Sr. No.
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Particulars
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Case laws
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Agricultural Income
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It is necessary to raise produce from land by performance of basic operations to be eligible for exemption.
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Appeal to High Court
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Substantial question of law is to be formulated by the High Court at the time of admission of appeal. The question cannot be formulated
after conclusion of arguments.
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Appeal to Supreme Court
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It is not open to the revenue to accept the earlier judgment in the case of one assessee and challenge its correctness without just cause
in the case of other assessees.
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Merely because no appeal was preferred against similar decision of High Court does not affect maintainability of appeal if public interest
is involved.
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Circular issued by CBDT determining monetary limit for
filing appeals by Department should not be applied ipso
facto, particularly when the matter has a cascading
effect involving a common principle which may be involved in
a large group of matters
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Appellate Powers
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The A.O. cannot find a new source of income not considered by I.T.O. Power of enhancement is restricted to the subject matter of assessment
or source of income considered by I.T.O.
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Where sufficient material is on record, a claim can be made for the first time before AAC or Tribunal even if the assessee made no claim
before the A.O. Additional ground of appeal may be raised for the first time where such ground could not have been raised earlier or where
such ground became available on account of change of circumstances.
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The Tribunal has jurisdiction to entertain additional ground raised for first time in respect of question of law which arises from the
facts found by I.T. authorities and having a bearing on the tax liability of the assessee.
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While condoning delay, Courts should have a pragmatic and liberal approach
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Dept. and assessee's, both appeals should be heard together
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The tribunal has no power to take back the benefit conferred by AO or enhance the assessment. If the AO has granted depreciation, the
benefit could not be withdrawn by the Tribunal.
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A.O.P./B.O.I.
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Where persons do not combine in a joint enterprise to produce income, they cannot be assessed as A.O.P.
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On sale of business by firm, surplus is to be assessed in the status of B.O.I.
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Amalgamation
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Effective date is date of transfer specified in the scheme. From said date, income of amalgamating Co. is that of amalgamated Co.
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Shares received in new company on the basis of shares in old company does not amount to ‘Exchange’ or ‘Relinquishment’ and no capital gains
arises.
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Assessment/Intimation
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Failure to get the accounts audited for which there is no default on part of the assessee should not give rise to best judgment assessment.
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ITO should observe principles of natural justice in making assessment
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Best judgment assessment should be made on some rational basis
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Assessment of total income in India is to be in Indian rupees even where accounts are maintained in foreign currency.
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"Assessment proceedings":– Explanation 1 to S. 153 comprehends entire process of assessment starting from stage of filing of return under
section 139 till making order of assessment u/s. 143(3)/144.
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ITO should observe principles of natural justice in making assessment
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Best judgment assessment should be made on some rational basis
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Merely because a wrong person is taxed with respect to particular income, the A.O. is not precluded from taxing the right person with
respect to that income.
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Regular assessment means assessments under sections 143(3) and 144 alone.
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Once regular assessment is initiated by issuing notice u/s. 143(2); summary assessment u/s. 143(1)(a) cannot be made thereafter
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Assessing Authority has no power to entertain a claim made by assessee otherwise than by filing a revised return
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Audit
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Order passed u/s. 142(2A) for getting accounts audited without giving an opportunity of hearing to the assessee was bad in law
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Rajesh Kumar vs. DCIT (2006) 287 ITR 91
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Sahara India (Firm) vs. CIT (2008) (300 ITR 403)
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Also see Amendment w.e.f. 01.06.2007 in s. 142(2A) of the Act.
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Benami Transaction
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Benami Transaction (Prohibition) Act, 1988 is not declaratory, S. 3(1) and S. 4(1) are not retrospective and does not apply to pending
proceeding. S. 4(2) has limited operation in pending cases.
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R. Rajagopala Reddy vs. Padmini Chandrasekharan [1995] 213 ITR 340,
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Mithilesh Kumari vs. Prem Behari Khare [1989] 177 ITR 97 (Overruled in part).
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Neither the filing of suit or taking of a defence is prohibited where property is purchased in the name of wife or unmarried daughter and
the presumption under section 3(2) is rebutted.
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Binding nature of ITAT decision/order
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Unless order of ITAT is set aside, the CIT(A) should follow the same. Failure to follow may result in undue harassment and chaos in
administration of tax laws and amounts to contempt of Tribunal order.
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Binding Precedent
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Decision of a Division Bench of the hon’ble Supreme Court is binding on another Division Bench of the same or a smaller number of Judges.
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Dismissal of special leave petition does not amount to either upholding the order or otherwise
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Ratio of High Court judgment is binding on all Courts and Tribunals functioning within the jurisdiction of the High Court and also on other
Division Benches of the same High Court
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If there is conflict of two decisions of the Supreme Court, the decision of the larger bench will prevail
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Although the principles of res judicata does not apply to tax matters, Courts will generally accept an earlier decision unless there is a
change in facts or in law
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Lower authorities bound by order passed by higher authority
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Block Assessment
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Even in case of block assessments, the issue of notice u/s. 143(2) within a period of 12 months is statutory
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Conditions precedent should be satisfied before making block assessment
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There is no difference between regular assessee and assessee in whose case search is conducted as far as principles of assessment is
concerned. The block period is equivalent to the previous year and hence the loss during 1 year should be allowed against the profits of
the other years within the block period
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There is nothing either in s. 132 or any provision of Act to indicate that presumption provided under sub-section (4A) of section 132 can
be raised for purpose of framing of regular assessment under section 143 as well. Such presumption is for search and seizure and for
purpose of retaining assets under section 132(5) and it is not available for any other proceeding (including assessment proceedings)
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Any material of evidence unrelated to search could not form basis of the computation of undisclosed income especially when the income had
been disclosed by the assessee in the regular assessment and had been assessed by the department as such.
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Limitation for assessment starts forms the date of last Panchnama and not from the date till prohibitory order is in operation.
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Merely because tax is deducted at source or advance tax is paid, it would not amount to disclosure of income and the income will be treated
as undisclosed income taxable under block assessment
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Bonus Shares
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Bonus shares received on shares held as stock-in-trade do not automatically become part of stock-in-trade. They are received as capital and
can be converted into stock of business
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Business Connection
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Where the Indian Co. canvassing orders for non-resident Co. had no right to accept offers on behalf of the non-resident and contracts were
entered into, delivery made and prices received outside India, Indian Co. not assessable as agent of non-resident as there is no business
connection
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CIT vs. R.D. Agarwal & Co. [1956] 56 ITR 20;
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CIT vs. T.I. & M. Sales Ltd. [1987] 166 ITR 93
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Also refer Expln. 2 to Sec. 9(1)
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Expression ‘business connection’ in 9(1) includes professional connection. Connection must be real and intimate and not casual. Fees
received by solicitors in London held to be taxable.
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“Business connection” under Income-tax Act is different from the term “permanent establishment” used in double taxation avoidance treaties
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Business Expenditure
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Whenever statutory impost is paid by an assessee as interest, damages or penalty, the A.O. should examine scheme of the relevant statute,
notwithstanding the nomenclature of the impost. If impost is found to be of composite nature, the A.O. should bifurcate the two components
and give deduction to the component, which is compensatory in nature.
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Interest u/s. 36(2) of the BST Act held to be of a composite nature. Hence compensatory element held allowable.
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Interest on borrowings for acquiring tax-free securities held to be allowable.
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Under mercantile system of accounting, expenditure due but not provided in the accounts also allowable.
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Interest on loan for purchase of capital asset is allowable as deduction.
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Bombay Steam Navigation Co. P. Ltd. vs. CIT 56 ITR 52.
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Also refer amendment by Finance Act, 2003, w.e.f. 1/4/2004 – disallowing interest till the capital asset is first put to use
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Legal expenses for defending civil litigation is allowable expense.
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Remuneration to Karta/Members of H.U.F. is allowable expense.
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Royalty paid under mining lease agreement is allowable expense.
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Expenditure for use of technical research and patents of foreign collaborators is allowable expense.
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Lump sum payment, once for all, for acquisition of know-how for improving or updating process so as to result in higher yield of product
already being manufactured is deductible.
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Expenditure incurred for raising loans is deductible.
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India Cements Ltd. vs. CIT 60 ITR 52
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Also refer amendment by Finance Act, 2003 w.e.f. 1-4-2004 disallowing interest till the capital asset is first put to use.
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Expenditure on replacement of certain parts is deductible.
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Contribution for development of roads owned by Govt. is allowable expense.
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Lakshmiji Sugar Mills Co. P. Ltd. 82 ITR 376,
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L. H. Sugar Factory and Oil Mills vs. CIT 125 ITR 293;
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Contrary decision
in - Travancore Cochin Ltd. vs. CIT 106 ITR 900 and Arvind Mills Ltd. vs. CIT 197 ITR 422.
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Amount paid for use of goodwill of a firm is allowable expense.
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Amount paid under a short-term agreement to avoid competition is allowable expense.
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Municipal property tax paid in foreign country is allowable expense.
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Payments to employees on grounds of commercial expediency. The expression "wholly and exclusively" does not mean "necessarily" is allowable
expense.
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Expenditure on renovation of building, reconditioning of machinery etc. after derequisitioning of a colliery is allowable expense.
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Amount paid for purchase of "loom hours" is allowable expense.
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Successor of a business entitled to claim bad debts in respect of an amount receivable by predecessor. Legal expenses for takeover of
business is allowable.
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Where assessee has an existing right to carry on a business, any expenditure incurred during the course of business for purpose of removal
of any restriction or obstruction or disability provided no capital asset is acquired.
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In the case of indivisible business, entire expenditure will be permissible even if some of the activities may yield tax free income.
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Rajasthan State Warehousing Corp. vs. CIT 242 ITR 450].
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[Finance Act, 2001 has inserted sec. 14A w.e.f. 1/4/1962 to disallow expenditure in relation to exempt income].
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For attracting s.14A, there has to be a proximate cause for disallowance, which is its relationship with tax exempt income and since
pay-back or return of investment is not such proximate cause, s.14A is not applicable in such cases
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Provision for liability towards leave encashment held allowable
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Bharat Earth Movers vs. CIT 245 ITR 428
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Finance Act, 2001 has amended s. 43B so as to allow deduction only on payment basis
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Expenditure incurred in connection with issue of bonus shares is allowable.
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Foreign Exchange fluctuation losses are allowable on accrual basis
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Loss incurred by the assessee on account of foreign exchange fluctuation as on the date of Balance Sheet in respect of loans taken for
revenue purposes is allowable as expenditure u/s. 37.
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Employee’s contribution to provident fund, made before due date of filing of return allowable as deduction.
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Amount lying credited in the Modvat account at the end of the accounting year was expenditure allowable u/s. 37 r.w.s 43B
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In applying the test of commercial expediency for determining whether expenditure was wholly and exclusively laid out for the purpose of
the business, reasonableness of the expenditure has to be adjudged from the point of view of the business and not of the revenue.
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CIT vs. Walchand & Co. P. Ltd. 65 ITR 381;
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J. K. Woollen Manufacturers vs. CIT 72 ITR 612
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CIT vs. Edward Keventer (Pvt.) Ltd. 115 ITR 149
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Remuneration to Managing Agents allowable only in the year in which it is sanctioned by the Central Govt.
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Nonsuch Tea Estate Ltd. vs. CIT 98 ITR 189
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This principle will extend to cases where sanction for payment of remuneration to directors, selling agents etc. needs to be
obtained under Cos. Act.
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Accumulated gratuity amount appurtenant to employees of a division transferred to the successor company was held allowable expenditure.
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Amount paid for use of patents and designs for a definite period with secrecy clause was held deductible expense being a payment in the
nature of licence fees.
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Expenditure which substitutes for revenue expenditure should be considered as revenue expenditure.
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Where expenditure incurred has definite and continuing benefits over specified years, deduction is to be allowed on proportionate basis in
each year.
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Payment made to the workmen under a settlement agreement upon closure of some of the units of the assessee held as allowable revenue
expenditure
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All expenses including rent, repairs, depreciation on guest house are disallowable as per section 37(4)
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Replacement of an old machine with a new one bringing into existence a new asset giving enduring benefit is capital in expenditure.
Accounting practices may not be the best guide in determining the nature of expenditure but are indicative of nature of transaction and
intention of the assessee.
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The phrase “for the purpose of business” in section 36(1)(iii) has to be given a wider meaning as in section 37(1). The expenditure may not
have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial
expediency
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If the assessee debits the P&L A/c and creates a provision for bad debts and also reduces the corresponding amount from the debtors
account in the Balance Sheet, the provisions of s. 36(1)(vii) are duly complied with
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Banks are entitled to both the deductions - bad debts and provision for doubtful debts
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There is no requirement to prove that the debt has become bad. Mere writing off of the debt is sufficient for claiming the deduction
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Securities purchased on "Cum-interest", the composite price cannot be split up. Interest received for the period prior to acquisition
cannot be set off against cost of security and is in the nature of income.
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Purchase of stock-in-trade is expenditure for the purposes of S. 40A(3).
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Prior to insertion of proviso to S. 36(1)(vii) w.e.f. 1-4-2004, an assessee was entitled to claim deduction of interest on capital borrowed
for the purposes of its business, irrespective of its use being for capital or revenue purpose
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The first proviso to S. 43B, clarifying that sums paid after accounting year but before due date of return are deductible, has
retrospective effect.
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Provisions for NPA as per RBI Norms by NBFCs is not deductible
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Avoidance of tax—Transaction in securities—Purchase of securities and sale thereof within three months—Loss to be ignored—Scope of
provision
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The revenue expenditure incurred in a particular year has to be allowed in that year and if the assessee claims that expenditure in that
year, the Department cannot deny the same. The fact that assessee has deferred the expenditure in the books of account is irrelevant.
However, if the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of
'Matching Concept' is satisfied.
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Business Income
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Rent received by assessee facing financial crisis and temporarily suspending business, from hire for temporary period of 10 years with a
view to commercially exploit assets, without intention of closing the business, was held as Business income.
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The law does not oblige a trader to earn maximum profits nor does it bring to tax profits which he could have but did not earn.
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Exchange of shares held as stock-in-trade for other shares amounts to realisation of the stock. Difference between book value of original
shares and market value of shares received in exchange constitutes business income.
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Cash incentive for exports – Accrued to the assessee exporter on filing the claim and not at the time of export
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Where the main object of the company was to acquire, hold and let out properties held by it, the rental income received is taxable under
the head “Income from business”.
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Business Loss
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Loss from dacoity in a bank allowable
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Loss from embezzlement in the course of business allowable
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Loss by theft of cash held directly for business operations, is incidental to business and is allowable
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Loss in transactions involving transfer of delivery notes without actual delivery of goods treated as speculation loss
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Davenport & Co. Pvt. Ltd. vs. CIT 100 ITR 715;
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Nirmal Trading Co. vs. CIT 121 ITR 54 and
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Jute Investment Co. Ltd. vs. CIT 121 ITR 56
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Hedging loss on items banned under the Forward Contracts Regulation Act cannot be set off against other income and cannot be carried
forward to subsequent yea₹
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For the purpose of set off of carried forward loss, the decisive test is unity of control and not the nature of the two lines of business.
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Assessee carrying on illegal business is entitled to claim loss incidental to such business.
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Damages paid for breach of contract does not amount to speculation loss.
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Unabsorbed business loss deductible only after current year’s depreciation.
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On real income theory, loss on revaluation of securities as per ‘lower of cost or market value’ method of stock valuation adopted
consistently for income tax purpose is allowed. The fact of securities being valued at cost in books for statutory compliance is held
irrelevant.
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Heroin drugs forming part of stock in trade was seized and confiscated, loss on account of same was allowable as business loss. Explanation
to s. 37 is not applicable to such loss as there is a difference between loss and expenditure
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CBDT Circular
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CBDT Circular is binding on departmental authorities.
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Capital Gains
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"Full value of consideration" cannot be construed as the market value but the price bargained for by the parties to the sale
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Redemption of preference shares is ‘Transfer’ liable to capital gains
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Slump sale of business as a going concern – Gains are liable to tax u/s. 41(2) on itemised basis if slump price is determined on valuation
of each asset/liability
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If no evidence of separate itemized valuation available gains on slump sale are not liable to tax u/s. 41(2)
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But for fiction in section 41(2)/50, excess of sale realization over WDV/cost of asset is a capital receipt.
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Up to accumulated profits, shareholder pays as deemed dividend tax; while excess chargeable as capital gains.
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CIT vs. G. Narsimhan 236 ITR 327
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Capital gain is to be computed on commercial principles.
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There involves neither transfer nor any consideration accrues to a partner who retires from the firm.
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CIT (Addl.) vs. Mohanbhai Pamabhai 165 ITR 166),
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Tribhuvandas G. Patel vs. CIT [1999] 236 ITR 515 reversing Bombay High Court’s decision in CIT vs. Tribhuvandas G. Patel 115 ITR 95
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CIT vs. R. Lingmallu Raghukumar – 247 ITR 801
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A partner’s share in a firm is a capital asset
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Consideration received on transfer of tenancy rights is a capital receipt liable to capital gains tax.
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Facts of each case will determine whether assessee is a dealer or investor in shares.
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Tests as laid by the Hon’ble Bombay High Court in the case of CIT vs. Gopal Purohit – 228 CTR 582 to determine whether shares gains
assessable as STCG or business profits is approved
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Although the agreement to sell entered into in 2002 was registered in 2004 due to certain disputes, some right in asset extinguished in
2002 and right in personam was created in favour of intending purchaser and hence the same amounts to transfer. Hence, the Investment in
new house can be reckoned from the date of agreement to sell in 2002.
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Capital or income
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Compensation for loss of source of income is a capital receipt
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Cash Credits
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If confirmations filed show GIR Nos. or PA Nos. of lenders, the identity of the lenders is established and A.O. cannot add such cash
credits as income without further inquiries.
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Provisions of S. 69 are discretionary. Not that every unsatisfactory explanation about source of investment could invite addition u/s. 69
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If the share application money is received by the assessee company from alleged bogus shareholders whose name are given to the AO than the
department is free to proceed to reopen their individual assessment in accordance with law but it cannot be regarded as undisclosed income
of assessee company
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Charitable Trust
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Advancement or promotion of trade, commerce, and industry is an object of general public utility
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Assessee trust set up to promote exports of diamonds from India and to provide facilities to promote exports and imports of diamonds, etc.
was held to be established for charitable purpose
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Rana community constituted a section of ‘public’
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Distribution of profits among the members of the Association introduced an element of private gain. Hence income is taxable
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For determining the availability of exemption u/s 11, one has to look at the predominant objects of a trust and not at individual
activities. If the objects are charitable, exemption is available
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CIT (Addl.) vs. Surat Art Silk Cloth Manufacturers Ass. 121 ITR
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CIT vs. Andhra Chamber of Commerce 130 ITR 184;
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CIT vs. Federation of Indian Chambers of Commerce & Industry 130 ITR 186;
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CIT (Addl.) vs. Victoria Technical Institute [1991] 188 ITR 57).
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Charitable trust will not lose exemption merely because it carries on a business.
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CIT vs. Dharmodayam Co. 109 ITR 527,
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Dharmadeepti vs. CIT 114 ITR 454 and
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Dharmaposhanam Co. vs. CIT 114 ITR 463
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Even if part of income of Bar Council is exempt u/s. 10(23A) exemption can be claimed in respect of other income u/s. 11
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S. 11(1)(a) & S. 11(2) are independent of each other. If the unspent surplus is in excess of 25% of the gross income then the balance
can be accumulated u/s. 11(2).
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Civil Court has jurisdiction to rectify the trust deed. Decision of civil court binding on the income tax authorities.
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Educational Society formed for sole purpose of establishing, running managing or assisting schools/colleges is educational institution
whose surplus (including donations received) is exempt u/s. 10(22).
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Credit entries in accounts of trust in favour of educational institution and corresponding withdrawals by educational institution would
amount to application of income.
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Accumulation – Exemption u/s. 11(1)(a) of 25% is on gross receipt and not on net balance.
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Intimation required u/s.11(2), read with rule 17, has to be furnished before the assessing authority completes concerned assessment because
such requirement is mandatory.
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Exemption — Local Authority — Marketing Committee to provide facilities for marketing of agricultural produce in a locality is not a ‘local
authority’ and therefore its income is not exempt u/s.10(20) (after amendment by Finance Act, 2002). Its income is exempt u/s. 10(26AAB)
from 1-4-2009.
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Clubbing of Income
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Proximate connection between accrual of income and assets transferred necessary. Money gifted to wife introduced as capital in a firm.
Share of profits from the firm held as not liable for clubbing with husband’s income
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CIT vs. Prahladrai Agarwala 177 ITR 398;
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CIT vs. Prem Bhai Parekh 77 ITR 27).
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As per section 10(2A), share of profit from firm is now exempt from tax.
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‘Income’ includes ‘loss’ for the purpose of S. 64(1)(i).
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Deductions from Income
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For the purposes of Sec. 80HHC, word "profit" would include loss in sub-section (3). However, only if the resultant amount is a positive
figure would an assessee be entitled to deduction u/s. 80HHC. If an assessee is not entitled to deduction, he cannot pass the benefit to
the supporting manufacturer
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Interest received on deposits with Electricity Board was not derived from industrial undertaking and was not entitled to deduction u/s.
80HH
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Diverse services provided by assessee to foreign enterprise for running of the hotel of international standards were regarded as
"information concerning industrial, commercial or scientific knowledge, experience or skill made available" within the meaning of S. 80-O.
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Incentive provisions need to be construed liberally so as to advance objective of provisions.
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Preparation of foodstuff in a hotel from raw materials does not amount to manufacturing or production of article or thing within the
meaning of s. 80J
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Profits earned on counter sales in convertible foreign exchange involving customs clearance entitled to deduction u/s. 80HHC
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A co-operative society carrying on banking business would be entitled to deduction u/s. 80P on income statutorily required to be placed in
approved securities
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“Total Turnover” for the purposes of s. 80HHC does not include excise and sales tax
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Restriction that receipt should be in convertible foreign exchange for section 80HHC is not applicable in case of supporting manufacturer
|
|
-
|
Films and betacem tapes exported out of India are entitled to deduction u/s. 80HHC. Even the export of such rights by A.Y. of lease
transaction are entitled to deduction
|
|
-
|
Duty drawback and cash compensatory allowance received in the year other than the year of exports is eligible for deduction u/s. 80HHC of
the Act in the year of receipt, in a case where assessee is following the cash system of accounting.
|
|
-
|
S. 80 HHC(3) statutorily fixes the quantum of deduction on the basis of proportion of business profits under the head ‘Profits and gains of
business or profession’, irrespective of what could strictly be described as profits derived from export of goods out of India
|
|
-
|
While computing the deduction u/s. 80HHC, only the net interest could be deducted (subject to nexus between the expenditure and income
being proved).
|
(The decision rendered in the case of Lalsons Enterprises 89 ITD 25 (Del) (SB) was
impliedly approved and the decision in the case of
CIT v. Asian Star Co Ltd
326 ITR 56 (Bom)) is reversed.)
|
-
|
DEPB sales proceeds cannot be treated as profits for the purpose of s. 80HHC of the Act. While the face value of the DEPB falls u/s.
28(iiib), the difference between the sale value and the face value of the DEPB (the “profit”) will fall u/s. 28(iiid).
|
|
-
|
The processing/fabrication charges on the goods which were ultimately exported by other exports for whom processing was undertaken by the
assessee , such income would form part of one of the components of business profits, as the said activity would have direct and immediate
nexus with the activity of export.
|
|
-
|
The gross total income of the assessee has first got to be determined after adjusting losses, etc., and if the gross total income of the
assessee is ‘nil’, the assessee would not be entitled to deductions under Chapter VI-A of the Act.
|
|
-
|
Interest on surplus funds is “other income” and not eligible for deduction u/s 80P
|
|
-
|
Income from DEPB and duty drawback are not eligible for deduction u/ss. 80-IA and 80-IB
|
|
-
|
Subsidies such as transport, power and interest subsidy paid to the assessee with the object of reducing the cost of production constitutes
"profits derived from the business of the industrial undertaking" and is eligible for deduction u/s 80-IB.
|
|
-
|
The activity of polishing and conversion of blocks into polished slabs and tiles amounts to “manufacture” or “production” because the
conversion of blocks into polished slabs and tiles results in emergence of a new and distinct commodity. There is accordingly “manufacture
or production” for s. 80-IA
|
|
-
|
Deduction u/s. 80T is to be allowed with reference to net long-term capital gain remaining after set off u/s. 74 (as it stood then)
|
|
-
|
Under section 80-I, exemption can be claimed on the basis of consolidated accounts certified by Chartered
Accountant and that there is no
requirement of separate books of accounts
|
|
-
|
90% of the net receipt included in the income should be excluded for the purpose of explanation (baa) to s. 80-HHC
|
|
-
|
Furnishing of audit report in Form 10CCB along with return of income is not mandatory and deduction should be granted as long as such
report is filed before the conclusion of the assessment proceedings.
|
|
Deemed Income
|
-
|
Unilateral write back in the books of the assessee cannot give rise to taxability u/s. 41(1).
|
-
CIT vs. Sugauli Sugar Works (P) Ltd. 236 ITR 518 followed in CIT vs. Abdul Ahad 247 ITR 710 (J&K) wherein CIT vs. T.vs.S.
Sundaram Iyengar & Sons Ltd. 222 ITR 344 (SC) distinguished.
-
Contrary decisions
- CIT vs. T.vs.S. Sundaram Iyengar & Sons Ltd. 222 ITR 344 followed in CIT vs. Sundaram Industries Ltd. [2002] 253 ITR 396
(Mad)).
-
[Decisions are applicable to pre-amended s. 41(1) up to A.Y. 1992-93]
|
Depreciation
|
-
|
On land not allowable
|
|
-
|
Interest on monies borrowed during construction period forms part of "actual" cost and depreciation is allowable
|
|
-
|
Drawings, designs etc. can be treated as ‘plant’ on which depreciation is allowable.
|
|
-
|
Subsidy received from Government not to be deducted from cost of assets.
|
|
-
|
Carry forward and set off of unabsorbed dep. permissible (prior to the amendment of S. 32(2) in 1996 even if
-
The business to which the dep. relates is discontinued.
-
The asset in respect of which depreciation is claimed ceases to exist in the year of set off.
-
No business is carried on in the year of set off.
|
|
-
|
For the purpose of section 32, person exercising dominion over property and having right to use and occupy it in his own right would be
owner of building. The execution and registration of formal deed held as empty requirement.
|
|
-
|
The expression "moneys payable" used in S. 43(6)(C) limits to monetary consideration. Value of reinstated asset would not fall within the
meaning "moneys payable".
|
|
-
|
Depreciation claim is optional, A.O. cannot thrust it upon unwilling assessee.
|
-
CIT vs. Mahendra Mills 243 ITR 56
-
[Finance Act, 2001 has amended s. 32 to make claim for depreciation mandatory].
|
-
|
Nursing home building held as plant
|
|
-
|
Cinema Theatre building is not plant
|
|
-
|
BSE Card and Goodwill is an “intangible asset” and eligible for depreciation u/s 32(1)
|
|
-
|
There is no need that the asset be used by the assessee owner himself. The physical user of the asset is not necessary and a “Financier”
will also satisfy the “ownership” and “user” test for depreciation.
|
|
-
|
On account of failure to start manufacturing operations, the assets acquired by the assessee which were subsequently leased to third
parties, the income from which was shown as business income, were eligible for claiming depreciation u/s. 32 of the Act.
|
|
-
|
Intellectual property such as trademarks, copyrights and know-how held as plant.
|
|
Diversion of Income
|
-
|
If no charge is created on the property it will be treated as application of income and not diversion of income by overriding title. The
nature of obligation is decisive in determining whether there is such diversion.
|
|
Dividend Income
|
-
|
Loan or advance u/s. 2(22)(e) will be treated as ‘dividend’ even if it is not outstanding at the close of the accounting year.
|
|
-
|
Interest paid on unpaid purchase price of shares is allowed as deduction. Damages paid for failure to take delivery of shares when assessee
not carrying on business in shares held to be capital expenditure.
|
|
-
|
Interest paid on monies borrowed for investing in shares is allowable u/s. 57(iii) even if no dividend is received on such shares
|
|
-
|
If a loan is advanced by a private company to H.U.F. but the shares are held in the name of Karta of H.U.F., such loan will not be covered
by the definition of "deemed dividend"
|
|
-
|
"Accumulated profits" for the purpose of S. 2(22) means actual profit computed on commercial principles; the profit which is capable of
being distributed and/or capitalised.
|
|
-
|
Amount taxed u/s. 2(22) goes to reduce accumulated profits for the purpose of S. 2(22).
|
|
-
|
Definition of ‘dividend’ as contained in section 2(22) would apply to all provisions which contain the term ‘dividend’ in the Act.
|
|
Double Taxation Relief
|
-
|
Once the Government has signed an agreement with a foreign country for the avoidance of double taxation and notified it, the said agreement
would operate even if inconsistent with the provisions of the Act.
|
|
-
|
Provisions of Double Taxation Avoidance Agreement would override the provisions of Income-tax Act.
|
|
Heads of Income
|
-
|
Heads of income are mutually exclusive. If capital receipt is not liable to tax under the head "Capital Gains", the same cannot be brought
to tax under the head "Income from other sources".
|
|
H.U.F.
|
-
|
Coparcener, wife and minor daughters can form H.U.F.
|
|
-
|
There need not be more than one coparcener to form H.U.F.
|
|
-
|
Widows can form H.U.F.
|
|
-
|
Family signifies a group of persons. A single individual cannot form H.U.F.
|
|
-
|
Remuneration received by Karta for services rendered to the Co. is taxable as his individual income even if the shares in the company are
held by H.U.F.
|
|
-
|
Gift out of self-acquired property to sons cannot be treated as H.U.F. property in the hands of sons unless it is specifically given to
H.U.F. of sons
|
|
-
|
Where family consisted of husband, wife and unmarried daughter income from self acquired property of Karta, which was thrown by him into
family hotchpot will be treated as his individual income till the son is born.
|
|
-
|
Burden is on the assessee to prove that the property is joint family property.
|
|
-
|
Children of a person married under the Special Marriage Act, 1954, would be governed by Hindu Law if they are brought up as Hindus
|
|
-
|
A female member of H.U.F. cannot impress her self-acquired property with the character of H.U.F. property
|
|
-
|
When business of H.U.F. is partitioned, the share coming to each coparcener will be his H.U.F. property and cannot be treated as separate
property.
|
|
-
|
Principles for determination of share of female members on death of a male member in H.U.F. discussed in the light of S. 6 of Hindu
Succession Act.
|
|
-
|
Partial partition of HUF — mere severance in status not sufficient to establish partition — difference between Hindu Law & S. 171. Till
order u/s. 171 income would be assessable in the hands of H.U.F.
|
|
-
|
Father can effect partition of HUF properties even if there are minor coparcene₹
|
|
-
|
When the father dies intestate the amount standing to his credit in the books of a partnership, devolves on the son in his individual
capacity and not on the HUF of the son
|
|
-
|
Gift by a coparcener of his undivided interest in coparcenery property of Mitakshara HUF without the consent of the other coparceners is
void.
|
|
-
|
Salary to HUF – partner is HUF’s income if salary is a part of the return for investments made by the HUF in the firm. But, if salary is
for managing the firm or rendering special services, same is individual’s income of a member representing HUF.
|
|
-
|
The basic principle appearing from S. 171 is that in order to claim partition in respect of any property, physical division of property is
a pre-requisite.
|
|
Income
|
-
|
Income-tax is a tax on Real income; i.e., profits computed on commercial principles.
|
|
-
|
Dividend income on shares held as stock-in-trade is to be treated as business income
|
|
-
|
Receipts by a teacher of Vedanta from his disciples treated as income
|
|
-
|
Insurance claim received on damage of part of the building, plant and machinery is a capital receipt and not liable to tax u/s. 41(2) of
the Income-tax Act.
|
|
-
|
"Hire Charges" for chartering of ship is not payment for "carriage of goods" and not taxable u/s 172.
|
|
-
|
In computing profits of contractor by applying flat rate to total receipts, the value of materials supplied by the Government at fixed
rates for use in the contract should be excluded from the total receipts.
|
|
-
|
Profit or loss on appreciation or depreciation of foreign currency (FC) is treated as income if the FC is held as part of circulating
capital. If FC is held as fixed capital such profit or loss is of a capital nature
|
-
CIT vs. Tata Locomotive & Engg. Co. Ltd. 60 ITR 405;
-
Sutlej Cotton Mills Ltd. vs. CIT 116 ITR 1;
-
State Bank of India vs. CIT [1986] 157 ITR 67
|
-
|
Amount collected from customers on ‘Dharmada Account’ is not a trading receipt and cannot be treated as income of the recipient
|
|
-
|
Receipts on account of Salami, premia and compensation were receipts of a capital nature.
|
|
-
|
Amount credited to the account of Non-resident for commission due on account of services rendered outside India cannot be considered as
receipt of income in India. Entire income accrued outside India
|
|
-
|
Principles of real income not applicable to capital expenditure
|
|
-
|
For determination of income, entries made in books of account are not conclusive.
|
|
-
|
Applying real income theory, interest on sticky loans not credited to profit and loss account did not accrue to the assessee.
|
|
-
|
Assessee borrowed funds from banks/FIs for setting up factory. Part of borrowed funds, not immediately required was invested in short-term
deposits with banks. Assessee adjusted interest thereon from pre-production expenses. Interest income held taxable.
|
|
-
|
On facts, entries in books held not representing real income accrued to the assessee.
|
|
-
|
Unclaimed trade deposits written back to P/L account is assessable as income.
|
|
-
|
The non-compete compensation is a capital receipt not liable to tax prior to introduction of s. 28(va) inserted w.e.f A.Y. 2002-03.
|
|
-
|
Additional compensation does not accrue when amount awarded is disputed by Government by filing appeal.
|
|
-
|
Interest on enhanced compensation for land acquired under Land Acquisition Act, accrues from year to year and cannot be assessed in one
lump sum in year in which it is awarded by the Court.
|
-
CIT vs. T.N.K. Govindarajulu Chetty 165 ITR 231,
-
Rama Bai vs. CIT 181 ITR 400;
-
K.S. Krishna Rao vs. CIT 181 ITR 408
|
-
|
Though I.T. Act takes into account two points of time at which the liability to tax is attracted, namely, accrual and receipt, yet the
substance of the matter is income. If the income does not result at all, there cannot be a tax, even though in book-keeping an entry is
made about a hypothetical income which does not materialize
|
|
-
|
A disputed claim cannot be treated as income and made liable to Income Tax
|
|
-
|
Transfer of shares of foreign company by non-resident to non-resident does not attract Indian tax even if object is to acquire Indian
assets held by the foreign company
|
|
Income from other sources
|
-
|
Interest on amount borrowed to pay taxes and annuity deposits is not expenditure incurred wholly and exclusively for purpose of earning
income and is hence not deductible.
|
|
Income from House Property (H.P.)
|
-
|
Where H.P. is owned by two or more persons whose shares are defined, deduction u/s. 23(2) allowable to each co-owner separately. S. 26
clarifies this.
|
|
-
|
In the context of S. 22 "owner" is a person who is entitled to receive income in his own right. Amendment introduced by the Finance Act,
1987 to S. 27 is clarificatory in nature.
|
|
Income – Capital or Revenue
|
-
|
Annual amounts received by assessee on termination of lease is revenue receipt.
|
|
-
|
Compensation paid to assessee for termination of lease for cutting and removing timber is a capital receipt.
|
|
-
|
Compensation for entering into non-compete covenant held as capital receipt.
|
|
-
|
Loss on sale of investments acquired to boost business is a revenue loss.
|
|
-
|
During construction of plant, amount received from an activity inextricably connected with construction activity would be non-chargeable
capital receipt which would go to reduce cost of construction.
|
|
-
|
Operational subsidies granted after set up of unit and after commencement of production are supplementary trade receipts taxable as
"income".
|
|
-
|
Amount received for loss of source of income to the assessee held as capital receipt
|
|
Interest
|
-
|
Interest under sections 234A/B is to be levied on income declared in return and not on assessed income
|
Contrary view
- CIT vs. Anjum M. H. Ghaswala 252 ITR 1 – Interest held to be mandatory.
|
-
|
Interest u/s. 220(2) is chargeable only if there is demand notice and a default to pay the amount
|
|
-
|
Interest u/ss. 234B and 234C can be charged in case of a company whose income is assessed as per section 115J
|
|
-
|
Interest u/s. 234A would be payable only in a case where tax has not been deposited prior to the due date of filing of the return and not
where tax has been paid but return has been filed belatedly
|
|
-
|
S. 234D does not apply to an assessment year commencing pre 1/6/2003 if the assessment order is passed prior to that date
|
|
Interest on interest
|
-
|
Where there was delay on the part of the department to refund the advance tax and interest thereon, department was ordered to pay interest
on such interest by way of compensation
|
|
-
|
The department is not obliged to pay interest on interest as that is not provided in the law.
|
|
-
|
Deductor entitled to interest on refund of excess TDS from date of payment
|
|
Interpretation & Principles
|
-
|
Decision by larger Bench of Court would normally prevail over that by a single judge or smaller Bench.
|
-
Sundardas K. Bhatija & Ors. vs. Collector, Thane, Maharashtra & Ors. 183 ITR 130
-
Also refer - UOI Raghubir Singh 178 ITR 548.
|
-
|
Ordinarily earlier decision of one Division Bench (DB) of High Court should be followed by other DB of same High Court and in cases of an
extraordinary matter, it can be placed before larger Bench.
|
|
-
|
Where counsel is permitted to retire from a case at last moment, court should ensure that notice is given to other party.
|
|
-
|
There is a fundamental though unwritten axiom that no legislation could have at all intended a double deduction unless clearly expressed.
|
|
-
|
Facts should be viewed in natural perspective having regard to compulsion of the circumstances of the case. Where it is possible to draw
two inferences from the facts and when there is no mala fide motive inferences should be drawn in such a manner that would lead to equity
and justice.
|
|
-
|
A taxing provision imposing liability is presumed to be not retrospective
|
|
-
|
Taxing statute should be construed on the basis of object sought to be achieved
|
|
-
|
Tax planning within the framework of law is legitimate & it is only colourable devices & dubious method that are to be discouraged.
If the result of normal transaction is tried to be achieved through a scheme, with only intention to avoid tax, then such scheme can be
described as colourable device even though such scheme may be within framework of law
|
|
Limitation
|
-
|
While condoning delay, Courts should have a pragmatic and liberal approach.
|
|
Method of Accounting
|
-
|
If system followed does not disclose true picture of the profits, A.O. is duty bound to reject the system even though followed
consistently. Accordingly, stock valuation only at raw material cost was rejected.
|
|
-
|
Closing stock of raw material is to be valued at cost net of Modvat element.
|
-
CIT vs. Indo Nippon Chemical Co. Ltd. — 261 ITR 275
-
Refer to amendment by way of Section 145A inserted by Finance (No. 2) Act, 1990.
|
-
|
Entries in the accounts cannot decide the taxability of receipts or allowability of expenses
|
-
State Bank of India vs. CIT 157 ITR 67;
-
CIT vs. India Discount Co. Ltd. 75 ITR 191;
-
Godra Electricity Co. Ltd. vs. CIT 225 ITR 746;
-
CIT vs. Bokaro Steel Ltd. 236 ITR 315;
-
Tuticorin Alkali Chemicals & Fer. Ltd. vs. CIT 227 ITR 172;
-
Sutlej Cotton Mills Ltd. vs. CIT 116 ITR 1
|
-
|
Valuation of stock as per market value which is higher than cost is not a proper method of valuation of stock
|
|
Minimum Alternative Tax (MAT)
|
-
|
Provision for doubtful debts cannot be added back clause (c) of the Explanation to Section 115JA for the purpose of computing book profit
|
|
-
|
In respect of company consistently following the practice of debiting the depreciation at the rates prescribed by the Income-tax Rules, the
Assessing Officer cannot for the purposes of S. 115J rework the net profit by substituting depreciation at the rates prescribed in Schedule
XIV to the Companies Act, 1956
|
|
-
|
Amount withdrawn from revaluation reserve & credited to P&L A/c cannot be reduced from book profit even if in year of creation of
reserve, the P&L A/c was not debited
|
|
-
|
S. 115JB “book profits” have to be reduced by deduction “eligible” u/s. 80HHC & not “actual” deduction and the same cannot be reduced
to 80% by relying on s. 80HHC(1B)
|
|
-
|
For s. 115JA/JB, deduction u/s. 80HHC has to be computed as per profits shown in the profit and loss account and not as per the normal
provisions
|
|
Mutuality Concept
|
-
|
Principle of mutuality applies to income from house property. Club being mutual concern not exigible to tax u/s. 22 of the Act.
|
|
-
|
Income from contributions of the members kept in fixed deposits with banks could not be said to have been derived from any activity based
on the principle of mutuality
|
|
-
|
Surplus from amounts collected from members for giving certain facilities. Surplus not spent is not exigible to tax even if such surplus
may be on account of giving facilities not only to permanent members but even to temporary members and their guests.
|
|
Natural justice
|
-
|
Use of evidence or statement without affording opportunity to assessee. Principles of natural justice are violated and the order may be
held to be bad in law
|
|
Partnership
|
-
|
Sub-partnership constitutes diversion of income by overriding title
|
|
-
|
H.U.F. cannot become partner. Karta can enter into partnership on behalf of H.U.F.
|
|
-
|
Two or more members of H.U.F. can become partners with others and represent H.U.F. in a firm.
|
|
-
|
A firm cannot enter into partnership with othe₹
|
|
-
|
Interest paid to partner to be adjusted against interest received from partner and only net amount is to be disallowed u/s. 40(b).
|
|
-
|
On dissolution and discontinuance of firm, stock-in-trade must be valued at market price and not at lower of cost or market price.
|
|
-
|
In case the firm continues with surviving partners, valuation is to be made at cost or market value, whichever is lower
|
|
-
|
Karta and individual member of HUF can enter into a valid partnership.
|
|
Penalty
|
-
|
In respect of penalty u/s 271(1)(c) for concealment of income, the law operating as on the date when return was filed is applicable to the
assessee
|
|
-
|
Penalty u/s. 271(1)(c) is not leviable if returned income and assessed income is loss.
|
Amendment made in cl. (a) to Expl. 4 to sec. 271(1)(c) by Finance Act, 2002 w.e.f. 1/4/2003 & this decision is overruled
|
-
|
Prior to amendment by Finance Act, 2002, no penalty could be levied u/s. 271(1)(c) where returned income and assessed income were loss
|
|
-
|
Where assessee agrees to addition before detection of income, penalty u/s. 271(1)( c) cannot be levied.
|
|
-
|
In a case where no information given in the return of income is found to be incorrect, no penalty can be levied even in respect of making
an unsustainable claim
|
|
-
|
If the return is filed with a bonafide error of the chartered accountant, no penalty is leviable on account of such mistake if the same is
rectified in the assessment proceedings
|
|
-
|
Under Explanation 1 to s. 271(1)(c), voluntary disclosure of concealed income does not absolve assessee of s. 271(1)(c) penalty if the
assessee fails to offer an explanation which is bona fide and proves that all the material facts have been disclosed
|
|
Professional Income
|
-
|
S. 80RRA applies to remuneration received by consultant/technician who need not be a salaried employee of the payer.
|
|
Promissory Estoppel
|
-
|
Where a Govt. makes a promise knowing or intending that it could be acted upon by assessee (promisee) and in fact, promisee, acting in
reliance on it, alters his position, Govt. would be held bound by promise and promise would be enforceable against the Govt. at instance of
the promisee. But there can be no promissory estoppel against the legislature in exercise of its legislative functions, nor can the Govt.
be debarred by promissory estoppel from enforcing a statutory prohibition. Doctrine of promissory estoppel cannot be invoked to compel the
Govt. to do and act contrary to the law.
|
-
Motilal Padampat Sugar Mills Co. P. Ltd. vs. State of UP 118 ITR 326;
-
UOI vs. Godfrey Philips (I) Ltd 158 ITR 574;
-
Assistant Commissioner of Commercial Taxes (Asst.) vs. Dharmar &
Ors./Dharmendra Trading Co. 172 ITR 395
|
Prosecution u/ss. 276C,
277 and 278
|
-
|
A company cannot be prosecuted as each of the above sections require imposition of mandatory imprisonment coupled with fine and leaves no
choice to Court to impose only fine
|
|
-
|
Although company cannot be prosecuted, fines, etc. can be imposed on a company
|
|
-
|
Criminal proceedings must be stayed where appellate proceedings are yet to be finalized
|
|
Recovery of Tax
|
-
|
Tax can be recovered from assessee only when it becomes due. Tax becomes due only when notice of demand has been served on assessee.
|
|
-
|
In case of a co. which has become a ‘deemed public co.’ u/s. 43A of the Companies Act, 1956, arrears of tax for period after the co. has
become a deemed public co. cannot be recovered from directors of the co. u/s. 179
|
|
Rectification of Mistakes
|
-
|
Mistake apparent from the record must be an obvious and patent mistake — Debatable issues cannot be rectified u/s. 154.
|
|
-
|
Apparent mistake of law can be rectified in the same manner as a mistake of fact.
|
|
-
|
Mistake arising as a result of subsequent interpretation of law by SC, would constitute a mistake apparent from the record and can be
rectified u/s. 154.
|
|
-
|
In rectification proceedings, ITO can grant deduction which had not been claimed earlier, provided sufficient data is available on record.
|
|
-
|
On the basis of subsequent decision of Supreme Court, rectification of order is permissible
|
|
-
|
Subsequent decision of SC cannot result into rectification of mistake
|
-
Mepco Industries Ltd. v. CIT - 319 ITR 208
-
Shriram Chits (Bang) Ltd. v. JCIT 325 ITR 219 / 233 CTR 199 / 41 DTR 366 (Kar)
-
CIT v. Max India Ltd. 295 ITR 282)
|
-
|
Non-consideration of a judgement of jurisdictional High Court is a mistake apparent from record
|
|
Resident /NOR
|
-
|
Income earned outside India and income exempt in India are not taxable
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Refund
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Government is liable to pay interest on the amount of interest on advance tax which it should have paid to the assessee but has
unjustifiably failed to do so.
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Reference to Valuation Officer u/s. 55A
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The scope of reference to a Valuation Officer is limited and spelt out in sections 55A and 269L. Apart from the said two sections, AO has
no power to make a reference to a Valuation Officer. Since, specific powers have been granted in sections 55A and 269L for making a
reference, AO cannot resort to make a reference either u/s. 131(1) or 133(6) or 142(2).
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Reopening of Assessments
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Finding or direction against a person not connected with the assessee does not entitle the ITO to reopen the assessment.
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Reopening of assessment on the basis of a factual error pointed out by the audit party is permissible under law.
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View expressed by an internal audit party on a point of law cannot be regarded as ‘information’ for purpose of reopening assessment u/s.
147(b).
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Where ITO relies upon his own records for determining amount of depreciation allowable to assessee and makes a mistake in not taking into
account initial depreciation allowed, reopening not permitted.
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Issue of notice within limitation period, service on assessee beyond limitation period. Assessment valid.
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Once valid proceedings initiated u/s. 147, ITO has not only the jurisdiction but it is his duty to complete the whole assessment de novo.
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However, in reassessment proceedings u/s. 147, assessee cannot seek a review of concluded items unconnected with escapement of income for
purposes of computation of escaped income.
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After 1.4.1989, the Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is
escapement of income from assessment. Reasons must have a live link with the formation of the belief. This is supported by Circular No.549
dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion
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Re-opening based on borrowed satisfaction of other Assessing Officer is not valid
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Reopening on the basis of subsequent Supreme court decision is not valid
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Revised Return
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Belated return u/s. 139(4) cannot be revised u/s. 139(5).
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Revision
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Once an appeal is filed against the order of the AAC before the Tribunal, a revision petition u/s. 25(1) of the Wealth Tax Act would not
lie even if it is the Department who has filed the appeal before the Tribunal.
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CIT has to be satisfied that the order sought to be revised is erroneous and it is prejudicial to the interest of the revenue. When AO
adopts one of the views permissible in law, where two views are possible, the order cannot be treated as an erroneous order prejudicial to
the interest of the revenue unless the view taken by the AO is unsustainable in law
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Commission receivable by an employee at a fixed percentage of turnover will partake the character of salary. P. F. Contribution made by the
employer on such commission is allowable deduction
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There is no perquisite under section 17(2) in interest free advances given by company to its employee/directors
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(Refer amendment to section 17(2) read with Rule 3(7)(i).
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Search & Seizure and Survey
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Once an assessment is completed there is no question of making a seizure and proceeding u/s. 132. ITO can only apply to the authorities who
hold the amount to pay the same u/s. 226 towards outstanding taxes.
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Extended retention of books and documents beyond 180 days without communication is invalid.
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Information from CBI that cash was found in possession of individual is not sufficient for authorizing search; consequent search and block
assessment not valid
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The s. 133A does not empower any ITO to examine any person on oath. The statement recorded u/s. 133A has no evidentiary value and any
admission made during such statement cannot be made the basis of addition
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Settlement Commission
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Unless applicant discloses income not disclosed earlier, application is not maintainable. Commissioner’s report can be based on material
collected by him even after submission of application for settlement. Settlement Commission can look into the material obtained even after
the Commissioner’s report. Assessee cannot be allowed to take advantage of comparatively easy course of settlement where material gathered
by the department is likely to establish particulars of income or fraud by the assessee
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Scope and Powers of Settlement Commission discussed in detail
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"Special Bench" — Powers of ITAT President
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The President may constitute a "Special Bench" by exercising his administrative powe₹ He may suo motu if it is brought to his notice that
any important point is pending requires to be decided by larger bench, constitute a larger bench/special bench and is intra vires his
powers u/s. 255(1) r.w. 255(3) and de hors judicial power under Rule 98A of ITAT Rules/Regulations but not capriciously or arbitrarily.
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Tribunal refusing adjournment on ground that 11 adjournments already granted — Not justified. Natural justice requires further short
adjournment. Also held, Tribunal not justified in refusing to take on record written arguments of Revenue.
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Stay of Recovery
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Tribunal can grant stay u/s. 254.
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Tax Deducted at Source
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Provisions of S. 194C not restricted to works contract alone. The deduction has to be from whole amount of contract and not merely income
component of the amount. Amounts reimbursed to contractor cannot be excluded from sum from which tax is to be deducted
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Where the employee’s service termination was held illegal by the S.C. and it directed payment of lump sum by way of back wages and
compensation in lieu of reinstatement, the employee is to be allowed relief u/s. 89.
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An employer is under no obligation to collect and examine the supporting evidence to a declaration submitted by an employee to the effect
that he has actually utilized the amounts for the specified purposes in deciding the liability to TDS u/s. 192
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In connection with the applicability of provisions of TDS on payment of interconnect charges/port charges to BSNL/MTNL, dept. having not
adduced any expert evidence to show that any human intervention is involved during the process when calls take place so as to bring the
payments of interconnect charges/access/port charges made by the assessee to BSNL/MTNL within the ambit of “fees for technical services”
u/s. 194J, matter is remitted to Assessing Officer to examine a technical expert and to decide the same afresh.
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“Transaction charges” paid by a member to BSE for conducting transactions of purchase and sale of shares is not “fees for technical
services” and the provisons of s. 194J are not applicable. Technical services denote services to cater to the specialized, exclusive and
individual requirementsof a consumer. Services rendered which fail to satisfy aforesaid test are merely facilities offered and do not fall
within the ambit of “technical services” as per Explanation 2 to s. 9(1)(vii) of the Act.
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Landing and parking charges paid by airline companies to Airports Authority of India were payments for a contract of work u/s. 194C and not
in the nature of rent u/s. 194-I of the Act since it does not merely represent ‘use of the land’ but represents services and facilities
offered in connection with aircraft operation at the airport.
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Deduction of tax at source—Mere remittance to non-resident—Duty to deduct tax at source—Does not arise unless remittance contains wholly or
partly taxable income
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The discount made available to the licensed stamp vendors under the provisions of the Gujarat Stamps Supply and Sales Rules 1987 does not
amount to “Commission” under section 194H of the Act.
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Tax Planning
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Tax Planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is
wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the
obligation of every citizen to pay the taxes honestly without resorting to subterfuges
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(Note : The ruling of the House of Lords in Craven vs. White [1990] 183 ITR 216 lays down that only artificial tax avoidance schemes are to
be ignored)
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Where the meaning of documents on record is clear, the documents cannot be ignored merely on the ground that they lead to tax avoidance.
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One could not accept the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some
underlying motive supposedly resulting in some economic detriment or prejudice to the national interest.
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Transfer of Cases
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Reasons recorded for transfer of a case u/s. 127(1) should be communicated. Otherwise the order of transfer will be invalid
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Unabsorbed Losses
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The provision u/s. 79 denying set off applies only to business loss and does not apply to unabsorbed depreciation or development rebate
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WEALTH-TAX
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Test laid down for deciding what is Agricultural Land.
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Trustees of a trust assessable as individual under WT Act.
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CWT vs. Gordhandas Govindram Family Charity Trust 88 ITR 47,
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Trustees of CWT vs. H.E.M. Nizam’s Family Trust (Remainder Wealth) 108 ITR 555
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Where under a lease agreement a part of the unearned increase in the value of the land is to be given to the lessor at the time of transfer
of leasehold rights, deduction of such amount which is payable to the lessor can be claimed while determining the market value of the
leasehold land in the hands of the lessee.
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Debt owed, includes Provision for Taxation.
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Wealth-tax payable is allowable as deduction.
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Proposed Dividend, not a debt until dividend is declared at the General Meeting.
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Tax liabilities, though assessed after valuation date, deductible.
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CWT vs. K. S. N. Bhatt 145 ITR 1;
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CWT vs. Vadilal Lallubhai 145 ITR 7;
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Vimalaben Vadilal Mehta 145 ITR 11
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Tax payable under Voluntary Disclosure Scheme is allowable as deduction in computing net wealth.
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Contingent liability created by family arrangement arrived at between parties is allowable as a deduction on the happening of the
contingency.
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Right of assessee to receive income of trust fund during his life time cannot be considered as an ‘annuity’ and exemption cannot be claimed
u/s. 2(e)(iv).
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Monthly tenancy is not an asset.
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Rule 1D is valid and is mandatory in nature. Clause (ii)(e) of Expln. II is complimentary to clause (i)(a) and gross amounts of both —
advance tax and provision for tax cannot be deducted from value of assets to value shares under Rule 1D.
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Meaning of "Jewellery" includes gold ornaments even prior to insertion of Expl. 1 to S. 5(1)(viii). Expln. 1 is clarificatory and
retrospective w.e.f. 1.4.63.
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For determining the price that a property would fetch if sold in the open market on the valuation date as per Section 7 of the Act, value
cannot be arrived at ignoring pending litigation, applicability of Land Ceiling Act and the price a reasonable buyer would pray for the
said property.
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GIFT-TAX
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No gift tax payable on goodwill of a business which is one of the assets of partnership.
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No gift tax payable on unequal partition of H.U.F. property.
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Where minor sons are admitted to benefits of partnership and father’s share gets reduced, it amounts to gift by father to minor sons of
part of goodwill.
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Essential ingredient of a gift is that there must be existing property. Gift by book entries not valid unless concern in whose books the
entries are made has adequate cash balance or overdraft facility.
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Department and assessee can agree upon one of the alternative methods of valuation of shares of a private company but cannot agree to
‘break-up’ method unless specifically permitted under that law.
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