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Taxsutra Database Bulletin : Interest Set-off Conundrum; Time Limit for Payment Under Income Disclosure Scheme, 2016; CBDT Updates and Other Handpicked Rulings
Issue No. 125 / Mar 09, 2018
 
Expert Column:

Whether interest paid under various provisions of the Income-tax Act can be set off against interest received u/s. 244A and the net interest be offered for tax is a controversial question since a long time but the position hasn't been resolved yet. The author, Hitesh Paurana (Partner, B. S. Shah & Co.) refers to various contradictory judgments on this issue. The author analyses the various judgments and puts forth the various contentions due to which the Courts have pronounced their decision. For instance, Mumbai Tribunal in Lupin Limited [TS-5686-ITAT-2016(MUMBAI)-O], expressed its views that the interest paid under various sections of the Act cannot be reduced from the interest on refund received u/s. 244A, either under the head ‘Business’ or "income from other sources”. After analysing various rulings the author concludes that a better view would be that interest paid under various provisions of the Act cannot be deducted or set-off against the interest received u/s. 244A.
 
Click here to read the article titled "Interest Set-off Conundrum".
 
CBDT Updates:
 

1. CBDT issues corrigendum to G.S.R 44(E), dated the 19 th January, 2018, at page 3, in line 19, for “the Institute of Certified Management Accountants of India” read “the Institute of Cost Accountants of India” : Notification No. 07/2018
 
2. CBDT notifies ‘Maharashtra Electricity Regulatory Commission’, a Commission constituted by State Government of Maharashtra, for the purpose of Sec. 10(46) in respect of specified income arising to that Commission for the period 01.06.2011 to 31.03.2012 and for the FYs 2012-13 to 2014-15 subject to certain conditions : Notification No. 08/2018
 
3. CBDT notifies Contributory Health Service Scheme of the Department of Atomic Energy for the purposes of Sec. 80D(2)(a) for AY 2018-2019 and subsequent years : Notification No. 09/2018
 
4. CBDT notifies new Form 10A for Trust registration provides for objects modifications, seeks Trustees' Aadhaar : Notification No. 10/2018
 
5. CBDT notifies that all the provisions of DTAA between India and Kenya, as annexed thereto, shall be given effect to in the Union of India : Notification No. 11/2018
 
6. CBDT notifies ‘Centralised Communication Scheme’ for issuing e-notices; No personal appearance required : Notification No. 12/2018
 
Key Takeaways from Handpicked rulings
 
1. [TS-5095-HC-2018(Karnataka)-O] : Time limit for payment under Income Disclosure Scheme, 2016 : Time limit for payment of 3rd installment of Income Disclosure Scheme, 2016 (IDS 2016) cannot be extended u/s. 119(2)(b) by seeking condonation of delay in payment - HC dismisses assessee’s writ petition; Holds that there is no justification or reason for invoking the extra-ordinary jurisdiction of the Court under Article 226 of the Constitution for interference in the matter of relaxation or extension of time limit as prayed for and therefore Revenue was justified in rejecting the said request of the petitioner…
 
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2. [TS-5722-ITAT-2018(Hyderabad)-O] : Chargeability of capital gains in case of development agreement : Capital gains taxable in the year of entering into development agreement, Sec. 45(5A) as introduced by Finance Act, 2017 cannot be applied to development agreement entered into in AY 2009-10 - ITAT upholds chargeability of capital gains on land transfer in AY 2009-10 in year of entering into development agreement between assessee and developer; Rejecting assessee’s contention that as per Sec. 45(5A) introduced by Finance Act, 2017 capital gains can be deferred to the year of completion of project, ITAT stated that it is a substantive provision which cannot be applied to the development agreement entered into earlier…
 
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3. [TS-5084-HC-2018(MADRAS)-O] : Rejection of application by Settlement Commission : First and foremost condition for an assessee to fulfil before the Settlement Commission is to satisfy the Commission that the  disclosure was full and true, and if this basic ingredient is not satisfied, the Commission can reject the application at the very threshold, at the stage of Sec. 245D(1) - HC dismisses assessee’s writ petition; Holds that it is not the case that Settlement Commission brushed aside the documents filed by the assessee, in fact an exercise has been done by Settlement Commission to examine assessee’s stand, giving liberty to the assessee to explain from the documents filed in the paper book, which the assessee was unable to explain or clarify or match the transactions…
 
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4. [TS-5742-ITAT-2018(Jaipur)-O] : Sale of agricultural land - Capital gains vs business income : Sale of agricultural land after developing into plots is business income - ITAT upholds CIT(A)’s order, holds that nature of land had gone irreversible change from agricultural to residential plots, therefore, this was an adventure in the nature of trade and income has to be taxed under the head 'profit and gains of business and profession'; Rejects assessee’s plea that the income was from transfer of capital asset and not in the nature of a business…
 
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Taxsutra Database Bulletin : Credits & Creditors in Focus: How to Effectively Resolve Tax Investigations?; Deduction u/s. 54F on Multiple Apartments and Other Handpicked Rulings
Issue No. 124 / Mar 05, 2018
 
Expert Column : 
 
Sec. 68 attracts much litigation owing to the purpose it helps serve, viz. unearthing of black money.  In this context, the CBDT has recently issued a ‘Standard Procedure for applying provisions of section 68’ (“SOP”) to its officers. The authors, Sanjay Sanghvi (Tax Partner, Khaitan & Co.) and Surajkumar Shetty (Principal Associate, Tax Team), focus on handling tax disputes in the context of Sec. 68 related issues in this article. The authors emphasize the importance of in-depth tax counselling and effective legal strategy to mitigate or resolve tax disputes, and maintenance of proper documentation to support one's case. The authors conclude "All in all, bringing relevant documentary evidence on record at the very first opportunity and a vigilant and diligent approach is helpful in making right representation before the assessing officer and in all likelihood a proper assessment order based on facts and merits of the case".
 
Click here to read the article titled Credits and Creditors in Focus: How to Effectively Resolve Tax Investigations?”.
 
Key Takeaways from Handpicked rulings
 
1. [TS-5043-SC-2018-O] : Recording satisfaction u/s. 153C : No proceedings can be initiated u/s. 153C since satisfaction note prepared by AO of the searched person does not fulfil the legal requirement spelled out in Sec. 153C(1) that the seized documents do not belong to searched person, but to the assessee, and also because the AO’s satisfaction note of the assessee was a carbon copy of the AO’s satisfaction note of the searched person - SC dismisses Revenue’s SLP against HC order [TS-5743-HC-2017(Delhi)-O] quashing the two satisfaction notes issued by AO of the searched person and the assessee respectively, and all proceedings consequent thereto; HC had held that no reasons were recorded for the identical conclusion in either satisfaction note that the seized documents mentioned therein belong not to the searched person, but to the assessee…
 
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2. [TS-5441-ITAT-2018(Hyderabad)-O] : Deduction u/s. 54F on multiple apartments : Multiple apartments received under development agreement become one house even though they are independent units – ITAT rules in assessee’s favour; Holds that capital gains on transfer of land for development will arise in the year of agreement (AY 1995-96), provided the agreement is fulfilled subsequently, and directs the AO to exclude capital gains on transfer of land given for development (AY 2003-04); Further notes that out of all flats received in lieu of development agreement, only a few flats are sold in the FY relevant to the impugned AY (AY 2003-04), hence any LTCG on those flats on sale of proportionate undivided share of land and STCG on sale of superstructure/ flat can only be brought to tax in the year under consideration…
 
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3. [TS-5566-ITAT-2018(Bangalore)-O] : Generating reasonable surplus for exemption u/s. 10(23C) : Generating surplus at 18% of gross receipts is ‘not far in excess of reasonable profits’, and assessee would not cease to be an institution which exists solely for educational purposes, and not for the purpose of profit – ITAT allows exemption u/s. 10(23C)(vi); Holds that the legal position that emerges out of SC decision in Visvesvaraya Technological University [TS-5039-SC-2016-O] is that so long as the surplus generated is not far in excess of what has been held to be reasonable, i.e, from 6 to 15%, the institution would not cease to be an institution which exists solely for educational purposes and not for the purpose of profit; Notes that in the present case, after providing for depreciation, surplus would be around 18% of gross receipts, which is not far in excess of 15%, and hence assessee exists solely for educational purposes, and not for the purpose of profit…
 
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4. [TS-5079-HC-2018(Karnataka)-O] : Non-receipt of notice for reassessment : Assessee’s contention that it did not receive any of the prior notices issued u/ss. 147 and 142(1) cannot be accepted when the records prove otherwise – HC dismisses assessee’s writ petition; Holds that it cannot be believed that the proceedings initiated by various notices and letters have not been issued or served upon the petitioner-company, the stipulation in this regard is a matter on record, and this Court has no reason to disbelieve these facts and treat them as falsehood per se merely because the company wants to contend like this…
 
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Taxsutra Database Bulletin : Corpus-Specific Voluntary Contributions of Unregistered Trust; Directions by DRP and Other Handpicked Rulings
Issue No. 123 / Feb 22, 2018
 
1. [TS-5242-ITAT-2018(Pune)-O] : Corpus-specific voluntary contributions of unregistered trust : Corpus specific voluntary contributions are outside scope of taxation in case of an unregistered Trust u/s. 12/ 12A/ 12AAA - ITAT rules in favour of assessee; Holds that “provisions of section 2(24)(iia)/ 12(1)/ 11(1)(d)/ 35/ 56(2) are relevant for deciding the current issue. It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, that corpus-specific Voluntary Contributions are outside the scope of ‘income’ as defined in s. 2(24)(iia) of the Act due to their "capital nature". But it is a case of an unregistered Trust. … principles relating to judicial discipline assume significance and the priority. It is also decided issue that there is need for upholding the favourable view if there exists divergent views on the issue. ”…
 
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Editorial Note : Agra ITAT in Gaudiya Granth Anuved Trust [TS-6035-ITAT-2013(AGRA)-O] held that corpus donation is in the nature of a capital receipt and are not taxable, irrespective of the fact whether the trust is registered u/s. 12AA or not.
 
SC in Radhasoami Satsang [TS-12-SC-1991-O] had held that no formal document is necessary to create a trust.
 
 
2. [TS-8445-ITAT-2017(Mumbai)-O] : Taxability of discount on ESOP : Discount on shares issued in ESOP is an allowable expenditure, and not a contingent liability - ITAT rules in favour of assessee; Sets aside CIT’s order u/s. 263 wherein he has expressed his opinion that the assessee's claim of expenditure towards employee cost on account of equity stock options was payable in future, and was an unascertained liability which cannot be allowed as an expenditure since the same is relatable towards future pending obligation not determinable with reasonable certainty in the year of accounting…
 
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3. [TS-5387-ITAT-2018(Bangalore)-O] : Directions by DRP : Order passed by DRP u/s. 154 is not appealable - ITAT rules in favour of assessee; Holds that Revenue’s appeal against DRP’s directions is not maintainable; Notes that as per Sec. 253(1)(d), an order passed by the AO under Sec. 143(3) or Sec. 147 or Sec. 153A or Sec. 153C pursuant to DRP’s directions, or an order passed u/s. 154 in respect of such order, is appealable before the Tribunal and not DRP’s order u/s. 154…
 
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4. [TS-5468-ITAT-2018(Chandigarh)-O] : Taxability of interest on NPAs : Taxability of interest on loans categorized as NPA’s/ sticky loans to be on receipt basis - ITAT rules in favour of assessee; Holds that interest on NPA’s was being accounted for on receipt basis consistently in the past also, following Accounting Standard-9 relating to Revenue Recognition prescribed by Institute of Chartered Accountants of India, which required income to be recognized only on becoming certain, and the method followed by assessee was in consonance with the guidelines issued by Reserve Bank of India from time to time…
 
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