Issue No. 267 / September 21^st, 2022 

Dear Professionals, 

We are glad to present to you the 267^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena! 

Journals Current Status

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Judicial “forward & backward reference”

1) [TS-8523-ITAT-2019(DELHI)-O] affirmed in [TS-5147-HC-2022(DELHI)-O] on addition including post-demonetisation deposits

2) [TS-6857-HC-2021(Kerala)-O] affirmed in [TS-5032-SC-2022-O] on rental income ought to be treated as income under the head “income from other sources

3) [TS-6446-HC-2021(MADRAS)-O] affirmed in [TS-6012-HC-2021(MADRAS)-O] on writ petition on the ground of availability of alternate remedy, onus is on the assessee to establish the genuinity of the transaction and the source of the investment.

4) [TS-6745-ITAT-2019(Mumbai)-O] followed in [TS-7422-ITAT-2021(Mumbai)-O] on copyrighted article is different from a copyright, the consideration received for copyrighted article does not qualify as royalties

5) [TS-5578-HC-2000(Karnataka)-O] followed in [TS-5852-ITAT-2022(LUCKNOW)-O] on rectification u/s. 154 for non-filing of audit report

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Key Takeaways from Handpicked Rulings

1) ITAT : Services pertaining to leadership skills by non-resident, not FTS - ITAT allows Assessee's appeal and holds that sum paid to non-resident on account of services pertaining to training and developing leadership skills cannot be considered as fees for technical services within the meaning of Section 9(1)(vii) and not chargeable to tax in India; Assessee-company engaged in the business of rendering BPO services; During AY 2016-17, Assessee made payment to a Hong Kong based entity of USD2100 fee for training and developing soft skills and deducted tax at source under Section 195; Subsequently, Assessee filed appeal before CIT(A) under Section 248 and claimed refund of TDS paid on the ground that sum paid to non-resident was not taxable in the hands of non-resident in India as it does not have PE in India; CIT(A) dismissed the appeal on the ground that even though non-resident does not have PE in India but the sum paid by the Assessee pertains to training fees which fall within the ambit of Fee for Technical Service (FTS) and is taxable in India; Before ITAT, Assessee relies on coordinate bench ruling in Lloyds Register and contends that payment of training services does not amount to FTS under the Act; Also relies on ………….. Click here to read and download ITAT Order

2) ITAT: Accrued Interest on NPA for Coop Bank to be taxed in the year of recovery irrespective of accounting method -  ITAT partly allows Assessee' appeal, holds that accrued interest on NPAs is to be taxed in the year of recovery irrespective of method of accounting Assessee follows as RBI guidelines does not distinguish between a banking company or cooperative society engaged in banking activities; Assessee is a co-operative society carrying on the business of banking activities including credit and deposit facilities; For AY 2013-14, Revenue made a disallowance of Rs. 6.36 Cr under Section 40(a)(ia) on account of deduction of tax at source on interest paid on various deposits; Revenue also made addition of Rs. 52.20 Lacs on account of accrued interest on NPA on the ground that Assessee follows mercantile system of accounting and the accrued interest on NPA should be taxed in the year under consideration;  CIT(A) confirmed the disallowance of Rs.1.72 Cr out of disallowance of Rs.6.36 Cr made by Revenue which includes interest paid on saving bank accounts, compulsory deposits, recurring deposits and FDRs of non-members and also confirmed the addition of Rs.52.20 Lacs on account of accrued interest on NPA on the ground that Assessee is a NBFC and not a banking entity………….Click here to read and download ITAT Order

3) ITAT: Deletes Sec.40(a)(i) disallowance of reinsurance premium ceded to non-resident since not taxable in India - ITAT holds that Cholamandalam MS General Insurance (Assessee-company) is not liable to deduct tax at source under Section 195 on reinsurance premium ceded to non-resident reinsurer, as no income accrued or arose or deemed to accrue or arose in India, accordingly deletes disallowance under Section 40(a)(i); For the AYs 2005-06 to 2010-11, 2013-14 and 2014-15, Revenue disallowed reinsurance premium ceded by Assessee-company (A General Insurance company) to non-resident re-insurers (NRRI) under Section 40(a)(i) for non-deduction of tax under Section 195, holding that income of NRRI accrued/arose in India or deemed to have been accrued or arose in India, which was confirmed by CIT(A) except in cases where specific exclusion of reinsurance premium ceded to NRRIs was provided in DTAA between India and other countries; ITAT rejects Revenue’s reasoning to hold that income accrued/arose in India, explains that except for payment to Indian brokers in a few cases ……………. Click here to read and download ITAT Order

4) HC: Quashes reassessment notice for lack of sanction u/s 151 - HC allows Assessee’s writ petition holds the time to issue notice may have been extended by TOLA but that would not amount to amending the provisions of Section 151; HC set aside the notice issued u/s 148, rejects revenue reliance of TOLA, notes that relaxation Act provisions will not be applicable; Concludes that four years had expired from the end of the relevant assessment year, as provided u/s 151(1), it is only the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner who could have accorded the approval and not the Additional Commissioner of Income Tax…………….. Click here to read and download HC Judgment

5) HC: College providing training to bank officials & incidental services eligible as 'educational institutions' under Sec.10(23C)(vi) - HC allows Assessee's appeal and directs CCIT to consider Assessee's application for exemption under Section 10(23C)(vi); Holds that a training college providing incidental services pertaining to consultancy and assisting banking institutions in appraisal programmes would qualify for exemption under Section 10(23C)(vi) and the said incidental activities would also fall in the category of education; During AY 2014-15, Assessee submitted application seeking exemption under Section 10(23C)(vi); CCIT rejected the said application on the ground that the exemption under Section 10(23C)(vi) could only be granted to an entity engaged solely for educational purpose and Assessee's activities stipulated in memorandum involved assistance services to banking institutions in the matter as appraisal programmes, conducting morale, productivity studies and consultancy services and cannot be said to be meant solely for educational purpose; ITAT upheld the order of CCIT; Before HC, Assessee contends that an approval was sought from DDIT (Exemption) in the year 2008 to amend memorandum of association and the copy of the same was also furnished but no approval is granted till date; Also contends that its activities meant solely for education purposes and not for the purpose of profit and any surplus results incidental from activity carried on by it will not cease to be one existing solely for educational purpose; While Revenue contends that the if the objects clause were deleted in the amended memorandum of association, the same would have been  a part of application seeking exemption under Section 10(23C)(vi) and accordingly. ………….. Click here to read and download HC Judgment

6) HC : Quashes reassessment initiated beyond 4 years based on audit objection as pre-condition not satisfied -  HC allows Assessee's writ petition, holds that statutory pre-condition stipulated in proviso to Section 147 has to be complied before initiating reassessment proceedings beyond the period of 4 years from the end of the relevant AY and the burden cast upon the Revenue by virtue of the said proviso must be first discharged before availing benefit of the Explanation to Section 147; Assessee entered into a scheme of amalgamation duly approved by court and accordingly merged the assets and liabilities including method of accounting; During AY 2012-13, Assessee filed revised return declaring loss of Rs. 30.6 Cr under regular provisions and after making upward and downward adjustment set forth in Section 115JB including brought forward loss of Rs.30.65 Cr and depreciation of Rs.18.05 Cr computed the adjusted book profit as nil for the purpose of MAT provisions; Revenue rejected the income declared by Assesee and the methodology adopted for computation of book profit and also added expenses attributable to exempt income which lead to increase in taxable book profit for the purpose of Section 115JB;…………Observes that there is no dispute with regard to disclosure of all material including computation of tax under provisions of MAT made by Assessee during the original assessment and there is no allegation in the reasons itself to the effect that there is any incomplete disclosure or false statement made at the time of assessment which justify the assumption of jursidction beyond 4 years; Remarked that "the reasons proceed on the basis that the methodology for computation is errorenous which premise, as noticed earlier, does not appear to be correct as the financials disclose the availability of depreciation. In such circumstances, the assumption of jurisdiction under Section 147 is held to be bad in law"; Also observes that reassessment proceedings initiated by Revenue merely on the basis of audit objection and without satisfying the requirement of independent 'reason to believe' that income has escaped assessment is bad in law; Accordingly, allows Assessee's Writ Petition and quashed reassessment proceedings….……….. Click here to read and download HC Judgment

​7) ITAT: Assessment made by relying on Sec.132(4) statements, on standalone basis, not sustainable - ITAT holds that statements recorded during the course of search cannot be used on a standalone basis to make additions in the post-search assessments; ITAT deletes additions made in the post-search assessments for AYs 2008-09 to 2010-11 and 2012-13 as an addition made on ad hoc basis where the assessment had attained finality and were not abated by virtue of Section 153A; Finds that the additions were not based on any incriminating material found during the course of search proceedings, but only on the statements of key persons recorded during the course of search; Remits the matter pertaining to AYs 2011-12, 2013-14 and 2014-15 back to Revenue with a direction to decide the matter afresh after considering the additional evidences admitted in the present case; Assessee-Individual, a proprietor and a director of few companies ………….. Click here to read and download ITAT Order