Section 206AA does not apply to beneficial rates provided in tax treaty – Pune ITAT

DDIT v Serum Institute of India Limited ITA No.792/PN/2013 dated 30.03.2015) – Pune ITAT


Assessee during the financial year 2010- 11 made payments to non-residents on account of interest, royalty and fee for technical services. The assessee deducted tax at source on such payment in accordance with the tax rates provided in the Double Taxation Avoidance Agreements (DTAAs) with the respective countries. The tax rate so provided in the DTAAs was lower than the rate provided under the Income-tax Act, 1961. In case of some of the non-residents, the recipients did not have Permanent Account Numbers (PANs). The AO treated such payments, as cases of ‘short deduction’ of tax in terms of the provisions of section 206AA of the Act. Section 206AA prescribes that if the recipient of any sum or income fails to furnish his PAN to the person responsible for deduction tax at source, the tax shall be deductible at the rate specified in the relevant provisions of the Act or at the rates in force or at the rate of 20%. The AO treated it as short deduction being difference between 20% and the actual tax rate on which tax was deducted in terms of the relevant DTAAs. As a consequence, demands were raised on the assessee for the short deduction of tax and also for interest u/s 201(1A) of the Act. CIT(A) granted relief holding that where the DTAAs provide for a tax rate lower than that prescribed in 206AA of the Act, the provisions of the DTAAs shall prevail and the provisions of section 206AA of the Act would not be applicable.  (more…)

CBDT circular on 14A disallowance in the absence of exempt income is invalid – Bang ITAT

Anriya Project Management Services(P)Ltd. v DCIT (ITA No.1799/Bang/2013 dated 20.02.2015) – Bangalore ITAT


The assessee during the year did not earn any exempt income and therefore, did not make any disallowance under section 14A in its return of income. However, the AO made disallowance u/s 14A holding that there is increase in the investment of the assessee during the relevant assessment year resulting in increase of interest on total loans and thus interest bearing funds were utilized in investments earning exempt income. Therefore, he held that proportionate interest on investments earning exempt income is disallowable(more…)

BUDGET 2015 – An Insight into Key Direct Tax Proposals

The Union Budget for the fiscal year 2015-16 was presented by the Finance Minister on 28th February 2015.

Apart from abolishing Wealth Tax Act, 1957 and officially warding off Direct Tax Code (‘DTC’), he also deferred the least liked GAAR (General Anti-Avoidance Rules) for two more years. He proposed to implement a roadmap for the reduction of corporate tax rate to 25% over a period of four years and also promised to phase out exemptions to give a fillip to the stagnant tax-base in India.

Most of the direct tax proposals in the Finance Bill, 2015 are effective from the financial year commencing on 1 April 2015, unless otherwise specified.

Click here to download an analysis of the key Direct Tax Proposals in the Budget  (more…)

Expression “fees for technical services” in s. 9(1)(vii) explained with reference to “consultancy” services – SC

GVK Industries Ltd vs. ITO (Supreme Court)

The assessee paid fees to a non-resident (NRC). The obligation of the NRC was to: (i) Develop comprehensive financial model to tie-up the rupee and foreign currency loan requirements of the project.(ii) Assist expert credit agencies world-wide and obtain commercial bank support on the most competitive terms. (iii) Assist the appellant company in loan negotiations and documentation with the lenders. The assessee claimed that as the fees were paid for services rendered outside India, the same were not chargeable to tax in India and that the assessee was under no obligation to deduct TDS u/s 195. However, the AO and CIT rejected the claim of the assessee. The High Court (228 ITR 564) held that the said payment was not assessable u/s 9(1)(i) but that it was assessable u/s 9(1)(vii). The assessee claimed that s. 9(1)(vii) was constitutionally invalid as it taxed extra-territorial transactions. However, this claim was rejected by the Constitution Bench of the Supreme Court in 332 ITR 130. On merits, the matter was remanded to the Division Bench of the Supreme Court. HELD by the Division Bench dismissing the appeal:  (more…)

No penalty even if the return is revised after issue of notice u/s 143(2) wherein no details are asked – Mum ITAT

Ms.Prema Gopal Rao v DCIT (I.T.A. No.8653/Mum/2011 dated 07.01.2015) Mumbai ITAT


The assessee filed original return of income on 10.09.2004 declaring total income of Rs.12,16,600/-, which included Long Term Capital Gain on sale of Shares of Rs.3,60,305. The case was selected for scrutiny vide issue of notice u/s 143(2). After the receipt of the said notice, the assessee filed revised return of income, wherein the assessee revised the Long term Capital gains upwards to Rs.14,87,789/-. The AO completed the assessment as per the Revised return of income by making certain disallowances. In the penalty proceedings, the AO took the view that the assessee has revised the return of income only after the enquiry was initiated by him and accordingly, levied penalty on the upward adjustment of long term capital gains.

CIT(A) also confirmed the penalty on the reasoning that  filing of revised return of income was not voluntary, since it was filed after selection of the original return of income for scrutiny. (more…)

Allotment of equity shares in lieu of interest liability is a mode of payment allowable u/s 43B – Mum ITAT

Garware Chemicals Ltd. v DCIT (IT APPEAL NO. 7819 (MUM.) OF 2010 dated 21.01.2015) Mumbai ITAT


The assessee is engaged in the business of manufacturing of various Petro Chemical products. During the assessment proceedings, the Assessing Officer noted that the assessee has claimed the deduction of Rs. 14 crore u/s 43B of Income Tax Act. The AO found that the claim of the assessee u/s 43B was in connection with the discharge of interest amount payable to IDBI amounting to Rs. 14 crore by way of conversion of the same into equity shares of the assessee company. The AO held that in view of the Explanation 3C of section 43B, the claim of the assessee is not allowable and accordingly rejected. The CIT(A) also did not accept the contention of the assessee and confirmed the disallowance made by Assessing Officer by following the decision of this Tribunal in the case of SRF Ltd. v. DCIT (34 SOT 1). (more…)

Provisions of section 50C not applicable on leasehold rights in land – Pune ITAT

Kancast Pvt. Ltd v ITO (ITA No.1265/PN/2011 dated 19.01.2015) – Pune ITAT 


The assessee transferred factory land, building and shed for a consideration of Rs.3,12,04,000/- for land and building and Rs.47,96,000/- for other fixed assets. Out of the consideration of Rs 3,12,04,000 for land and building, amount of Rs 77,00,000 pertained to leasehold rights in land. The Assessing Officer noted that the value of land and building adopted by the registering authority for the purposes of stamp duty valuation under section 50C for the purpose of computing capital gains based on the Ready Reckoner rates of the State Government was Rs.5,75,93,000/-. The assessee  contended that section 50C of the Act was not applicable as the assessee was only holding leasehold rights in the land and was not owner of the land.  However, the Assessing Officer considered the stamp duty value of the consideration for land under section 50C at Rs.4,98,93,000/- (Rs.5,75,93,000/- minus Rs.77,00,000/-). 

In the first level appellate proceedings, the assessee reiterated that it did not transfer any land because it was not owning the land and therefore transfer of leasehold rights in land did not invite the provisions of section 50C of the Act. Reliance was placed on the ruling of Mumbai ITAT in the case of Atul G. Puranik vs. ITO vide ITA No.3051/Mum/2011 dated 13.05.2011. The CIT(A) dismissed the submission of the assessee and held that the Explanation below section 269UA(d)(i) of the Act makes it clear that the land, building, etc. included in the phrase ‘immovable property’ also includes any rights therein. Therefore, he upheld that the order of Assessing Officer was justified in applying the provisions of section 50C.  (more…)

Penalty not applicable for addition on account of deeming provisions of section 50C – Mumbai ITAT

ACIT v Sunland Metal Recycling (ITA NO.6454/Mum/2011 dated 10.12.2014) Mumbai ITAT


The assessee sold office premises to its sister concern for a sale consideration of Rs. 1.55 crores. The Assessing Officer considered the full sale consideration as per stamp duty authority valuation at Rs. 2,00,08,000/- in accordance with the provisions of section 50C of Income Tax Act. Accordingly, the Assessing Officer made an addition to the Short term Capital Gain. Subsequently, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) for levy of penalty against the addition made to the Short term Capital Gain and levied a penalty of Rs. 22,12,069. The CIT(A) deleted the penalty by following the various decisions of Mumbai  Tribunal on the point and held that there is no concealment of any particulars of income on the part of the assessee(more…)

Expenditure incurred for acquisition of controlling stake in subsidiary is revenue in nature – Delhi ITAT

M/s Eicher Motors Ltd v DCIT (ITA No.207 /Del /2013 dated 12.12.2014) – Delhi ITAT


The assessee incurred consultancy charges of Rs 20,36,319 for services rendered in relation to bid-cum-delisting of shares of Eicher Limited, a subsidiary company. During the course of assessment proceedings, the assessee submitted that the said expenses were incurred for acquisition of the entire controlling interest in subsidiary company – Eicher Limited since the assessee was a promoter of the said subsidiary and also has business interest in it. It was, further, submitted that the assessee being a promoter of Eicher Limited and holding business interest in that company, decided to acquire entire control over that company and, consequently, made an open offer to the public share-holders to acquire their shares and delist Eicher Limited from Stock Exchange for which services of J M Morgan Stanley Pvt. Ltd [Merchant Banker] and ILFS Investments Securities Limited [Syndicate Member] were obtained. Pursuant to the delisting of shares of Eicher Limited [after acquisition of shares from public share-holders], Eicher Limited was amalgamated with the assessee w.e.f. 4.3.2008 pursuant to the scheme of amalgamation being approved by the Hon’ble High Court of Delhi.

However, the AO disallowed the expenditure holding that the expenditure was capital in nature as the same was incurred in relation to acquisition of a new asset. The CIT(A) confirmed the disallowance. (more…)

Interest incurred exclusively for business purpose cannot be subject to disallowance u/s 14A – Allahabad HC

ACIT vs. Dhampur Sugar Mill Pvt. Ltd (ITA No 220 of 2014 dated 05.11.2014) (Allahabad High Court) 


The assessee is engaged in the business of the manufacture and sale of sugar, chemicals and power, and has a distillery. For the FY 2007-08, the assessee had incurred interest on working capital which was debited to P&L A/c. During the course of assessment proceedings, the AO observed that assessee had invested some of its funds in shares and the dividend income which had been or was receivable on these investments did not form part of the total income. Holding that certain expenses, such as on account of interest, were directly attributable to the exempt income, the AO made disallowance of Rs 67.75 lakhs under section 14A.   (more…)

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