Miscellaneous


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 ...


CIT v Yash International Inc. (ITA No. 4002 of 2013) dated 28.10.13 – HIGH COURT OF HIMACHAL PRADESH Background: The assessee firm formed a unit under the name and style of M/s Yash International having same partners as in the case of its erstwhile firm M/s Yash Electricals, Baddi. The assessee claimed deduction under section 80IC in respect of undertaking established in HP. The AO denied the deduction to the assessee on the ground that the assessee firm was formed splitting up / reconstruction of erstwhile firm. CIT(A) and ITAT allowed the benefit u/s 80IC to the assessee. Tax Authority’s arguments: The assessee and the erstwhile firm have same partners. Only the wife was introduced as new partner of erstwhile firm who did not contribute any capital except sharing of profit at the end of the year.  The workers of M/s Yash Electricals were also shifted to the new unit.  Control and management of the existing and new unit remained the same.

80IC allowable even if undertaking formed with same partners of erstwhile firm & having common ...


CIT v BABCOCK POWER (OVERSEAS PROJECTS) LTD. ITA 178/2002 dated 05.09.2014 – DELHI HIGH COURT Background: The assessee – M/s.Babcock Power (Overseas Projects) Ltd., a non-resident company incorporated in United Kingdom, during the Assessment Years 1987-88 to 1989-90 had a project office in India and was engaged in execution of a contract of setting up a coal based thermal plant. The assessee to fulfil their contractual obligations, had engaged their foreign technicians who were deputed to work at the Indian project office. These employees were on pay roll of UK office of the respondent assessee and salaries were paid in foreign currency in their bank accounts abroad. These contracts of employment were duly approved by the Ministry of Mines for the purposes of Section 10(6) of the Act. Assessee did not deduct Tax at Source on the salary paid on the ground that tax was not required to be deducted. The Assessing Officer disagreed and also directed interest under Section 201(A) of the Act be charged. A question arose, whether the assessee was liable to deduct tax at source under Section 192 of the Act on the salaries paid to the foreign technicians. Tribunal, by the impugned order, has rejected the contention of the  assessee that they were not liable to deduct tax at source. Tribunal further upheld levy of interest and observed that interest was payable under Sections 201(1) and 201(1A). Interest has been referred to as the legitimate amount of tax due for delayed payment. However, the Tribunal did not accept and agree with levy of interest for the period commencing from 1st April following the Financial Year till the date of the order of levy of interest under Section 201(1A) observing that this was erroneous and cannot be sustained. This finding/direction is questioned. 

Interest u/s 201(1A) to be levied from dt of on which tax was deductible till ...



CCIT v Sarva Equity (P.) Ltd [IT APPEAL NOS. 322 TO 324 OF 2014 dtd 08.01.2014] – Karnataka HC Background: Assessee and Ittina Properties Private Limited are sister concerns. The assessee had taken an unsecured loan from Ittina of Rs.9,56,48,107. The AO  treated the loan as a deemed dividend under Section 2(22)(e).  The Directors and shareholders of both the companies, are members of one and the same family and they have substantial holding in M/s. Ittina and assessee company. The Appellate Authority reversed the order passed by the Assessing Officer holding that the respondent-assessee is not a shareholder of M/s. Ittina Properties Private Limited and in view thereof, not liable to pay taxes under Section 2(22)(e) of the Act. The order of the appellate authority has been confirmed by the Tribunal.

Indirect shareholding is not covered under the fiction of deemed dividend u/s 2(22)(e) – Karnataka ...


CBDT Circular No. 1 of 2014 Rajasthan High Court in the case of CIT(TDS) vs. Rajashthan Urban Infrastructure held that the words “any sum paid” used in Section 194J of the Income Tax Act, relate to “fees for professional services or fees for technical services”. In terms of the agreement, the amount of Service Tax was to be paid separately and was not included in the fees. Accordingly, it was decided that if Service tax is payable in addition to professional/ technical fees under the contract, the withholding tax will be restricted to the professional fees. The CBDT vide CBDT Circular No. 1 of 2014 dated 13.01.2014 has decided in exercise of powers u/s 119 that wherever the terms of the agreement/ contract between the payer and the payee, the service tax component comprised in the amount is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid/payable without including such service tax component. The aforesaid circular should apply to all kinds of payments made to residents.

No TDS on service tax component – CBDT Circular


The CBDT has issued Circular (No: 10/DV/2013) dated 16/12/2013 providing ‘Departmental View‘ on the controversial issue surrounding section 40(a)(ia) of the Income-tax Act, 1961.   In case of Merilyn Shipping & Transports v Addln CIT /[2012] 136 ITD 23 (VISAKHAPATNAM), it was held that:  “The word ‘payable’ used in section 40(a)( ia) is to be assigned strict interpretation, in view of the object of Legislation, which is intended from the replacement of the words in the proposed and enacted provision from the words ‘amount credited or paid’ to ‘payable’. Hence, it has to be concluded that provisions of section 40(a )(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS.” 

S. 40(a)(ia) – CBDT issues circular providing “Departmental View” contradicting Merylin Shipping ruling



CIT v I.T.C. Ltd [IT APPEAL NO. 44 OF 2002 dated 4.09.13] – Allahabad High Court Background: Assessee was deducting tax on the estimated income of the employees including the travelling allowance upto January, 1993. For a period of two months, the assessee stopped deducting the amount on the ground that he held discussions with the Income Tax Officer. Assessee was treated as assessee in default u/s 201(1A) and was made liable to pay the interest on the amount of income tax, which was not deducted by the assessee from the conveyance allowance given to its employees under Section 192 (1) of Income Tax Act. 

If tax is not deducted under a bonafide belief, payer cannot be treated as ‘assessee ...


CIT v Bikaner Cuisine Pvt Ltd [ITA No. 475/2013 dated 04.10.13] (Delhi HC) Background: Assessee – M/s Bikaner Cuisine Pvt. Ltd. was not a shareholder of BIPS Systems Ltd. The latter company i.e. BIPS Systems Ltd. had granted unsecured loan of Rs.49,25,000/- to the assessee. The Assessing Officer invoked provisions of section 2(22)(e) of the Income Tax Act, 1961 and made an addition of Rs.33,84,290/- as deemed dividend in the hands of the assessee. The reason given was that the assessee and BIPS Systems Ltd. had common shareholder, namely, Narender Goel, who held more than 10% shares in BIPS Systems Ltd. and more than 20% voting rights in Bikaner Cuisine Pvt. Ltd. However, the accepted and admitted position is that the company is not a shareholder in BIPS Systems Ltd. 

Deemed dividend provision is a legal fiction; but does not enhance the definition of shareholder ...


Shervani Hospitalities Ltd v CIT [I.T.A. No. 804 of 2011 dated 28.05.2013] Delhi High Court Background: The assessee is a company engaged in hospitality services. For the AY 2001-02, the assessee filed its return declaring loss of Rs.43,15,328. The assessment was completed under Section 143(3) of the Act at a positive income of Rs.9,26,510. In the first appeal, the assessee substantially succeeded and most of the additions/disallowances were deleted. After giving the first appeal effect, the loss was determined at Rs.34,30,680. Aggrieved, the Revenue preferred an appeal before the Tribunal, which was substantially allowed vide order dated 25th April, 2008. Proceedings under Section 271(1)(c) of the Act were initiated and vide order dated 29th January, 2009, penalty of Rs.16,44,330/– was imposed inter-alia observing that the assessee had failed to substantiate the explanation regarding additions/disallowances made in the assessment order resulting in reduction of returned loss. It was observed that the losses claimed could not be justified before the Assessing Officer and the additions had been finally upheld by the Tribunal. Concealment penalty was upheld in the first appeal by the Commissioner of Income Tax (Appeals).

Mens rea is not required to impose penalty for concealment – Del HC