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Judgements

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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