Rushabh Sheth


JSW Steel Limited v ACIT (ITA No.923/Bang/2009 dated 13.01.2017) (Mumbai ITAT) BACKGROUND: – Assessee had availed term loans from various Indian and foreign financial institutions and banks for setting up of integrated steel plants.  The assessee had utilized the above loans to pay the purchase price of the imported plant and machinery for setting up of the Steel plants. The loans were repayable over various maturity dates up to 2010. – After setting up the steel plants, the assessee had incurred huge loss due to economic recession in general and steel industry in particular and was under severe financial crisis. Accordingly, the assessee entered into a financial restructuring package. – After negotiations with the foreign lenders, the assessee entered into agreements to settle the dues, pursuant to which the principal and interest payable were reworked and part of the principal and interest amounts were waived. – Accordingly, the entire sum of was credited to the Profit and Loss account as an exceptional item on account of waiver of the principal and interest payable thereon with a specific note in ‘Notes to Account’ that the exceptional item represents waiver of dues on settlement. – During the course of assessment proceedings, the assessee contended that since the waiver of principal amount of borrowing was utilized on capital account, therefore, it is a capital receipt not taxable while computing the income of the assessee and hence the amount waived has not been offered to tax as per section 41(1). – Further, the assessee by way of a note in the computation gave a caveat that the amount of Rs.314.14 crores which represents capital receipt is not in the nature of profit and gains of business and therefore, is not includable in the book profit under section 115JB. – The Assessing Officer, however, while computing the book profit in the assessment order considered the figure as given in the profit & loss account and did not agree to reduce the aforesaid waiver of dues.

Capital Receipt / Waiver of loan [not chargeable to tax u/s 41(1)] to be excluded ...


The Union Budget for the fiscal year 2017-18 was presented by the Hon’ble Finance Minister on 1st February 2017. As in the past 2 budgets, the focus of our FM has been towards rationalisation of the provisions of the Income-tax Act, 1961 and to expand the tax base and curb on the tax evasion. While providing marginal relief by way of tax rate cuts to individuals and SMEs, the proposals laid down in this Budget primarily pivot around curtailing litigation on several issues by providing clarificatory & few retrospective amendments and providing impetus to several sectors of the economy. Direct tax proposals in the Finance Bill, 2017 are effective from the financial year commencing on 1 April 2017, unless otherwise specified. Click here to read the analysis of key direct tax proposals

Budget 2017 – An Insight on Key Direct Tax proposals


Religare Commodities Ltd vs. ACIT (ITAT Delhi) (ITA No.3634/Del/2014 dtd 04.01.2017) Background: – Religare Enterprise Ltd had launched a Stock Appreciation Right Scheme (‘SARS’) effective from 01/04/2007 for employee’s retention purposes. According to the Scheme,  specified employees of the appellant company (Religare Commodities Ltd) were granted a specific number of SAR. – The market price of the shares at the time of granting was fixed to be the base price which was Rs. 140/- per share. As per the Scheme, if there is an increase in the value of those shares on the date of exercise of the right by the employees then the difference between the base market price and the enhanced or increased value shall be payable to the to the holder of such rights’ holder employees. – The scheme was administered through a trust. The Trust purchased shares of Religare from the Stock exchange at the time of granting of SAR to specified employees at an average price of Rs. 503/- per share. – The funding of such purchase was by way of loan given by respective companies whose employees to whom SAR were granted. – On exercise of the SAR by an employee, the trust sold the corresponding number of shares on the stock exchange and the amount realized was paid to the respective company in the settlement of the loan. – In addition to the SAR already granted to the employees, realisation of certain bonus shares were also paid to the employees as incentive. – The company retained Rs 140/- as value of the grant and paid to the employees – the amount which was the difference between the sale price of the shares at the time of exercise and SAR value of Rs. 140/- multiplied by the number of SAR exercised by the employee, after deducting tax at source. – The company claimed deduction under section 37 in the return of income of Rs 11,47,623 alongwith Rs 27,89,501 being bonus shares. – The Assessing Officer (‘AO’) disallowed an amount of Rs 11,47,623 as a capital loss. On appeal before the CIT(A), CIT(A) enhanced the disallowance by Rs. 27,89,501/- further as distribution of bonus incentive paid to the employees holding it to be a capital expenditure and therefore it is not allowable expenses.

ESOP Expenses allowable as a deduction considering market price at the time of exercise – ...



Apollo Tyres Ltd. v ACIT (ITA No. 223/Coch/2015 dated 10.01.2017) Deferred revenue expenditure allowed in year of incurring Facts:  During the year, the assessee had claimed prepaid expenses amounting to Rs. 5,15,34,726 which comprises of – Insurance expense of Rs. 96,12,402/-, – Interest expenses of Rs. 1,54,19,700, – Rent expenses of Rs. 1,83,501/- and – General expenses of Rs. 2,63,19,123/- in the nature of employee mediclaim and other expenses. According to the A.O, the said expenses were not related to the income earned during the year under consideration and were therefore, disallowed. The DRP concurred with the findings of the Draft Assessment Order and held that the claim of deduction which does not pertain to the relevant accounting year distorts the income of that year. The assessee argued that the expenses included under the head prepaid expenses are revenue in nature. The said expenditure has not resulted in acquisition of a capital asset to the assessee and therefore, is an allowable deduction.

Deferred revenue expenditure allowed in year of incurring; Loss on sale of subsidiaries’ shares allowed ...


CIT vs. SSA’s Emerald Meadows (Supreme Court)  The Karnataka High Court had to consider the following question of law. “Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?” The High Court ruled in favour of the assessee with the following observations: 

Omission by the AO to explicitly specify initiation of penalty proceedings makes the penalty order ...


Cummins Ltd., In re  A.A.R NO. 1152 OF 2011 (dated 12.01.2016) Background: Cummins Limited, UK is a company incorporated in the UK. Cummins Technologies India Limited (CTIL) is a company incorporated in India. CTIL is engaged in the business of manufacture and sale of turbochargers. CTIL purchases turbocharger components directly from third party in UK and US and in relation to such purchases, Cummins Limited provides supply management services vide Material Suppliers Management Service Agreement.  As per the agreement CTIL pays supply management service fees calculated at 5% of the base prices from the suppliers As per the agreement, Cummins Ltd, UK is responsible for following activities: – Finalization of supplier prices from UK and US suppliers and ensuring market- competitive pricing from suppliers; – Ensuring that the approved suppliers have the necessary manufacturing capacities and infrastructure to provide for the raw material requirements; – Assisting in ensuring on-time delivery of components by the suppliers to Cummins India as well as resolution of delivery performance issues with suppliers, if any – Ensuring that suppliers maintain strict compliance with the standards, procedures and processes and support in obtaining response from supplier to any quality control violation issue; and – Performance review of the supplier  Cummins Ltd does not have a permanent establishment (PE) in India in respect of the supply management services as per the provisions of the India-UK Treaty.

‘Managerial services’ do not fall within the ambit of ‘fees for technical services’; not taxable ...



DCIT v M/s Carl Zeiss India (P) Ltd (ITA No 1251(B)/2014, 1258(B)/2014 dated 24 July 2015) Mumbai ITAT Background: During the course of assessment proceedings, the AO noted that the assessee has claimed Rs.1,12,51,602 under the head cost of senior management pertaining to activities of Carl Zeiss India Branch. On query, by the AO, the assessee submitted that during the financial year amount has been reimbursed to Carl Zeiss, Singapore Pte Ltd. being the cost allocated based on the proportion of work performed. Thus, it was submitted that the cost reimbursed by the assessee is in the nature of reimbursement on actual basis without any mark-up. The assessee has also pointed out that the payment was made and the amount was remitted only after obtaining a certificate from the AO u/s 195(2).  The AO did not accept the contention of the assessee and was of the view that the services provided by the head office through 3 senior managerial personnel fall under the category of fee for technical services (FTS). Thus, the AO held that the remittance in truth and reality is consideration for technical services disguised as reimbursement of expenses. Since the assessee did not deduct tax at source, the said payment of Rs.1,12,51,602 was disallowed and added to the total income. The CIT(A) gave partial relief by accepting contentions of the assessee with respect to 1 managerial personnel and dismissed the ground regarding other 2 personnel and upheld the order of the AO that the services were indeed FTS.

Once certificate u/s 195(2) is obtained for NIL deduction, AO cannot disallow the expense u/s ...


CIT v KAPUR INVESTMENTS (P) LTD [ITA NO.158/2014 & ITA NO.159/2014 dated 20.04.2015] KARNATAKA HIGH COURT Background: Assessee Company is engaged in the business of finance and films. The assessee had invested money in shares through the Portfolio Management Scheme of M/s.Kotak Securities Limited. Since there were regular transactions of sale and purchase of shares, the Assessing Officer, for the relevant assessment years, held the same to be ‘business income’. Commissioner of Income-tax (Appeals) granted relief to the assessee and held the profit to be taxed as capital gains. Against the orders of theCIT(A), the tax authorities filed appeals before the ITAT. In the first round, the Tribunal remanded the matter to the CIT(A), which again held in favour of the assessee. Thereafter, the Tribunal dismissed the appeals of the Tax Authorities. 

Profit on sale of shares through PMS to be taxed as capital gains & not ...


CIT v GRUP ISM P. LTD. (ITA 325/2014 dated 29.05.2015) Delhi High Court  Background: The assessee Company made payment of Rs 56,54,963/- to M/s. CGS International, UAE (“CGS International”) and Rs 37,76,863/- to M/s. Marble Arts & Crafts LLC, UAE (“Marble Arts & Crafts”) (aggregating to Rs 94,31,826/-). The AO noted that no TDS had been deducted by the assessee while making the payment to the said two foreign concerns and asked the assessee to justify the same. The assessee stated that the payments were made towards commission and that neither of these concerns had any business in India and therefore, it was not required to deduct TDS. However, the AO disallowed the amounts stating that the payment made was towards consultancy services and therefore, liable to TDS.  On appeal before the CIT(A), the CIT(A) held that the payment made by the assessee to the two UAE entities would not come within the purview of “technical services‟, as defined in Explanation 2 to Section 9(1)(vii) of the Act and consequently, the provisions of Section 9(1)(vii) were not attracted in the assessee’s case. The CIT(A) also held that Article 14 of the DTAA with UAE is applicable in the facts of the case and that the AO could not have denied the applicability of the said Article on the sole premise that the two UAE entities are companies. Accordingly, since the remittances to such non-resident entities are liable to be taxed in the UAE, no TDS was required to be deducted. The ITAT dismissed Revenue’s appeal and confirmed CIT(A)’s order.  

Liaisoning, inspection, solicitation, procedural services do not constitute ‘FTS’ – Del HC