Direct Tax

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May 2016

CA. Paras K. Savla & CA. Hemant Shah

JUDICIAL PRONOUNCEMENTS

SUPREME COURT


1) CIT vs. Society for The Promotion of Education, Adventure Sport & Conservation Of Environment (Supreme Court)


Section 12AA: Non disposal of an application for registration before the expiry of six months as provided U/s 12AA (2) results in deemed grant of registration:
The High Court has taken the view that once an application is made U/s and in case the same is not responded to within six months, it would be taken that the application is registered under the provisions.

2) Standard Chartered Finance Limited vs. CIT (Supreme Court)

Reopening of assessment: If no assessment Order is passed, there cannot be a notice for re-assessment
The ratio of the judgment in Trustees of H.E.H. The Nizam’s Supplemental Family Trust v. CIT [2000] 242 ITR 381 SC is that in those situations where there is no assessment order passed, there cannot be a notice for re-assessment in asmuch as the question of re-assessment arises only when there is an assessment in the first instance.

TRIBUNAL DECISIONS

1) GE Capital Business Process Management Serves Pvt. Ltd. vs. ACIT (ITAT Delhi)

License fee for use of application software with limited right to use, is revenue expenditure U/s 37

[ITA No. 2806/Del./2011 & ITA No. 2124/Del./2013; Date of Judgment: 16/10/2015] (A.Y.2007-08 & A.Y.2008-09)
ITAT Delhi held in the case of GE Capital Business Process Management Serves Pvt. Ltd. vs. ACIT that M/s GECC (USA), to whom payment has been made, itself has received the right to use the software internally including its group entities for its business and it does not have any right to commercially exploit the software. The assessee is vested with limited right to use the licensed program during the period of license agreement. The agreement nowhere provides any exclusive right to the assessee. Further, the right to use the vision plus software, being an application software which is routine in nature and used for accounting purposes, does not have any effect of providing enduring benefit and the payment made to GECC (USA) is only the license fees and not the price for acquisition of capital asset. The assessee did not acquire any ownership on the software and after termination of license agreement, all the rights and title remained with GECC (USA). Hence the license fee etc. paid by the assessee to M/s GECC (USA) is revenue expenditure deductible U/s 37.

2) ACIT vs. Rupam Impex (ITAT Ahmedabad)

Section 154 Assessing Officer cannot refuse rectification of mistake attributed to assessee (Appeal No.: I.T.A.No.: 472/RJT/2014 Date of Judgement/Order 21/01/2016 A.Y.2008-09)
It was held that the Income Tax proceedings are not adversarial proceedings. As to who is responsible for the mistake is not material for the purpose of proceedings U/s 154; what is material is that there is a mistake- a mistake which is clear, glaring and which is incapable of two views being taken. The fact that mistake has occurred is beyond doubt. The fact that it is attributed to the error of the assessee does not obliterate the fact of mistake or legal remedies for a mistake having crept in. It is only elementary that the income liable to be taxed has to be worked out in accordance with the law as in force. It is not open to the Revenue authorities to take advantage of mistakes committed by the assessee. Tax cannot be levied on an assessee at a higher amount or at a higher rate merely because the assessee, under a mistaken belief or due to an error, offered the income for taxation at that amount or that rate. It can only be levied when it is authorized by the law, as is the mandate of Article 265 of the Constitution of India. A sense of fairplay by the field officers towards the taxpayers is not an act of benevolence but it is call of duty in socially accountable governance.

3) Mangalam Drugs & Organics Ltd vs. DCIT (ITAT Mumbai)

Section 271(1)(c): Penalty cannot be levied on all issues in a “wholesale” manner. The AO has to give findings for each issue separately. He has to apply mind meticulously and carefully for each issue separately and establish precisely whether there was concealment of income or furnishing of inaccurate particulars of income. The Assessee cannot be fastened with the liability of penalty without there being a clear or specific charge. Fixing a charge in a vague and casual manner is not permitted under the law. Fixing twin charges is also not permitted under the law

It is further noted, from the perusal of penalty Order, that the penalty has been levied, on all the additions/disallowances, in a ‘whole sale’ manner. The AO has not given his findings, for levying the penalty, for each issue separately, with respect to the satisfaction of the AO for each of the issue respectively, nor has he given a finding for each issue separately as to whether there was a concealment of income or furnishing of inaccurate particulars of income. The AO has held in the penalty order that various disallowance made by the AO have been confirmed by the Ld CIT(A) and therefore, it is automatically established that the assessee has concealed its income and furnished inaccurate particulars, which has led into concealment of income within the meaning of section 271(1)(c) of the Act. This approach of the AO for levy of penalty is not correct as per law. Penal provisions are quite harsh, these can make the assessee liable for prosecution, as well. Therefore, the AO is obliged, under the law, to make application of his mind meticulously and carefully for each issue separately and to show and establish precisely and specifically whether there was concealment of income or there was furnishing of inaccurate particulars of income on the part of the assessee, at the stage of filing of return of income. The Assessee cannot be fastened with the liability of penalty without there being a clear or specific charge. Fixing a charge in a vague and casual manner is not permitted under the law. Fixing the twin charges is also not permitted under the law. We drive support from the judgment of Hon’ble Gujrat High Court in the case of New Sorathia Engineering Co vs CIT 282 ITR 642 (Guj).

4) Golden Tobacco Limited vs. DCIT (ITAT Mumbai)

Section 147: Reopening of assessment is not permissible in the absence of “fresh tangible material”
In the present case, it was noticed by the Tribunal that the case of the assesse is that there was no fresh tangible material in the possession of AO at the time of recording of impugned reasons. A perusal of the ‘Reasons’ recorded by the AO in this case reveals that at the time of recording of these ‘Reasons’ the AO had examined original assessment records only and no fresh material had come in the possession of the AO. In response to our specific query also, Ld DR could not point out any fresh material available with the AO at the time of reopening of the case of the assessee. Thus, assertion of the assessee that there was no fresh material with AO for reopening of this case, remained uncontroverted.

OTHER DEVELOPMENTS & AMENDMENTS

1) ICAI Prescribes Manner of Signing of Certificates by Chartered Accountants

Manner of Signing of Certificates by Chartered Accountants

1. The Council of the Institute of Chartered Accountants of India (ICAI), at its 349th meeting held on 17th and 18th January, 2016 considered an issue relating to manner of signing of certificates by Chartered Accountants. The Council noted that presently different practices were in vogue in respect of the manner of signing of various certificates issued by the members of the ICAI.

2. On a consideration of the matter, the Council, with a view to bring uniformity in the manner of signing of certificates, has decided to require the members of the ICAI to include (in addition to any other requirements in this regard prescribed by the relevant law or regulation under which the certificate is being issued) the following details in their “Signatures” on the certificates issued by them:

  • Name of the CA firm*

  • Firm Registration Number (FRN)*

  • Name of the member

  • Designation (Partner/Proprietor)

  • Membership Number

  • Where applicable/so allotted by ICAI.

2) CBDT Clarifies the law on whether the surplus arising on sale of shares is taxable as Capital Gains or Business Profits:

The CBDT has issued Circular No.6/2016 dated 29/02/2016 in which it has clarified the issue of taxability of surplus on sale of shares and securities. The CBDT has explained the circumstances in which such surplus can be assessed as capital gains or business income. The said instructions have been issued in order to reduce litigations.