“Taxsutra Database”, a true Income-tax research tool, is an archive of over 111620+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features:
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We are glad to present to you the 230th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
In India, trusts are set up for the social causes and are approved by the Income-tax Department. The legal framework in India recognizes activities including "relief of the poor, education, medical relief, preserving monuments and environment, and the advancement of any other object of general public utility" as charitable purposes. They are eligible not only for exemption but the donors to such trusts can also claim deduction of the amount of donation to such recognised trusts from their taxable income. However, there have been cases when the benefits provided to such organisations have been misused and in order to curb this, the Government has been trying to bring in changes/ amendments to the way such trusts are subjected to tax.
Against this backdrop, CA Harish Kara, expresses his viewpoint on the new registration regime brought in by Finance Act, 2020 by replacing Sec. 12AA with new Sec. 12AB. The author states that the new provisionshave removed the concept of perpetuity and have provided that the registration of even existing organizations registered u/s 12A and 12AA would be renewable after 5 years. The author elucidates the important amendments in the manner and time limit of registration of charitable trusts, its validity u/s 12AB, online procedure etc. He also clarifies about the verification procedure of Form No. 10A/ 10AB and the documents which are required for registration along with it. He further clarifies that non-registration under the new provision would not amount to cancellation of registration but the registration earlier granted would merely become inoperative on the expiry of the time period. The author concludes by saying “Gone of the days for bogus entities trying to make personal profits through bogus entities under the guise of charitable organizations”.
Click here to read the Article titled “Registration u/s 12A- New Procedure under Income Tax Act”
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Key Takeaways from Handpicked Rulings
1) ITAT: Inadvertent omission to fill schedule in ITR mere “technical -error”, the object of assessment is to determine “correct total income” of the taxpayer – ITAT holds that the ignorance of the assessee or inadvertent mistake committed by the assessee should not come in his way in claiming exemption, which is otherwise allowable under the Act. Notes that, assessee, out of ignorance or inadvertence had omitted to mention the details of exempt income..……Click here to read and download copy of ITAT Order
Note: ITAT in [TS-5318-ITAT-2016(Mumbai)-O] held that "technical-error of non-filing relevant ITR-schedule not fatal for claiming treaty benefit"
2) HC: Trust should not be denied Sec.11 benefit only on account of its disability to produce the necessary records - HC directs assessee-trust to produce all the available records with it before Revenue, also directs Revenue to look into the entire records closely and threadbare before ascertaining the status of the Trust for the period between 201314 and 201617 and grant exemption u/s 11; Assessee trust lost all its records relating to its registration proof etc ……………….. Click here to read and download copy of HC Judgment
3) HC upholds assessee’s claim for AY 2008-09, holds the amendment to Sec.40(a)(ia) (by Finance Act 2010 to be applicable retrospectively from the date of insertion of Sec. 40(a)(ia) i.e. AY 2005-06; Relies on SC ruling in Calcutta Export Company wherein it was held “…the amendment made by the Finance Act, 2010 being curative in nature required to be given retrospective operation i.e., from the date of insertion of the said provision.”; Remarks that the amended provision of Sec 40(a)(ia) should be interpreted ............... Click here to read and download copy of HC Judgment
4) ITAT: Letting out of property is separable from letting out of other assets – ITAT holds that the rental income earned from letting out of property (factory building) is taxable under the head “income from house property” and not “income from other sources”. ITAT notes that (i) the assessee is the owner of the property in terms of section 22 of the IT Act 2) the rental income on lease of factory premises is taxable under the head house property ………..Click here to read and download copy of ITAT Order
5) HC upholds Non-Resident assessee’s claim of exemption u/s 54F on investment in residential property in USA utilizing the capital gains earned on sale of immovable property in India; Relies on co-ordinate bench ruling in Vinay Mishra wherein it was held that the memorandum of objects of Finance Act, 2014 clearly provides that amendments are effective from April 01, 2015 and the CBDT Circular No. 1/ 2015 dated January 21, 2015 also states that amendment brought in Sec. 54F(1) is prospective in nature…………Click here to read and download copy of HC Judgment
6) HC holds that since the ITAT’s order was set aside entirely by the Court, it cannot be said the remand order by the ITAT is perverse; Revenue had disallowed the claim of depreciation on the enhanced value as against WDV of the assets, which was dismissed by the ITAT; During pendency of the appeal by the Revenue with the court against ITAT’s order, RBI passed an order for assessee company’s wind up; HC remits back the matter to ITAT for fresh adjudication as per provisions of Sec. 158BB which the ITAT ruled against the assessee ...........Click here to read and download copy of HC Judgment
7) HC: Mistake in specifying assessment year for which penalty was levied, ‘non-curable’ u/s.292B - HC quashes the order passed by the ITAT that upheld Revenue’s claim of rectification of clerical errors or accidental omission u/s 292B for typographical errors; Assessee had committed a default in respect of AY 2007-08 and did not pay the tax on account of financial hardship, however, Revenue held the assessee to be in default and charged him for penalty u/s 221 for AY 2008-09 claiming it to be a typographical error in the order copy; HC on perusal of the provisions........... Click here to read and download copy of HC Judgment
8) HC quashes the notice issued u/s 148 issued to the assessee for AY 2011-12 – HC notes that revenue had issued notice on reasons to believe that the income has escaped assessment within the meaning of Sec. 147 without setting out the reasons for initiating the proceedings; HC accepts assessee’s contention that the notice issued was non-application of mind as it was issued merely on the basis of information received from the Investigation wing; Holds “…the expression "reason to believe" is stronger than the word "satisfied". The belief should be based on material that is relevant and cogent.” and the Revenue is mandatorily required to ............. Click here to read and download copy of HC Judgment
9) HC: Under Income-tax Act firm and its partners are separate entities – HC dismisses revenue’s action to reopen the assessment u/s 148 against one of the partners (assessee) of a partnership firm for AY 2012-13; Assessee acted as a signatory in the capacity of a partner to the firm for purchase of two immovable properties during the subject AY along-with other partners; Assessee contended that the notice u/s 148 is not sustainable in law as the properties in question were purchased by the partnership firm wherein the assessee is one of the partners and he is not the purchaser in his individual capacity; HC denies the proposition established by various judicial precedents that partnership is not a legal entity, remarks that although a firm does not have any legal existence apart from its partners............. Click here to read and download copy of HC Judgment
10) ITAT - “Swapping of shares is a recognized standard commercial practice and cannot be treated as any tax evasion technique” - ITAT holds that the order passed by AO cryptic on the issue of application of Sec. 68 in case of assessee company for AY 2012-13 for swapping of its shares, restores the matter back to the AO; Holds that provisions of Sec. 68 does not apply when the purchase and allotment of shares happen under a barter system, i.e, acquiring shares of certain companies from certain shareholders without paying any cash consideration, instead, setting it through issuance of its shares to the respective parties; Assessee, engaged in the business of real estate, showed share capital issued at a huge premium amount in the first year..................Click here to read and download copy of ITAT Order
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Against this backdrop, CA Harish Kara, expresses his viewpoint on the new registration regime brought in by Finance Act, 2020 by replacing Sec. 12AA with new Sec. 12AB. The author states that the new provisionshave removed the concept of perpetuity and have provided that the registration of even existing organizations registered u/s 12A and 12AA would be renewable after 5 years. The author elucidates the important amendments in the manner and time limit of registration of charitable trusts, its validity u/s 12AB, online procedure etc. He also clarifies about the verification procedure of Form No. 10A/ 10AB and the documents which are required for registration along with it. He further clarifies that non-registration under the new provision would not amount to cancellation of registration but the registration earlier granted would merely become inoperative on the expiry of the time period. The author concludes by saying “Gone of the days for bogus entities trying to make personal profits through bogus entities under the guise of charitable organizations”.
