We had earlier discuss in detail about the
concepts of capital & revenue receipts & expenditures along with various case laws earlier
in part –I & II. In case you want to refer, the part –I & II, please
click on the link below:
The subject is still a disputed one as the line
between capital and revenue is very thin one
and hence given below few
important recent case judgments which
will enable yourself for understanding the subject.
·
Credit
of pro forma excise rebate taken into account was illusory and no real income
had accrued. The assessee had communicated its reasons why it resorted to such
an illusory entry which included that the company had sustained losses and in
order to impress the bankers and to please the shareholders the entry was
passed into the profit and loss account. The Tribunal on the facts was
satisfied with the explanation. This was a finding of fact which had not been
challenged by the Revenue as perverse nor was the finding of the Tribunal
demonstrated to be erroneous either in fact or in law. When the Tribunal was
satisfied that the entry did not represent any real income or any real receipt
of money, there was no question of its being taxable. Refer, CIT .v. Kusum
Products Ltd, 361 ITR 632.
·
Amount
received under sugar incentive scheme for setting up new unit or expanding
existing unit was capital receipt. Refer, CIT .v. Dhampur Sugar Mills Ltd.
·
Non-compete
fees received prior to insertion of s. 28(va) is capital receipt/ Assessee had
entered in to agreement for sale of property to lessee. Sale agreement provided
for forfeiture of thirty lakh rupees. Amount forfeited upon termination of
agreement for sale of property to lessee is revenue receipt. Refer, CIT .v.
Wintac Ltd, 360 ITR 614.
·
Subsidy
received by subsidiary of Government company from its holding company to protect
capital investment of parent company is capital receipt. Refer, CIT .v.
Handicrafts and Handlooms Export Corporation of India ltd, 360 ITR 130.
·
While
confirming the order of CIT(A) , the Tribunal held that amount received on
account of forfeiture of amount due to non-payment towards warrants issue has
to be treated as capital receipt and since the assessee has also transferred it
to the capital reserve account in the balance sheet the amount cannot be taxed
as income of relevant financial year. Refer, Dy. CIT .v. CNB Finwiz Ltd, 159
TTJ 146.
·
Subvention
payment received by the assessee from parent company to make good the loss and
to see that company is run more profitably constituted revenue receipt. Refer, CIT
.v. Siemens Public Communication Networks Ltd, 98 DTR 151.
·
Subvention
assistance from holding company to recoup anticipated losses of the assessee
constituted capital receipt not chargeable to tax. Refer, CIT .v. Deutsche Post
Bank Home Finance Ltd, 98 DTR 144.
·
Retention
money received, after TDS, but subject to bank guarantee, is not chargeable to
tax as income till all conditions are satisfied. Refer, Amarshiv Construction
Pvt. Ltd. v. DCIT, Gujarat HC.
·
The
Tribunal held that subsidy received by assessee on account of exemption from
Sales tax, entry tax and electricity duty would be revenue receipt and not
capital receipt. Refer, ACIT .v. Jindal Steel & Power Ltd, 145 ITD 277.
·
Compensation
received by assessee for breach of agreement is capital receipt and not capital
gains or casual and non-recurring receipt. S. 115JA was held not applicable to
capital receipts. Refer, Parle Soft Drinks P. Ltd. .v. JCIT, 27 ITR 663.
·
Realisation
of carbon credit was to be considered as capital receipt. Therefore the
addition was deleted. Refer, Ambika
Cotton Mills Ltd. v. DCIT, 27 ITR 44.
·
The
assessee sold a profitable running retail business to a new company. The amount
received as noncompete fee prohibiting assessee from carrying on competing
business in retail capital receipt. Refer, CIT .v. Spencers and Co. Ltd, 359
ITR 612.
·
In
course of assessment, Assessing Officer noted that assessee sold plots of land
on heavy premium which was not disclosed in its books of account. He thus added
certain amount to assessee's income on protective basis. Simultaneously,
substantive assessment of said amount was also made in case of AOP on ground
that AOP consisting of nine persons including assessee had actually received
premium and appropriated same to themselves. Commissioner (Appeals) as well as
Tribunal took a view that when amount of premium had been added to income of
AOP on substantive basis, protective assessment of same in hands of assessee
was not sustainable. High Court confirmed the order of Tribunal. Refer, CIT .v.
Teachers Housing Cooperative Society, 219 Taxman 68.
·
Since
money was kept in current account of bank, there was no question to earn
interest and, thus, notional addition was to be deleted. Refer, CIT .v. U.P. Rajya
Vidyut Utpadan Nigam Ltd. 218 Taxman 153.
·
From
the subsidy scheme, it emerged that subsidy though computed in terms of sales
tax deferment or waiver, in essence was meant for capital outlay expended by
assessee for set up of unit in case of a new industrial unit and for expansion
and diversification of an existing unit. Also, it was available only to a new
industrial unit or to a unit undertaking expansion or diversification.
Therefore, the same was a capital receipt. Refer, DCIT .v. Munjal Auto Industries
Ltd, 218 Taxman 135.
·
Tribunal
held that in subsequent year the Assessing Officer himself has accepted that
the assessee is an amateur cricketer and not a professional cricketer, there
was no justification to hold that during the years relevant to A. Ys. 1992-93
and 1993-94 the assessee was a professional cricketer. In case of other
cricketers the appellate authorities and the courts have decided the issue in
favour of assessees. Tribunal directed the Assessing Officer to allow exemption
to the assessee as per circular No. 447 dated 22-1-1986. Tribunal followed the
decision of Bangalore Bench of Tribunal in the case of G. R. Vishwanath v. ITO
(1989) 29 ITD 142 (Bang.) and decision of Delhi Bench of Tribunal in the case
of Manoj Prabhakar in ITA No. 564 and others/Delhi/2004 and the circular No.
447 dated 22-1-1986. Refer, ACIT .v. Kapil Dev, 157 TTJ 686 (Delhi)(Trib.).
·
Since
the lower authorities had considered claim of assessee vis-à-vis United Nations
(Privileges and Immunity) Act, 1947, whereas, enactment which had to be applied
was International Finance Corporation (Status, Immunities and Privileges) Act,
1958,the matter required a fresh look by Assessing Officer, and hence, was sent
back. Refer, Redington (India) Ltd..v. ACIT, 59 SOT 152.
·
Diversion
of sale proceeds of property held as stock-in-trade towards discharge of loan
liability–loan borrowed on capital account–neither be claimed as deduction nor
can be allowed as revenue expenditure. Refer, Swan Energy Ltd. v. Addl. CIT, 90
DTR 261.
·
The
Tribunal held that where miscellaneous expenses were incurred by
assessee-association in pursuit of its objects and it could not be said that
some third parties were benefited by incurring these expenses by assessee,
status of mutuality could not be denied to assessee. Refer, Tiruchirapalli
District Bus Operators Association v. Dy. CIT, 144 ITD 382.
·
The
deposits were received by the assessee were neither collected ‘as sales tax”
nor were they collected ‘by way of tax” .They were towards possible levy of
sales tax on packaging charges and freight. Amounts to be returned if sale tax
were not levied .Deposit cannot be assessed as trading receipt. Refer, Dalmia
Cement (Bharat) Ltd. v. CIT, 357 ITR 419.
·
When
a mutual concern invests its surplus funds or makes deposit in bank, return or
interest on suchinvestment/deposits will not be covered by character of
mutuality and such an amount will be liable to tax. Refer, Dy.DIT v. Societe
International De Telecommunication, 139 ITD 328.
·
Capital
or revenue-Non-compete fee-Capital receipt. The sole and main business or
revenue earner i.e. merchant banking has been discontinued. And Amount received
by assessee as non-compete fee for not carrying on merchant banking activities
for a period of three years was to be
regarded as capital receipt and thus same was not liable to tax. Refer, IGFT
Ltd. v. ITO, 144 ITD 57.
·
Money
received by assessee from society under an agreement entered into between
developer, society and members as consideration was payable to members by
developer for transfer of respective entitlements of TDR of members could not
be taxed as dividend in hands of assessee on the grounds of 'principle of
mutuality' between society and its members. Refer, ACIT v. IGE India Ltd., 58
SOT 62.
·
Assessee
was a State Government Undertaking and was only acting as nodal agency for
receiving funds from Central as well as State Governments and disbursement of
funds for development and infrastructure projects as per directions of
Government from time to time. The Assessee earned interest on funds so advanced
for projects and such interest was again invested in various development
projects as per Government instructions. For relevant assessment year, the
Assessing Officer added the accrued interest on the funds lent by the assessee
on soft terms to local bodies andMega City/IDSMT funds programme to the
assessee's income. On appeal, CIT(A) deleted the addition holding that interest
on IDSMT fund would not be taxable income. The ITAT held that Interest earned
is again utilized for implementation of the mega-city scheme, the same cannot
be treated as income of the assessee. Refer, Tamil Nadu Urban Finance &
Infrastructure Development Corporation Ltd. v. ACIT, 58 SOT 53(URO) (Chennai)(Trib.).
·
Subsidy
received under a scheme clearly mentioning that it was given as special
incentive for boosting mega investments
in the state was a capital receipt. Refer, Ford India P. Ltd. v. DCIT, 25 ITR
456.
·
Amount
retained to ensure satisfactory performance of contract cannot be held to
accrue. Retention money could not be said to have accrued to assessee, and
therefore, this amount did not represent assessee's accrued income. Refer, DIT
(IT) v. Ballast Nedam International, 355 ITR 300.
·
Where
the loan taken was utilised for acquiring a capital asset, waiver of payment of
such loan being in nature of capital receipt could not be subjected to tax. Refer,
CIT v. Softworks Computers (P.) Ltd., 216 Taxman 219.
·
Sale
proceeds of agricultural land received by assessee from her brother in
accordance with direction given by her late father in his will could not be
treated as income of assesse. Refer, CIT v. Neera Bhandari, 216 Taxman 88.
·
To
determine the character of subsidy in hands of recipient, whether revenue or
capital, the purpose of the subsidy is to be considered and the source of fund
and mechanism of giving subsidy are immaterial. Incentive, in form of sales tax
waiver/deferment was not meant to give any benefit on day-to-day functioning of
business or to make it more profitable; but was principally aimed to cover
capital outlay of assessee for undertaking modernization of existing industry,
it was capital in nature, and thus, not taxable. Refer, CIT v. Birla VXL Ltd., 215
Taxman 117 (Guj.)(HC).
·
Subsidy
received from Singapore company for meeting specific expenditure pre-approved
by Singapore company--Sums remitted with specific directions that money to be
spent only for specified purposes and amount remaining unspent to be held by
assessee in trust for and on behalf of Singapore company--Unutilised amount not
credited to profit and loss account of assessee but taken to balance-sheet as
current liability--Unspent subsidy not income of assesse. Refer, Canon India P.
Ltd. v. Deputy CIT (Delhi), VOL 24 PG 694.
·
The
question before the Special Bench was “whether in the facts and circumstances
of the case, the excise duty refund set off is a capital receipt.” “If the
excise duty refund /set off is held to be revenue receipt, whether the said
amount is to be included in the business profits for the purpose of deduction
under section 80IB of the Income –tax Act.” The Special Bench held that refund
of excise duty is to be treated as capital receipt in the hands of the
assessee, which is not chargeable to tax. As the first question is decided in
favour of assessee the second question was not decided. Refer, Vinod Kumar Jain
v. ITO, 140 ITD 1(SB) (Asr.)(Trib.).
·
Sale
tax subsidy from Government of Maharashtra under Sales Tax Subsidy Scheme of
1993 was held to be capital receipt not liable to tax. Refer, DCIT v. Indo Rama
Textiles Ltd, 53 SOT 515 ( Delhi) (Trib.).
·
Assessee-institution
which was formed by tenants of a building, was working for common interest of
its members. It claimed tax exempt status on ground of mutuality. The Assessing
Officer declined its claim. It was held that as long as services were rendered
to members, even for a remuneration, same could be covered by principle of
mutuality. Mere deduction of tax at source by members making payment could not
lead to conclusion that receipt was taxable in nature. Thus, section 28(iii)
had no application as it comes into play only when there is an ‘income’ derived
by assessee but no income can be arise in case of mutuality. Refer, Belvedere
Estates Tenants Association v. ITO, 139 ITD 675.
·
Assessee-bank
maintained Nostro and overseas accounts with head office and branches outside
India. It was held that on principle of mutuality neither interest income was
taxable nor interest expenditure was allowable. Refer, Asst. DIT (IT) v. Credit
Lyonnais, 139 ITD 681.
·
Court
found that the department having not called upon the assessee to produce the
relevant documents viz. Letter of offer made by JN Ltd., resolution of the
board of directors of the assessee company when they applied for fully
convertible debentures of that company, terms and conditions of issue of
debentures, pleadings in the suit, resolution of the board of directors whereby
they agreed to give up their right to take over JN Ltd. for the agreed
compensation, etc., the impugned order of the High Court is set aside and the
matter relating to the taxability of the compensation received by the assessee
for giving up its right under the SEBI Takeover Code is remitted to the
Assessing Officer for de novo consideration. Refer, CIT v. Vasudhara Holdings
Ltd, 210 Taxman 568.
·
The
Court held that there was no diversion of income by overriding title as regards
the amount appropriated by the assessee lessor towards the sinking fund which
is to be used for discharging its obligations under the lease agreements as assessee
had complete control over these funds and it has claimed depreciation in
respect of the plant and machinery and other equipments purchased by utilizing
the sinking fund for extending the facilities to the lessees. Refer, M.
Visvesvaraya Industrial Research and Development Centre vs. CIT, 79 DTR 387.
·
Assessee,
banking company registered in Korea, was carrying on banking business in India
through its branch at Mumbai. As a part of its banking business, assessee
claimed to have invested in securities which were categorized as ‘available for
sale’. As per accounting policy consistently followed, net appreciation in
value of said securities was not recognized as income by assessee on ground
that it represented unrealized and notional profits. Assessing Officer treated
such net appreciation in value of securities as income of assessee liable to
tax. The said addition was deleted following order passed by Tribunal in case
of Dy. CIT (International Taxation) v. Chohung Bank [2010] 126 ITD 448 (Mum.).
Refer, Shinhan Bank v. Dy.DIT, 54 SOT 140 (Mum.)(Trib.).
·
When
a mutual concern provides goods and services to non-members also and, some
profit flows from said transactions, it is chargeable to tax. (AY 1996-97) /
When a mutual concern invests its surplus funds or makes deposit in bank,
return or interest on such investment/deposits will not be covered by character
of mutuality and such an amount will be liable to tax. Refer, Dy.DIT v. Societe
International De Telecommunication, 139 ITD 328 (Mum)(Trib.).
·
Compensation
received from landlord for delay in actual delivery of leased premises is not
taxable as revenue receipt. Refer, American Express (India) (P) Ltd. v. JCIT, 79
DTR 127.
·
Interest
paid to the head office/branches of the assessee bank by the Indian branch,
cannot be taxed in India being payment to self which does not give rise to
income that is taxable in India as per the domestic law or even as per the
relevant tax treaty. Refer, BNP Paribas Sa v. Dy. DIT, 9 DTR310 (Mum.)(Trib.).
In case you have any further
clarification, feel free to contact me at taxbymanish@yahoo.com or else you can view more articles & news related to Indian tax
& finance at http://taxbymanish.blogspot.in/.
No comments:
Post a Comment