Foreign Travelling expenditure of Managing Director and his wife

When the board of directors of the assessee had thought it fit to spend on foreign tour
of the accompanying wife of the managing director for commercial expediency for
reasons reflected in its resolution , it was not with in the province of the income tax
authority to disallow such expenditure. There was resolution of company authorizing

Taxation of Real Estate Transactions: A Treatise

1.      Introduction

Income-tax Act, 1961 (hereinafter referred to as ‘The Act’) is the only legislation of our country which contain reference to several Central Acts and numerous State Legislations. It becomes very essential therefore, to know the provisions of general law with special reference to Transfer of Property Act, Registration Act, Stamp Act, Development Control Regulations, etc. so as to understand the various taxation issues relating to Real Estate Transactions. Some of the very important taxation issues relating to Real Estate Transactions and implication of s. 50C of the income-tax Act are also discussed in this paper.

Why The FM’s & CBDT’s Promise Not To Reopen Cases Despite Retro Law Is Lawful

Recently, had an occasion to read the Article “FM’s & CBDT’s Promise Not To Reopen Cases Despite Retro Law Is Illegal” written by Sh. Tarun Jain, Advocate, Supreme Court published in ITATONLINE wherein it has been advocated to the effect that the aforesaid circular and statement of FM have no legal sanctity and therefore not binding on the quasi judicial tax authorities. This view has been expressed on the basis of certain judicial pronouncement. According to him, it is the settled legal position that such circulars are not binding on tax authorities and consequently, the AO can reopen the assessments on the basis of retrospective amendments made by Finance Act 2012 even in cases falling within the ambit of the above circular. With all humility and due respect to the Author, it is humbly submitted that the said circular is valid and binding on tax authorities for the reasons mentioned below:

Tax on Real Estate Development Contracts: Important Case Laws

(1)Housing Projects – [S. 80IB(10)]

(i) CBDT Circular F. No. 205/3/2000/ITA II dt. 4-5-2001. CBDT has clarified that “any project which has been approved by a local authority as housing project should be considered as adequate for purpose of Section 80IB(10)”.

(ii) CIT vs. Brahma Associates (2011) 333 ITR 289 (Bom.). Section 80IB(10) allows deduction to the entire project approved by the local authority and not to a part of the project, if the conditions set out in section 80IB(10) are satisfied, then deduction is allowable on the entire project approved by the local authority and there is no question of allowing deduction to a part of the project

Vodafone Verdict Is Wrong: Prashant Bhushan

 

Prashant Bhushan launches a scathing criticism of the Vodafone verdict and argues that India will be seen as a “banana republic” where foreign companies can loot our resources and even avoid paying taxes on their windfall gains from the sale of those resources.
 

Prashant Bhushan, legal crusader, has launched a scathing criticism of the judgement of the Supreme Court in Vodafone International vs. UOI. In an article published in the Hindu, Prashant Bhushan argues that the Supreme Court has again made a wrong call on tax avoidance and set a precedent that jeopardises thousands of crores of potential revenue for the exchequer.

Prashant Bhushan points out that tax avoidance through artificial devices has become a very lucrative industry today and that a large part of the income of the ‘Big 5′ accountancy and consultancy firms is derived from such schemes. McDowell 154 ITR 148 (SC) had put the issue in the correct perspective, though two later decisions (Azadi Bachao Andolan & Wallfort) reverted to calling artificial tax avoidance devices “legitimate tax planning” rues Prashant Bhushan.

Prashant Bhushan contemptuously calls Mauritius companies set up by third-country foreign companies as ‘Post Box Companies‘ and says that the benign attitude of the Indian tax authorities has resulted in “blatant evasion“. He also singles out Yashwant Sinha, the then Finance Minister, for responding to the distress call of the FIIs and issuing the circular which stated that once a company had obtained a tax residence certificate from Mauritius, it would not be taxed in India. The government’s appeal against the verdict of the Delhi High Court which had struck down the Circular effectively offered a tax holiday to the FIIs rues Bhushan. The consequent judgement of the Supreme Court (Azadi Bachao Andolan 263 ITR 706 (SC)) which called this device an act of legitimate tax planning was in defiance of the Constitution bench judgment in McDowell 154 ITR 148 (SC) says Bhushan.

Prashant Bhushan rues that though in Vodafone, the Supreme Court had the opportunity to correct the transgression of the McDowell 154 ITR 148 (SC) principle, it did not do so. Instead, the Court held that despite the fact that the entire object and purpose of the transaction between Hutch and Vodafone was to transfer the shares, assets and control of the Indian telecom company to Vodafone, the transaction has nothing to do with the transfer of any asset in India!

Dear Mr. Taxman, Don’t Make Tax Recovery A Death Sentence For The Assessee

Its’ that time of the year when Tax Officers across the Country go into a frenzy to collect taxes by fair or foul means. And with the CBDT Chairman’s brazen promise to link promotions and postings to the quantum of tax recovered, it will be a no-holds barred blood fest between the assessees and the Tax department apprehends the author. The absence of an accountability mechanism to punish the Officer in case the tax demands are held to be untenable means that there is no deterrent to prevent frivolous high-pitched assessments muses the author

January, February & March of every year is very important for the tax administration as they have to meet the target of tax collection and the assesses have to face the recovery proceedings, whether the additions are justified or not. Recent paper reports says “Income tax raids to increases as tax collection falls short”. Another leading paper carried the news that “Collect more taxes to get rewarded”.

Though there is no fault of assessee they have to approach the department number of times just to get the demand rectified. One would have appreciated if the Chairman of CBDT would have given direction to all the officials to first pass the rectification orders, give credit for tax deducted with in a reasonable time and thereafter recover the tax due to Government which has became final

One of the assessee brought to our notice that the demand was wrongly raised, which was rectified, however they have received the recovery notice once again, though no demand is pending against them. Another assessee informed us, they have to receive huge refund which was recovered when the appeal was pending before the Income Tax Appellate Tribunal. However the Assessing Officer is refusing to adjust the refund and is trying to recover the tax which he has raised by reopening the earlier years assessment. This may be the fact of many assesses, though they have fair chance of succeeding in appeal before the Tribunal, they are asked to pay the entire demand. When an appeal is pending before the Tribunal assessee can approach the Tribunal for stay of demand, where as when an appeal is pending before the Commissioner (Appeals) the assessee can approach the Commissioner (Appeals) for stay the recovery. Many High Courts have held that the Commissioner (Appeals) are having the inherent jurisdiction to stay the demand, when that appeal is pending for hearing before him. As there is no Jurisdictional High Court decision on this particular issue, the Commissioner (Appeals) are not entertaining the stay application of the assessee at Mumbai. Under the circumstances assessee can only approach the Commissioner administration and if he refuses to stay the assessee has only remedy of approaching the High Court Under Article 226 of the Constitution of India by way of Writ. Small assesses cannot afford to approach the High Court due to cost factor. Many of the assesses have not been given credit for taxes deducted due to mismatch in the computer system of tax administration. Though there is no fault of assessee they have to approach the department number of times just to get the demand rectified. One would have appreciated if the Chairman of CBDT would have given direction to all the officials to first pass the rectification orders, give credit for tax deducted with in a reasonable time and thereafter recover the tax due to Government which has became final. There are few tax officials who try to recover the taxes without following the due process of law. There are instances where tax officials have recovered the taxes when the stay application is pending before the Tribunal. Our Jurisdictional High Court in KEC International Ltd. vs. B. R. Balakrishanan (2001) 251 ITR 158 (Bom.), Paramount Health Services vs. ACIT (2010) 37 DTR 377 (Bom.), and Mahindra & Mahindra Ltd. (1992) (59) ELT 505 (Bom.) has laid down the guidelines to dispose the stay applications of the assessees. In Maheswari Agro Industries v. UOI (2012) 246 CTR 113 (Raj) (High Court), the court held that when Income assessed by the Assessing Officer was 47 times of income declared by assessee, the instruction No 95 dated 21st August, 1969 holds the field. The discretion must be used by the Assessing Officer to stay the demand unless there are overriding and overwhelming reasons to reject the application. 

We hope the tax officials will follow the mandate of the Constitution of India, i.e. Article 265 of the Constitution of India which reads as under “ No tax shall be levied or collected except by authority of law”, the circulars of Board, ratio of jurisdictional High Court, Tribunal in the process of tax recovery, and change their mind set by adopting the culture of tax payer friendly tax service, by following the due process of law

In Sultan Leather Finishers Pvt. Ltd. vs. ACIT (1991) 191 ITR 179 (All), the Court held that when rectification under section 154 is pending till the disposal of rectification application no recovery will be made.

In RPG Enterprises Ltd. vs. Dy. CIT (2001) 251 ITR 20 (ITAT)(AT), the Hon’ble Tribunal has held that the Assessing officer is precluded from taking coercive action for the recovery of the disputed demand until the expiry of the period of limitation allowed for filing of the appeal against the decision of the first appellate authority and also during the pendency of stay application before any revenue authority or the Tribunal.

In DHL Express (India) P. Ltd. vs. ACIT(2011) 49 DTR 432 (Mum) (Trib.) and Honeywell Automation India Ltd v. Dy.CIT (2011) 138 TTJ 373 (Pune) (Trib), Tribunal has held that it is not mandatory that the assessee must approach the lower authorities before filing a stay petition before the Tribunal. The Tribunal held that the assessee can approach the Income tax Appellate Tribunal for stay without approaching the commissioner of Income tax. One of the great reliefs to the assesses at present as the pendency are very less the matters before the Income tax Appellate tribunal is heard within three months of filing an appeal (Except in the city of Mumbai, Pune and Ahmedabad). Hence the finality will be reached within a reasonable time, and the assesses getting the deserved reliefs in most of the cases.

How many tax officials will follow the binding precedents of High Courts, Tribunals and spirit of circulars? As there is no accountability provision in the present Income-tax Act or in the proposed Direct taxes code, 2010 honest tax payers will be the sufferers.

Criteria / Guidelines for Income tax Scrutiny for Assessment year 2010-11 / Financial Year 2009-2010

Republished on 10th September 2011,  Earlier Published on 14th August 2010

Guidelines for selection of cases for Scrutiny During 2010-11

1.       Selection of cases for scrutiny during the financial year 2010-11 will be done primarily through CASS this year. Manual Selection for scrutiny this year will be limited only to a few cases listed below.

2.       List of cases selected during each month in accordance with selection criteria mentioned below shall be submitted by the Assessing officers to their respective Range heads by the 15^th of the following month and also displayed on the notice Board of their offices  .

3.       These guidelines are meant only for the use of officers of the Income Tax Department .These are not to be disclosed even if a request is made under Right to Information Act, In view of the decision of the Central Information Commission in the case of Shri Kamal Vs Director (ITA-II), CBDT (order no CIC/AT/2007/00617 dated 21.02.2008)

Selection criteria Applicable to all return at all stations

a)      Value of International transaction as defined in 92B exceeds 15 Crore.

b)      Cases involving addition in an earlier assessment year in excess of Rs 10 lacs on a substantial and recurring question of law or fact which is confirmed in appeal or is pending before on appellate authority.

c)       Cases involving addition in an earlier assessment year on the issue of transfer pricing in excess of Rs 10 Lakh or more.

d)      Assessment in survey cases for the financial year in which survey was carried out. This criteria will not apply if all of the following conditions are fulfilled:

i.            There are no impounded books or documents.

ii.            There is no retraction of disclosure, if any, made during the survey.

iii.            Declared income, excluding any disclosure made during the survey, is not less than the declared income of the preceding year.

e)      Assessment in search & Seizure cases to be made under section 158B, 158BC, 158BD, 153A,  153C & 143(3) of the IT Act.

f)       Assessment Initiated under section 147/148 of the IT Act.

g)      Assessing officer may select any return for scrutiny after recording he reason and obtaining approval of the CCIT/DGIT. The cases under this category should be selected if, there are compelling reasons and the case is not selected through CASS. These cases should be watched by CCIT/CIT in respect of the quality of assessment.

(F.NO.225/93/2009/ITA.II)

Documents pertaining to the transactions in relation to which PAN to be quoted

All documents pertaining to the transactions in relation to which permanent account number to be quoted for the purpose of clause (c) of sub-section (5) of section 139A.
114B. Every person shall quote his permanent account number  in all documents pertaining to the transactions specified below, namely :—
(a)  sale or purchase of any immovable property valued at five lakh rupees or more;
(b)  sale or purchase of a motor vehicle or vehicle, as defined in clause (28) of section 2 of the Motor Vehicles Act, 1988  (59 of 1988), which requires registration by a registering authority under Chapter IV of that Act :
[Provided that for the purposes of this clause, the sale or purchase of a motor vehicle or vehicle does not include two wheeled vehicles, inclusive of any detachable side-car having an extra wheel, attached to the motor vehicle;]
(c)  a time deposit, exceeding fifty thousand rupees, with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);
(d)  a deposit, exceeding fifty thousand rupees, in any account with Post Office Savings Bank;
(e)  a contract of a value exceeding  [one] lakh rupees for sale or purchase of securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956  (42 of 1956);
(f)  opening an account  [not being a time-deposit referred to in clause (c)] with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);
(g)  making an application for installation of a telephone connection (including a cellular telephone connection);
(h)  payment to hotels and restaurants against their bills for an amount exceeding twenty-five thousand rupees at any one time ;
         [(i)  payment in cash for purchase of bank drafts or pay orders or banker’s cheques from a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) for an amount aggregating fifty thousand rupees or more during any one day;
           (j)  deposit in cash aggregating fifty thousand rupees or more, with a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) during any one day;
(k) payment in cash in connection with travel to any foreign country of an amount exceeding twenty-five thousand rupees at any one time.
Explanation.—For the purposes of this clause,—
      (a)  “payment in cash in connection with travel” includes payment in cash towards fare, or to a travel agent or a tour operator[, or to an authorized person as defined in clause (c) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999)], or for the purchase of foreign currency;
          (b)  the expression “travel to any foreign country” does not include travel to the neighbouring countries or to such places of pilgrimage as may be specified by the Board under Explanation 3 of sub-section (1) of section 139 ;]
[(l)  making an application to any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) or to any other company or institution, for issue of a credit [or debit]card;
(m)  payment of an amount of fifty thousand rupees or more to a Mutual Fund for purchase of its units;
(n)  payment of an amount of fifty thousand rupees or more to a company for acquiring shares issued by it;
(o)  payment of an amount of fifty thousand rupees or more to a company or an institution for acquiring debentures or bonds issued by it;
(p)  payment of an amount of fifty thousand rupees or more to the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934) for acquiring bonds issued by it;]
[(q)  payment of an amount aggregating fifty thousand rupees or more in a year as life insurance premium to an insurer as defined in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938);
  (r)  payment to a dealer,—
  (i)  of an amount of five lakh rupees or more at any one time; or
 (ii)  against a bill for an amount of five lakh rupees or more,
     for purchase of bullion or jewellery:]
[Provided that where a person, making an application for opening an account referred to in clause (c) and clause (f) of this rule, is a minor and who does not have any income chargeable to income-tax, he shall quote the permanent account number of his father or mother or guardian, as the case may be, in the document pertaining to the transaction referred to in said clause (c) and clause (f):
Provided further that any person who does not have a permanent account number and who enters into any transaction specified in this rule, shall make a declaration in Form No. 60 giving therein the particulars of such transaction .]

Rent from Leave & License of office premises taxable as “business profits”

The Scientific Instrument Co Ltd vs. CIT (Allahabad High Court)

The assessee, carrying on business of import and sale of scientific instruments, purchased premises at Nariman Point, Mumbai in 1982 and had its regional office there. In November 1987, the assessee gave the property on leave and licence basis to Citibank pursuant to which it received rental income which it offered to tax as “business profits“. The AO assessed the said rental as “Income from house property”. The CIT (A) reversed the AO and held the rental assessable as “business profits”. The Tribunal reversed the CIT (A). On appeal by the assessee to the High Court, HELD reversing the Tribunal:

No s. 14A disallowance of interest on borrowed funds if AO does not show nexus between borrowed funds & tax-free investment

CIT V RAJEHA CORPORATION

In AY 2000-01 the assessee had investments in shares & mutual funds of Rs. 20 crores on which it earned tax-free dividend of Rs. 13.35 lakhs. The assessee also had borrowed funds on which it claimed deduction of interest of Rs. 8.70 crores. The AO disallowed interest of Rs.2.79 crores on the ground that it was relatable to earning tax-free dividend. The Tribunal deleted the disallowance on the ground that the investments had been made out of the assessee’s own funds and not out of the borrowed funds. The department filed an appeal before the High Court. HELD dismissing the appeal:

Counsel for the Revenue could not point as to how interest on borrowed funds to the extent of Rs.2.79 crores was attributable to earning dividend income which are exempt u/s 10(33) of the Act. Therefore, in the absence of any material or basis to hold that the interest expenditure directly or indirectly was attributable for earning the dividend income, the decision of the Tribunal in deleting the disallowance of interest made u/s 14A cannot be faulted.