Issue No. 284 / June 17th, 2024

Dear Professionals,

We are glad to present to you the 284th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena! 

“Taxsutra Database”, a true Income-tax research tool, is an archive of over 127520+  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’ 

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Key Takeaways from Handpicked Rulings 

 

1) HC: Holds mere incorrect mention of provisions cannot amount to discarding the addition; Confirms Sec. 68 addition - HC upholds the ITAT order confirming the addition under Section 68 towards unexplained cash deposits in the bank account; Points out that, although, the bank pass book itself cannot be treated as books of accounts, however, in the instant case, as the Assesssee already had submitted documents such as balance-sheet, profit and loss account, computation of income etc. and certainly had also maintained his own books of account in his ledger; Thus  rejects Assessee’s contention that the addition made under Section 68 on the basis of bank account is not sustainable as it was made only on the basis of bank account and not on the basis of books of accounts; Notes that the Assessee failed to  prove the source of income or identity / creditworthiness / genuineness of the creditors, from whom the cash loan was claimed to be obtained; Reiterates the….……. Click here to read and download HC Judgment copy

2. HC: Holds Sec. 153C notice valid, despite the satisfaction being in verbatim with searched entity’s satisfaction.HC dismisses Assessee’s writ petitions challenging Section 153C proceedings for AY 2014-15, and the order rejecting Assessee’s objections; Rejects Assessee’s contention that the satisfaction note in case of the searched person and in case of the Assessee (non-searched person) are verbatim, thus the Revenue did not apply his mind independently and merely proceeded on the satisfaction note recorded by the AO of the searched person, thus, the notice under Section 153C fails to fulfill the legal and jurisdictional requirement under Section 153C(1); Observed that, in light of the amendment in Section 153C with effect fromJun 1, 2015, the requirement is that even an information contained in the documents seized, if pertains to or relates to a person other than the searched person, the requirement of Section 153C(1) can be held to be fulfilled; Opined that, “In view of the categorical statement in the satisfaction note of the searched person forwarded by the Assessing Officer of the searched person to the Assessing Officer of the petitioner assessee, it cannot be assumed that no prima facie satisfaction of the seized material being “pertain to” the petitioner assessee could be recorded”; Thus holds that the satisfaction….……. Click here to read and download HC Judgment copy

3. ITAT: Refuses to delete Sec. 69 addition solely for erroneously mentioning wrong Section; Remits the issue. ITAT remits the issue of addition under Section 69, to the CIT(A) for consideration of the issue afresh; Opines that, “the addition cannot be deleted for the sole reason that the section under which the addition is made is mentioned erroneously and that it is necessary to look into the merits of the case”; Notes that the Revenue called upon the Assessee to submit various details to establish the source for purchase of immovable property, however as the Assessee did not furnish the requisite details such as loan confirmation, income tax returns and copy of bank account etc., Revenue treated the loan as non-genuine and made the addition under Section 69 towards the entire loan; Further notes that the CIT(A) dismisses Assessee’s appeal on the ground that the Assessee did not appear nor furnish any details to prove the genuineness of the transaction; Observes that the addition is made primarily for the reason that the assessee has not furnished details to substantiate the genuineness of the impugned transactions thereby not discharging the onus; Thus remits the issue in the interest of natural justice and fair play..….…….Click hereto read and download ITAT Order

4. ITAT : Remits the issue of capital gains and Sec. 54F exemption over the dispute of quantum of jewellery sold- ITAT sets aside the CIT(A) order granting Assessee the exemption under Section 54F against the long term capital gains on sale of jewellery acquired through inheritance from her late mother-in-law; Notes that the Revenue rejected Assessee’s claim of deduction under Section 54F against the long term capital gains on sale of jewellery acquired through inheritance on the ground that there is a mismatch in the description of jewellery sold as per the wealth tax disclosure and bill of purchase obtained from the purchaser, i.e. Navarathan Jewellers; Opines that, “CIT(A) is not justified in giving the findings with regard to existence of long term capital assets in the form of jewellery acquired through the Will from Late Kasturi Shoury and consequently granting the relief which is incorrect without reconciling the quantity of jewels mentioned in the Will vis-à-vis Valuation Certificate issued by the Navarathan Jewellers”.; Thus, remits the issue of capital gains on sale of salary and exemption thereon under Section 54F to the file of CIT(A) to decide afresh; Directs the Assessee to reconcile the quantum of jewellery inherited through the will along with valuation report issued by the purchaser jewellers..….……. Click here to read and download ITAT Order

5) ITAT: Compensation received on pre-mature termination to be treated as capital receipt, not liable to tax. Followed SC in the case of Kettlewell Bullen and Delhi HC in Khanna and Annadhanam. ITAT opines that, the pre-mature termination of the assessee's agreements due to Iraq's invasion of Kuwait and the subsequent sanctions on Iraq by the United Nations which resulted in the assessee receiving compensation from the United Nations Compensation Commission cannot be said to have occurred in the normal course of the assessee's business hence considered as capital in nature. ..….……. Click here to read and download ITAT Order 

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Expert Column

The Protocol signed between India and Mauritius on March 7, 2024 to amend the DTAA to include the Principal Purpose Test (PPT) clause and also to amend the preamble which is yet to be ratified and notified. The Protocol has been a subject of heated discussions due to the huge ramifications that emerge and further vindicated by the jurisprudence on treaty abuse, treaty shopping and GAAR.

Mr. Mukund Madhusudhan (Director, Taxation, Harman India) discusses the implications of the said Protocol to India – Mauritius DTAA and the amended preamble especially its interplay with the Blackstone judgment of Delhi HC, which is subjudice before Supreme Court, from a dividend perspective. The amended DTAA strives to eliminate double taxation and prevent non-taxation.Delhi HC held that benefit allowed under India-Singapore DTAA with respect to capital gains based on TRC of Blackstone and held that Revenue cannot go behind TRC to deny treaty benefits as the TRC issued by the other tax jurisdiction is sufficient evidence for claiming eligibility for DTAA benefit, residency and legal ownership. The author discusses the implications under both the scenarios – (i) if SC upholds the Delhi HC judgment (ii) if SC reverses the Delhi HC judgment. The author emphasises the all pervasiveness of PPT as it does not spare any stream of income including dividend income. Author opines that a plain reading of Article 3 of the said Protocol indicates that the amendment could be retroactive.

The author concludes, “one could ponder if the Blackstone ruling would lend any support to the taxability of dividend income at the lower rates in the hands of Mauritius entities as per the treaty, if the taxman decides to invoke the PPT (amended preamble would support this as well). In other words, is the SC’s verdict as to whether TRC is conclusive for beneficial ownership, only theoretical? Not only from a Mauritius perspective, but in the case of all treaties where a PPT has been included?"

Click here to read the article, “Blackstone Decision and Mauritius PPT – Dividend Perspective!”

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