessee by observing that assessee having acquired vehicles under a lease agreement which stipulates that the lessor is to bear the insurance premium, road tax and repair and maintenance expenses of the vehicles and that the vehicles are to be returned to the lessor on the expiry of the terms of the lease, the lease in question is an operating lease and not a finance lease and consequently, the lease rentals paid during the relevant Assessment Year allowable as revenue expenditure, more so as the assessee has not claimed any depreciation of the vehicles.

3.      Charitable trust – Registration under section 12A – allegation of collection of donation/capitation fee without any proof – cancellation of registration under section 12A not justified A.Y. 2003-04

ACIT vs. Prathima Educational Society (2014) 97 DTR (Hyd.)(Trib.) 132

The assessee is running a medical college at Karimnagar. The CIT issued a show cause notice to the assessee society on the basis of certain report of the A.O., proposing cancellation of the registration under section 12AA, by exercising the power conferred under s. 12AA(3) of the Act. The CIT after examining the various material found and seized at the time of search and the statements recorded at the time of search, observed that the conduct of the Society is not in accordance with the objects for which it was established. He noted that the assessee society admitted students under management quota in consideration of amounts over and above the prescribed fees by the Government, which clearly established the intention of the assessee to earn profit. The CIT, therefore, cancelled the registration vide impugned order dated
22-3-2012 passed under section 12AA(3) of the Act.

The assessee, being aggrieved by the order passed by Ld. CIT preferred further appeal to the Income Tax Appellate Tribunal, Mumbai. The Appellate Tribunal held in favour of the assessee by observing that assessee-society being engaged in running a medical college, it cannot be said that the activities of the assessee are not genuine or that the activities are not being carried on in accordance with its object; department having failed to adduce sufficient evidence to show that the assessee had actually collected capitation fees from its students registration granted to the assessee-society under section 12AA cannot be cancelled.

4.      Charitable trust – Exemption under section 11 – interest income earned on surplus/corpus fund kept as FDRs – eligible for exemption under section 11 of the Act – A.Y. 2009-10

DCIT vs. Nehru Prasutika Hospital Samiti (2014) 97 DTR (Agra)(Trib.) 357

The assessee society is running a maternity hospital at Aligarh. The assessee society is registered under section 12AA of the Act. The A.O. during the course of assessment proceedings found that the interest income on the FDRs exceeds 15% of receipts allowed to be treated as Charitable activity. The A.O. therefore, disallowed the interest exceeding 15% to the tax. On appeal, the first Appellate Authority held that the interest earned on surplus/corpus fund is directly linked to the main activity of the trust and therefore the exemption under section 11 is allowable. The department, being aggrieved by the order passed by Ld. CIT(A) preferred an appeal before the Appellate Tribunal. The Tribunal confirmed the order passed by the Ld. CIT(A) and held that the assessee has invested its funds in FDRs on which the assessee earned interest, which is applied towards the objects of the assessee society. The funds invested in FDR have been shown in the Balance Sheet and is the property of the assessee-society. Merely because the assessee earns interest on its surplus/corpus funds would not lead to the fact that the assessee exists for profit purpose.

5.      Capital Gains – Exemption under section 54B and 54F – Investment made in the name of married daughters – Term ‘assessee’ used in sections 54B and 54F cannot be extended to include major married daughters – assessee not entitled to exemption.

Ghanta Vijaya Lakshmi vs. ITO (2014) 97 DTR (Visakha)(Trib.) 423

The assessee during the relevant Assessment Year sold agricultural land. Thereafter, the assessee purchased another agricultural land in the name of her younger daughter and also a flat in the name of her eldest daughter. While computing the Long Term Capital Gain, on sale of agricultural land, the assessee claimed deduction under section 54B in respect of agricultural land purchased in the name of younger daughter and also deduction under section 54F in respect of the flat purchased in the name of eldest daughter. The A.O. disallowed the claim of deduction under sectios 54B and 54F of the Act by holding that the properties were not registered in the name of the assessee. The assessee’s claim of Benami was also rejected on the ground that the Benami Transaction (Prohibition) Act provides exemption to property purchased in the name of unmarried daughters only. Being aggrieved, the assessee preferred an appeal before the first Appellate Authority. The Ld. CIT(A) however dismissed the appeal filed by the assessee and thereby confirmed the action of the A.O. in disallowing the deduction. The assessee carried the matter in further appeal before the Appellate Tribunal. The Tribunal also confirmed the action of the lower authorities by observing that the term ‘assessee’ used in sections 54B and 54F cannot be extended to include major married daughters and, therefore, assessee is not entitled to exemption under sections 54B and 54F in respect of investments made in the names of her married daughters who are majors.

UNREPORTED

1.      Charitable or religious trust –Cancellation of registration – Section 12AA, read with section 2(15), of the Income-tax Act, 1961 – Trust created for promotion and development of sports – Commissioner cancelled registration of assessee-trust by invoking provisions of section 12AA(3) by observing that assessee-trust had arranged international matches of cricket and, in turn, had received TV subsidy/subvention income, viz, sharing of TV broadcasting rights, and advertisement sales income; and, thus, it had carried out activities in nature of trade, commerce or business in view of first proviso to section 2(15) – Registration had been cancelled by Commissioner on basis of amended provisions of section 2(15) – action taken by Commissioner did not fall within permissible limits of section 12AA(3) and therefore, impugned order cancelling assessee's registration was bad in law.

Saurashtra Cricket Association vs. CIT [I.T.A. No.: 64 / Rajkot / 2013; Order date: 25-10-2013; Rajkot Bench]

The Commissioner cancelled the registration of the assessee-trust by invoking provisions of section 12AA(3), observing that the trust was arranging international matches of cricket and in turn had received TV subsidy/subvention income like, sharing of TV broadcasting rights income and advertisement sales income. The Commissioner was of the view that the assessee-trust had carried out the activities in the nature of trade, commerce or business in view of the first proviso to section 2(15) and, therefore, the objects of the assessee-trust are no longer's charitable in nature.

On appeal the Tribunal held that the Registration has been cancelled by Commissioner on the basis of amended provisions of section 2(15). The action taken by the Commissioner, does not fall within the permissible limits of section 12AA(3). Section 12AA(3) of the Act does not extend the power to Commissioner for re-examination of the 'objects' of the trust or institution once registration has been granted under section 12A. The insertion of first proviso to section 2(15) of the Act with effect from 1-4-2009 would not have any bearing on section 12AA(3) since it does not extend to the objects of the trust or institution but only to its activities as stated therein. The issue raised by the Commissioner, in the order regarding the activities of the trust can be examined by the Assessing Officer in the appropriate proceedings. The findings given by the Commissioner in the order is not permissible keeping in view the limited power available to him under section 12AA(3). Therefore, it would be open for the Assessing Officer to consider the issue regarding the applicability of the proviso to section 2(15) of the Act, in the course of assessment proceedings of relevant year.

2.      Remission or cessation of trading liability – Section 41(1) read with section 28(iv) of the Income-tax Act, 1961 – Assessee received a sum as advance for export of goods and same had been appearing in books of account of assessee regularly year after year – Assessee did not make export against said advance nor said amount was returned – The amount was not written off in books of account – It could not be said that any liability had ceased to exist and same could not be added to income of assessee (A.Y. 2007-08)

Asia Business Ventures (P.) Ltd. vs. ITO - [I.T.A. No. 430 / M / 2011; Order dated: 8-11-2013; Mumbai Bench]

The Assessing Officer observed from balance sheet of the assessee that under the head, current liabilities an amount was reflected being advance against exports. The assessee submitted before the A.O. that the said amount was received from a foreign company in 1997, for the purpose of exports. Subsequently, exports could not be made as the required goods could not be identified and balance was still due and payable. The assessee also filed a confirmation from the party before the A O. As the assessee had not made any export in lieu of advance received even after ten years of receipt of advance, the A.O. taxed the advance as income under section 41(1) of the Act and added back to the total income of the assessee.

On appeal the Tribunal held that, the assessee had not made export against the said advance. The amount is not returned to the foreign company till date. The assessee has admittedly stopped export business and is in the business of advisory as well as in share dealing. However, it was not in dispute that the said amount is shown as advance in the balance sheet of the assessee. The liability was also shown in the balance sheet even for the relevant previous year. Therefore, the liability has been acknowledged by the assessee. As the amount has not been written off by the assessee in its books of account, it cannot be said that the liability has ceased to exist. The Tribunal further noted that since the said amount received by the assessee in January, 1997 and the same was appearing in the books of account of the assessee since then, genuineness of the transaction as well as creditworthiness of the party could not be considered in the assessment year under consideration for making the addition
under section 41(1) read with section 28(iv) of the Act.

High Court

1.    Section 142A – Reference to DVO cannot be made without rejecting the books of accounts – A.Y. 2005-06

Nirpal Singh vs. CIT (2013) 96 DTR (P&H) 385

The assessee was in the business of running a petrol pump and during the relevant year had constructed the petrol pump, and the said investment was duly recorded in the books of account. The AO during the assessment proceedings referred the said investment to the DVO, and the AO while completing the assessment made addition to the income u/s. 69 on the basis of the DVO’s report. The CIT(A) allowed the appeal and the Tribunal held in favour of the Department. On appeal to the High Court, while allowing the appeal held that the AO cannot invoke the provisions of section 142A with rejecting the books of account, and therefore the additions made u/s. 69 cannot be sustained.

2.    Section 254 – Subject matter of appeal remaining same – Examination of subject matter from different perspective for the first time – Permissible

CIT vs. Smt. Sanghamitra Bharali (2014) 97 DTR (Gau.) 345

The issue before the Hon’ble High Court was that if the same subject matter appeal is argued in a different way, which was not presented in the same way before the lower authorities, was permissible or not. The High Court held that before the Tribunal an assessee is free to make a fresh approach, present his case from a different perspective and raise new grounds in support of the relief sought by him, provided the subject matter in appeal remains the same.

3.    Section 194J; 40(a)(ia) – purchase of rights for 99 years – Does not amount to payment of royalty

Mrs. K. Bhagyalakshmi vs. DCIT (2014) 97 DTR (Mad.) 377

Assessee was in the business of purchase and sale of televisions rights for films. As per the agreement with K Films had assigned world rights of distribution, exhibition and exploitation of films for 99 years without any restriction. The AO held the payment in the nature of royalty hence the provisions of section 194J were attracted and hence disallowed the expenses towards such rights by invoking the provisions of section 40(a)(ia). The High Court while allowing the appeal of the assessee, held that acquisition of the commercial rights in a film for 99 years was a transaction which amounted to a sale and therefore the provisions of section 194J would not be attracted, and hence disallowance u/s.40(a)(ia) was not called for.

4.    Section 54F – Deduction to be allowed even if construction of the house has commenced before the sale of the capital asset

CIT vs. Bharti Mishra (2014) 98 DTR (Del.) 1

The assessee had sold share the proceeds of which were invested in the construction of a house property and claimed deduction u/s. 54F. The assessee invested part of the amount in the construction and the balance was deposited in a capital gains account. The AO disallowed the deduction as the assessee had commenced construction of the house before the sale of the capital asset, which in this case was shares. On appeal the CIT(A) and Tribunal held in favour of the assessee. On appeal to the High Court, the High Court while dismissing the appeal held that it is not stipulated in anywhere in the section that construction of the house should commence before the sale of the capital asset, and since section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in the form of a house, then the said provision should be liberally interpreted and therefore in the instant case the assessee is eligible for deduction u/s. 54F.

5.    Section 119 – Revised return of income to be considered as application for condonation which consequently results in refund of legitimate tax

Devdas Rama Mangalore vs. CIT 26 [2014] 41 taxmann.com 508 (Mumbai)

The petition was filed by a Senior Citizen challenging the order passed by the Assessing Officer by dismissing the application for condonation of delay under section 119(2)(b) of the Income-tax Act, 1961 ("the Act") for claiming refund of tax paid. This application was filed by the petitioner seeking refund of tax deducted at source (TDS) by Reserve Bank of India (RBI) on the payment made to him in the year 2004 when he opted for the Optional Early Retirement Scheme (Scheme). The RBI while making the payment to the petitioner under the Scheme had deducted as tax at source an amount of
Rs. 1,64,117/-. However, in his return of income for assessment year 2004-05 filed on 15th October, 2004 the petitioner did not claim any refund of tax as TDS paid by RBI on his behalf nor was the credit on tax utilised to discharge tax payable on any other income. Being aware of the CBDT Cir dated 8-5-2009 and in view of Apex Court decision in the case of Chandra Ranganathan and Ors. vs. Commissioner of Income Tax 326 ITR 49 held that the amounts received by retiring employees of Reserve Bank of India opting for the scheme are eligible for exemption under section 10(10C) of the Act. In view of the above the petitioner filed a revised return of income on 8th September 2011 claiming benefit of exemption available to the Scheme under section 10(10C) of the Act which consequently would result in refund of Rs. 1.64 lakhs paid by RBI as TDS. However, there was no response to the above revised return of income from the respondent-revenue. Further the Peitioner filed an application with the Commissioner of Income Tax under section 119(2)(b) of the Act seeking condonation of delay in filing his application for refund in the form of revised return of income for assessment year 2004-05. The respondent revenue by the impugned order dismissed the application under section 119(2)(b) of the Act on the ground that in view of Instruction No. 13 of 2006 dated 22 December, 2006 by the CBDT an application claiming refund cannot be entertained if the same is filed beyond the period of 6 years from the end of the assessment year from which the application is made. By filing a Writ Petition in High Court, the Hon’ble court allowed the Writ Petition and held that the application under section 119(2)(b) of the Act was being denied by adopting a very hyper technical view that the application for condonation of delay was made beyond 6 years from the date of the end of the assessment year
2004-05. The court also held that the revised return of income which was filed on 8th September, 2011 should itself be considered as an application for condonation
of delay under section 119(2)(b) of the Act and the refund was granted to the Petitioner.

6.    Section 24 – Interest on interest paid due to default in payment of home loan instalments is not deductible u/s. 24

Master Naman Kumar vs. CIT, Patiala [2014] 41 taxmann.com 10 (Punjab & Haryana)

During proceedings of assessment for the periods ranging from 1987-88 to
1991-92, it was noticed that the assessee was having 25% share of rental income of SCO Nos. 57, 58 and 59, Sector 17, Chandigarh. It was also noticed that the assessee had been claiming compound interest on loan raised for construction of the property, whereas during the assessment proceedings, it was found that only simple interest was admissible to the assessee. The AO falling in line with the assessment order for the year 1984-85 held that the assessee was to be entitled only simple interest on the principal amount outstanding during the year out of the loan raised by the assessee. In short, interest @ 15% per annum on outstanding principal amount of
Rs. 5,05,000/- was allowed. Both CIT(A) & Tribunal disallowed interest on interest which had been deducted by the assessee as an allowable deduction and allowed only simple interest as deduction. On a reference in High Court where the question of law was whether simple interest or compound interest charged by the bank on the amount borrowed by the assessee from it for raising construction was to be allowed or not?The hon’ble High Court affirmed the findings of lower authorities and held in favour of revenue by taking a view that income of the assessee under the head "income from house property" is to be computed for the purpose of income tax after making certain deductions as are envisaged in Section 24 of the Act. Section 24(1)(vi) of the Act stipulates that amount of interest payable on capital borrowed, inter alia, for construction of the property yielding income, was an admissible deduction. It was thus evident that only interest payable on such borrowed capital was to be deducted while computing income chargeable to income tax under the head 'Income from house property". In short, interest paid on interest levied by the bank, because of non-payment of instalments of borrowed capital to the bank, did not qualify for an admissible deduction.

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