April 2016
CA. Paras K. Savla & CA. Lalchand Choudhary
Supreme Court
S. 12 AA
It was held that non-disposal of registration application u/s. 12AA by revenue authorities within statutory time line, charitable trust would be deemed to have been registered on the date when 6 months from the date of application ends – CIT vs. society for the Promotion of Education C.A. 1478 of 2016 order dated 16/2/2016.
S. 80-IB Deduction of subsidies
The subsidies which go to reimbursement of cost in the production of goods of a particular business would be taxable under the head “Profits and Gains of Business or Profession”, and not under the head “Income from Other Sources”. Deduction u/s. 80-IB is allowable on revenue subsidies, so received from the Government by contending that subsidies were directly relatable to cost of manufacture and/or sale of products – CIT vs. Meghalaya Steels Ltd. [2016] 67 taxmann.com 158 (SC).
S. 147 No reassessment without original assessment
Where no assessment order passed, there cannot be a notice for reassessment in as much as the question of reassessment arises only when there is an assessment in the first instance – Standard Chartered Finance Ltd. vs. CIT [2016] 67 taxmann.com 54 (SC).
High Courts
S. 11(6) Depreciation on assets held by charitable trust
It was held that newly introduced Section 11(6) of the Act, not allowing depreciation in respect of any asset, acquisition of which has been claimed as an application of income, is prospective in nature and operates with effect from 1/4/2015 – DIT(E) vs. Al-Ameen Charitable Fund Trust [2016] 67 taxmann.com 160 (Karnataka).
S. 45(4) Conversion of Partnership firm into Company
The partners have taken equity shares in the private limited company on conversion of firm into company. Therefore, whatever rights that they had in the capital assets of the firm by way of being its partners, continue to exist in the form of equity shares that they held in the private limited company. In other words, one form of ownership that they had as partners of the partnership firm, got converted into another form. Hence, this is not a case where there was either a transfer of a capital asset or the distribution of a capital asset – Pipelines India vs. ACIT [2016] 67 taxmann.com 112 (Madras).
S. 45(4) Conversion of firm into company
In absence of there being distribution of capital assets, on conversion of partnership firm into private company, no tax liability arises on conversion – DCIT vs. R. L. Kalathia & Co. [2016] 66 taxmann.com 249 (Gujarat).
S. 74 Set off of gains on depreciable assets against bought forward long term loss
For purposes of Section 74 of the Act, the deemed short term capital gain arising on transfer of long term depreciable assets continues to be long term capital gain. The deeming fiction under Section 50 is restricted only to the mode of computation of capital gains contained in Sections 48 and 49 of the Act. It does not change the character of the capital gain from that of being a long term capital gain into a short term capital gain for purpose other than Section 50 of the Act. Accordingly it was held assessee was entitled to claim set off deemed short term capital gain arising out of sale of depreciable assets against the brought forward long-term capital losses and unabsorbed depreciation – CIT vs. Parrys (Eastern) (P.) Ltd [2016] 66 taxmann.com 330 (Mumbai).
S. 201 Assessee in default
In terms of Circular 5 of 2010, the proviso to Section 201(3) cannot be interpreted, in such way that so as, to enable it to initiate proceedings for declaring an assessee to be an assessee in default under Section 201 of the Act for a period earlier than four years prior to 31st March, 2011. Revenues contention, Circular 5 of 2010 of CBDT clarifying that the proviso to Section 201(3) of the Act was meant to expand the time limit for completing the proceedings and passing orders in relation to ‘pending cases’, cannot be accepted.
High Court also observed that there is no question of ‘harmonious construction’ of a Circular issued by the CBDT. At best, it is an external aid of construction of Section 201(3) and the proviso thereto. The Circular also gives an instance of contrary understanding of the legal position by the Department itself. It is well-settled that if a Circular issued by the Department favours an assessee then it should be so done even where such interpretation goes contrary to the legislative intent - Vodafone Essar Mobile Services Ltd. vs.
UOI [2016] 67 taxmann.com 124 (Delhi).
S. 148 Challenging reassessment proceedings
It is open for the petitioner to challenge a reassessment proceedings as being without jurisdiction for absence of reason to believe even in case where the assessment has been completed earlier by issue of intimation under Section 143(1) – Khubchandani Healthparks Pvt. Ltd. vs. ITO Bombay HC W. P. No. 3027 of 2015 Order dated 10/2/2016.