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INCOME TAX & WEALTH TAX...

 
 

 
SUPREME COURT JUDGEMENTS
 
AGRICULTURE INCOME
Agriculture / Agricultural operation is an integrated activity of basic operations followed by subsequent operation which is in conjunction with and in continuation of the basic operation which are the effective cause of the products being raised from the land.
(CIT vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466)
AMALGAMATION
Effective date is date of transfer specified in the scheme, from said date, income of amalgamating company is that of amalgamated company.
(Marshall Sons & Co. vs. CIT (1995) 223 ITR 809)
Expenditure on professional charges of solicitors in connection with amalgamation is allowable business expenditure in the light of finding that amalgamation was necessary for smooth and efficient conduct of business.
(CIT. V. Bombay Dyeing & Mfg. Co. Ltd. (1996) 219 ITR 521).
APPEALS
If law is amended retrospectively during the pendency of appeal or references, the amended law will be applicable.
(CIT vs. Straw Products Ltd. (1966) 60 ITR 156).
Appellate authority has power of enhancement but has no power to enhance assessment by discovering new source of income, which are neither mentioned in the return of the assessee nor are considered by the ITO in the order appealed from.
(CIT vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891)
However, according to later decision it is open to the appellate authority to direct additions in respect of matters not considered by the Assessing Officer. It can do what the Income-tax Officer can do and also direct him to do what he has failed to do.
(CIT V. Nirbheram Daluram (1997) 224 ITR 610).
Tribunal has jurisdiction to decide on additional grounds raised for first time in respect of question of law arising from facts found by Income Tax Authority and having a bearing on the tax liability of the assessee.
(National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383)
It is open to assessee to challenge the levy of interest under Section 139/215 if the liability to pay interest is totally denied.
(Central Provinces Manganese Ore Co. Ltd. V. CIT (1986 160 ITR 961).
APPEAL TO SUPREME COURT
If revenue has not challenged the correctness of the law laid down by the high court and has accepted it in the case of one assessee, then it is not open to the revenue to challenge its correctness in the case of the other assessee, without a just cause.
(Berger Paints India Ltd.— 266 ITR 99)
ASSESSMENT
Tax authorities exercising quasi-judicial powers must act in a fair and not a partisan manner. Though it is their duty to see that legitimate dues from the assessee should not remain unrecovered but at the same time, they should not act in a manner as might indicate that scales are weighted against the assessee.
(CIT vs. Siman Carves Ltd. (1976) 105 ITR 212)
A decision is a precedent on its own facts. Each case presents its own features. The Income Tax Authorities and Tribunals are supposed to apply the ratio of decision to a facts of a particular case with due care.
(Maharashtra Mills Ltd. vs. V.P.B. Desai (1975) 99 ITR 135)
The word ‘Assessment’ includes all proceeding starting with the filing of the return or issue of notice and ending with determination of tax payable by the assessee.
(S. Sankappa vs. ITO (1968) 68 ITR 760)
Principle of natural justice must be observed while making assessment.
(Dharkeshwari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775)
Best judgment assessment must be an honest and fair estimate of the income of the assessee and should have a reasonable nexus to the available material and circumstances of the case.
(Brij Bhushan Lal Parduman Kumar vs. CIT (1978) 115 ITR 524)
Regular assessment means assessment made u/s 143(3) and 144 alone.
(Modi Industries Ltd. vs. CIT (1995) 216 ITR 759)
However, as per Explanation 2 to Section 234B added later, assessment made for the first time under Section 147/153A is regarded as regular assessment for the purpose of that section.
Once the notice u/s 143(2) is issued for regular assessment, thereafter, summary assessment u/s 143(1)(a) cannot be made.
(CIT vs. Gujarat Electricity Board (2003) 260 ITR 84)
Action of Assessing Officer is not vitiated on account of citing wrong section in notice or order when the action is otherwise authorized by law.
(Isha Beevi V. TRO (1975) 101 ITR 449)
The law which applies for the purpose of assessment is the law as on the first day of the relevant assessment year. Set off of unabsorbed losses etc. not available if the law does not permit such setoff in the year in which the setoff is sought to be availed.
(Reliance Jute & Industries Limited (1979) 120 ITR 921)
Assessee not having permanent establishment in India. Income derived from business in Malaysia not assessable in India. DTA prevails over provisions of Income Tax Act.
(CIT vs. P.V.A.L. Kulandagan Chettiar (2004) 267 ITR 654)
BINDING NATURE OF ITAT DECISION
CIT(A) should follow the order of the ITAT, unless it is set aside. It will amount to contempt of Tribunal order if the same is not followed and results in undue harassment and chaos in administration of tax laws.
(Kamalakshi Finance Corp. AIR 1992 (SC) 711)
BINDING NATURE OF BOARD CIRCULARS
Circulars issued by the Board in order to carry out the assurance given by the Minister in Parliament to provide relief in case of extreme hardship would be binding on all officers and persons employed in the execution of the Act. Benevolent circulars are binding on departmental officers.
(Navnitlal C. Jhaveri vs. K.K. Sen (1965) 56 ITR 198)
Even if the directions contained in a circular issued by the Central Board of Direct Taxes deviate from the provisions of the Act, they are binding on ITO.
(Ellerman Lines Ltd. vs. CIT (1971) 82 ITR 913)
Circulars issued by Central Board of Direct Taxes are binding on departmental authorities.
(UCO Bank vs. CIT (1999) 237 ITR 889)
BINDING PRECEDENT
Decision of a Division Bench of the Supreme Court is binding on another Division Bench of the same or a smaller number of judges.
(UOI vs. Raghubir Singh (1989) 178 ITR 548)
Merely because special leave petition is dismissed, it cannot be said that the order is upheld or otherwise.
(V.M. Salgoankar & Bros. (P). Ltd. vs. CIT (2000) 243 ITR 383)
If there is conflict of two Supreme Court decisions, the decision of the larger bench will prevail.
(CIT vs. Trilok Nath Mehroratra (1998) 231 ITR 278)
Judicial discipline demands that one division bench of a high court should ordinarily follow the judgments of another division bench of that high court. In extraordinary cases, it can be placed before the chief justice of the High Court for constituting a larger bench.
(Asst. C.E.D. vs. V. Devaki Anmol (1995) 212 ITR 395)
BUSINESS INCOME
Hire of assets for a period of 10 years with a view to exploiting the same without intention of closing the business - the rent received in such a case by the assessee facing financial crises and temporarily suspending business was assessed as business income.
(CIT vs. Vikram Cotton Mills Ltd. (1988) 169 ITR 597)
The profit which assessee could have earned but did not earn cannot be taxed. A trader cannot be obliged to earn maximum profit.
(CIT vs. A. Raman & Co. (1968) 67 ITR 11)
BUSINESS EXPENDITURE
S. 35CCA
Once assessee has fulfilled all the conditions laid down S. 35CCA for claiming the deduction of amount donated by it, there was no obligation on the part of assessee to see that the amount was utilised for the purpose for which it was donated.
(CIT vs. Chotatingrai Tea, 258 ITR 529 (SC))
S. 37
Interest on arrears of sales tax is compensatory in nature and not penal and hence allowable.
(Lachmandas Mathurdas vs. CIT, 254 ITR 799 (SC))
Amount of customs and excise duty paid on the goods lying in the closing stock is allowable as a deduction u/s. 43B even when the same was included in the valuation of closing stock.
(Berger Paints India Ltd. 266 ITR 99 (SC))
The expenditure allowable u/s 37 is an expenditure wholly and exclusively (and not necessarily) incurred for the purpose of business or profession and which is not (a) capital expenditure (b) personal expenses, or (iii) an allowance of the character described in Ss. 30 to 36. It is therefore not required to be shown whether the expenses was necessary to be incurred.
(CIT vs. Indian Molasses Co. (P) Ltd. (1970) 78 ITD 474)
(J.K. Cotton Mfrs. Ltd. vs. CIT (1975) 101 ITR 221)
(Sasoon J. David & Co. Pvt. Ltd. vs. CIT (1979) 118 ITR 261)
Every businessman knows his interest best and department cannot sit on judgement as to what expenditure an assessee should incur and in what circumstances he should incur that expenditure.
(CIT vs. Dhanrajgiri Raja Narasingirji (1973) 91 ITR 544)
If the transaction is properly entered into as part of the assessee’s legitimate commercial undertaking in order to facilitate the carrying on of its business, it is immaterial that a third party also benefits thereby —
(CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601)
(Sasoon J. David & Co. Pvt. Ltd vs. CIT (1979) 118 ITR 261)
Expenditure is what is paid out or away and is something which is gone irretrievably.
(Indian Molasses Co. P. Ltd. vs. CIT (1959) 37 ITR 66)
Statutory impost paid by an assessee as interest, damages or penalty if found to be of composite nature, what is allowable is amount which is compensatory in nature.
(Praksah Cotton Mills P. Ltd. vs. CIT (1993) 201 ITR 684)
Interest charged u/s 36(2) of Bombay Sales Tax Act is held to be of a composite nature and to the extent it is compensatory in nature is allowable deduction
(Standard Batteries Ltd. vs. CIT (1995) 211 ITR 444)
In the following cases, also the expenditure was allowed as business expenses.
Expenditure due but not provided for in the accounts is allowable expenditure if the assessee is following mercantile system of accounting.
(Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363)
Interest on loan for purchase of capital asset allowed as business expenditure.
(Bombay Steam Navigation Co. Pvt. Ltd. vs. CIT (1965) 56 ITR 52)
(Amendment made by Finance Act, 2003 effective from 1.4.2004 on disallowance of interest till the capital asset is first put to use be referred)
Expenditure for use of technical research and patents of foreign collaborators.
(CIT vs. Ciba of India Ltd. (1968) 69 ITR 692)
Lump sum payment for acquisition of know-how for improving or updating process so as to result in higher yield of product already being manufactured.
(Alembic Chemical Works Co. Ltd. vs. CIT (1989) 177 ITR 377 (SC))
Expenditure on replacement of certain parts.
(CIT vs. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710)
Amounts paid for use of goodwill of firm.
(Devidas Vithaldas & Co. vs. CIT (1972) 84 ITR 277)
Amounts paid for development of roads owned by Govt.
(L.H. Sugar Factory & Oil Mills vs. CIT (1980) 125 ITR 293)
(Lakshmi Sugar Mills Co. Pvt Ltd. (1971) 82 ITR 376)
The decisions which have taken contrary view are as under —
(Travancore Cochin Ltd. vs. CIT (1977) 106 ITR 900)
(Arvind Mills Ltd. vs. CIT (1992) 197 ITR 422)
Expenditure on renovation of building reconditioning of machinery etc. after derequisitioning of a colliery.
(Kalyanji Mavji & Co. vs. CIT (1980) 122 ITR 49)
Amount paid for purchase of loom hours.
(Empire Jute Co. Ltd. vs. CIT (1980) 124 ITR 1)
Where indivisible business is carried on by the assessee, entire, expenditure will be allowed as deduction even if some of the activities may result in tax free income.
(Rajasthan State Warehousing Corpn. vs. CIT (2000) 242 ITR 450)
(S. 14A however has provided that expenditure in relation to exempt income has to be disallowed. Section has been inserted w.e.f. 1.4.62)
Provision for liability towards leave encashment was held to be allowable.
(Bharat Earth Movers vs. CIT (2000) 245 ITR 428)
(S. 43B however has been amended by Finance Act, 2001 which provides that deduction has to be allowed only on payment basis)
Penalty or fines levied for contravention of statutory provisions were held to be not allowable.
(Haji Aziz & Abdul Shakoor Bros vs. CIT (1961) 41 ITR 350)
Payments made which are opposed to public policy and/or against any law held to be not allowable.
(Maddli Venkataraman & Co. Pvt. Ltd. vs. CIT (1988) 229 ITR 534).
The Composite price towards purchase of securities cannot be split up. Interest received for the period prior to acquisition cannot be set off against cost of security and is the nature of income.
(Vijaya Bank Ltd. vs. Addl. CIT (1991) 187 ITR 541)
The first proviso to Sec. 43B clarifying that sums paid after accounting year but before due date of return are deductible was held to be retrospective effect.
Allied Motor Pvt. Ltd,. vs. Union of India (1997) 224 ITR 677)
Amount paid for use of patents and designs for a definite period with secrecy clause was allowed as expenditure being in the nature of licence fees.
(CIT vs. I.A.E.C. (Pumps) Ltd. (1998) 232 ITR 316)
Discount on Debentures was allowed proportionately as the said expenditure has definite and continuing benefits over specified periods.
(Madras Industrial Investment Corpn. Ltd. vs. CIT (1997) 225 ITR 802)
Amounts paid to the workmen under a settlement agreement upon closure of some of the units of the assessee was allowed as revenue expenditure.
(K. Ravindranathan Nair vs. CIT (2001) 247 ITR 278)
Expenditure incurred for public issue of shares is capital expenditure.
(CIT vs. Kodak India Ltd. (2001) 171 CTR (SC) 187)
An accrued liability does not become conditional or contingent liability merely on the ground that it is difficult to estimate value thereof.
(Calcutta Co. Ltd. V. CIT (1959) 37 ITR 1)
The words ‘For the purpose of business’ are wider in scope than ‘For the purpose of earning income’. Apart from day to day running, even expenditure on modernization, preservation of business, protection of assets, statutory dues, and many other expenditure incidental to carrying on the business are allowable and it is not necessary the same are incurred voluntarily and not mandatorily.
(CIT V. Malayalam Plantations Ltd. (1964) 53 ITR 140, CIT V. Madhav Prasad Jatia (1979) 118 ITR 200)
Expenditure on demolition and reconstruction of premises taken on lease is allowable.
(CIT V. Madras Auto Services P. Ltd. (1998) 233 ITR 468)
Guarantee commission is allowable although relating to acquisition of plant and machinery.
However, this decision may be considered along with amendment in Section 36 relating expenditure on interest for extension of business and the definition of the term ‘interest’ in section 2.
(CIT V. Sivakami Mills Ltd. (1997) 227 ITR 465.)
Interest on late payment of Income-tax/failure to pay required amount of advance-tax is not allowable.
(Bharat Commerce & Industries Ltd. V. CIT (1998) 230 ITR 733)
But interest on sales-tax arrears is deductible.
(Lachhmandas Mathuradas V. CIT (2002) 254 ITR 799)
Expenditure on obtaining monopoly rights is capital expenditure.
(Mewar Sugar Mills Ltd. V. CIT (1973) 87 ITR 400)
Expenditure is allowable even if it is quantified with reference to amount of profits if the same is payable prior to profits becoming divisible or distributable.
(CIT V. Travancore Sugars & Chemicals Ltd. (1973) 88 ITR 1)
Expenditure on fees for increasing authorized share capital is capital expenditure.
(Punjab State Industrial Development Corporation Ltd. V. CIT (1997) 225 ITR 792).
BUSINESS LOSS
Loss incidental to illegal business was held to be allowable as incidental to such business.
(CIT vs. S.C. Kothari (1971) 82 ITR 794)
Loss from dacoity in a bank was held to be allowable.
(CIT vs. Nainitlal Bank Ltd. (1965) 55 ITR 707)
Loss from embezzlements in the course of business was held to be allowable.
(Badri Das Daga vs. CIT (1958) 34 ITR 10)
If a transaction involves transfer of delivery notes and not delivery of goods results in a loss was held to be speculation loss.
(Deven port & Co. Pvt. Ltd. vs. CIT (1975) 100 ITR 715)
Loss by theft of cash held directly for business operations was held as allowable.
(Ramchandar Shivnarayan vs. CIT (1978) 111 ITR 263)
Amounts paid by way of damages for breach of contract does not amount to speculation loss.
(CIT vs. Shantilal Pvt. Ltd. (1983) 144 ITR 57)
As to the priority of set off as to current year’s depreciation and unabsorbed business loss, current year’s depreciation is first deductible.
(CIT vs. Mother India Refrigeration Ind. P. Ltd. (1985) 155 ITR 711)
BUSINESS CONNECTION
An Indian company canvassing orders for a non-resident company had no right to accept orders on behalf of the non-resident and contracts were entered into, delivery was made and prices received outside India. It was held that Indian Co. was not assessable as an agent of non-resident as there was no business connection.
(CIT vs. R.D. Agrawal & Co. (1956) 56 ITR 20)
Fees received by solicitors in London was held to be taxable. It was held that expression “business connection” includes professional connection. The connection must be real and intimate but not casual.
(Barendra Prasad Roy & Others vs. ITO (1981) 129 ITR 295)
CAPITAL GAIN
Redemption of preference shares amounts to sale of capital asset and the amount received on such redemption would be chargeable to tax as capital gain.
(Anarkali Sarabhai vs. CIT (1997) 224 ITR 22)
Section 52(2) can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee. It has no application in case of genuine transaction where the consideration received has been correctly declared or disclosed by him.
(K. P. Varghese vs. ITO (1981) 131 ITR 597)
(Section 52 has been deleted by the finance Act 1987 w.e.f. 1.4.88 but the principles laid down would be applicable in similar circumstances)
(a)
“Full value of the consideration” does not mean the market value of the asset transferred but the price bargained for by the parties to the sale etc.
  (CIT vs. George Handerson & Co. Ltd. (1967); 66 ITR 622)
(b)
In case of sale for a price, there was no question of any market value, unlike in the case of an exchange. In case of sale, all that one had to see was what was the consideration bargained for.
  (CIT vs. Gillanders Arbuthnot & Co. (1973) 87 ITR 407)
 
Year of taxability : The entries in the account books of the assessee are irrelevant for the purpose of determining the date when the sale or transfer took place.
  (Alapati Venkataramiah vs. CIT (1965) 57 ITR 185)
 
Reduction of Share Capital :- Amount distributed to shareholders as a result of reduction of capital will be assessable as dividend to the extent it is attributable to accumulated profit and the balance will be assessable as capital gain.
  (CIT vs. G. Narsimhan (1999) 256 ITR 327)
 
General Principle :- In computation of capital gains/loss, the commercial principles will have to be applied.
  (Miss Dhan Dadabhoy Kapadia vs. CIT (1967) 63 ITR 651)
 
Transfer : Expression “Extinguishments of any rights therein” in section 2(47)(ii) is not limited to such extinguishments on account of transfer but extents to mean extinguishments of rights independent of or otherwise than on account of transfer.
  (CIT vs. Mrs. Grace Collis (2001) 248 ITR 323)
 
In case of Firm / Partner :- Excess amount received by the assessee on retirement from the firm is not assessable to capital gains.
  (CIT vs. R. Lingmallu Raghu Kumar (2001) 247 ITR 801)
 
Transaction to which provisions of section 45 cannot be applied must be regarded as never intended to be the subject of the charge. The provisions relating to capital gain does not include an asset in the acquisition of which no cost at all can be conceived.
  (CIT vs. B.C. Srinivasa Shetty (1981) 128 ITR 294)
 
Capital gain on sale of agricultural land situated in municipal limits is taxable under the Income tax Act.
  (CIT vs. M.L. Mahajan, 255 ITR 272 (SC); Singhai Rakesh Kumar vs. UOI, 247 ITR 150 (SC))
 
Assessee is liable to pay tax u/s. 46(2) on market value of Agricultural land received from the company in liquidation. For the purpose of s. 46(2). what is not a capital asset may yet be an asset.
  (N. Bagavathy Ammal vs. CIT, 259 ITR 678 (SC))
CASH CREDITS
Where loan confirmation 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.
(CIT vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78)
Every unsatisfactory explanation about the source of investment do not invite addition u/s 69, as the provisions of S.69 are discretionary.
(CIT vs. Smt. P.K. Noorjahan (1999) 237 ITR 570)
(CIT vs. Stellar Investment Ltd.)
DEDUCTION
A provision in statute granting incentives for promoting economic growth and development has to be construed and interpreted liberally so as to advance the objective of the provision.
(CIT vs. Bajaj Tempo Ltd. 62 Taxman 480)
A branch, unit or establishment of an Indian company which is situated in a foreign country and is doing business there cannot be regarded as a “foreign enterprise” within the meaning of section 80-O of Income-tax Act.
(Petron Engineering Construction (P) Ltd. vs. CBDT (1989) 175 ITR 523)
Providing diverce services to a foreign company in a hotel amounts to provision of technical services.
(CBDT vs. Oberoi Hotels (India) P. Ltd. (1998) 97 Taxman 453 (SC))
In case of receipt of brokerage by a reinsurance agent in India from the gross premium before remitting the net premium to his foreign principles will tantamount to receipt of foreign exchange received in India.
(J. B. Boda & Co. (P) Ltd. vs. CBDT (1996) 89 Taxman 311)
Assessee engaged in the business of hatcheries are neither industrial undertaking nor engaged in business of producing articles or things.
(CIT vs. Venkateshwara Hatcheries P Ltd. (1999) 103 Taxman 503/237 ITR 174)
A receipt from sale of import entitlement would not constitute profit and gains derived from assessee’s industrial undertaking and could not be included in income of the assessee for computing deduction u/s 80HH.
(CIT vs. Sterling Foods 237 ITR 579)
All materials extracted from earth are covered by provisions of section 80HHC(2)(b)(ii) and hence assessee exporting granite is not entitled to benefit of deduction u/s 80HHC.
(Sterecraft Enterprises vs. CIT (1999) 237 ITR 131)
Food packets prepared from raw materials such as cereals, pulses, vegetables etc. cannot be regarded as commercially distinct commodity and cannot be regarded as manufacture or produced article or thing within the meaning of section 80J of the Act.
(Indian Hotels Co. Ltd. vs. ITO (2000) 245 ITR 538
Assessee engaged in business of rearing and development of chicks into broilers could not be said to be “Manufacturing a product”
(Indian Poultry vs. CIT 250 ITR 664)
Cutting and Polishing of uncut raw diamonds does not amount to manufacture or production of article or thing. However, Explanation 4 to section 10A considers cutting and polishing of precious/ semiprecious stones as ‘manufacture’.
(CIT vs. Gem India Manufacture Co. (2001) 249 ITR 307)
Conversion of chicory root into chicory powder does not amount to manufacturing article or thing. Assessee not entitled to deduction u/s 80HH, 80I & 80J.
(Sacs Eagles Chicory (2002) 255 ITR 178)
The word “derived from” in section 80HH would mean direct or immediate nexus with the assessee’s industrial undertaking. Interest derived by industrial undertaking on deposit with the electricity board would not qualify as income “derived from” industrial undertaking.
(CIT vs. Pandian Chemicals Ltd. 262 ITR 278)
For the purpose of computing deduction under section 80HHC, for aggregation of profits of trading/manufacturing activities, loss in one of them is not to be ignored. Also section 80AB has overriding effect over other provisions for deductions.
(IPCA Laboratories Ltd. V. DCIT (2004) 266 ITR 21)
Manufacture of articles and things will not cover construction of immovable like dam.
(CIT V. N.C. Budharaja & Co. (1993) 204 ITR 412)
DEPRECIATION
Books of account may be kept in foreign currency but depreciation will have to be calculated in Indian currency at the point of time of acquisition of asset.
(CESL Ltd. vs. CIT (1998) 233 ITR 50)
Depreciation must be allowed as deduction not only under Income Tax but also under accountancy principles, otherwise these will not be true picture of the real income of the business.
(CIT vs. ALPS Theatre (1967) 65 ITR 377)
Roads and Roadways adjunction to building within the factory area are building for the purpose of section 32 (CIT vs. Gwalior Rayon Silk Manufacturing Co. (1992) 196 ITR 149) Where there was no other construction except the roads, it cannot be said that the roads by themselves constitute buildings.
(Indore Municipal Corporation vs. CIT (2001) 247 ITR 803)
“Building owned by the assessee” would mean person exercising dominion over property and having right to use and occupy it in his own right would be owner of building. The registration of deed is immaterial for determining ownership.
(Mysore Minerals Ltd. vs. CIT (1999) 239 ITR 775)
Technical know-how in form of drawings, designs, charts, plans etc. are to be considered as Plant.
(Scientific Engineering House (P) Ltd. vs. CIT (1986) 157 ITR 86)
Nursing home building held as plant. However, definition of ‘plant’ in section 43 amended to exclude buildings.
(CIT vs. Dr. B. Venkata Rao (2000) 111 Taxman 635)
“Actually Allowed” would means allowance was actually given effect to.
(CIT vs. Straw Products Ltd. (1966) 60 ITR 156)
Hotel Building is not a plant
(Abod Hotels India (P) Ltd. (2001) 119 Taxman 429)
Theatre Building is not a plant
(CIT vs. Raiban & Sons 251 ITR 881)
Depreciation claim is optional, it cannot be thrust upon (However Finance Act 2001 has amended section 32 and made the claim of depreciation mandatory).
(CIT vs. Mahendra Milks (2000) 243 ITR 56)
Subsidy received from government not to be deducted from cost of assets. However, explanation 10 to section 43(1) requires deduction of subsidy in specified cases.
(CIT vs. P. J. Chemicals Ltd. (1994) 210 ITR 830)
DIVIDEND
If payment under section 2(22)(e) is treated as a deemed dividend and is required to be so treated to the extent that the company possesses accumulated profits, such payment must be considered as adjusted against the companies, accumulated profits for the purpose of section 2(22)(e).
(CIT vs. G. Narsimhari (1999) 236 ITR 327)
Definition of “dividend” as provided in section 2(22) would be applicable to all provisions wherever it contains the term “dividend”.
(CIT vs. Mysodet (P) Ltd. (1999) 237 ITR 35)
For the purpose of section 2(22), the word shareholder would mean registered shareholder and not a beneficial owner of the share.
(Rameshwarlal Senwarmal vs. CIT (1980) 122 ITR 1)
Even if the loan or advances ceased to be outstanding at the end of previous year, it is still deemed dividend to the extent of accumulated profit possessed by the company.
(Miss P. Saroda vs. CIT (1998) 96 Taxman 11)
“Accumulated Profits” occurring in section 2(22) means actual profits in the commercial sense and not assessable or taxable profit liable to tax as income under the Act.
(P.K. Badiani vs. CIT (1976) 105 ITR 642)
The language of section 57(iii) is such that it is not necessary that any income should have been earned as a result of the expenditure.
(CIT vs. Rajendra Prasad Mody (1978) 155 ITR 519)
Interim Dividend is such that it gives no right to shareholders to receive it merely on passing of resolution by board of directors whereas when dividend is declared by company in general meeting vested rights accrue to shareholders.
(CIT vs. Express Newspapers Ltd. (1998) 96 Taxman 548)
DIVERSION OF INCOME
The nature of obligation determines whether there is 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.
(CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367)
DOUBLE TAXATION
When the company had been made liable to tax u/s. 104, on income it did not mean that the amount, when paid as income to the shareholder, could not be taxed as income in the hands of the shareholders, as the character of amount changed.
(ITO vs. S. Radha Krishnan, 254 ITR 561 (SC))
DOUBLE TAXATION RELIEF
DTA entered into with foreign country will operate even if it is inconsistent with the provision of the Act, once it is signed and notified.
(Union of India vs. Azadi Bachao Andolan 263 ITR 706)
Provisions of sections 4 & 5, which provides for taxation of global income, are subject to provisions of DTAA. Where tax liability is imposed by the Act, the DTAA may be resorted to either for reducing the tax liability or altogether avoiding the tax liability. In case of any conflict, the provisions of DTAA would prevail over the Act.
(CIT vs. P.V.A.L. Kulandagan, 267 ITR 654 (SC), 137 Taxman 460 (SC))
Where the expression is not defined in the DTAA the expression defined in the Act would be attracted.
(CIT vs. P.V.A.L. Kulandagan, 267 ITR 654 (SC), 137 Taxman 460 (SC))
HUF
Burden of proof is on the assessee to establish that the property is joint family property.
(Anilkumar Roy Choudhary vs. CIT (1976) 102 ITR 12)
Physical division of property is a pre-requisite in order to claim partition in respect of any property under section 171 of the Act. (CIT Venugopal Irani (1999) 239 ITR 514)
Widows can form H.U.F. (CIT vs. Veerappa Chettiar (1970) 76 ITR 467)
One Coparcener can form HUF (Gowli Budanna vs. CIT (1966) 60 ITR 293
A single individual cannot form HUF. A family means a group of persons.
(C. Krishna Prasad vs. CIT (1974) 97 ITR 493)
Gift made out of self-acquired property to son cannot be construed as HUF property of the son except it is specifically gifted to HUF of son.
(M. P. Periakaruppan Chettiar vs. CIT (1975) 99 ITR 1)
Partition of HUF properties can be made by father even if there are minor coparceners. (Apoorva Shantilal Shah vs. CIT (1983) 141 ITR 558)
A Hindu father can make a gift of ancestral immovable property within reasonable limits, keeping in view of the total extent of the property held by the HUF in favour of his daughter at the time of her marriage or even long after her marriage.
(R. Kuppayee and another vs. Raja Gounder – 265 ITR 551)
INTIMATION
Once regular assessment initiated by issuing notice u/s 143(2) thereafter, summary assessment u/s 143(1)(a) cannot be made. Gujarat Electricity Board 260 ITR 84.
INTERPRETATION & PRINCIPLES
There is a fundamental, though unwritten, axiom that no legislature could have at all intended a double deduction in regard to the same business outgoing and if it is intended, it should be clearly expressed.
(ESCORTS LTD. vs. U.O.I. (1993) 199 ITR 43)
Decision rendered by larger bench of the Supreme Court will be binding on a similar or smaller bench and in order that such decision is binding, it is not necessary that it should be a decision rendered by the full court or a constitution bench of the Supreme Court.
(Union of India and another vs. Raghubir Singh (1988) 178 ITR 548)
Facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inferences in such a manner that would lead to equity and justice. Too hypertechnical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered.
(Saroj Aggrawal vs. CIT (1985) 156 ITR 497)
INCOME TAX
The expression “Income Tax” used in the Finance Act and Income Tax Act includes surcharge and additional surcharge wherever provided in the Act.
(CIT vs. K . Srinivasan (1972) 83 ITR 346)
An Income Tax liability crystallizes on the last day of the previous year relevant to an assessment year under the Income Tax Act.
(CWT vs. K. S. N. Bhatt (1984) 145 ITR 1)
It is fundamental rule of the law of taxation that unless otherwise expressly provided income cannot be taxed twice.
(Laxmipat Singhnia vs. CIT (1969) 71 ITR 291)
The Finance Minister’s speech can be relied upon to throw light on the object and purpose of particular provisions introduced in the Finance Bill.
(Kerala State Industrial Development Corp. vs. CIT, 259 ITR 51 (SC))
Rule of interpretation would come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal there is no scope for importing the rule of liberal interpretation.
CIT vs. Pandian Chemicals Ltd. 262 ITR 278
INCOME
Dividend income earned on shares held as stock-in-trade is to be treated as business income.
(Brook Bond & Co. Ltd. vs. CIT (1986) 162 ITR 373)
Income tax is tax on real income; i.e., profits computed on commercial principles.
(Poona Electricity Supply Co. Ltd. vs. CIT (1965) 57 ITR 521)
Unclaimed trade deposit written back to Profit & Loss Account is assessable as income.
(CIT vs. T.V.S. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344)
Principles of real income not applicable to capital expenditure.
(CIT vs. Jalan Trading Co. Ltd. (1985) 155 ITR 536)
For determination of income, entries in books of account are not conclusive.
(SBI vs. CIT (1986) 157 ITR 67)
If the income has not really accrued, then the same cannot be taxed. What is taxable should be real and not hypothetical. Hypothetical income even if credited in the books may not be taxable. Notwithstanding specific mode of computation provided by the law, the commercial principle and practice should not be ignored.
(Miss Dhun Dadabhoy Kapadia vs. CIT, 63 ITR 651 (SC))
(State Bank of Travancore vs. CIT, 158 ITR 102 (SC))
(CIT vs. Shiv Prakash Janak Raj & Co. P. Ltd., 222 ITR 583 (SC))
(CIT vs. Shoorji Vallabhdas & Co., 46 ITR 144 (SC))
(Morvi Industries Ltd., 82 ITR 835 (SC))
(Godhra Electricity Co. Ltd. vs. CIT (1997) 225 ITR 746 (SC))
(Poona Electric Supply Co. Ltd. vs. CIT (1965) 57 ITR 521 (SC))
Power subsidy which went towards reduction of electricity bills of assessee could not be treated as a capital receipt. It is a revenue receipt covered u/s. 28(iv).
(CIT vs. Rajaram Maize Products, 251 ITR 427 (SC))
INTEREST
Section 220(2) could not be invoked to demand any interest from the assessee for the period commencing with refund of tax consequent upon first appellate order till tax were finally paid after disposal of reference by High Court.
(Vikrant Tyres Ltd. vs. First ITO, 247 ITR 821 (SC))
Interest u/s. 234A, 234B and 234C are mandatory in nature. (CIT vs. Anjum M. H. Ghaswala, 252 ITR 1 (SC))
(Amendment to sec. 234A/B and 140 A by Finance Act, 2001 be referred.)
Levy of interest u/s 234 A/B/C is mandatory.
(CIT vs. Anjum M.H. Ghaswala (2001) 252 ITR 1)
INCOME TAX APPELLATE TRIBUNAL
The President may constitute a “Special Bench/larger Bench either suo motu or an application being made to him to decide any important point. Short adjournment ought to be granted even if eleven adjournments already granted.
(ITAT vs. Deputy Commissioner of Income Tax (1996) 218 ITR 275)
The word ‘thereon’ in sec. 254 (1) restricts the jurisdiction of the Tribunal to the subject matter of the appeal.
(Hukumchand Mills Ltd. vs. CIT(1967) 63 ITR 232)
Tribunal may allow the assessee to urge grounds not set forth in the memorandum of appeal.
(CIT vs. S. Nelliappan (1967) 66 ITR 722)
On the basis of the judicial decision given it is found that non taxable item is taxed or deduction is denied, additional ground can be raised before the Tribunal for the first time, in an appeal pending before it so long as the relevant facts are on record in respect of that item.
(National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383)
INCOME FROM OTHER SOURCES
Interest on amount borrowed to pay taxes and annuity deposits is not expenditure incurred wholly and exclusively for purposes of earning income and hence not deductible.
(Smt. Padmavati Jaikrishna vs. CIT (1987) 166 ITR 176)
Accounting practice cannot override sec.56 or any other provision of the Act.
(Tuticorin Alkali Chemicals & Fertilisers Ltd. vs. CIT (1993) 227 ITR 172)
INCOME FROM HOUSE PROPERTY
Deduction u/s 23(2) allowable to each co-owner separately where house property is owned by two or more persons whose shares are defined.
(CIT vs. Bijoykumar Almal (1995) 215 ITR 22)
Owner must be that who can exercise rights in his own right.
(R.B. Jodhamal Kuthiala vs. CIT (1971) 82 ITR 570)
For the purposes of Sec. 22 ‘owner’ is a person who is entitled to receive income in his own right even though no registered documents as required u/s 54 of the Transfer of Property Act or the Registration Act are executed.
(CIT vs. Podar Cement Pvt. Ltd. (1997) 226 ITR 625)
MAT
Assessing Officer does not have jurisdiction to go behind net profits shown in the profit and loss account except to the extent provided in Explanation to s. 115J.
(Apollo Tyres vs. CIT, 255 ITR 273 (SC)
Where an assessee has been made liable to pay MAT, the deduction which are permissible under the provisions of the Act should be considered to have been allowed and assessee should be allowed to carry forward only balance of unabsorbed losses, depreciation, investment allowance, etc.
(Karnataka Small Scale Industries Development Corp. Ltd. vs. CIT, 258 ITR 770 (SC))
METHOD OF ACCOUNTING
Closing stock of raw material is to be valued at cost net of MODVAT element.
  (CIT vs. Indo Nippon Chemicals Co. Ltd. 261 ITR 275)
If the method of accounting followed does not disclose true picture of the profit, authorities are duty bound to reject the method of accounting even if it is followed consistently.
  (CIT vs. British Paints Ltd. (1991) 188 ITR 44)
Where, on dissolution following death of one partner, assessee-firm was reconstituted with the remaining partners without discontinuation of business, closing stock of firm is to be valued at cost or market price whichever is lower.
  (Sakthi Trading Co. vs. CIT, 250 ITR 871 (SC))
MODVAT credit available to assessee is not income which was liable to tax. Adopting gross method for purchase and net method for valuing unconsumed stock is not permissible.
  (CIT vs. Indo Nippon Chemicals Co. Ltd., 261 ITR 275 (SC))
MUTUAL CONCERN
Principle of mutuality also applies to income from house property. Club being mutual concern not liable to tax under section 22.
(Chamsford Club vs. CIT (2000) 243 ITR 89)
Under Income-Tax Act, “Income, Profits or Gain” earned, ‘arising’ or accruing to a person is taxed. Where a group of persons come together and contribute to a common fund for the financing of the venture or object, having no relation or dealing with outside parties, then any surplus arising out of the activity cannot be regarded as income or profit chargeable to tax. There must be complete identity between the contributors and the participators.
(CIT vs. Bankipur Club vs. (1997) 226 ITR 97)
INCOME ACCRUAL
Income can be said to be accrued or earned only when it acquires a debt and right to receive the payment in assessee favour.
(E.D. Sassoon & Co. Ltd. vs. CIT (1954) 26 ITR 27)
Original compensation accrues on date of award by collector, but enhanced compensation accrues only after adjudication by final court.
(CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 161 ITR 524)
PENALTY
Levy of penalty u/s. 271(1)(c) and prosecution u/s. 276C are simultaneous and, therefore, once penalties are cancelled on the ground that there is no concealment, quashing of prosecution u/s. 276C is automatic.
(K.C. Builders vs. ACIT, 135 Taxman 461 (SC))
Penalty is not imposable if there is no conscious breach of law.
(Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26)
In respect of penalty u/s 271(1)(c) for concealment of income, the law operating as on the date of filing return is applicable to the assessee.
(Brijmohan vs. CIT (1979) 120 ITR 1)
The law applicable for imposition of penalty would be the law as inforce at the time when the original return is filed for the assessment year in question and not the law as it stands on the date on which return in response to S.148 was filed.
(CIT vs. Omkar Saran & Sons (1992) 195 ITR 1(SC))
Penalty u/s 271(1)(c ) is not leviable if returned income and assessed income is loss.
(CIT vs. Prithipal Singh & Co. (2001) 249 ITR 670)
(Law has been amended in Cl.(a) to expl. 4 to Sec.271(1)(c)by Finance Act, 2002 w.e.f. 1.4.03 and thus this decision is overruled)
If an assessee agrees to addition before detection of income, penalty u/s 271(1)(c) cannot be levied.
(Shadilal Sugar & General Mills (1987) 168 ITR 705)
(CIT vs. Suresh Chandra Mittal (2001) 251 ITR 9)
Penalty imposed for contravention of the provisions of the C.S.T. Act which is not compensatory in nature could not be allowed as deduction.
(Swadesh Cotton Mills Co. Ltd. vs. CIT (1998) 233 ITR 199)
If there is a conflict between the decisions of Supreme Court as to allowability of rent paid for land taken on lease for mining then it is referred to larger Bench for resolving the conflict.
(Aditya Minerals (P) Ltd. vs. CIT (1999) 236 ITR 39)
Interest on arrears of sales tax in computing the assessee’s income is allowed.
(Lachmandas Mathuradas vs. CIT (2002) 254 ITR 799)
PROSECUTION
Prosecution u/ss. 276 C, 277 & 278 — Each of these sections provide for imprisonment with fine. Court ruled that company cannot be prosecuted and leaves no choice to court to impose only fine. However, see amendment in section 278B overruling this from 1-10-04.
(CIT vs. Velliappa Textiles Ltd. (2003) 263 ITR 550)
Where appeals against reassessments on the basis of which prosecution has been initiated u/ss. 276C, 277 and 278, is pending and High Court held that prosecutor proceedings to be stayed till the disposal of such appeals, High Court’s interim order is to be up held.
(CIT vs. Bhupen Champaklal Dalal (2001) 248 ITR 830)
Where penalty for concealment imposed on the basis of additions to income is cancelled on the basis of Tribunal order, quashing of prosecution is automatic.
(K.C. Builders vs. ACIT (2004) 265 ITR 562)
Failure to file Return in due time — Permissibility u/sub-section (4) for filing return before assessment does not extend time prescribed for filing return under sec. 139(i) and 139(2).
(Prakash Nath Khanna & Another vs. CIT (2004) 266 ITR 1)
REASSESSMENT
Notice for reassessment is illegal if it is issued after four years from the end of the assessment year of the original assessment made u/s 143(3).
(CIT and others vs. Foramer France – 264 ITR 566)
RECTIFICATION OF MISTAKES
What can be rectified u/s 154 is mistake apparent from record and that debatable issues cannot be rectified.
  (T.S. Balaram vs. Volkant Bros. (1971) 82 ITR 50)
If sufficient data is available on record, ITO can grant deduction which had not been claimed earlier.
  (Anchor Pressings P. Ltd. vs. CIT (1986) 161 ITR 159)
Even a mistake of law which is glaring one and obvious can be rectified.
  (ITO vs. Bombay Dyeing & Mfg. Co. Ltd. (1958) 34 ITR 143)
Point which is not examined on fact or in law cannot dealt with as mistake apparent from record.
  (CIT vs. Hero Cycles (P) Ltd.(1997) 228 ITR 463)
If there is subsequent decision of Supreme Court, order can be rectified.
  (Poothomdu Plantates (P) Ltd. vs. Agri ITO (1996) 221 ITR 557)
RECOVERY
Garnishee notice cannot be issued to Stock Exchange in respect of arrears of its member since no amount was due to the members by the stock exchange and membership right is not a property of assessee. ( Stock Exchange Ahmedabad vs. ACIT, 248 ITR 209 (SC))
RE-OPENING OF ASSESSMENTS
Information contemplated u/s 147(b) must be from external sources and it includes information as to true and correct state of law.
  (V. S. Jaganmohan Rao vs. CIT (1970) 75 ITR 373)
The word “omission or failure to disclose fully and truly all material facts necessary for his assessment for that year”, casts duty on assessee to disclose fully and truly all material facts necessary for the assessment. It is the duty of the Assessing Officer to draw the correct conclusion from them. If the Assessing Officer fails in his duty, he cannot reopen the case u/s 147(a).
 
(Calcutta Discant Co. vs. ITO (1961) 41 ITR 91), (Indian Oil Corporation vs. ITO (1986) 159 ITR 956), (ITO vs. Madnani Eng. Works Ltd. (1979) 118 ITR 1)
If the Income Tax Officer has discovered the primary facts at the time of the original assessment, he cannot reopen assessment u/s 147(a).
  (Gemini Leather Stores vs. ITO (1975) 100 ITR 1)
Factual error pointed out by the audit party can be a basis for reopening of assessment.
  (CIT vs. PVS. S. Beedies (P) Ltd. (1999) 237 ITR 13)
Mere opinion expressed by an Internal Audit Party on question of law cannot be regarded as ‘Information” for purpose of re-opening assessment u/s 147(b). (Indian and Eastern Newspaper Society vs. CIT (1979) 119 ITR 996)
Where assessee interest income of assessee bank was doubtful of recovery, credited to suspense account and disclosed in balance sheet, reopening of assessment was not justified. (CIT vs. Corporation Bank Ltd., 254 ITR 791 (SC))
The Assessing Officer is bound to furnish the reasons for the issue of notice u/s. 148 and forming of opinion that the income has escaped assessment, within a reasonable time.
The Assessing Officer is bound to furnish the reasons for the issue of notice u/s. 148 and forming of opinion that the income has escaped assessment, within a reasonable time.
  ( GKN Driveshafts (India) Ltd. vs. Income-tax Officer, 259 ITR 19 (SC))
However, it may be noted that section 147 is substituted from A.Y. 1989-90 and it is no longer necessary that reopening has to be based on receipt of fresh information.
REFUND
Government is liable to pay interest on the amount of advance tax which it should have paid to assessee but has unjustifiably failed to do so.
CIT vs. Narendra Doshi (2002) 254 ITR 606)
REVISED RETURN
Belated return u/s 139(4) cannot be revised u/s 139(5)
(Kumar Jagdish Chandra Sinha vs. CIT (1996) 220 ITR 67)
REVISION
The AO, who acted on the basis of jurisdictional High Court’s decision, cannot be said to have acted erroneously so as to give power to CIT u/s. 263.

(CIT vs. G.M. Mittal Stainless Steel P. Ltd., 130 Taxman 67 (SC))

The commission has power u/s 263 to revise an order passed by the Income Tax Office pursuant to the direction of the inspecting Assistant Commissioner u/s 144B.

(T. N. Civil Supplies Corporation Ltd. vs. CIT 260 ITR 82)

Search & Seizure
The provisions relating to search and seizure in Sec.132 and rule 112 cannot be regarded as violative of Sec. 19(1)
(f) or 19(1)(g) of constitution.

(Pooranmal vs. DI(Inv.)(1974) 93 ITR 505)

(Bhupendra Ratilal Thakkar vs. CIT (1976) 102 ITR 531 (SC))
Sec.132 does not confer any arbitrary authority upon the revenue officers. Since exercise of the power are serious invasion upon the rights, privacy and freedom of the taxpayer, the power must be exercised in accordance with the law.

(ITO vs. Seth Bros. (1969) 74 ITR 836)
Income tax department could not issue a search warrant and seize the money seized by the excise authority or police authority.

(ITO vs. Bafna Textile (1987) 164 ITR 281)
On a construction of the section and the context in which the words ‘search’, ‘possession’ and ‘seizure’ have been used in the said section, there cannot be an order in respect of goods or moneys or papers which are in the custody of another department.

(CIT vs. Tarsem Kumar (1986) 161 ITR 505)
Seizure cannot be made after completion of assessment (K. Choyi vs. Syed Abdullah Bafakky Thangal (1980)123 ITR 435)
Extending the retention of books and documents beyond 180 days without communication is invalid.

(CIT vs. Oriental Rubber Works. (1984) 145 ITR 477)
Information from CBI that cash was found in possession of individual is not sufficient for authorising search and consequently search and block assessment is not valid.

(Union of India vs. Ajit Jain (2003) 260 ITR 80.)
SETTLEMENT COMMISSION
An application u/s 245 C is maintainable only if it disclosed income which has not been disclosed before Assessing Officer.

(CIT vs. Express Newspaper Ltd. (1994) 206 ITR 443)
Settlement Commission is a Tribunal.

(CIT vs. B.N. Bhattachargee (1979) 118 ITR 461)
High court or Supreme Court can interfere with an order of settlement commission, if order of settlement commission is contrary to provisions of the Act and such contravention has prejudiced assessee.

(Jyotendrasinhji vs. S.I. Tripathi (1993) 201 ITR 611)
Commission’s jurisdiction u/s 245 D(4) is confined to the matters covered by application before it.

(CIT vs. Paharpur Coolling Towers (P) Ltd. (1996) 85 Taxman 357.)

Income Tax Authorities are free to proceed in the prescribed manner till the commission decides to proceed with the petition.

(CIT vs. Hindustan Bulk Carriers (2003) 259 ITR 449)
It is not open to criminal court to go behind the order passed by Settlement Commission.

(Nirmal & Navin (P) Ltd. vs. D. Ravindran (2002) 255 ITR 514)
The Settlement Commission does not have power to reduce or waive interest statutorily payable u/ss 234A, 234B and 234C except to the extent of granting relief under circulars issued by the Board u/s 119.

(CIT vs. Anjum MH. Ghaswala.(2001) 252 ITR 1)

Commission can reduce or waive interest wherever the Act authorises so.

(CIT vs. Hindustan Bulk Carters.(2003)259 ITR 449)

Interest for default in furnishing Return, payment or deferment of advance tax is payable till commission allows application for settlement.
Commission to examine whether assessee has made out a case u/s 220(2A) of the Act.

(CIT vs. Damani Bros. (2003) 259 ITR 475)
SET OFF AND CARRIED FORWARD OF LOSS
Provision of s.79 denying set off in case of change in 51% voting power apply only to a business loss and not to the unabsorbed depreciation.

(CIT vs. Shri Subhulaxmi Mills Ltd., 119 Taxman 281 (SC))
SPECULATION LOSS
Units of UTI cannot be considered as ‘shares’ and therefore the business of buying and selling of units can not be considered as speculation business for the purpose of s. 73.

(Apollo Tyres Ltd. vs. CIT, 255 ITR 273(SC))

When legal heirs of deceased proprietor entered into partnership and carried on same business in same premises in same trade name, there is succession as contemplated u/s. 78(2), and firm entitled to carry forward and set off of deceased’s loss against its income.

(CIT vs. Madhukant M. Mehta, 124 Taxman 130 (SC))
STAY OF RECOVERY
Tribunal can grant stay u/s 254.
(M. K. Mohammed Kundri 71 ITR 815)
STAY ORDERS
Tribunal has power to stay recovery of tax. The powers are incidental and ancillary.

(ITO vs. M.K. Mohammed Kunhi (1961) 71 ITR 815)
TAX DEDUCTION AT SOURCE
The deduction of tax u/s 194 C has to be from the whole amount of contract and not merely on income component of the amount. The word ‘any work’ occurring in sec.194C means any work and not restricted to a ‘works contract.

(Associated Cement Co. Ltd. vs. CIT (1993) 201 ITR 435)

Section 194C, before insertion of Explanation III, was inapplicable to transport contract.

(Birla Cement Works vs. CBDT, 248 ITR 216 (SC))
TAX PLANNING
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. Tax planning may be legitimate provided it is within the framework of law.

(McDowell & Co. vs. CTO (1985) 154 ITR 148)

If the meaning of documents on record is clear, the documents cannot be ignored merely on the ground that they lead to tax avoidance.

(CWT vs. Arvind Narottam (1988) 173 ITR 479)

An act which is otherwise valid in law cannot be treated as nonest merely on the basis of some underlying motive supposedly resulting in some economic detriment on prejudice to the national interests.

(Union of India vs. Asadi Bachao Andolan (2003) 263 ITR 706)
A.O.P.B.O.I.
Where persons do not combine in a joint enterprise to produce income cannot be assessed as A.O.P.

(C.I.T. vs. Indira Balkrishna)

Surplus arising on sale of business by firm can be assessed as B.O.I.

(CIT vs. Artex Mfg. Co.(1997) 227 ITR 260)


 

 

 

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