TITLE: Section 201 TDS: Even if the statute does not lay down a time limit, proceedings must be completed within a limited period CASE: DIT (IT) vs. Mahindra & Mahindra Limited (Bombay High Court)

TITLE: Section 201 TDS: Even if the statute does not lay down a time limit, proceedings must be completed within a limited period

CASE: DIT (IT) vs. Mahindra & Mahindra Limited (Bombay High Court) 

In the context of a GDR/ Euro issue by the assessee, the department claimed that the assessee ought to have deducted TDS u/s 195 on payment of fees to the fund managers etc. The Special Bench (122 TTJ 577) allowed the assessee’s appeal inter alia on the ground that a time limit for initiation and completion of proceedings u/s 201 (1) & (1A) had to be read into the statute.

On appeal by the department to the High Court HELD dismissing the appeal:

S. 201 of the Act does not prescribe any limitation period for the assessee being declared as an assessee in default. If no period of limitation is prescribed, a statutory authority must exercise its jurisdiction within a reasonable period. What should be the reasonable period depends upon the nature of the statute, rights and liabilities thereunder and other relevant factors.

Insofar as the IncomeTax Act is concerned, s. 153(1)(a) prescribes the time limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well known that the assessment year follows the previous year and, therefore, the time limit would be three years from the end of the financial year. This seems to be a reasonable period as accepted u/s 153 of the Act, though for completion of assessment proceedings. Even though the period of three years would be a reasonable period as prescribed by s. 153 of the Act for completion of proceedings, the Income Tax Appellate Tribunal has taken the view that four years would be a reasonable period of time for initiating action, in a case where no limitation is prescribed.

The rationale for this seems to be quite clear if there is a time limit for completing the assessment, then the time limit for initiating the proceedings must be the same, if not less.

Nevertheless, the Tribunal has given a greater period for commencement or initiation of proceedings (NHK Japan Broadcasting Corp 305 ITR 137 (Del) & Hutchison Essar Telecom 323 ITR 230 (Del) followed; Bhura Exports (Cal HC) dissented from)

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TITLE: Two flats, even though acquired under different agreements & from different sellers, are one residential unit if there is a common kitchen CASE: CIT vs. Devdas Naik (Bombay High Court)

TITLE: Two flats, even though acquired under different agreements & from different sellers, are one residential unit if there is a common kitchen

CASE: CIT vs. Devdas Naik (Bombay High Court)

  

The department’s argument that the law laid down by the Tribunal in ITO v/s Sushila M. Jhaveri 107 ITD 327 (Mum)(SB) and confirmed by this Court in CIT v/s Raman Kumar Suri (Income Tax Appeal No.6962 of 2010, decided on 27.11. 2012) on the availability of exemption u/s 54 is applicable only when the house purchased is a single unit and not where two flats, one acquired in the assessee’s name and another jointly in the names of the assessee and his wife but under two distinct agreements and from different sellers have been taken into consideration is not acceptable.

Though these flats were acquired under two distinct agreements and from different sellers, the map of the general layout plan as well as internal layout plan in regard to flat Nos.103 and 104 indicate that there is only one common kitchen for both the flats.

The flats were constructed in such a way that adjacent units or flats can be combined into one. The admitted fact is that the flats were converted into one unit and for the purpose of residence of the assessee.

Thus, though the acquisition of the flats may have been done independently but eventually they are a single unit and house for the purpose of residence.

RELATED JUDGEMENT

·         Hill Properties Ltd vs. Union Bank (Supreme Court) – “Occupancy rights in flat conferred by Articles of Association confer ownership rights in flat.”

·         CIT vs. Syed Ali Adil (Andhra Pradesh High Court) – “The building should be of residential nature and “a” should not be understood to indicate a singular number.”

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TITLE: Section 148 notice & order on objections cannot be challenged in a Writ Petition CASE: JCIT vs. Kalanithi Maran (Madras High Court)

TITLE: Section 148 notice & order on objections cannot be challenged in a Writ Petition

CASE: JCIT vs. Kalanithi Maran (Madras High Court) 

The Court had to consider whether an order passed by the AO on the objections of an assessee can be assailed before the Court under Article 226 of the Constitution of India.

HELD by the High Court in the negative:

(i) A challenge to an order passed on the objections of the assessee is in effect a challenge to a notice u/s 148 of the Act. Such an order passed by the AO is only at the stage of process of determination and not a determination by itself. The process of assessment is not required to be challenged before Court of law, as it is a still born child. Therefore, the assessee cannot have a legal right as there is no legal injury suffered by them at that stage.

A Writ can be filed to the limited extent in cases where an assessment is sought to be reopened by an Officer who is not competent to do so or where on the face of it would appear that the reopening is barred by limitation or lacks inherent jurisdiction i.e. cases where no adjudication is required on facts (Chhabil Dass Agarwal (2014) 1 SCC 603) followed);

(ii) As held in G.K.N. Driveshafts 259 ITR 19 (SC), once a notice u/s 148 is issued, the assessee has to file a return and can seek the reasons for issuing notice. The AO is bound to furnish the reasons within a reasonable time and the assessee is entitled to file objections over which the AO has to pass a speaking order. The Supreme Court adapted a novel method to make way for the statutory authorities to deal with the adjudication covering assessments. In other words, in clear terms, the Supreme Court has indicated that an assessee is not required to run to the Court before the passing of the assessment order by challenging a notice issued u/s 148. However, in order to provide an element of fairness in the process of adjudication and create an atmosphere of transparency, a mechanism, which was not found in the Statute was evolved by asking the AO to pass a reasoned order. It is only a part of the procedural law. Such an order is only a preliminary order, which can only be said to be an expansion of the reasons which are supposed to be assigned u/s 148(2) of the Act. It neither creates a right nor takes away the one accrued.

It is not an adjudication in the strict sense of the term. It is only meant for the purpose of understanding the basis of the notice. Therefore, GKN Driveshafts has to be understood to mean that a pre-adjudication proceedings not deciding the issues shall not be put into challenge while exercising the discretionary power under Article 226 of the Constitution of India, which in the process, takes away the right of the AO to proceed further. Therefore, the Order passed, as directed by the Supreme Court, cannot be termed as a substitute to the assessment order. To put it differently, it does not take away the power of the AO to decide the issue on the plea of the assessee or on a consideration of the records. It is to be remembered that the AO was directed to pass orders only on the objections given by the assessee.

The further fact that such an order is required to be passed before proceeding with the assessment would make the said position clear. Furthermore, if the order on the objections can be entertained, then the Supreme Court would not have directed the appeals to be disposed of by the appellate authority instead of setting them aside. This also indicates that the assessee could raise all the pleas including those considered against him by the AO while passing orders on his objections. Hence, such a preliminary order, which does not have a statutory flavour not deciding the dispute between the parties, cannot be challenged by invoking the extraordinary jurisdiction before us. The Supreme Court merely provided safeguards to the assessee at the pre-adjudicative stage.

The decision has been given to make sure that the AO complies with s. 148(2) in letter and spirit. There is no certainty in the order passed by the AO. If the order passed is set aside, it would only mean the notice issued u/s 148 is liable to be interfered with. The object of the decision of the Supreme Court is not only to avoid interference by the Courts but not to give way for it. Any other interpretation would make the entire remedial mechanism provided under the Act as redundant.

(iii) Calcutta Discount Co.Ltd 41 ITR 191 (SC) was rendered was much prior to the judgment in G.K.N. Driveshafts 259 ITR 19 (SC). Further, the then fact situation at the time of rendering the said judgment is no longer in existence today.

(iv) The legislative intent is to allow the AO to go through the process of assessment. Even u/s 147, a Court of law cannot presume a lack of jurisdiction, when a fact in issue requires an adjudication. It has to be exercised in terms of sections 139, 143(2) and 143(3).

Therefore, considering the scheme of the enactment, particularly, with reference to sections 147 to 153 of the Act, we are of the view that an order passed on the objections of the assessee over adjudicating facts is not open to challenge by way of filing a writ petition.

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TITLE: S. 2(47)/ 54: If an agreement to sell is entered into within the prescribed period, there is a transfer of some rights in favour of the vendee. Fact that sale deed could not be executed within the time limit owing to supervening problem is not a bar for s. 54 exemption CASE: Sanjeev Lal vs. CIT (Hon’ble Supreme Court)

TITLE: S. 2(47)/ 54: If an agreement to sell is entered into within the prescribed period, there is a transfer of some rights in favour of the vendee. Fact that sale deed could not be executed within the time limit owing to supervening problem is not a bar for s. 54 exemption

CASE: Sanjeev Lal vs. CIT (Hon’ble Supreme Court) 

Consequences of execution of the agreement to sell are very clear and they are to the effect that the appellants could not have sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immoveable property in favour of one person, tries to sell the property to another.

In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed. A right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27.12.2002.

The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated.

As held in Oxford University Press vs. CIT [(2001) 3 SCC 359] a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax and one can very well interpret the provisions of Section 54 read with Section 2(47) of the Act, i.e. definition of “transfer”, which would enable the appellants to get the benefit under Section 54 of the Act.

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TITLE: Important principles of law on taxation of discretionary & specific trusts explained CASE: CWT vs. Estate of Late HMM Vikramsinghji of Gondal (Hon’ble Supreme Court)

TITLE: Important principles of law on taxation of discretionary & specific trusts explained

CASE: CWT vs. Estate of Late HMM Vikramsinghji of Gondal (Hon’ble Supreme Court)

The ex-Ruler of Gondal Shri Vikramsinhji executed three deeds of settlements (trust deeds) in the USA & UK. These trusts were created for the benefit of (a) the Settlor, (b) the children and remoter issue for the time being in existence of the Settlor and (c) any person for the time being in existence who is the wife or widow of the Settlor or the wife or widow or husband or widower of any of them, the children and remoter issue of the Settlor. During his life time, the settlor, Shri Vikramsinhji, was including the whole of the income arising from these trusts in his returns of income.

The said income was also included in the two returns filed by his son Jyotendrasinhiji for the AY 1970-71. Thereafter, the assessee took the stand that the income from these trusts is not includible in his income. Jyotendrasinhiji also took the stand that inclusion of the said income in the returns submitted by his father for the AYs 1964-65 to 1969-70 and by himself for the assessment year 1970-71 was under a mistake. Clause 3 of the deeds of settlement executed in U.K. leaves at the discretion of the trustees to disburse benefits to the beneficiaries.

 The endorsement made in the returns, as noted above, shows that income was retained by the trustees and not disbursed. The Tribunal while considering clause 3(2) and Clause 4 of the U.K. Trust Deeds observed that if the trusts were really intended to be discretionary, the trustees had a duty cast on them to ascertain the relative needs and personal circumstances of all the beneficiaries and to allocate the income of the trusts, among them from time to time, according to the objects of the trusts, however, the tell tale facts bring out the intention of the settlor to treat the trust property as his own.

The settlor and after his death his son have been showing the income of foreign trusts in the returns of income filed from time to time. Had the trust deeds been really understood by the trustees and the beneficiaries as discretionary by virtue of the operation of clause 3, one would have expected the state of affairs to have been different. Consequently, the Tribunal held that due to failure on the part of the Maharaja to appoint discretion exercisers as per clause 3(2), clause 4 has become operative and the U.K. trusts have to be held to be specific trusts. The High court did not agree with the Tribunal’s view and held that on interpretation of the relevant clauses of the deeds of settlement executed in U.K., character of the trusts was discretionary and not specific.

On appeal by the department to the Supreme Court HELD dismissing the appeal:

A discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they think fit.

The trustees must exercise their discretion as and when the income becomes available, but if they fail to distribute in due time, the power is not extinguished so that they can distribute later. They have no power to bind themselves for the future.

The beneficiary thus has no more than a hope that the discretion will be exercised in his favour. Having regard to the above legal position about the discretionary trust which is also applied by by this Court in the earlier judgment and the fact that the income has been retained and not disbursed to the beneficiaries, the view taken by the High Court cannot be said to be legally flawed. Merely because the Settlor and after his death, his son did not exercise their power to appoint the discretion exercisers, the character of the subject trusts does not get altered. The two U.K. trusts continued to be ‘discretionary trust’ for the subject assessment years.

The High Court has taken a correct view that the value of the assets cannot be assessed on the estate of the deceased Settlor (Snell’s Principles of Equity, 28th Edition, Page 138 followed)

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TITLE: Expl to s. 73: Speculation loss on transactions in derivatives can be set off against the gains of delivery shares CASE: CIT vs. Baljeet Securities Pvt. Ltd (Calcutta High Court)

TITLE: Expl to s. 73: Speculation loss on transactions in derivatives can be set off against the gains of delivery shares

CASE: CIT vs. Baljeet Securities Pvt. Ltd (Calcutta High Court)

In AY 2005-06, the assessee, a share broker, entered into derivatives in which it suffered losses. The said losses constituted “speculation loss” (prior to the exclusion of derivatives from the ambit of speculative transactions under clause (d) of s. 43 (5) w.e.f. AY 2006-07). The assessee claimed that the said speculation loss was eligible to be set-off against the income arising out of purchase and sale of shares. The Tribunal upheld the claim of the assessee.

On appeal by the department to the Tribunal HELD dismissing the appeal:

“Under the Explanation to s. 73 where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of the section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. Therefore, the entire transaction carried out by the assessee was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares.”

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TITLE: Important principles of law on taxation of discretionary & specific trusts explained CASE: CWT vs. Estate of Late HMM Vikramsinghji of Gondal (Supreme Court)

TITLE:  Important principles of law on taxation of discretionary & specific trusts explained

CASE:  CWT vs. Estate of Late HMM Vikramsinghji of Gondal (Supreme Court)      

The ex-Ruler of Gondal Shri Vikramsinhji executed three deeds of settlements (trust deeds) in the USA & UK. These trusts were created for the benefit of (a) the Settlor, (b) the children and remoter issue for the time being in existence of the Settlor and (c) any person for the time being in existence who is the wife or widow of the Settlor or the wife or widow or husband or widower of any of them, the children and remoter issue of the Settlor. During his life time, the settlor, Shri Vikramsinhji, was including the whole of the income arising from these trusts in his returns of income. The said income was also included in the two returns filed by his son Jyotendrasinhiji for the AY 1970-71. Thereafter, the assessee took the stand that the income from these trusts is not includible in his income. Jyotendrasinhiji also took the stand that inclusion of the said income in the returns submitted by his father for the AYs 1964-65 to 1969-70 and by himself for the assessment year 1970-71 was under a mistake.

Clause 3 of the deeds of settlement executed in U.K. leaves at the discretion of the trustees to disburse benefits to the beneficiaries. The endorsement made in the returns, as noted above, shows that income was retained by the trustees and not disbursed. The Tribunal while considering clause 3(2) and Clause 4 of the U.K. Trust Deeds observed that if the trusts were really intended to be discretionary, the trustees had a duty cast on them to ascertain the relative needs and personal circumstances of all the beneficiaries and to allocate the income of the trusts, among them from time to time, according to the objects of the trusts, however, the tell tale facts bring out the intention of the settlor to treat the trust property as his own.

The settlor and after his death his son have been showing the income of foreign trusts in the returns of income filed from time to time. Had the trust deeds been really understood by the trustees and the beneficiaries as discretionary by virtue of the operation of clause 3, one would have expected the state of affairs to have been different. Consequently, the Tribunal held that due to failure on the part of the Maharaja to appoint discretion exercisers as per clause 3(2), clause 4 has become operative and the U.K. trusts have to be held to be specific trusts.

The High court did not agree with the Tribunal’s view and held that on interpretation of the relevant clauses of the deeds of settlement executed in U.K., character of the trusts was discretionary and not specific.

On appeal by the department to the Supreme Court HELD dismissing the appeal:

“A discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they think fit.

The trustees must exercise their discretion as and when the income becomes available, but if they fail to distribute in due time, the power is not extinguished so that they can distribute later. They have no power to bind themselves for the future.

The beneficiary thus has no more than a hope that the discretion will be exercised in his favour. Having regard to the above legal position about the discretionary trust which is also applied by by this Court in the earlier judgment and the fact that the income has been retained and not disbursed to the beneficiaries, the view taken by the High Court cannot be said to be legally flawed. Merely because the Settlor and after his death, his son did not exercise their power to appoint the discretion exercisers, the character of the subject trusts does not get altered. The two U.K. trusts continued to be ‘discretionary trust’ for the subject assessment years.

The High Court has taken a correct view that the value of the assets cannot be assessed on the estate of the deceased Settlor (Snell’s Principles of Equity, 28th Edition, Page 138 followed)”

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Important principles of law on taxation of discretionary & specific trusts explained CASE: CWT vs. Estate of Late HMM Vikramsinghji of Gondal (Supreme Court)

The ex-Ruler of Gondal Shri Vikramsinhji executed three deeds of settlements (trust deeds) in the USA & UK. These trusts were created for the benefit of (a) the Settlor, (b) the children and remoter issue for the time being in existence of the Settlor and (c) any person for the time being in existence who is the wife or widow of the Settlor or the wife or widow or husband or widower of any of them, the children and remoter issue of the Settlor.

During his life time, the settlor, Shri Vikramsinhji, was including the whole of the income arising from these trusts in his returns of income. The said income was also included in the two returns filed by his son Jyotendrasinhiji for the AY 1970-71. Thereafter, the assessee took the stand that the income from these trusts is not includible in his income. Jyotendrasinhiji also took the stand that inclusion of the said income in the returns submitted by his father for the AYs 1964-65 to 1969-70 and by himself for the assessment year 1970-71 was under a mistake.

Clause 3 of the deeds of settlement executed in U.K. leaves at the discretion of the trustees to disburse benefits to the beneficiaries. The endorsement made in the returns, as noted above, shows that income was retained by the trustees and not disbursed.

The Tribunal while considering clause 3(2) and Clause 4 of the U.K. Trust Deeds observed that if the trusts were really intended to be discretionary, the trustees had a duty cast on them to ascertain the relative needs and personal circumstances of all the beneficiaries and to allocate the income of the trusts, among them from time to time, according to the objects of the trusts, however, the tell tale facts bring out the intention of the settlor to treat the trust property as his own.

The settlor and after his death his son have been showing the income of foreign trusts in the returns of income filed from time to time. Had the trust deeds been really understood by the trustees and the beneficiaries as discretionary by virtue of the operation of clause 3, one would have expected the state of affairs to have been different. Consequently, the Tribunal held that due to failure on the part of the Maharaja to appoint discretion exercisers as per clause 3(2), clause 4 has become operative and the U.K. trusts have to be held to be specific trusts.

The High court did not agree with the Tribunal’s view and held that on interpretation of the relevant clauses of the deeds of settlement executed in U.K., character of the trusts was discretionary and not specific.

On appeal by the department to the Supreme Court HELD dismissing the appeal:

A discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they think fit. The trustees must exercise their discretion as and when the income becomes available, but if they fail to distribute in due time, the power is not extinguished so that they can distribute later. They have no power to bind themselves for the future.

The beneficiary thus has no more than a hope that the discretion will be exercised in his favour. Having regard to the above legal position about the discretionary trust which is also applied by by this Court in the earlier judgment and the fact that the income has been retained and not disbursed to the beneficiaries, the view taken by the High Court cannot be said to be legally flawed. Merely because the Settlor and after his death, his son did not exercise their power to appoint the discretion exercisers, the character of the subject trusts does not get altered.

The two U.K. trusts continued to be ‘discretionary trust’ for the subject assessment years. The High Court has taken a correct view that the value of the assets cannot be assessed on the estate of the deceased Settlor (Snell’s Principles of Equity, 28th Edition, Page 138 followed)

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Meaning of the word “turnover” CASE: CIT vs. Punjab Stainless Steel Industries (Supreme Court)

TITLE: Meaning of the word “turnover” in s. 80HHC explained. Sale proceeds of scrap is not “turnover” for s. 80HHC. Revenue should encourage assessees to bring in foreign exchange

CASE: CIT vs. Punjab Stainless Steel Industries (Supreme Court

(i) The word “turnover” means only the amount of sale proceeds received in respect of the goods in which an assessee is dealing in. So far as the scrap is concerned, the sale proceeds from the scrap may either be shown separately in the Profit and Loss Account or may be deducted from the amount spent by the manufacturing unit on the raw material. When such scrap is sold the sale proceeds of the scrap cannot be included in the term ‘turnover’ for the reason that the unit is engaged primarily in the manufacturing and selling of steel utensils and not scrap of steel. Therefore, the proceeds of such scrap would not be included in ‘sales’ in the Profit and Loss Account of the assessee (The situation would be different in the case of a person who is primarily dealing in scrap);

(ii) The intention behind enactment of s. 80HHC was to encourage export so as to earn more foreign exchange. For the said purpose the Government wanted to encourage businessmen, traders and manufacturers to increase the export so as to bring more foreign exchange in our country. If the purpose is to bring more foreign exchange and to encourage export, we are of the view that the legislature would surely like to give more benefit to persons who are making an effort to help our nation in the process of bringing more foreign exchange. If a trader or a manufacturer is trying his best to increase his exports, even at the cost of his business in a local market, we are sure that the Government would like to encourage such a person. In our opinion, once the Government decides to give some benefit to someone who is helping the nation in bringing foreign exchange, the Revenue should also make all possible efforts to encourage such traders or manufacturers by giving such business units more benefits as contemplated under the provisions of law.

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Assessee is bound to furnish a return in response to a s. 148 notice. The reasons for reopening can be given only thereafter. A writ involving disputed factual issues cannot be entertained CASE: Adobe Systems Software Ireland Ltd vs. ADIT (Delhi High Court)

TITLE:  Assessee is bound to furnish a return in response to a s. 148 notice. The reasons for reopening can be given only thereafter. A writ involving disputed factual issues cannot be entertained

CASE:  Adobe Systems Software Ireland Ltd vs. ADIT (Delhi High Court)

(i) The petitioner did not file any returns of income in response to the notices issued u/s 148. Even under the judgment of the Supreme Court in G.K.N. Driveshafts 259 ITR 19, the petitioner would get the reasons recorded for reopening the assessment only upon filing the return of income pursuant to the notice issued u/s 148. The conduct of the petitioner has been one of defiance; it did not file returns in response to the notices issued u/s 148. The mere filing of the return can never amount to submitting to the jurisdiction. The filing of the return in response to the notice u/s 148 defines the stand taken by the assessee. S. 148 says that the return called for by the notice issued under that section shall be treated as if such a return were a return required to be furnished u/s 139 of the Act. Under the scheme of the Act, a return of income conveys the position taken by the assessee to the assessing authority – whether he has taxable income or not. It is not a mere scrap of paper. There is a sanctity attached to the return. If the assessing authority calls upon the assessee to file a return of income, the same shall be complied with by the assessee and it is no answer to the notice to say that since in his (assessee’s) opinion there is no taxable income, he is under no obligation to file the return. The petitioner, not having made the Noida officer aware that no income chargeable to tax had escaped assessment and having merely told him that he has no jurisdiction to issue reassessment notices, was not acting strictly in accordance with law. The writ remedy being a discretionary remedy, the discretion can be exercised in favour of the writ petitioner only if his conduct has been in conformity with law. If it is not, the Court may refuse to exercise the discretion in favour of the writ petitioner;

(ii) The question whether the initiation of reassessment proceedings by the Noida officer was valid or not would depend upon whether the petitioner had a PE within the jurisdiction of the Noida officer. In the absence of any evidence unmistakably and indisputably establishing the existence or otherwise of the PE, we would hesitate to enter this prohibited arena in writ proceedings. It needs no citation of authority to support the proposition that the Court exercising its jurisdiction under Article 226 of cannot enter into disputed questions of fact which is best left to be resolved in the alternative remedies available to the petitioner. In fact the assessment and appellate authorities, including the Income Tax Appellate Tribunal, constituted under the Act as fact-finding bodies are best suited to examine whether the petitioner had a PE in Noida or not and the question of jurisdiction would depend upon the findings of those authorities. Moreover, when we are exercising discretionary jurisdiction, it is not impermissible to consider whether any real prejudice has been caused to the petitioner to justify the exercise of the extraordinary jurisdiction which is to be sparingly wielded. We do not see any such prejudice to the petitioner. There can be no vested right that escaped income cannot be taxed, provided all the jurisdictional conditions and the procedural requirements of the Act are satisfied. This fundamental question is purely one of fact which ideally should be determined in proceedings relating to assessment and appeal prescribed under the Act. This Court cannot, on the facts of the present case, enter that domain.

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Concept of “manufacture” explained. Non-claiming of s. 80-IB deduction in return is no bar for claiming it before CIT (A) CASE: CIT vs. Mitesh Impex (Gujarat High Court)

TITLE:  Concept of “manufacture” explained. Non-claiming of s. 80-IB deduction in return is no bar for claiming it before CIT (A)

CASE:  CIT vs. Mitesh Impex (Gujarat High Court) 

(i) The word “manufacture” implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinct name, character or use. The assessees would put the imported material to series of manual and mechanical processes and through such exercise so undertaken, bring into existence entirely new, distinct and different commodities which are marketable. Thus, the Tribunal, in our opinion, correctly came to the conclusion that this process amounted to manufacturing;

(ii) Though the assessee did not raise a claim in the return for deduction u/s 80IB & 80HHC, it was entitled to raise the claim before the CIT(A) for the first time. If a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the AO. Courts have taken a pragmatic view and not a technical one as to what is required to be determined in taxable income. In that sense assessment proceedings are not adversarial in nature. The decision in Goetze (India) Ltd. vs. CIT (SC)is confined to the powers of the AO and accepting a claim without revised return and does not affect the power of the CIT(A) or the Tribunal to entertain a new ground or a legal contention.

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Transfer Pricing: A transaction (such as a corporate guarantee) which has no bearing on profits, incomes, losses or assets of the enterprise is not an ‘international transaction’ u/s 92B(1) and not subject to transfer pricing : Bharti Airtel Limited vs. ACIT (ITAT Delhi)

TITLE:  Transfer Pricing: A transaction (such as a corporate guarantee) which has no bearing on profits, incomes, losses or assets of the enterprise is not an ‘international transaction’ u/s 92B(1) and not subject to transfer pricing

CASE:  Bharti Airtel Limited vs. ACIT (ITAT Delhi)

The assessee issued a corporate guarantee to Deutsche Bank on behalf of its associated enterprise, Bharti Airtel (Lanka), whereby it guaranteed repayment for working capital facility. The assessee claimed that since it had not incurred any cost on account of issue of such guarantee, and the guarantee was issued as a part of the shareholder activity, no transfer pricing adjustment could be made.

However, the TPO held that as the AE had benefited, the ALP had to be computed on CUP method at a commission income of 2.68% plus a mark-up of 200 bp. This was upheld by the DRP by relying on the retrospective amendment to s. 92B which specifically included guarantees in the definition of “international transaction”.

On appeal by the assessee to the Tribunal HELD allowing the appeal:

(i) A transaction between two enterprises constitutes an “international transaction” u/s 92B only if it has a bearing on profits, incomes, losses, or assets of such enterprises”. Even the transactions referred to in the Explanation to s. 92 B, which was inserted with retrospective effect (which includes giving of guarantees under clauses (c)), should also be such as to have a bearing on profits, incomes, losses or assets of such enterprise;

(ii) The onus is on the revenue to demonstrate that the transaction has a bearing on profits, income, losses or assets of the enterprise. The said impact has to be on real basis, even if in present or in future, and not on contingent or hypothetical basis. There has to be some material on record to indicate, even if not to establish it to hilt, that an intra AE international transaction has some impact on profits, income, losses or assets;

(iii) When an assessee extends assistance to the AE, which does not cost anything to the assessee and particularly for which the assessee could not have realized money by giving it to someone else during the course of its normal business, such an assistance or accommodation does not have any bearing on its profits, income, losses or assets, and, therefore, it is outside the ambit of international transaction u/s 92B (1).

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