Case Laws in Favour of Department Second Edition PDF

For Departmental use only
CASE LAWS
IN FAVOUR OF
DEPARTMENT
2nd Ed.
Compiled by
SHAJI P. JACOB
(Civil List No. 88058)
DIRECTORATE OF INCOME TAX

(Public Relations, Printing, Publications & Official Language)
INCOME TAX DEPARTMENT
NEW DELHI - 110001
i
First Edition : 2009
Second Edition : 2012
DISCLAIMER
The narration of decisions as well as gist of relevant provisions
of law in the compilation “Case Laws in favour of Department”
are those of the compiler and not of the Government of India. In
case of any doubts as to the authenticity or applicability of the
meanings of terms / expressions given in the compilation or to
seek further clarification, reference may be made to the full text
of the concerned decision or the Act notified in the gazette.
Suggestions / additions for future guidance may be sent to:
shajipjacob@gmail.com
Evaluation Committee
Shri Rajnish Kumar
Shri Suraj Bhan
Shri Satbir Singh
Shri D.K. Mishra
ii
,l- lh- tSuh] vkÃ vkj ,l Òkjr ljdkj
S.C. JAINI, IRS GOVERNMENT OF INDIA
lnL;] ds- iz- d- cks- ¼for ea=ky; @ jktLo foÒkx½
Ministry of Finance/Department of Revenue
Member, CBDT & dsUnzh; izR;{k dj cksMZ
fo”ks’k lfpo] Òkjr ljdkj
Central Board of Direct Taxes
Special Secretary to the Govt. of India ukFkZ CykWd] uÃ fnYyh & 110001
North Block, New Delhi - 110 001
Telefax: 011-23092831
MESSAGE
“Knowledge destroys the darkness of ignorance ... we should try to

acquire knowledge from all sources and by all means” says Rig Veda.
Revenue administration has long been handicapped due to non

availability of authentic compilation of court cases decided in favour of
the Revenue. This book “Case Laws in favour of the Department” is an
attempt to remove this handicap. I hope that this wealth of knowledge
would be utilised by the Departmental functionaries while discharging
their duties.
I congratulate the team involved in writing, reviewing and

publication of the book.
May 26, 2012.

(S.C. JAINI)
Member (R), CBDT
iii
iv
ANITA KAPUR nwjHkk’k@Telephone : +91-11-23412480
DIRECTOR GENERAL QSDl@Fax : +91-11-23411264
OF INCOME TAX
(Administration) vk;dj egkfuns’kd ¼ç’kklu½
ik¡poh eafty] e;wj Hkou] dukWV ldZl]
uÃ fnYyh & 110001
DIRECTOR GENERAL OF INCOME TAX
(ADMINISTRATION)
5TH FLOOR, MAYUR BHAWAN,
CONNAUGHT CIRCUS, NEW DELHI - 110001
FOREWARD
The Income Tax Department has taken several initiatives to

improve knowledge resource available to its officers and to facilitate
compliance by the taxpayers. The first edition of this book published
in 2010, was a quick referencer of decisions in favour of the
Department. Orders made by the officers based on such decisions
stand a fair chance of being sustained in appeals and thereby
discourage litigation. Besides, consistency in approach by the
officers across the country assures fairness to the taxpayers and
simultaneously alerts the taxpayers to the possible risks in their quest
for tax efficiency and motivates compliance.
2. The present edition has been compiled after taking inputs from
the field formations and includes important case laws rendered in
favour of revenue by the courts upto 31st March, 2012. The earlier
edition only gave the gist of the case, whereas, the present edition also
narrates the reasoning given by the courts. This edition has included
relevant Circulars, Notifications and Instructions along with the
decisions to enable the officers to take a comprehensive view on an
issue. Given the importance of cross border transactions in today’s
business environment, a separate chapter has been added to include
issues on International Taxation and Transfer Pricing.
v
3. The author of the book Shri Saji P. Jacob, an IRS officer of 1988
batch, has taken great pains in identifying the issues, bunching them
in well defined chapters and writing the narration for each case in a
simple and lucid language. The review committee consisting of Shri
Rajnish Kumar, DIT(L&R), Shri Satvir Singh, CIT(DR) ITAT –II,
Mumbai, Shri Suraj Bhan Nain, CIT(Audit), Bhopal and Shri D.K.
Mishra, Addl. DIT(L&R)-II, have also made valuable contribution in
updating of the second volume of the book.
4. I feel great pleasure in placing this compilation before you.

Suggestions by the users for further improvement of the compilation
would be of immense value for the future editions of the book.
May 10, 2012.
(ANITA KAPUR)
Director General of Income Tax (Admn.)
New Delhi
vi
Amitabh Kumar
Director (PR, PP & OL)
PREFACE
The Income Tax Department has the distinction of being the

largest contributor to the central revenues. It also has a unique
distinction of being the largest law enforcer of the country having
jurisdiction extending to the whole of India, touching the lives of
citizens and non citizens alike. This vast jurisdiction also means that
the department is subject to the territorial jurisdiction of each and
every high court and the Supreme Court of India. This is over and
above a large number of Income Tax Tribunals spread over the
country. The intense judicial scrutiny of the Income Tax Act and its
varied interpretation by such diverse judicial authorities makes the
Income Tax Act one of the most dynamic Acts of the country. Varied
interpretation of legal provisions creates complications for the
taxpayers and tax administrators alike. While the taxpayers find
compliance to the tax laws cumbersome due to lack of uniformity in
the departmental response, the tax administrators themselves
struggle to keep pace with the changes and to update their knowledge
base.
The plethora of publications available in the market containing

decisions of the Supreme Court and the High Courts have general
orientation in favour of the tax payer. The tax collectors have to
browse through this huge maze of case laws to identify those in
favour of revenue. This tiring exercise coupled with lack of time at
their disposal leads generally to a half-hearted approach in this
direction. Shri Shaji P. Jacob, a senior officer of the 1988 batch of the
IRS first came up with a handy compilation of case laws that are in
favour of revenue and the same was published by this Directorate in
2009. The compilation included cases decided by the Supreme Court,
High Courts and ITATs till April, 2009. In this second edition, Shri
Jacob has not only updated the case laws upto 31.03.2012 but has also
vii
added several new chapters on judicial concepts that the officers have
to encounter in their day to day functioning.
In this second edition Shri Jacob has painstakingly selected the

issues and bunched them into well defined chapters. These are issues
where the department often faces litigation before the higher judicial
forums. In doing so he has tried to take care of the problems faced by
the officers functioning in various areas such as assessment,
international taxation, appeals, revisions, investigation and
representation before Tribunal. The compilation will help the officers
in using correct & to-the-point decisions of the higher courts in their
orders which, in turn, would lend the orders considerable strength to
stand the scrutiny of audit and the test of appeal.
The effort of Shri Jacob has been ably supplemented by the

review committee consisting of Shri Rajnish Kumar, DIT(L&R),
Shri Suraj Bhan Nain, CIT(Audit), Bhopal, Shri Satvir Singh,
CIT(DR) ITAT - XII, Mumbai and Shri D.K.Mishra, Addl.
DIT(L&R)-II, who not only reviewed each and every decision
included in the compilation but also made useful contribution by
adding new topics and chapters in the book.
The Printing & Publication wing of this Directorate has done a

commendable job in publishing the book in a short time. To enhance
the utility of the book enough blank spaces have been left at the end of
discussion of each issue as well as the end of each chapter. This would
make it user friendly and the officer using the book will be able to jot
down latest cases to keep updating the compilation till the next
edition of the book is brought out.
April 26, 2012.
(AMITABH KUMAR)
Director of Income Tax (PR,PP&OL)
New Delhi
viii
SHAJI P. JACOB
Addl. Commissioner of Income Tax
FROM THE COMPILER’S DESK
Courts have often made references to the perpetual war waged

between the tax avoider and his expert team of advisers, lawyers and
accountants on one side and the tax gatherer and his, perhaps not so
skillful advisers, on the other side. When the first edition of this book
was published in 2009 the limited idea was to equip such tax gatherers,
especially the Assessing Officer and the Departmental Representatives
before Income Tax Appellate Tribunal (for whom it is not a regular area
of work and performs this assignment for limited period of 2-3 years)
who may take time to properly equip themselves against the richly
experienced legal luminaries and accounting experts representing
assessees.
However when first edition of the book was brought out, I had
apprehension about the extent of usefulness of this publication amongst
the target group. But the overwhelming response about the book and
demand from various cadres of the service made the CBDT to take a
decision to come out with an updated version of the book and the
onerous task of preparing the same was assigned to me. This gave me the
inspiration to prepare the Second Edition which is updated by including
the relevant reported decisions till 31-03-2012. My experience of more
than ten years in the field of representation before ITAT made the task
easier and the voyage through the work was made more and more
interesting.
In the present Edition, apart from the gist of decisions, I am also
narrating the reasoning given by the Courts while arriving at such a
conclusion so that the logic behind the decisions vis-à-vis the provisions
of law will be clear. The unique feature of this book is that gist of
relevant sections of the Act as well as relevant Rules, Circulars and
Instructions issued by CBDT are also placed along with such decisions
so as to get a comprehensive view of the issue. It is presented in a
convenient arrangement moulded into a system of heading and sub-
headings. The tradition of presenting fact based legal propositions has
been maintained in this Edition so that the reader gets a view of the law
ix
as well as its application to the factual situation in one effort. The
prevailing mood towards globalization has made me to pay more
attention to international agreements, conventions and laws and to
devote a separate chapter on International taxation.
In this Edition I have mostly concentrated on the I.T. law
applicable from 01-04-2000 onwards as period prior to that is seldom
used upto the Tribunal level. Care has been taken to avoid overruled /
outdated decisions. Also, decisions of Supreme Court on legal issues
decided against the revenue and reported in the last 5 years are also
included in the computation to make awareness about such legal
position.
I take this opportunity to thank each and every member of the
Committee headed by Sri Rajnish Kumar who enriched the work by
adding their rich learning experience in the field of handling tax laws
and tax administration.
I also wish to thank all my colleagues who constantly supported
me with their constructive criticism and suggestions to make this huge
task a success.
I take it as a privilege to express my profound gratitude to
Smt. Anita Kapur, Director General of Income Tax (Admn),
Shri Amitabh Kumar, Director of Income Tax (PR, PP & OL) and
Smt. Sujata Maitra Joint Director of Income Tax (Printing and
Publications) for the constant support and encouragement for making
this publication a reality in the shortest possible time and in the most
elegant and beautiful manner.
If this book in any way gives some ideas to guide the officers of
the department while performing their official duties, I will have the
satisfaction that the work has not been without its use. Finally, as a word
of caution, I request my colleagues not to mechanically rely on any
decision without matching the facts and considering the further
development of law on the subject. This should only be a beginning and
not the end of preparation of cases for argument.
April 10, 2012.

(SHAJI P. JACOB)
Chennai
x
FROM THE COMPILER’S DESK
TO THE FIRST EDITION
India is governed by the judicial system identified by a

hierarchy of Courts, where the doctrine of binding precedent is a
cardinal feature of its jurisprudence. Case laws in favour of
Department are always a necessity for the Assessing Officer,
Commissioner of Income Tax who consider appeals or revision on
such orders as well as the Departmental Representatives who have to
defend such orders. Although many Commentaries on Income Tax
Law which give detailed discussion on various topics are available in
the market, it is not possible for the officers to frequently refer them as
they are bulky and very exhaustive containing discussion on
provisions which are no longer in use also. Similarly, though there
are several brands of Data Discs containing Court and Tribunal
decisions, searches made through such media will give a number of
decisions as output and selecting the most appropriate one will take
considerable time.
Considering all these practical difficulties faced during my

tenure as a Departmental Representative, this compilation was made
which can be easily carried anywhere and can be used as a convenient
guide at times of necessity. This book contains only decisions in
favour of revenue. While working as Departmental Representatives,
the primary task in representation before ITAT is to develop the art of
splitting the issues and arrive at the exact question posed. This book
is designed in such a way as to provide suitable solution to such
narrow issues. Familiarization with the arrangement of topics
(available in the index pages) is the key to use this compilation.
The decisions contained in this compilation are not exhaustive

and the officers are advised to make further research for maximum
results. Care has been taken to include various decisions reported in 1
to 311 ITR and 1 to 117 ITD in addition to the decisions reported in
other journals. Wherever the same decision is reported in various
journals, citation in ITR/ITD is only given as they are the commonly
used ones. Issues relating to provisions no longer in use, are avoided
to make the compilation a compact one.
xi
I feel highly privileged to express my profound and deep sense
of gratitude to all my senior officers in Income Tax Department and
Income Tax Appellate Tribunal as well as my colleagues for their able
guidance, keen interest, constructive criticism, helpful suggestions
and constant encouragement during the course of preparation of this
compendium. I am deeply indebted to all those who stood by me with
constant inspiration during such time, without which this massive
work would not have been possible. I will be failing in my duties if I
am not acknowledging the contribution of each and every senior
officer in the Evaluation Committee for sparing their valuable time
and making positive and constructive suggestions. I take this
opportunity to express my heartiest gratitude to Shri Kalyan Chand,
Director General of Income Tax (Admn.), Shri Amitabh Kumar,
Director of Income Tax (PR, PP & OL) and Shri R.K. Raina, Addl.
Director of Income Tax (Printing and Publications) for making
publication of this compilation a reality and I am deeply indebted to
them for their constant support and encouragement.
June 30, 2009.
(SHAJI P. JACOB)
Chennai
xii
TOPICS
CHAPTER 1 : GENERAL TOPICS 1
CHAPTER 2 : STATUS OF ASSESSEE 67
CHAPTER 3 : INCOME – CHARGEABILITY AND

COMPUTATION 127
SALARY INCOME 155
HOUSE PROPERTY INCOME 169
BUSINESS INCOME 181
CAPITAL GAINS 375
INCOME FROM OTHER SOURCES 442
CHAPTER 4 : LOSS / DEPRECIATION –

Set-off and Carry forward 467
CHAPTER 5 : DEDUCTIONS AND EXEMPTIONS 483
CHAPTER 6 : PROCEDURE OF ASSESSMENT,

APPEAL, REVISION ETC. 601
ASSESSMENT 603
RE-OPENING OF ASSESSMENT 620
RECTIFICATION OF ORDERS 656
REVISION OF ORDERS 670
APPEALS – Law and procedure 682
xiii
CHAPTER 7 : SEARCHES UNDER I.T. ACT &
CONSEQUENTIAL ASSESSMENT 717
CHAPTER 8 : MINIMUM ALTERNATE TAX U/S

115JA & 115JB 747
CHAPTER 9 : TAX DEDUCTION AT SOURCE 765
CHAPTER 10 : INTERNATIONAL TAXATION ISSUES 803
CHAPTER 11 : INTERESTS UNDER I.T. ACT 873
CHAPTER 12 : PENALTIES UNDER I.T. ACT 887
CHAPTER 13 : OTHER TAXES 923
APPENDIX I : COMMON LEGAL MAXIMS 939
xiv
CONTENTS
CHAPTER 1
GENERAL TOPICS
AFFIDAVIT – Evidentiary value 3
ESTOPPEL – Whether applicable ? 6
INTERPRETATION OF STATUTES 9
• General Principles of interpretation 11
Principle of literal construction - Natural and

grammatical meaning 11
Principle of Purposive Construction –

Mischief Rule – Heydon's case 14
Principle of strict / reasonable construction 17
Principle of harmonious construction 19
Noscitur A Sociis 21
Ejusdem generic 21
Meaning of some words 22
JUDICIAL PRECEDENTS
• Binding nature 24
• How far binding ? 27
• Rule of Consistency – Res judicata & Stare decisis 30
xv
JURISDICTION
• Legal jurisdiction 33
Law applicable 33
Retrospectivity 36
Effect of Circulars & Notifications 38
• Administrative jurisdiction 40
LIFTING OF CORPORATE VEIL – Sham transaction 44
• Substance over form 46
PRINCIPLES OF NATURAL JUSTICE –

Opportunity of being heard 48
PROCEDURAL LAPSE – When fatal? 51
SERVICE OF NOTICE 58
STATEMENTS RECORDED –
Use in Assessment – Retraction 61
STAY ORDERS 65
WRIT JURISDICTION 66
CHAPTER 2
STATUS OF ASSESSEE
GENERAL 69
AOP / BOI 71
• Principle of mutuality 74
xvi
COMPANY 77
• Effect of Amalgamation 78
HUF
• General 80
• Partition 82
• Devolution of property 85
INDIVIDUAL 87
PARTNERSHIP FIRM 89
TRUST 93
• Exemption 98
• Registration of Trust [sec. 12A & 12AA] 98
• Registration u/s 80G 105
• Registration u/s 10(23C)

[sec. 10(22) and (22A) prior to 01-04-1999] 107
• Assessment of charitable trust 111
• Denial of exemption 116
CLUBBING OF INCOME 121
CHAPTER 3
INCOME – CHARGEABILITY AND COMPUTATION
GENERAL 129
WHETHER A RECEIPT IS INCOME 131
xvii
HEAD OF INCOME 134
RECEIPT OF INTEREST
• Assessable as “Income from Other Sources” 135
• Assessable as “Capital Gains” 137
RECEIPT OF RENT
• Assessable as House Property income 138
• Assessable as Other Sources Income 141
• Assessable as Business Income 142
• Rent received during discontinuance of Business 143
OTHER RECEIPTS 144
SALE OF LAND
• Held as Business income 148
SALE OF SHARES
• Held as Capital gains 152
SALE OF OTHER ASSETS
• Held as Capital gains 154
xviii
SALARY INCOME
GENERAL 155
RECEIPTS – WHETHER SALARY ?

• Salary or Profits in lieu of salary 157
• Perquisites 162
DEDUCTIONS 165
EXEMPTIONS 166
HOUSE PROPERTY INCOME
GENERAL 169
• Owner is liable to be assessed 171
• Who is the owner of property for the purpose

of assessment ? 172
DETERMINATION OF ANNUAL LETTING VALUE 174
DEDUCTIONS 178
BUSINESS INCOME
RECEIPTS – WHETHER INCOME ?
• Income from profession / vocation 183
• Business Income 185
Collection kept in separate account 192
Compensation received 194
xix
Diversion by over-riding title 201
Subsidy received 205
WHEN INCOME ACCRUES ? 208
• Pending Litigation - When the income accrues ? 215
• Profits chargeable to tax u/s 41(1) –

Remission of liability 218
When remission takes place ? 222
COMPUTATION OF BUSINESS INCOME
• Single / Separate Business 224
DEDUCTIONS
CURRENT REPAIRS, INSURANCE, RATES & TAXES

[sec. 30 & 31] 225
DEPRECIATION [sec. 32] 228
• When not allowable ? 231
Double deduction 231
Assets not eligible 231
Sale & Lease back transactions 233
• Ownership of asset 234
• Used for business 236
• Rate 238
• Cost for the purpose of depreciation 244
EXPENDITURE ON SCIENTIFIC RESEARCH [sec. 35] 248
xx
AMORTIZATION OF CERTAIN PRELIMINARY
EXPENSES [sec. 35D] 251
BONUS OR COMMISSION PAID TO EMPLOYEE

[sec. 36(1)(ii)] 254
INTEREST ON BORROWED CAPITAL [sec. 36(1)(iii)] 255
• Diversion for non-business purposes 258
PAYMENT TO / PROVISION MADE FOR APPROVED

FUNDS [sec. 36(1)(iv) / (v) and 40A(7) / (9)] 260
BAD DEBTS [sec. 36(i)(vii) & (viia)] 264
• Deduction for Special reserve created by a

specified entity [sec. 36(1)(viii)] 271
GENERAL EXPENSES [sec. 37] 273
• Capital Expenditure 275
Expenses relating to Acquisition of assets 276
Expenses connected with leased assets 282
Expenditure relating to assets – intention not relevant 284
Transaction in assets got aborted half-way 287
Loss in writing off of assets 289
Incurred before commencement of business 292
Expenditure in connection with expansion of

business / new product 294
Non-competition fee paid 296
Payment for technical know-how / royalty 298
Share issue expenses 300
Fluctuation in foreign exchange 302
xxi
• Expenses not wholly and exclusively for the
purpose of business 303
Personal expenses 307
Tax payments 311
Donation / Gifts / Welfare expenses 313
Expenditure incurred after cessation of a particular business 316
• Infraction of Law 318
• Expenses not proved by assessee 324
• Liability only Contingent – Not deductible 326
When Liability Accrue ? 331
EXPENSES ON WHICH TAX NOT DEDUCTED

[sec. 40a(i) & (ia)] 337
PAYMENT BY FIRM TO PARTNERS OR BY AOP / BOI

TO ITS MEMEBRS [sec. 40(b)] 341
EXCESS PAYMENTS TO RELATIVES ETC. [40(A)(2)] 344
CASH PAYMENTS [sec. 40A(3) & (3A)] 346
DEDCUTIONS ONLY ON ACTUAL PAYMENTS

[sec. 43 B] 351
EXPENDITURE IN RELATION TO EXEMPT INCOME

[sec. 14A] 356
METHOD OF ACCOUNTING [sec. 145]
• General 360
• Rejection of Books and Estimation of Income 365
• Closing stock valuation 369

xxii
ASSESSMENT OF CERTAIN SPECIFIED BUSINESS
• Insurance business 371
• Trade, professional or similar association [sec. 44A] 373
• Film Production 374
CAPITAL GAINS
GENERAL 375
WHETHER CAPITAL GAINS ARISE ?
• Transfer as per sec. 2(47) 377
Claim of Transfer of Agricultural land 378
Transfer by way of Lease and sub-lease and termination thereof 380
Transfer of tenancy / occupancy rights 381
Transfer of Right to get shares allotted 381
Transfer of Right to Specific performance 382
Transfer of an undertaking 382
Transfer of Goodwill 382
Transfer of Stock Exchange membership card 383
Transfer of bus route permits 383
Transfer of patents 383
Redemption of Shares / Bonds 384
Conversion of investments to stock-in-trade 384
Transfer between Firm & partners 385
Transfer between company and shareholders 390
xxiii
Transfer of certain rights on which no Capital Gains / loss arises 393
Write off of some assets on which no Capital loss arises 393
WHEN CAPITAL GAIN ARISES ? 396
• Joint Development Agreement 398
WHETHER SHORT-TERM / LONG TERM ? 400
TRANSFER BY WAY OF COMPULSORY ACQUISITION 404
• Year of taxability 405
DISTRIBUTION OF ASSETS BY COMPANY ON

LIQUIDATION (sec.46A) 406
TRANSFER OF DEPRECIABLE ASSETS (sec. 50 & 50A) 407
CAPITAL GAINS IN CASE OF SLUMP SALE (Sec. 50B) 410
PROVISIONS TO AVOID SUPPRESSION OF

CONSIDERATION ON TRANSFER (sec. 50C) 411
COMPUTATION OF CAPITAL GAINS 413
• Full value of Consideration 415
• Cost of acquisition and improvement 417
• Expenditure incurred in connection with transfer 423
• Rate of tax 426
EXEMPTIONS 428
xxiv
INCOME FROM OTHER SOURCES
GENERAL 442
• Interest Receipts 443
• Receipt of Gifts from Non-Relatives

[Sec. 56(2)(v),(vi) & (vii)] 445
• Deductions [sec. 57] 445
DEEMED DIVIDEND [sec. 2(22)(e)] 447
CASH CREDITS [sec. 68] 451
• Receipt of Gifts from Non-residents – Taxability 458
UNEXPLAINED INVESTMENT/EXPENDITURE
[sec.60 to 69D] 459
• Reference for Valuation of Cost of construction 465
CHAPTER 4
LOSS / DEPRECIATION - Set-off and

Carry Forward
• General 469
• Set off of loss in the same A.Y. 470
• Carry forward and set off of loss /

unabsorbed depreciation 472
• Carry forward of loss and set off in case of

amalgamation, merger etc. 475
• Loss from Speculation Business 476
xxv
• Carry forward and set off of loss under the head
“Capital gains” 479
• Carry forward and set off of loss in case of change

in shareholding 479
• Need to file return within the period

specified u/s 139(1) 480
• DIVIDEND STRIPPING – Loss not allowed to set off 481
CHAPTER 5
DEDUCTIONS AND EXEMPTIONS
DEDUCTIONS UNDER CHAPTER VI
• General aspects 485
• Only Net Income Eligible 487
DEDUCTION IN RESPECT OF CERTAIN PAYMENTS –

CH. VI-B
• Deduction in respect of payments towards life insurance premia,

deferred annuity, contributions to provident fund, subscription to
certain equity shares or debentures etc. [Sec. 80C] 489
• Deduction in respect of contributions to certain pension

funds [Sec. 80CCC] 490
• Deduction in respect of contributions to pension scheme

notified by Cen. Govt. [Sec. 80CCD] 490
• Limit on deductions u/s 80C, 80CCC and 80CCD

[Sec. 80CCE] 490
• Deduction in respect of subscription to long-term

infrastructure bonds [Sec. 80CCF] 490
xxvi
• Deduction in respect of payment of health insurance
premia [Sec. 80D] 491
• Deduction in respect of maintenance including medical

treatment of a dependent who is a person with disability
[Sec. 80DD] 491
• Deduction in respect of medical treatment [Sec. 80DDB] 491
• Deduction in respect of interest on loan taken for higher

studies [Sec. 80E] 492
• Deduction in respect of donations to certain funds,

charitable institutions etc. [Sec. 80G] 492
• Deduction in respect of rents paid [Sec. 80GG] 494
• Deduction in respect of certain donations for scientific

research or rural development [Sec. 80GGA] 494
• Deduction in respect of contribution given to political parties

[Sec. 80GGB & 80GGC] 494
DEDUCTIONS IN RESEPCT OF CERTAIN INCOMES [CH.VI-C]
“DERIVED FROM” - MEANING OF 495
WHETHER MANUFACTURE / INDUSTRIAL

UNDERTAKING 501
WHETHER NEW INDUSTRIAL UNDERTAKING 511
• Deductions in respect of profits and gains from projects

outside India [sec. 80HHB] 514
• Deductions in respect of profits and gains from housing

projects aided by World bank and awarded by global
tender [sec. 80HHBA] 515
• Deductions in respect of profits and gains from export

of goods and merchandise [sec. 80HHC] 516
Eligibility 519
Computation 521
xxvii
Export turnover – Expl. (b) 522
Total turnover – Expl. (ba) 523
Profits of the business – Expl. (baa) 525
• Deductions in respect of earnings in convertible foreign

exchange by an approved hotel or tour operator or travel
agent [sec. 80HHD] 527
• Deductions in respect of profits from export of computer

software and providing technical services outside India in
connection with development or production of computer
software [sec. 80HHE] 529
• Deductions in respect of profits and gains from export or

transfer of copyright of a cinematographic film, television
software, music software, television news software including
telecast rights [sec. 80HHF] 531
• Deductions in respect of profits and gains from specified

industrial undertakings or enterprises engaged in
infrastructure development [sec. 80IA] 533
• Deductions in respect of profits and gains from

development of SEZ notified after 01-04-2005 [sec. 80IAB] 537

industrial undertakings [sec. 80IB] 538
Eligibility of deduction u/s 80IA & 80IB 547
Computation 551

undertakings or enterprises in Sikkim, Himachal Pradesh,
Uttaranchal and North-Eastern States [sec. 80IC] 553
• Deductions in respect of profits and gains from hotels and

convention centres in specified area [sec. 80ID] 555
• Deductions in respect of profits and gains from certain

undertakings in North-Eastern states [sec. 80IE] 556
• Deductions in respect of profits and gains from business of

collecting and processing or treating of bio-degradable waste
[sec. 80JJA] 558
xxviii
• Deductions in respect of employment of new workmen
[sec. 80JJAA] 558
• Deductions in respect of certain incomes of Offshore Banking

units and International Financial Services Centre [sec. 80LA] 559
• Deductions in respect of royalties etc. from certain foreign

enterprise [sec. 80-O] 560
• Deductions in respect of income of co-operative societies

[sec. 80P] 563
• Deductions in respect of royalties etc. of authors of certain books

other than text-books [sec. 80QQB] 570
• Deductions in respect of remuneration from certain foreign

sources by professors, teachers etc. [sec. 80R] 571
• Deductions in respect of professional income from foreign

sources [sec. 80RR] 572
• Deductions in respect of remuneration received for services

rendered outside India [sec. 80RRA] 573
• Deductions in respect of royalty on patents [sec. 80RRB] 574
• Deductions in case of a person with disability [sec. 80U] 574
OTHER DEDUCTIONS / EXEMPTIONS
AGRICULTURAL INCOME [Sec. 10(1)]
• Whether Agricultural income [defined in sec. 2(1A)] ? 575
EXEMPTION UNDER OTHER PROVISIONS IN SEC . 10
• Income by way of leave encashment [sec. 10(10AA)] 580
• Income of a local authority [sec. 10(20)] 580
• Income of an Authority constituted under law

[sec. 10(21) ] 582
xxix
• Dividend, interest etc. of infrastructure capital fund
[sec. 10(23G)] 582
• Income of trade union [sec. 10(24)] 582
• Income of Corporation or body, institution or association

established for promoting interests of SC or ST or
backward classes [sec. 10(26B)] 583
• Income of authority from letting of godowns or warehouses for

storage, processing or facilitating the marketing of commodities
[sec. 10(29)] 583
• Dividends on which tax paid u/s 115-O [sec. 10(34)] 584
• Deductions in respect of profits and gains derived by newly

established undertakings in free trade zone etc. [sec. 10A] 585

established units in SEZ [sec. 10AA w.e.f. 01-04-2006] 588

established 100% export oriented undertakings [sec. 10B] 590
• Deductions in respect of profits and gains in respect of export

of certain article or things [sec. 10BA] 592
Eligibility u/s 10A / 10B 594
Computation of deduction u/s 10A / 10B 599
CHAPTER 6
PROCEDURE OF ASSESSMENT, APPEAL,

REVISION ETC.
ASSESSMENT
FILING OF RETURNS 603
• Obligation to file return 605
• Verification of return 605
xxx
• Defective return 605
• Revised return 606
ENQUIRY AND ASSESSMENT 608
• Notice u/s 143(2) 611
• Special Audit 612
• Passing of order and its service 613
• Time limit for passing order 614
• Protective assessment 616
• Assessment on the basis of directions by Range head 616
• Refund of taxes paid 617
BEST JUDGEMENT ASSESSMENT 618
RE-OPENING OF ASSESSMENT
• Conditions for re-opening 620
• Reason to believe 621

Existence of reason Vs Sufficiency of reason 621
Whether re-opening permissible after CIT(A) passed order

against the original assessment - Doctrine of Merger 622
Whether reopening permissible when appeal for the very same

A.Y. against original assessment order pending before
Tribunal / Courts ? 623
Whether re-opening permissible when time to issue notice

u/s 143(2) available ? 623
Whether re-opening permissible when notice u/s 143(2) issued

and pending ? 623
xxxi
Whether Block assessment can be re-opened subsequently ? 624
Availability of other routes 624
• “Change of opinion” 625

Whether change of opinion exists when no assessment made /
processed u/s 143(1) ? 625
Whether change of opinion exists when assessment made u/s

143(3) / 147 already ? 626
Whether change of opinion exists when notice u/s 154 on

the same issue was dropped and notice u/s 148 issued ? 626
Whether change of opinion exists when notice u/s 148 on

the same issue was dropped and fresh notice u/s 148 issued ? 627
• Basis of re-opening – Source of information

Material already available on records 628
Reopening on the basis of Retrospective amendment to law 628
Information from a revised return filed 628
Information from proceedings of other years 629
Information from Other proceedings 629
Information from Other offices 630
Information from Audit 632
Information from judgements / orders of Courts or I.T. authorities 632
• Scope of reassessment 635

Bar on assessee to make fresh claims 635
Re-assessed income cannot go below the returned income 636
Bring to tax any income which escaped assessment 636
• Procedure for reassessment 638

Recording of reasons 638
xxxii
Where to record reasons ? 639
Whether recorded reasons to be supplied to assessee ? 639
Change of incumbent after recording reasons but before issue

of notice 640
Approval to issue notice u/s 148 640
Issue of notice u/s 143(2) in re-assessment proceedings 641
Time limit for issue of notice u/s 148 641
Necessary ingredients of notice u/s 148 642
Service of notice 642
Limitation for service of notice 643
• Reopening in pursuance of an order on appeal etc. –

Extended time limit 644
• Time limit for completion of re-assessment 646
• Some instances where re-opening was upheld

(within 4 years) 647
• Some instances where re-opening was upheld

(after 4 years) 650
RECTIFICATION OF ORDERS
• General 656
• Mistake apparent from record 659
• Time limit for passing rectification order 661
• Rectification powers of ITAT 661
• “Record” for the purpose of rectification 665
xxxiii
• Whether notice mandatory? 666
• Merger in appeal 666
• Some instances where rectification order was upheld 667
REVISION OF ORDERS
• General 670
• Erroneous and prejudicial to revenue 673
• Question of merger 676
• Orders amenable for revision 677
• “Record” means 679
• Availability of alternate routes 679
• Some instances where revision by CIT was upheld 680
• Limitation 680
APPEALS – Law and procedure
• General 682
• Jurisdiction
Jurisdiction to file appeal 686
Jurisdiction to hear appeal 686
• Law applicable 687
• Appealable orders
Appeal not maintainable when statute does not provide for 687
Appeal not maintainable against territorial jurisdiction 688
xxxiv
Appeal not maintainable on theory of merger 688
Appeal to be filed for the year in which loss to be quantified

and not the year in which it is to be set off 689
Appeal to be filed against the order in which the impugned

dispute arose 689
• Filing of Appeal and its disposal

Admission of appeal 690
Monetary limit for filing appeals by Department 691
Condonation of delay 693
Admission of Additional evidence 695
Admission of Additional / New grounds 697
Rights of respondent in appeal 700
Rights of intervenors in appeal 701
Orders of Appellate authorities 701
• Scope of appeal
Power of Enhancement 703
Appeal against Agreed Addition 705
Extent of relief that can be granted 706
Power restricted to subject matter of appeal 706
Power to decide constitutional validity of provisions 707
Power to annul the assessment 707
Power to conduct further enquiry & record correct facts 707
Power to remand revision order u/s 263 709
Power to give directions for another A.Y. 709
Power to change the head of income 709
xxxv
Power to consider aspects not considered by Assessing Officer
on the disputed issue 710
Power to direct Assessing Officer to provide further opportunity 710
Power to reject books of accounts 710
Power to cancel protective additions / assessments 710
Power to allow withdrawal of appeal 711
Power in proceedings remitted back earlier 711
Power to hear an appeal on issues admitted by High Court 712
Power to initiate contempt proceedings 712
• Proceedings before Third Member, ITAT 714
• Proceedings before Special Bench, ITAT 715
• Appeal before High Court 716
CHAPTER 7
SEARCHES UNDER I.T. ACT &CONSEQUENTIAL

ASSESSMENT
SEARCH & SEIZURE OPERATIONS 719
BLOCK ASSESSMENT UNDER CHAPTER XIV-B 724
• Scope of Block assessment 725
• Block assessment on person not searched 730
• Time limit for passing Block assessment order 734
• Procedure for passing Block assessment order 736
• Levy of interest and penalty
xxxvi
Levy of Interest 739
Levy of Penalty 739
NEW PROVISIONS FOR SEARCH ASSESSMENTS 741
• Assessment on person not searched 743
• Time limit for completion of assessment 745
CHAPTER 8
MINIMUM ALTERNATE TAX U/S 115JA & 115JB
• Deemed income relating to certain companies

[sec. 115JA] 749
• Tax credit in respect of tax paid on deemed income

[sec. 115JAA] 750
• Tax payable by certain companies [sec. 115JB] 752
• Net profit as per Companies Act 755
• Adjustment of loss / depreciation 759
• Other adjustments mentioned in Expl. to

115JA / 115JB 761
• Tax and interest payable u/s 115JA / 115JB 764
CHAPTER 9
TAX DEDUCTION AT SOURCE [Chapter XVII-B]
• On Payment of Salary / provision of perquisites [sec. 192] 767
• On Payment of Interest on securities [sec. 193] 771
xxxvii
• On Payment of Dividends [sec. 194] 771
• On Payment of Interest other than Interest on securities

[sec. 194A] 772
• On Payment of winnings from lottery, crossword puzzle,

card games or any other games [sec. 194B] 775
• On Payment of winnings from horse race [sec. 194BB] 775
• On Payment made to contractors [sec. 194C] 776
• On Payment of insurance commission [sec. 194D] 780
• On Payment to non-resident sportsmen or sports association

[sec. 194E] 780
• On Payment of amount referred to in sec. 80CCA(2)(a)

[sec. 194EE] 781
• On Payment of amount referred to in sec. 80CCB(2) [sec. 194F] 781
• On Payment of commission on lottery tickets [sec. 194G] 781
• On Payment of commission or brokerage [sec. 194H] 782
• On Payment of rent [sec. 194-I] 785
• On Payment of fees for professional or technical services

[sec. 194J] 787
• On Payment of compensation on acquisition of immovable

property [sec. 194LA w.e.f. 01-10-2004] 789
• On Payment of interest by infrastructure debt fund [sec. 194LB] 789
• On Payment to non-residents [sec. 195] 790
• On Income from units [sec. 196B] 793
• On Income from foreign currency bonds or shares of Indian

company [sec. 196C] 793
• On Income of Foreign Institutional Investors from securities

[sec. 196D] 793
• Consequences of failure to deduct or pay 794
xxxviii
• Other provisions relating to TDS / TCS 799
CHAPTER 10
INTERNATIONAL TAXATION ISSUES

[ It is important to refer to the concerned DTAA before analyzing / using
the decision]
• Non-resident / Foreign company 805
• Agent of Non-resident [ Sec. 163 & 160(1)(i) ] 805
• Taxability of Non-resident / Foreign company 810
• Double Taxation Avoidance Agreements 811
• Whether income exempt under DTAA ? As per which

Article of DTAA it is to be taxed? 812
Shipping business 814
Interest income 815
• Permanent Establishment / Business connection 817
Agency P.E. 820
Service P.E. 823
• Accrual of Income in India 825
Income from business / source in India 829
Income from transfer of capital asset situated in India 834
Salary earned in India 836
Income by way of interest receipt 837
Royalty / Fee for Technical Services 838
• Double Taxation Relief 852
xxxix
• Non-discrimination clause in DTAA 854
COMPUTATION OF BUSINESS PROFITS OF

NON-RESIDENTS / FOREIGN COMPANIES
• Profits and gains of shipping business in the case

of non-residents [sec. 44B] 856
• Profits and gains in connection with business of

exploration etc. of mineral oils [Sec. 44BB] 857
• Profits and gains of foreign companies engaged in the

business of civil construction etc. in certain turnkey
power projects [sec. 44BBB] 861
• Income by way of royalties etc. of foreign companies [sec. 44D] 861
• Income by way of royalties etc. of non-residents [sec. 44DA] 862
• Tax on long term capital gains [sec. 112] 863
• Income of Foreign Institutional Investors from securities or

capital gains arising from their transfer [sec. 115AD] 863
• Tax on investment income and long term capital gains of

non-resident Indian [sec. 115E] 864
• Income from foreign exchange assets of a non-resident who

lateron becomes resident [sec. 115H] 865
TRANSFER PRICING 866
CHAPTER 11
INTERESTS UNDER I.T. ACT
• Interest for default in Paying Demand [sec. 220(2)] 875
• Interest for default in Filing Return [sec. 234A] 877
• Interest for default in Payment of Advance Tax

[sec. 234B] 879
xl
• Interest for Deferment of Advance Tax [sec. 234C] 880
• Interest on Excess Refund granted [sec. 234D] 884
• Interest on Refunds [sec. 244A] 885
CHAPTER 12
PENALTIES UNDER I.T. ACT
PENALTY FOR CONCEALMENT OF INCOME

[Sec. 271(1)(c)] 891
• General 894
Penalty leviable on income disclosed in re-assessment

proceedings 897
Penalty leviable even if income is estimated 897
Penalty leviable on income disclosed / admitted after detection 898
Penalty in search cases 900
Penalty on deemed income 903
No agreement possible for non-levy of penalty 903
Whether concealment to be proved 905
Whether representative assessee is liable for penalty 905
Some instances where levy of penalty was upheld 907
• Procedure for levy of penalty 914
• Time limit for passing penalty order [sec. 275] 915
PENALTY WHERE SEARCH INITIATED ON

OR AFTER 01-06-07 [Sec. 271AAA] 918
xli
PENALTY FOR FAILURE TO GET ACCOUNTS
AUDITED [sec. 271B] 919
PENALTY FOR FAILURE TO DEDUCT TAX AT

SOURCE [sec. 271C] 921
PENALTY FOR FAILURE TO COMPY WITH

SEC. 269SS / 269T [sec. 271D & 271E] 922
PENALTY FOR FAILURE TO PAY SELF-ASSESSMENT

TAX [sec. 140A(3)] 924
CHAPTER 13
OTHER TAXES
EXPENDITURE TAX 927
FRINGE BENFIT TAX [sec. 115W to 115WM] 928
INTEREST TAX 930
TONNAGE TAX [sec. 115V to 115VZC] 932
WEALTH TAX
• Taxable Assets [sec. 2(e)] 933
• Exemptions 936
• Valuation [sec. 7] 937
• Liabilities not deductible 939
APPENDIX I
COMMON LEGAL MAXIMS 941
xlii
Chapter 1
GENERAL TOPICS
GENERAL TOPICS 3
AFFIDAVIT – Evidentiary value
An affidavit is a declaration on oath, reduced to writing, affirmed or

sworn to by an affiant before some person who has authority to
administer oath.
Rejection of affidavits filed by assessee without examining the

deponents by the Assessing Officer is treated as a shortcoming by
CBDT in Instruction No. 1271 dated 08-01-1979.
• Cross-examination of the deponents is necessary to challenge

the statements made by them in the affidavit – Rejection of an
affidavit is not justified unless the deponent has either been
discredited in cross examination or has failed to produce other
supporting evidence when called upon to do so.
Mehta Parikh & Co. Vs CIT (SC) 30 ITR 181
• An affidavit is a piece of evidence, which along with other

material on record, has to be taken into consideration before
arriving at a finding. A statement by a deponent can be held to
be unreliable either on the basis of cross-0examination of the
deponent or by reference to other material on record
Gunwantibai Ratilal Vs CIT (MP) 146 ITR 140
Silk Museum Vs CIT (Guj) 257 ITR 22
• Affidavit need not always be accepted as correct. It is neither a

rule of prudence nor a rule of law that the statements made in an
affidavit which remains uncontroverted, must invariably be
accepted as true and reliable. Ordinarily, in the absence of
denial, the statements may be accepted as true but if there are
circumstances which suggests that the statements on affidavit
should not be accepted as true, the absence of denial by the
other side, would not by itself be sufficient to clothe the
statements on affidavit with truthfulness and reliability
Sri Krishna Vs CIT (All) 142 ITR 618
• Affidavits are either affirmed as true to knowledge or from

information received provided the source of information is
disclosed or as to what the deponent believes to be true
4 CASE LAWS IN FAVOUR OF DEPARTMENT
provided the grounds for such belief are stated. If an affidavit

lacks such verification, it is of no use.
Sunder Industries Vs General Engineering Works AIR 1982 Del 220 pp. 223
• If affidavit is not properly verified, it cannot be admitted in

evidence as it is no evidence in the eyes of law
A.K.K. Nambiar Vs Union of India AIR 1970 SC 652 pp. 654
• Importance of verification is to test the genuineness and

authenticity of the statement and also to make the deponent
responsible for such statements
Virendra Kumar Saklecha Vs Jagjiwan & Ors. AIR 1974 SC 1957 pp.1960
Barium Chemical Ltd. Vs Company Law Board AIR 1967 SC 295
• Affidavit says “notice send by registered post on 31.8.88”-

Not denied in rejoinder affidavit – Fact of issuing notice
accepted eventhough no evidence was produced.
Arjun Singh & Anr. Vs ADIT & Ors. (MP) 246 ITR 363
• Assessee for the first time filed affidavit before ITAT in which
it denied receipt of notice under section 143(2) – ITAT erred in
placing reliance on such belated affidavit – Presumption of
service of notice not successfully rebutted by assessee.
CIT Vs Vins Overseas India Ltd. (Del) 305 ITR 320
• Affidavit filed by a partner of firm much after the search,

contradicting his own statement recorded on oath during the
course of search is an afterthought to cover up the undisclosed
income and hence the contents of affidavit rightly rejected by
the Assessing Officer
Garibdas Chandrika Prasad Vs CIT (MP) 230 ITR 771
• Assessee filed affidavit from some creditors – But failed to

produce them before the Assessing Officer – Assessee failed to
prove the genuineness of the affidavit and the averments made
therein – Affidavits rightly rejected
Technical Glass Industries Vs CIT (All) 281 ITR 61
Chowkchand Balabux Vs CIT (Assam) 41 ITR 465
• Assessee filed affidavit of creditors in which they confirmed

the loan transactions but did not disclose their source of income
GENERAL TOPICS 5
Since creditworthiness and genuineness of transaction not

established, addition u/s 68 justified
Blowell Auto (P) Ltd. Vs ACIT (P&H) 11 DTR 91
• Reasons for re-opening of assessment – Affidavit of assessee's

representative that the item was brought to the notice of the
then ITO is a self-serving statement, unless it is corroborated
by intrinsic or extrinsic evidence - Hence claim cannot be
accepted
Munilal Ramdayal Vs ITO & Ors. (Ori) 76 ITR 151
Notes/Additional Points
ESTOPPEL – Whether applicable?
An estoppel is an admission, or something which the law treats as

an equivalent to an admission, of so high and conclusive a nature
that any one who is affected by it is not permitted to contradict. It is
am impediment or bar to a right of action arising from a man's own
act where he is forbidden by law to speak against his own deed.
• When one party has, by his words or conduct, made to the other
a promise or assurance which was intended to affect the legal
relations between them and to be acted on accordingly, then,
once the other party has taken him at his word and acted on it,
the party who gave the promise or assurance cannot afterwards
be allowed to revert to the previous legal relationship as if no
such promise or assurance had been made by him
Mahindra & Mahindra Vs Union of India AIR 1979 SC 798
Central London Property Trust Ltd. Vs High Trees House Ltd. (1956) 1 All ER 256
(KB)
• It is incorrect to say that the officer is bound to accept the

system of accounting regularly employed by the assessee the
correctness of which had not been questioned in the past. There
is no estoppel in these matters and the officer is not bound by
the method followed in the earlier years
CIT Vs British Paints India Ltd. (SC) 188 ITR 44
• In order that estoppel can be made out, it must be established

that the person sought to be estopped made a representation of
fact which was not known to the person to whom the
representation was made and that by such representation, the
latter was made to alter his position which would not have
otherwise done – There is no estoppel against a statute.
Asit Kumar Ghosh Vs CIT (Cal) 24 ITR 576
• The doctrine of promissory estoppel cannot be used to compel

the Government to carry out any representation or promise
which is contrary to law or which was outside the authority or
power of the officer of the Government.
Union of India & Ors. Vs Godfrey Philips India Ltd. (SC) 158 ITR 574
Delite Cinema Vs Municipal Corporation of Delhi & Anr. (Del) 172 ITR 208
GENERAL TOPICS 7
CIT Vs Bankam Investment Ltd. (Cal) 208 ITR 208
• Court decisions based on concession of parties do not

constitute binding precedents for other authorities.
Lakshmi Shankar Srivastava AIR 1979 SC 451
• Tribunal upheld reopening u/s 147 and on merits remitted the

matter to Assessing Officer – Assessee did not challenge the
order of Tribunal - Assessing Officer passed subsequent order
on merits – Question of validity of reopening u/s 147 cannot be
challenged again in subsequent proceedings.
Gowri Rajes & ors. Vs CIT (Mad) 241 ITR 506
M.S.P. Senthil Kumar Vs CIT (Mad) 241 ITR 502
Jose Cyriac Vs CIT (Ker) 50 DTR 292 ; 238 CTR 207
• Assessee filed appeal against quantum proceedings before the

Tribunal and requested the Assessing Officer to defer the
penalty proceedings Assessee cannot thereafter plead that
penalty proceedings were barred by limitation.
Dewan Engineering Works Vs CIT (P&H) 319 ITR 375
• Press note issued by Finance Ministry – Does not have force

of law
Tarak Nath Paul Vs CWT (Cal) 142 ITR 468
• The doctrine of “approbate and reprobate” is a species of

estoppel. It applies only to the conduct of parties. The assessee
having opted for a scheme and having availed the benefit, cannot
lateron claim that the benefit was wrongly conferred on it.
CIT Vs V. MR. P. Firm (SC) 56 ITR 67
• Theory of “aprobate and reprobate” is applicable in Income tax

proceedings
CIT Vs Surat Cotton Spg. & Wvg. Mills (P) Ltd. (Bom) 202 ITR 932
Lalsingh Estate Pvt. Ltd. Vs CIT (Gau) 216 ITR 644
V.P. Patil Vs ITO (Kar) 262 ITR 135
Hope (India) Ltd. Vs CIT (Cal) 203 ITR 118
Suresh Chandra Bhansali Vs JCIT (ITAT, Jodhpur) 115 TTJ 116
Amar singh Vs ITO (ITAT, Del) 54 ITD 375
DCIT Vs Thangavel Spinning Mills Ltd. (ITAT, Chennai) 97 ITD 262
• There can be no estoppel of one authority or officer consequent

on conclusions on fact arrived at by another officer. Though

“A” was treated as a registered firm by one Assessing officer, it
will not prevent officer assessing “B” to consider whether firm
“A” is a benami concern of “B”.
Sohan Singh Vs CIT (Del) 158 ITR 174
GENERAL TOPICS 9
INTERPRETATION OF STATUTES
“It is impossible even for the most imaginative Legislature to
forestall exhaustively situations and circumstances that may be
called for. The intention of the Legislature assimilates two aspects
viz. concept of 'meaning' and concept of 'purpose and object' of the
statute. Process of construction combines both literal and
purposive approaches.”
• Specific provision over-rides general provisions

South India Corporation Vs Secretary, Board of Revenue, Trivandrum AIR 1964
SC 207 pp. 215
• Proviso vis-à-vis main enactment – Proper function of a

proviso is to qualify the generality of the main enactment
providing an exception and taking out from the main enactment
a portion which but for the proviso, would fall within the main
enactment
Ghaziabad Development Authority Vs CIT & Ors. (All) 61 DTR 270
• Compulsive provision will control a discretionary provision

Life Insurance Corporation of India Ltd. Vs S.V. Oak AIR 1965 SC 975 pp. 980
• If a provision is mandatory, an act done in breach thereof will

be invalid, but if directory, the act will be valid although non-
compliance may give rise to some other penalty if provided by
the statute
C. Drigraj Kuer Vs Amar Krishna Narain singh AIR 1960 SC 234 pp. 449, 451
Union of India Vs Tulsiram Patel AIR 1985 SC 1416
• Doctrine of incorporation – Has to be clearly spelt out – Cannot

be invoked by implication
CIT Vs Pawan Kumar Laddha (SC) 324 ITR 324
• Legal fictions are limited to the purpose for which they are
created and should be taken to their logical end in application of
the fiction to the facts the Court has to consider.
Chidambaram Mulraj & Co. Pvt. Ltd. Vs CIT (Bom) 58 ITR 206
• Rules and Forms cannot override statutory provisions of the
Act
CIT Vs Chemplast Sanmar Ltd. (Mad) 314 ITR 231
CIT Vs Tulsyan NEC Ltd. (SC) 330 ITR 226
• Circulars issued by Board are not binding on Courts – Courts to

declare the law by own interpretation
CCE Vs Ratan Melting & Wire Industries (SC) 220 CTR 98
• Executive instruction can only supplement statute; it cannot

curtail the statute or whittle down its effect.
State of M.P. & Another Vs G.S. Dall and Flour Mills (SC) 187 ITR 478
GENERAL TOPICS 11
General Principles of interpretation
Principle of literal construction - Natural and

grammatical meaning
The words of a statute are first understood in their natural, ordinary
or popular sense and phrases and sentences are construed
according to their grammatical meaning, unless that leads to some
absurdity or unless there is something in the context, or in the object
of the statute to suggest the contrary.
• A fiscal statute is to be interpreted on the basis of the language

used therein and not de hors the same. No words ought to be
added and only the language used ought to be considered so as
to ascertain the proper meaning and intent of the legislation.
The Court is to ascribe natural and ordinary meaning to the
words used by the legislature and the court ought not, under any
circumstances, to substitute its own impression and ideas in
place of the legislative intent as is available from a plain
reading of the statutory provisions
Orissa State Warehousing Corpn. Vs CIT (SC) 237 ITR 589
• It is well settled rule of construction that, in the first instance,

the grammatical sense of the words is to be adhered to. If that is
contrary to or inconsistent with any expressed intention, or
declared purpose of the statute, or if it would involve any
absurdity, repugnancy or inconsistency, the grammatical sense
must then be modified, extended or abridged, so far as to avoid
such inconvenience, but no further. The elementary rule is that
words used in a section must be given their plain grammatical
meaning.
CIT Vs Gautam Sarabhai Trust (Guj) 173 ITR 216
CBDT Vs Cochin Goods Transport Association (Ker) 236 ITR 993
M.P. Poddar (HUF) & Anr. Vs Appropriate Authority & Anr. (Del) 240 ITR 372
• Dictionary meaning of words not to be adopted where context

conveys different shades of meaning.
CIT Vs Anand Theatres (SC) 244 ITR 192
• Definition of expression in one statute cannot automatically be

applied to another statute whose object and purpose are
entirely different.
CIT Vs Vasan Publications P. Ltd. (Mad) 159 ITR 381
CIT Vs Buhari Sons P. Ltd. (Mad) 144 ITR 12
• Provision of another statute does not apply ipso facto while

considering assessments under one Act - But guidelines under
cognate Acts may be applied.
CGT Vs Prithvi Nath Sharma (Guj) 239 ITR 809
• A particular word used in different sections having different

objects, has different meanings
JCIT Vs Saheli Leasing & Industries Ltd. (SC) 324 ITR 170
• It is to be assumed that words and phrases of technical

legislation are used in their technical meaning if they have
acquired one and otherwise in their ordinary meaning; phrases
and sentences are to be construed according to rules of
grammar.
V. Guruviah Naidu & Sons Vs CIT (Mad) 216 ITR 156
• Statutory fiction introduced in one enactment cannot be

incorporated in all other Acts – They are only for a definite
purpose for which they are created and should not be extended
beyond their legitimate field
CIT Vs Bharani Pictures (Mad) 129 ITR 244
GENERAL TOPICS 13
Principle of Purposive Construction – Mischief

Rule – Heydon's case
A statute is an edict of the Legislature and the effective way of
interpreting or construing a statute is to seek the intention of its
maker.
Heydon's Rule of Mischief enables consideration of four matters in

construing an Act:
(i) What was the law before the making of the Act
(ii) What was the mischief or defect for which the law did
not provide
(iii) What is the remedy that the Act has provided, and
(iv) What is the reason for the remedy.
The rule then directs that the courts must adopt that construction
which “shall suppress the mischief and advance the remedy”. This
rule was explained in Bengal Immunity Co. Vs State of Bihar AIR
1955 SC 661 p. 674 in which it was held to be a sound rule of
construction of a statute firmly established in England as far back
as 1584 when Heydon's case was decided. This was further
explained in K.P. Varghese Vs ITO & Anr. (SC) 131 ITR 597 pp. 607
and Goodyear India ltd. & Ors. Vs State of Haryana & Anr. & State
of Maharashtra & Anr (SC) 188 ITR 402 pp. 417.
• When a particular enactment or amendment is the result of the

recommendation of the Law Commission, it is permissible to
refer to the relevant report of the Commission.
Mithilesh Kumari & Anr. Vs Prem Behari Khare (SC) 177 ITR 97
• Interpretation should be in conformity with object of provision

American Hotel and Lodging Association Educational Institute Vs CBDT (Del)
289 ITR 46
• Marginal note or heading – Can be taken into account to arrive

at reasonable construction.
Shree Sajjan Mills Ltd. Vs CIT & Anr. (SC) 156 ITR 585
• The preamble of a statute is a part of the Act and is an
admissible guide to construction. Preamble is to express the
scope, object and purpose of the Act.
GENERAL TOPICS 15
Secretary, Regional Transport Authority Vs D.P. Sharma AIR 1989 SC 509

pp. 511
• Speech of Finance Minister can be referred to ascertain object

of legislation.
Soorajmull Nagarmull Vs CIT (Cal) 190 ITR 418
Delhi Flour Mills Co. Ltd. Vs CIT (Del) 95 ITR 151
• Legislative history and Circulars of CBDT can be used as aids

for interpretation of provisions.
CIT Vs M.K. Vaidya (Kar) 224 ITR 186
• If a strict and literal construction of the statute leads to an

absurd result, i.e., a result not intended to be sub-served by the
object of the legislation ascertained from the scheme of
legislation, then, if another construction is possible apart from
the strict literal construction, that construction should be
preferred to the strict literal construction.
CIT Vs Gotla J.H. (SC) 156 ITR 323
K.P. Verghese Vs ITO & Anr. (SC) 131 ITR 597
C.W.S. (India) Limited etc. Vs CIT (SC) 208 ITR 649
Shree Sajjan Mills Ltd. Vs CIT & Anr. (SC) 156 ITR 585
GENERAL TOPICS 17
Principle of strict / reasonable construction

“If the person sought to be taxed comes within the letter of the law
he must be taxed, however the great hardship may appear to the
judicial mind to be. On the other hand, if the Crown seeking to
recover the tax, cannot bring the subject within the letter of the law,
the subject is free, however apparently within the spirit of law the
case might otherwise appear to be” ( Lord Cairns )
“In a taxing Act one has to look merely at what is clearly said. There
is no room for any intendment. There is no equity about a tax. There
is no presumption as to tax. Nothing is to be read in, nothing is to be
implied.” ( Rowlatt, J. )
• The provisions in a taxing statute dealing with machinery for

assessment have to be construed by the ordinary rules of
construction, that is to say, in accordance with the clear
intention of the legislature, which is to make a levy of charge
effective.
Gursahai Saigal Vs CIT (SC) 48 ITR 1
• An exemption is an exception to the general rule and since the

same is opposed to the natural tenor of the statute, the
entitlement for exemption ought not to be read with any
latitude to the taxpayer or even with a wider connotation but to
restrict its application to the specific language used depicting
the intent of the legislature.
Orissa State Warehousing Corpn. Vs CIT (SC) 237 ITR 589
Renuka Datla Vs CIT & Anr. (AP) 240 ITR 463
Novopan India Ltd. Vs Commissioner of Central Excise 1994 (73) E.L.T.
769 (SC)
Bombay Chemical Pvt. Ltd. Vs CCE (SC) 1995 AIR 1469
• When there is no ambiguity in the provisions of the statute,

provisions cannot be interpreted to confer benefit on assessee
IPCA Laboratory Ltd. Vs DCIT (SC) 266 ITR 521
• “Casus omissus” – Matters which should have been provided

but not provided for in a statute – Cannot be supplied by Courts.
Prakash Nath Khanna & Anr. Vs CIT & Anr. (SC) 266 ITR 1
Padmasundara Rao (Deceased) & Ors. Vs State of Tamil Nadu & Ors. (SC) 255
ITR 147
• Principle of beneficial interpretation would apply only in a

case where the Court is in doubt about the true scope and ambit
of the provision or finds two equally reasonable interpretations
and not where the words of the statute are plain, precise and
unambiguous.
Indian Rayon Corporation Limited Vs CIT (Bom) 231 ITR 26
• Once it is shown that the case of the assessee comes within the
letter of law, he must be taxed, however greater the hardship
may appear to the judicial mind, to be.
Tarulata Shayam & ors. Vs CIT (SC) 108 ITR 345
• When the meaning of words is clear and unambiguous, the

Court has to give effect to it whatever be the consequences, as
the Court has no jurisdiction to mitigate harsh consequences of
the statute, if any.
Patil Vijayakumar & Ors. Vs Union of India & Anr. (Kar) 151 ITR 48
GENERAL TOPICS 19
Principle of harmonious construction

A statute must be read as a whole and one provision of the Act
should be construed with reference to other provisions in the same
Act so as to make a consistent enactment of the whole statute. Such
a construction has the merit of avoiding any inconsistency or
repugnancy either within a section or between a section and other
parts of the statute.
• Result of interpretation should not give rise to absurdity.

ITO Vs. H.P. Vishweswaraiah (Kar) 250 ITR 863
Chartered Housing v. Appropriate Authority (Kar) 250 ITR 1
• Sometimes one finds two or more enactments operating in the

same field and each containing a non obstante clause stating
that its provision will have effect notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force. The conflict in such case is resolved on
consideration of purpose and policy underlying the enactments
and the language used in them
Sarvan singh Vs Kasturilal AIR 1977 SC 265 pp. 274-275
Ashoka Marketing Ltd. Vs Punjab National Bank AIR 1991 SC 855 pp. 878-879
• All the parts of a statute to be construed together

Prakash Nath Khanna & Anr. Vs CIT & Anr. (SC) 266 ITR 1
• Argument of the assessee that a statute must be read as a whole

and one provision should be construed with reference to the
other provisions of the same Act so as to make a consistent
enactment of the whole though tenable in principle, does not
apply to IT Act – Exemption provisions are exceptions to the
principle them of the IT Act – Exemptions are artificial
antithesis of the purposive scheme of the IT Act itself
Therefore the harmonious flow required in reading and
understanding the scheme of the IT law cannot be mutatis
mutandis applied to the provisions relating toe exemptions
DCIT Vs Girnar Industries (ITAT, Cochin) 22 DTR 140 ; 124 TTJ 517
GENERAL TOPICS 21
Noscitur A Sociis
The meaning of a word is to be adjudged by the company it keeps ie.
meaning of the doubtful word may be ascertained by reference to
the meaning of words associated with it.
Words take colour from context in which they are used.

CIT Vs Venkateswara Hatcheries (P) Ltd. (SC) 237 ITR 174
Ejusdem generis
When particular words pertaining to a class, category or genus are

followed by general words, the general words are construed as
limited to things of the same kind as those specified.
Word of analogous meaning coupled together – General word to be

construed in the restricted sense in which the analogous less general
word is used.
G. Claridge and company Ltd. (SC)(1991) 2 Supreme Court cases 229
Dr. Devendra M. Surti (SC) AIR 1969 Supreme Court 63
Meaning of some words

• The word “any” connotes wide generality. Its use points to
distributive construction.
Veerappa Vs State of Mysore AIR 1965 Mys 277 (FB)
• The only rational meaning that can be attached to the adjective

“any” is “no matter what”
A. Ahmadji Bhai Vs State of M.P. AIR 1953 Nag 29
• The word “any” may be employed to indicate “all” or “every”

and its meaning depends upon context and subject matter
Union of India Vs A.B. Shah 1996(8) SCC 540
H.P. Tourism Development Corpn. Vs Union of India (HP) 238 ITR 38
• 'Being' means 'namely'. It cannot mean as 'like' or 'including'.

CIT Vs Adar Tea products Co. (Mad) 314 ITR 38
• The word “business” is one of wide import and it means an

activity carried on continuously and systematically by a person
by the application of his labour and skill with a view to earning
an income
Barendra Prasad Ray Vs ITO (SC) 129 ITR 295 pp. 296
• ‘Etc.' means things of same character or those things “ejusdem

generis”
CIT Vs Maulana Tea Co. (Ker) 244 ITR 589
• “Income” – Meaning – Should be the same as that of word

occurring in legislature list and is of widest amplitude and must
be given natural and grammatical meaning
CIT Vs G.R. Karthikeyan (SC) 201 ITR 866
• The words “income” or “profits and gains” should be

understood as including losses also. Loss is negative profit
CIT Vs Harprasad & Co. P. Ltd. (SC) 99 ITR 118
• 'Namely' would restrict the interpretation of the word to those

types enumerated therein and not to all types of the said item
CIT Vs Arasan Fertilizers (P) Ltd. (Mad) 114 ITR 802
• ‘That is to say' is descriptive, enumerative and exhaustive and
circumscribes to a great extent the scope of the entry
GENERAL TOPICS 23
CST Vs Popular Trading Co. (SC) 118 STC 379
• Works Contract defined

State of Gujarat (Commissioner of Sales Tax), Ahmedabad Vs Variety Body
Builders (1976) CTR (SC) 228
Venguard Rolling Shutters & Steel Works Vs Commissioner of Sales Tax (1977)
CTR (SC) 190
The Assistant Sales Tax Officer Vs B.C. Kame (1977) CTR (SC) 67
Cromption Engineering Co. Ltd. Vs The State of Tamil Nadu (1976) CTR
(Mad) 428
CIT Vs Kumudam Publications P. Ltd. (Mad) 188 ITR 84
• Works contract – If job work is done on material supplied by

contractee, it is works contract
CIT Vs Glenmark Pharmaceuticals Ltd. (Bom) 324 ITR 199
• Works contract - Construction agreement entered into by real

estate developers with prospective buyers before completion
of construction amounts to works contract
K. Raheja Development Corporation Vs State of Karnataka 2005(5) SCC 162
JUDICIAL PRECEDENTS
Binding nature
• Lower authority is bound by order passed by higher authority
CIT Vs Ralson Industries Ltd. (SC) 288 ITR 322
Nokia Corporation Vs DIT (Int. Taxation) (Del) 292 ITR 22
• Law declared by Supreme Court is binding on all courts

including ITAT & CIT(A) and not Board's Circular contrary
to it.
American Expresss Bank Ltd. Vs DCIT (ITAT, Mum) 65 ITD 67
• Decision of Courts of co-ordinate jurisdiction binds each other

– An established position should not be easily distorted
CIT Vs L.G. Ramamurthy & ors. (Mad) 110 ITR 453
CIT Vs Sterling Foods (SC) 153 CTR 439/237 ITR 579
• If there is conflict between the two decisions of Supreme Court

the one decided by a larger Bench is binding – If both decisions
are rendered by Bench consisting of equal number of judges,
the later decision is binding.
Govindanaik Vs West Patent Press Co. Ltd. AIR 1980 Kar 92 (FB)
Bhika Ram & Ors. Vs Union of India & Ors.(Del) 238 ITR 113
• If subsequent decision of a smaller Bench of Supreme Court

interpreting decision of Larger Bench of Supreme Court is
placed before a High Court, latter is bound to follow
subsequent decision by smaller Bench
CIT Vs Oberoi Hotels (P.) Ltd. (Cal) 198 Taxman 310 ; 334 ITR 293
CGT Vs Arunbhai Hargovandas Patel (Guj) 264 ITR 586
• Decision of High Court binding on Income Tax authorities

Om Prakash Trivedi Vs Union of India (All) 287 ITR 11
• Single Judge cannot give a decision contrary to earlier

judgement by a Division Bench
Mehta Vegetables P. Ltd Vs Union of India & Anr.(Raj) 235 ITR 425
• Decision of High Court binding on Tribunal within its

territorial jurisdiction.
Taylor Instrument Co.(India) Ltd Vs CIT (Del) 232 ITR 771
CIT Vs Mohan Lal Kansal (P & H) 114 ITR 583
GENERAL TOPICS 25
Jorehaut Group Ltd. Vs ACIT (Gau) 289 ITR 422
• Decision of one High Court not binding on another High Court

Not binding on Tribunal in other States.
Patil Vijayakumar and Ors. Vs Union of India & Anr.(Kar) 151 ITR 48
Geoffrey Manners & Co. Ltd. Vs CIT (Bom) 221 ITR 695
• Judiucial decorum, propriety and discipline requires that the

High Court should, especially in the event of its contra view or
dissent, discuss the judgements of the different High Courts
and record its own reasons for its contra view – Judgements
given by a High Court are not binding on other High Courts, but
all the same, they have persuasive value
Pradip J. Mehta Vs CIT (SC) 300 ITR 231
• Decisions of High Court(s) show divergent opinion – Tribunal

to follow decision which appeals to conscience
Ushodaya Enterprises Ltd. Vs CCT 1998(III)-STC-0711-AP
Super Spinning Mills Ltd. Vs ACIT (ITAT, Chennai-TM) 3 ITR (Trib) 258
• Where there is only one decision of a H.C. on a particular point

and there is no decision of any other H.C. contrary to that
decision, Tribunal has to follow that view, not withstanding
fact that its earlier Bench had taken a view contrary to that of
H.C. on that point.
CIT Vs Godavridevi Saraf (Bom) 113 ITR 589
ITO Vs P.M. Suthar (ITAT, Ahd-TM), 53 ITD 1
• Rulings of AAR not binding on Tribunal

CIT Vs P. Sekar Trust (Mad) 323 ITR 305
• The Indian Act gives a clear and succinct definition which must
be construed according to its actual language and meaning.
English decisions have no binding authority on its construction
and though they may sometimes afford help or guidance, they
cannot relieve the Indian Courts from their responsibility of
applying the particular circumstances that emerge under
conditions of Indian life
All India Spinners Associaiton Vs CIT (PC) 12 ITR 482
• Impact of ITAT order extends to only its jurisdiction

Saipem S.P.A. Vs DCIT (ITAT, Delhi) 86 ITD 572
• Third Member decision and Special bench decision of ITAT

are of the same nature
DCIT Vs Oman International Bank SAOG (ITAT,SB-Mumbai) 100 ITD 285
• Where contrary views are held by Third member and Special

bench, view of Special bench takes precedence
DCIT Vs Padam Prakash (HUF) (ITAT,SB-Del) 104 ITD 1
• Difference of opinion before co-ordinate Benches of a Court

Matter to be referred to larger Bench.
Aditya Minerals Pvt. Ltd,. Vs CIT (SC) 236 ITR 39
Affection Investments Ltd. Vs ACIT (Guj) 326 ITR 255
• Cases which are over ruled should not be quoted.

CIT Vs Dugdh Utpadak Sahkari Sangh Ltd. (All) 277 ITR 35
• Decision of co-ordinate Bench contrary to earlier decisions of

co-ordinate Benches – Not binding on later Benches – Obiter
dicta of co-ordinate Bench is not binding
Addl. DIT Vs TII Team Telecom International P. Ltd. (ITAT, Mum) 12 ITR
(Trib) 688
GENERAL TOPICS 27
How far binding ?

• Decision is an authority for what it actually decided and not for
what follows from observations made while deciding case.
Nav Nirman P. Ltd. Vs CIT (MP) 174 ITR 574
• It is neither desirable nor permissible to pick out a word or a

sentence from the judgement divorced from the context of the
question under consideration and treat it to be the complete
“law” declared by the Court. The judgement must be read as a
whole and the observations from the judgement have to be
considered in the light of the questions which were before the
court.
CIT Vs Sun Engineering Works (P) Ltd. (SC) 198 ITR 297
• If the previous decision is plainly erroneous, there is a duty of

the Court to review it and not perpetuate the mistake ie. a vital
point was not considered or when an earlier relevant statutory
provision had not been brought to the notice of Court.
Union of India & Anr. Vs Raghubir Singh (SC) 178 ITR 548
Sri Agasthyar Trust Vs CIT (SC) 236 ITR 23
• To perpetuate an error is no heroism

Distributors (Baroda) P. Ltd. Vs Union of India & ors. (SC) 155 ITR 120
• Tribunal need not blindly follow earlier decision of it if it did

not reflect the correct position of law
CIT Vs Hi-Tech Arai Ltd. (Mad) 321 ITR 477
• Rejection of SLP does not mean that decision of HC has been

approved.
CIT Vs Quality (Pat) 224 ITR 77
CIT Vs Shree Manjunatheswara Packing Products & Camphor Works (SC) 231
ITR 53
J.K Charitable Trust Vs WTO & Ors. (All) 222 ITR 523
• Dismissal of appeal on ground that no substantial question of

law arises – Amounts to affirmation of decision of Tribunal on
merits – Binding on Tribunal in cases involving similar issues
Medicare Investments Ltd. Vs JCIT (ITAT,SB-Del) 304 ITR (AT) 44
• Dismissal of appeal simpliciter – Not a declaration of law – No

binding precedent
CIT Vs Geetha Ramakrishna Mills P. Ltd. (Mad) 288 ITR 489
S. Shanmughavel Nadar Vs State of Tamil Nadu & Anr. (SC) 263 ITR 658
Kunhayammed & Ors. Vs State of Kerala & Anr. (SC) 245 ITR 360
Saurashtra Oil Mills Assn., Gujarat Vs State of Gujarat & Anr. 2002 AIR 1130 SC
• Special Leave petition dismissed with speaking order is

declaration of law by Supreme Court - After rejection of SLP,
lower Courts can review its order - Once SLP is admitted,
lower Courts have no jurisdiction to review the order
Kunhayammed & Ors. Vs State of Kerala & Anr. (SC) 245 ITR 360
• Obiter dictum is expression of opinion on a point which is not

necessary for the decision of a case. Obiter dictum of Supreme
Court binding on all the High Courts
Tata Iron & Steel Co. Ltd. Vs D.V. Bapat, ITO & Anr. (Bom) 101 ITR 292
• Essence of a decision is its ratio decedendi and not every

observation found therein – The concrete decision alone is
binding – Obiter dictum not binding
Union of India Vs Dhanwanti Devi (1996) 6 SCC 44 pp. 96
CIT Vs Sun Engineering Works Pvt. Ltd. (SC) 198 ITR 297
• Order of High Court without considering the provisions of

statute in dispute – Tribunal not precluded from deciding the
issue
ACIT Vs Goldmine Shares and Finance P. Ltd. (ITAT,SB-Ahd) 113 ITD 209
• “ Per incurium ” defined – When an order is passed ignoring the

provisions of the statute or binding precedents
CIT Vs B.R. Constructions (AP) 202 ITR 222
• The revenue has to perform its allotted task under the statute
and it cannot be fettered in the discharge of its functions by any
adjudication by Courts of justice in private litigation even
where the adjudication might impinge on the issue which the
revenue has to face and determine
V. Datchinamurthy Vs Asst. Director of Inspection (Mad) 149 ITR 341
• Decisions treated as per incurium – Not a binding precedent

Not to be followed
CIT Vs B.R. Constructions (AP) 202 ITR 222
GENERAL TOPICS 29
Rule of Consistency – Res judicata & Stare decisis

Res judicata means a case or suit already decided. Res judicata
deals with the decree of the Court, as contradistinguished from the
judgement of the Court, since it does not take place with respect to
the reasons of the judgement, but only with respect to what was the
object of the judgement.
Stare decisis means to stand by decided cases, to uphold precedents

where the same points come again in litigation.
• IT Proceedings – Res judicata not applicable as each

assessment year is a separate proceedings.
M.M. Ipoh & Ors. Vs CIT (SC) 67 ITR 106
New Jehangir Vakil Mills Co. Ltd. Vs CIT (SC) 49 ITR 137
Bharat Sanchar Nigam Ltd. & Anr. Vs Union of India & Ors. (SC) 282 ITR 273
• The fact that its claim was not questioned in earlier years does
not entitle the assessee to contend that the law should not be
applied during the current A.Y.
CIT Vs Seshasayee Industries Ltd. (Mad) 242 ITR 691
• Against similar decision of High Court, no appeal was

preferred – Does not affect the appeal preferred in other cases,
if public interest is involved
Catholic Syrian Bank Ltd. Vs CIT (SC) 68 DTR 1
C.K. Gangadharan Vs CIT (SC) 304 ITR 61
Municipal Corporation of City of Thane Vs Vidyut Metallics Ltd. (2007) SCC 688
Sec. 268A introduced w.e.f. 01-04-2009 to provide for filing of

appeal in some assessment years even though appeal on similar
issue was not filed on account of low monetary effect. Assessee
cannot contend that IT authority has acquiesced in the decision
on the disputed issue for such year.
• To perpetuate an error is not heroism – The doctrine of stare

decisis should not deter the Court from overruling an earlier
decision, if it is satisfied that such decision is manifestly wrong
or proceeds upon a mistaken assumption in regard to the
existence or continuance of a statutory provision or is contrary
to another decision of the court
GENERAL TOPICS 31
Distributors (Baroda) P. Ltd. Vs CIT (SC) 155 ITR 120
• A patently wrong view taken in the past cannot be allowed to

perpetuate on the basis of principle of consistency
Indian vaccines Corporation Ltd. Vs ITO 2010-TIOL-587-ITAT-DEL
Jat Education Society Vs DCIT (ITAT, Del) 10 taxmann.com 127
• Facts can be reconsidered in a later year and record different

finding – Finding for earlier year not conclusive.
Ace Investments (P) Ltd. Vs CIT (Mad) 244 ITR 166
• When principle of res judicata is raised by an assessee,

Assessing Officer has to carefully look into earlier orders
passed, nature of expenditure claimed and allowed and then
keeping in mind that background has to consider deductions
claimed in relevant A.Y. and decide whether principles of res
judicata is attracted or not
East West Hotels Ltd. Vs DCIT (Kar) 202 Taxman (Mag) 14
• In order to draw parity, it is necessary to find out as to whether

there was complete unanimity of fact
CIT Vs Sashi Prakash Khemka (Del) 201 Taxman (Mag) 35
• Though the principles of res judicata would not apply to

income tax proceedings, when a question of law or fact was
decided in the assessee's own case for an earlier A.Y., and the
identical question came up for consideration for a later year,
Tribunal would be justified in placing reliance on the earlier
decision to base its conclusion, in the absence of any new
material or change in circumstances or a fresh look
necessitated on existing facts on a closer and more intelligent
analysis
CIT Vs Velimalai Rubber Co. Ltd. (Ker) 181 ITR 299
• Tribunal is entitled to take a different view of the matter if new

materials were placed or on a closer and more intelligent
analysis
CIT vs Kalpetta Estates Ltd. (Ker) 211 ITR 635
GENERAL TOPICS 33
JURISDICTION
No tax shall be levied or collected except by authority of law. As per
Art. 265 of the Constitution, statutory backing is essential for
imposition of tax.
Jurisdiction of a case has two parts – administrative (which is

granted by the executive) and legal (which is granted by the
Legislature).
Legal jurisdiction
Law applicable
• Law to be applied is that in force in the Assessment Year unless

otherwise provided expressly or by necessary implications.
Reliance Jute & Industries Ltd Vs CIT (SC) 120 ITR 921
• For wealth-tax cases, law as it stood on first day of assessment

year is applicable
CWT Vs S.A.P. Annamalai (Mad) 141 ITR 578
• Penalty to be levied based on the law as on date of committing

default.
CIT Vs Onkar Saran and Sons (SC) 195 ITR 1
• Proceedings for imposition of penalty can be initiated only

after an assessment order has been made – Authority having
power to impose penalty at that point of time should remain as
the authority to impose penalty also.
Varkey Chacko Vs CIT (SC) 203 ITR 885.
• Power of waiver of interest levied u/s 220(2) – Sec. 220(2A) is

a substantive provision – Law prevailing on the date of demand
for payment of interest will govern irrespective of the A.Y.
involved
Prakash Tubes Ltd. Vs Union of India & Ors. (Del) 330 ITR 561
• Power of waiver of interest levied u/s 220(2) – Sec. 220(2A) is

a substantive provision – Interest pertaining to the period prior
to 1-10-84 cannot be waived since the said provision was

introduced only w.e.f. 1-10-84
S. Subash Vs CIT (Mad) 248 ITR 512; 167 CTR 484; 118 Taxman 243
• If subsequent amendment enlarges time limit while period of

limitation prescribed under old law has not expired, subsequent
law will govern the proceedings.
Gujarat Forging (P) Ltd. Vs ITO (ITAT, Ahd) 56 ITD 208
• Lack of jurisdiction will vitiate the proceedings rendering

them and the orders passed therein as nullity.
Budlina Swain & Others v. Gopinath Deb & Ors. AIR 1999 SC 2089
• Tribunal setting aside assessment and remitting matter to ITO –

ITO has jurisdiction to consider entire matters afresh – Finally
assessed income can even exceed the originally assessed
income.
CIT Vs D. Veerappan (Mad) 215 ITR 533
Nenmal Champalal Sha & Ors Vs CIT (Bom) 238 ITR 266
CIT Vs Highway Constructions Co.(P) Ltd (Gau) 223 ITR 498
• There is no inherent right of appeal – It is to be specifically

conferred by the statute providing for an appeal.
Caltex Ore Refining (India) Ltd. Vs CIT (Bom) 202 ITR 375.
• During the pendency of an appeal, a provision was amended

with retrospective effect – Appellate authority to apply the
amended provision
B.T. Patil & Sons Vs ACIT (ITAT,SB-Mum) 1 ITR (Trib) 703
• Judgement operative from the date it is pronounced

Marlborough Polychem Ltd. Vs CIT (Raj) 321 ITR 395
GENERAL TOPICS 35
Retrospectivity
• No retrospectivity unless expressly stated or clearly implied
Gem Granites Vs CIT (SC) 271 ITR 322
• It is necessary to spell out the degree of retrospectivity of a

statutory provision from the language of the provision itself.
Union of India & Anr. Vs Raghubir Singh (SC) 178 ITR 548
• It cannot be said to be an invariable rule that a statute could not

be retrospective unless so expressed in the very terms of the
section which had to be construed.
• When an Act is declaratory in nature, the presumption against
its retrospectivity is not applicable.
Mithilesh Kumari & Anr. Vs Prem Behari Khare (SC) 177 ITR 97
• An explanation brought in the statute Book is ordinarily

clarificatory in nature and has retrospective effect.
Laxmi Industries Ltd. Co. & Ors Vs ITO & Anr. (Raj) 231 ITR 514
• Amendment to remove ambiguity has retrospective effect

CIT Vs Glenmark Pharmaceuticals Ltd. (Bom) 324 ITR 199
• Beneficial provision does not necessarily imply that the

amendment is to be given retrospective effect, unless
specifically made it as retrospective in operation.
CIT Vs Pooshya Exports (P) Ltd. (Mad) 262 ITR 417
CWT Vs Reliance Motor Co. Ltd. (Mad) 260 ITR 571
• Effect of substitution of one provision by another – Substituted

provision deemed to be part of act from very inception.
K.T. Venkatappa & Ors. Vs K.N. Krishnappa & Ors. (Kar) 173 ITR 678
• Prospective over ruling – Declaration of invalidity by Supreme

Court to take effect from the date of judgement.
Somaiya Organics (India) Ltd. & Anr. Vs State of Uttar Pradesh & Anr. (SC) 251
ITR 20
• No prospective overruling unless so specified by Supreme

Court.
M.A. Murthy Vs State of Karnataka & Ors. (SC) 264 ITR 1
• When a statutory provision is interpreted by the Supreme Court

GENERAL TOPICS 37
/ High court in a manner different from the interpretations

made in the earlier decisions by a smaller Bench, the law laid
down by the larger Bench would constitute the law of the land
and is to be regarded as law as it always was, unless declared by
the Court itself to be prospective in operation
Southern Industrial Corpn. Ltd. Vs CIT (Mad) 258 ITR 481
Kartikeya International Vs CIT (All) 329 ITR 539
ACIT Vs Saurashtra Kutch Stock Exchange Ltd. (SC) 305 ITR 227
• Court declares the law as it stood right from the beginning. The
interpretation of a provision relates back to the date of law itself
and cannot be prospective of the judgement.
Sarwan Kumar & Anr. Vs Madan Lal Aggarwal (2003) 4 SCC 147
Effect of Circulars & Notifications

• CBDT Circular in force on first day of A.Y. is applicable.
CIT Vs Prasad Production P. Ltd. (Mad) 179 ITR 147
• CBDT is not competent to give directions regarding the

exercise of any judicial power by its subordinate authorities
J.K. Synthetics Ltd and Ors. Vs CBDT & Ors. (SC) 83 ITR 335
• Assessment proceedings are quasi judicial in nature. While

making assessments, Assessing Officer is solely to be guided
by provisions of law and not instructions of CBDT.
Raja V.V.R.K. Yachendra Kumar Rajah of Venkatagiri Vs ITO & Anr. (AP) 70
ITR 772
• CBDT Circulars cannot over-ride provisions of Act – Circular

giving concession can be withdrawn only prospectively
State Bank of Travancore Vs CIT (SC) 158 ITR 102
Kerala Financial Corporation Vs CIT (SC) 210 ITR 129
• Circular which is contrary to provisions of law is not binding

on IT authorities.
Ambika Constructions Vs ITO & Ors. (Patna) 234 ITR 716
Delhi Flour Mills Co. Ltd. Vs CIT (Del) 95 ITR 151
• Circulars issued by Company Law Board – Not binding on IT

authorities
Stumpp, Schule and Somappa Ltd Vs CIT (Kar) 190 ITR 152
• Circular issued by Ministry of Law does not stand in the same

footing as a circular issued by CBDT u/s 119 – Such circulars
cannot be read as overriding or qualifying the Act or the Rules,
irrespective of the fact whether they are in favour of the
assessee or department
CIT Vs Autofin Ltd. (AP) 151 ITR 741
• Circular issued by CBDT not binding on Court

CIT Vs Abhishek Industries Ltd. (P&H) 286 ITR 1
CCE Vs Ratan Melting & Wire Industries (SC) 220 CTR 98
• Letters addressed by CBDT to State Government – Cannot be

treated as Circular
IT Vs Kerala Financial Corpn. Ltd. (Ker) 155 ITR 246
GENERAL TOPICS 39
• Opinion expressed by CBDT in response to communications

received from assesses cannot be considered as 'directions' u/s
119 – Any such opinion cannot bind the IT authorities who
have to decide the question on its own merits uninfluenced by
extraneous considerations
J.K Synthetics Ltd. Vs CBDT (SC) 83 ITR 335
• Notification will come into operation as soon as it is published

in official gazette.
Union of India Vs. Ganesh Das Bhojraj (SC) 244 ITR 691.
CIT Vs Haripal Singh (P&H) 224 ITR 147
• Authority empowered to issue the Instructions u/s 119(1) is the

CBDT and not the Director of Inspection – Such circulars
cannot bind the subordinate authorities.
CIT Vs Chidambaram Construction Co. (Mad) 261 ITR 754
Administrative jurisdiction
Jurisdiction of Assessing Officers and other authorities [sec. 120 &
124]
Power to transfer cases [sec. 127]
In case of change of incumbent of office, continue the proceedings

from the stage at which the proceedings was left by the predecessor
Assessee can ask for opportunity of being heard [sec. 129]
In CIT Vs Greenworld Corporation (314 ITR 81) Supreme Court

held that assessment order passed by Assessing Officer at the
instance of CIT is illegal since by no stretch of imagination a
higher authority can interfere with the independence of the
assessing authority which is the basic feature of any statutory
scheme involving adjudicatory process
• Though an executive officer in the administration of IT Act, the

function of the ITO is fundamentally quasi-judicial
M.M. Ipoh Vs CIT (SC) 67 ITR 106
• Though certain proceedings before the ITO are judicial

proceedings in a Court and sec. 195(i)(b) of the Cr. P.C. applies,
the ITO cannot be treated as a revenue Court
Lalji Haridas Vs State of Maharashtra (SC) 52 ITR 423
S.V. Kondaskar, Official Liquidator Vs V.M. Deshpande, ITO (SC) 83 ITR 685
• As per the address given on the return filed by assessee himself,

jurisdiction over the case vests with an Assessing Officer
Notice u/s 143(2) issued by him and no objection raised u/s
124(3) against jurisdiction – Assessment valid
Ram Bhaj & Sons (P.) Ltd. Vs ITO (ITAT, Asr) 102 ITD 93
CIT Vs Kapil Jain (Del) 50 DTR 342
• Assessee carried on business at Delhi – Head Office at Delhi

Territorial jurisdiction vests with Assessing Officer at Delhi
Assessee challenged jurisdiction at Ghaziabad and requested
CCIT, Kanpur to transfer file – Specific order by CCIT, Kanpur
is not necessary – Transfer order issued by CCIT, Delhi is valid.
Since Assessing Officer at Delhi has territorial jurisdiction,
GENERAL TOPICS 41
148 notice issued prior to transfer order is valid.

Amulya General Trading & Agencies Ltd. Vs ACIT (ITAT, Del) 65 ITD 329.
• Transfer of case to another Assessing Officer in the same city /

place – No need to record reasons and grant opportunity to
assessee
Kashiram Aggarwalla Vs Union of India & Ors. 1965 AIR 1028 SC
Karandhai Tamil Sangam Vs CIT 2011-TIOL-570-HC-MAD-IT
• Once a notification is issued u/s 127 of the I.T. Act, the

Assessing Officer for the purpose of W.T. Act should be the
same officer who would exercise the jurisdiction under the I.T.
Act – No separate notification is required under W.T. Act in
view of sec. 8 of W.T. Act
CWT Vs A.M. Bhiwandiwalla (Bom) 316 ITR 98
• Order transferring a file, cancelled by High Court – Before the

passing of the said order by High Court, new Assessing Officer
passed assessment orders – Not invalid – To be set-aside and
remanded to the Assessing Officer having jurisdiction.
ACIT Vs Shravan Mahipat Hedau (HUF) (ITAT, Amritsar-TM) 62 ITD 70
• Transfer of case from one Assessing Officer to another – Order

u/s 127 necessary.
All India Children Care & Educational Dev. Society Vs JCIT (ITAT, All) 87
ITD 209
• The word “Joint Commissioner” in the Act also includes

“Additional Commissioner”
Arun Kumar Maheshwari Vs ITO (All) 285 ITR 179
• Additional Commissioner can exercise the powers of

Assessing Officer
CIT Vs Neeru Gambhir (Del) 166 Taxman 272
• One of the members of DRP was a CIT having jurisdiction over

assessee – Potential of bias against a member will not render
provisions of sec. 144C unconstitutional
Hyundai Heavy Industries Ltd. Vs Union of India (Uttarakhand) 201 Taxman 237
• DIT(Exemption) has been directed to perform all functions of

CIT vide notification dated 14.09.2001 – Hence DIT(E) has
jurisdiction to pass order u/s 263

International Society for Krishna Consciousness Vs DDIT (ITAT, Bang) 15
DTR 633
• Instruction that cases where international transactions exceed

Rs. 5 crore to be taken up for scrutiny – No discrimination
Instruction valid
Sony India P. Ltd. Vs CBDT (Del) 288 ITR 52
• There is no question of imputing bias where action is followed

under a statute – Bias is not established merely because the
authorized officer u/s 132 and the A.O. is the same person
Union of India & Ors. Vs Vipan Kumar Jain & Ors. (SC) 260 ITR 1
• Objection to the order of transfer of a case cannot be raised in

appeal before CIT(A) / ITAT as transfer of jurisdiction is an
administrative act and not provided in the list of provisions
which are appealable u/s 253
Jaswinder Kaur Koover Vs CIT(A) (P&H) 291 ITR 80
• Territorial jurisdiction of ITO – Objection not raised before

ITO within one month of filing of return / issue of notice
Appeal not maintainable before ITAT in view of sec. 124(3)
Grindlays Bank Vs CIT (Cal) 193 ITR 457
Subhash Chander Vs CIT (P&H) 218 CTR 191
Sohan Lal Sewa Ram Joggi (All) 3 DTR 74
Ram Bhaj & Sons (P) Ltd. Vs ITO (ITAT, Amritsar) 102 ITD 93
CIT Vs Sohan Lal Sewa Ram Jaggi (All) 3 DTR 74 ; 222 CTR 412
CIT Vs British India Corporation Ltd. (All) 337 ITR 64
GENERAL TOPICS 43
LIFTING OF CORPORATE VEIL –

Sham transaction
• Dealings involving funds transfer to near and dear ones need to
be looked into with care and caution and necessary inferences
drawn if there are abnormalities attaching to such transactions.
Workmen, Associated Rubber Industry Ltd. Vs Associated Rubber Industry Ltd.
(SC) 157 ITR 77
Union of India & Ors. Vs Playworld Electronics P. Ltd. & Anr. (SC) 184 ITR 308
• Colourable devices are not part of tax planning

McDowell and Co. Ltd. Vs Commercial Tax officer (SC) 154 ITR 148
• What has to be considered is not to ask whether the provision

should be construed literally or liberally, nor whether the
transaction is not unreal and not prohibited by the statute but
whether the transaction is a device to avoid tax, and whether the
transaction is such that the judicial process may accord its
approval to it – Courts can remove the veil to find out the real
nature of the transaction
Nayantara G. Agrawal Vs CIT (Bom) 207 ITR 639
• Assessee having deposit with company – At the instance of

assessee credit transferred to a firm constituted by assessee's
children – Return of sum by firm to company – Company
again transfer it to assessee's children – Not general loan
transaction – Interest on deposits taxable in assessee's hands
S.P. Jaiswal etc. Vs CIT (SC) 224 ITR 619
• IT Authorities are not bound to recognise a firm merely

because the firm has been registered under the Partnership Act.
If ITO finds on investigation that number of firms carrying on
business under different names really belong to one and the
same group of persons, he can hold it as not a genuine firm.
Ladhu Ram Taparia Vs CIT (SC) 44 ITR 521
• Transaction between company and its chairman - Purchase of

shares and sales back to them at a loss – No evidence about
effective delivery of shares and payment of purchase
consideration – Issue of cheques by both the parties on the
same day without sufficient bank balance – Device to help the
GENERAL TOPICS 45
Chairman for creating artificial loss - Transaction not genuine

CIT Vs Shekhawati Rajputana Trg. Co. (P) Ltd. ( Cal ) 236 ITR 950
Substance over form

• A party cannot escape the consequences of law merely by
describing an agreement in a particular form though in essence
and in substance; it may be a different transaction.
CIT Vs Panipat Woollen & General Mills Co. Ltd. (SC) 103 ITR 66
• Subsidiary and integral transactions have to take colour from

Principal transactions.
Hindalco Industries Ltd. Vs ACIT (ITAT, Mum) 94 ITD 242
• Tax liability in the case of suspicious transactions to be

assessed on the basis of the material available on record,
surrounding circumstances, human conduct, preponderance of
probability and nature of incriminating information / evidence
Hersh V. Chadha L/H of Late W.N. Chadha Vs DDIT(Int.Tax) (ITAT, Del) 135
TTJ 513
• Claim that substantial amounts have been won in horse racing

in two consecutive accounting years – Claim is not justified
considering the test of human probabilities.
Sumati Dayal Vs CIT (SC) 214 ITR 801
• IT proceedings – Strict rules of evidence do not apply –

Conclusive proof is not necessary to arrive at a conclusion / to
establish a fact.
Mriganka Mohan Sur Vs CIT (Cal) 120 ITR 529
• The way in which entries are made by an assessee in his books

of accounts is not determinative of the question whether the
assessee has earned any profit or suffered any loss – What is
necessary to be considered is the true nature of the transaction
Sutlej Cotton Mills Ltd. Vs CIT (SC) 116 ITR 1
• Substance of transaction should prevail over its form

Karanpura Development Co. Ltd. Vs CIT (SC) 44 ITR 362
GENERAL TOPICS 47
PRINCIPLES OF NATURAL JUSTICE

Opportunity of being heard
• ITO issuing notice u/s.271(1)(a) – No explanation furnished
by assessee – change of ITO – Assessee not asking for
opportunity to be heard by successor ITO – Imposition of
penalty by successor ITO without giving assessee opportunity
to be heard – Penalty valid.
CIT Vs Laljidas Agarwalla (Patna) 190 ITR 429
CWT Vs Umrao Lal (All) 136 ITR 49
CWT Vs Azizunnisa Begum (SC) 243 ITR 852
• Change of incumbent of office during pendency of assessment

proceedings – As per Sec.129, re-hearing by new officer is not
obligatory – It is required only when there is a demand from
assessee.
K. Venkata Ramana & Budha Appa Rao Vs CIT (AP) 168 ITR 747
• Opportunity to be heard afforded to major partner of firm

Amounts to opportunity to be heard given to firm.
Manaklal Porwal Vs CIT (Raj) 155 ITR 648
• Assessee not availing of opportunities given before

completion of assessment – Not entitled to allege
contravention of principles of natural justice.
P.N. Baslasubramanian Vs ITO & Ors. (AP) 112 ITR 512
• The principle of “audi alteram partem” only means that the

party affected should be given sufficient opportunity to meet
the case against him. It is not necessary that assessee should be
heard at each and every stage of proceedings – When an appeal
was filed before AAC, ITO's orders merges with order of AAC
and where there is no grievance that no opportunity was given
by AAC, he cannot have a grievance that he was denied
reasonable opportunity by ITO.
Kashmir Vastralaya Vs CIT (Pat) 112 ITR 630
• Firm dissolved - Penalty notice issued to one of the partners is

sufficient notice – Individual notice on every partner is not
necessary.
Indira Chemical Agency Vs CIT (Mad) 119 ITR 569
GENERAL TOPICS 49
• For every reason formulated by ITO in his order, no need to

give opportunity to produce fresh evidence or fresh
explanation.
Newton Chikli Collieries Ltd. Vs CIT (SC) 44 ITR 495
DCIT Vs Subhash Kumar Jain (ITAT, Chd) 69 ITD 313
• Right to cross–examine witness who made adverse report, is

not an invariable attribute of requirement of 'audi alteram
parterm' - When statement of witness is only secondary
evidence, there is no denial of natural justice if witnesses were
not allowed to be cross-examined by assessee.
G.T,.C. Industries Limited Vs ACIT (ITAT, Bom) 65 ITD 380
• Suit against Government / Public Officer in respect of act done

in his official capacity like execution of warrant of
authorization – Opportunity to be granted to the Officer before
granting relief whether interim or otherwise to the plaintiff –
Notice mandatory in view of sec. 80 of CPC
Union of India v. Natwarlal M. Badiani (Guj) 250 ITR 641
• If assessee is aware of the contents of the statements recorded

from witnesses, failure to provide copies of the same before
cross-examination, is not fatal
H.M. Hanif and Sons Vs CIT (All) 296 ITR 523
• Non-furnishing of copy of statement given by production-in-

charge did not amount to denying opportunity of cross
examination to assessee, especially when the addition was
made solely on the basis of return filed, documents produced
and submissions made by assessee.
DXN Herbal Mfg. (India) (P.) Ltd. Vs ITO (ITAT, Chennai) 110 ITD 99
• If a statutory provision either specifically or by inevitable

implication excludes the application of rules of natural justice,
the Court cannot ignore the mandate of the Legislation – Rules
of natural justice can supplement the law but cannot supplant it.
A.K. Kraipak Vs Union of India AIR 1970 SC 150
Swadeshi Cotton Mills Vs Union of India AIR 1981 SC 818
GENERAL TOPICS 51
PROCEDURAL LAPSE – When fatal?

• Proceedings for assessment under a fiscal statute are not in the
nature of judicial proceedings – Exercise of jurisdiction in a
wrongful manner cannot result in nullity – Curable defect
Deepak Agro Foods Vs State of Rajasthan & Ors. (SC) 2008-TIOL-134-SC-CT
• A wrong reference to the power under which an order is made

does not per se vitiate the order if there is some other power
under which the order could lawfully be made. The validity of
the impugned order has to be tested by reference to the question
whether the ITO had any power at all to make an order of this
nature. If the power is otherwise established, the fact that the
source of power has been incorrectly described would not
make the order invalid.
Isha Beevi Vs TRO (SC) 101 ITR 449
VR.C.RM. Adaikkappa Chettiar Vs CIT (Mad) 78 ITR 285
CIT Vs Hargopal Bhalla & Sons (P&H) 82 ITR 243
L. Hazari Mal Kuthiala Vs ITO & Anr. (SC) 41 ITR 12
CIT Vs Motor Industries Co. (Kar) 229 ITR 126
K.P. Paulose & Co. Vs CIT (Ker) 230 ITR 798
• Non-mention of Section under which statement of assessee is

recorded will not invalidate statement recorded during course
of proceedings u/s 132A.
ACIT Vs M.V. Nagaraja (ITAT, Bang) 70 ITD 318
• Failure to mention specific provision under which interest is

charged does not make the order bad.
CIT Vs Quality (Pat) 224 ITR 77
• Assessment completed without following prescribed

procedure – Non-compliance is only a procedural irregularity
and will not render the assessment ab initio void – Direction to
ITO to redo assessment after following prescribed procedure is
valid
G.R. Steel and Alloys P. Ltd,. Vs CIT (Kar) 152 ITR 220
Sarabjit Singh Vs CIT (Del) 234 ITR 641
V. Raju Vs CIT (Mad) 147 ITR 212
M.S. Kimtee Vs CIT (MP) 151 ITR 73
• Assessee participating in reassessment proceedings – Failure

to consider objection to 148 notice and failure to issue notice

under section 143(2) – Reassessment order not void but
irregular – Matter remitted to assessing Officer
Areva T & D India Ltd. Vs ACIT (Mad) 294 ITR 233
Hari Singh & Associates Vs ITO (ITAT,Jodhpur) 118 ITD 564
• Procedure u/s 143(2) of the act is to ensure that an adverse

order is issued only after proper opportunity is given to the
assessee – Since assessee got opportunity to file reply and in
fact detailed reply was filed, there is no room for grievance
K.J. Thomas Vs CIT (Ker) 301 ITR 301
CIT Vs Ram Narain Bansal (P&H) 202 Taxman 213
• Notice u/s 143(2) need not be in ITNS-33 – A questionnaire can

amount to issue of notice u/s 143(2)
ITO Vs Ashok Chadha 2010-TIOL-637-ITAT-DEL
• Sec. 158BC is a procedural section and not a substantive

section – ratio of the decision in State bank of Patiala Vs S.K.
Sharma [1996] 3 SCC 364 applies – In the case of a procedural
provision which is not of a mandatory character, the complaint
of violation has to be examined from the standpoint of
substantial compliance – An order passed in violation of such
provision can be set aside only when such violation has
occasioned prejudice ot the subject – The conduct of the
subject is required to be examined and kept in mind Procedural
rules are assigned to afford a full and proper opportunity to the
person concerned to defend himself
Venad properties Pvt. Ltd. Vs CIT (Del) 340 ITR 463
• Penalty proceedings validly initiated – No opportunity of

being heard given – Order set-aside for continuation of
proceedings from stage of notice from where the procedural
irregularity occurred – Valid
Guduthur Bros Vs ITO (SC) 40 ITR 298
Thakur V. Hari Prasad Vs CIT (AP) 167 ITR 603
Addl. CIT Vs Boina Surana (AP) 124 ITR 328
• Assessment set-aside by appellate authority – Subsequent

assessment order made without giving notice to assessee
Assessment only legally vitiated but not warranting
annulment.
C.G.G. Panicker Vs CIT (Ker) 237 ITR 443
GENERAL TOPICS 53
• Death of assessee in course of assessment procedure – Legal

representative impleaded and heard – Assessment order
mentioning name of deceased assessee instead of legal heir
Only a clerical error – Assessment is valid
Swaran Kanta Vs CIT (P & H) 176 ITR 291
• Notice to only one legal representative of deceased – No

objection taken by him and other legal representatives against
non-impleadment of other heirs – Assessment so made is valid.
ITO Vs Shahid Atiq, L/H of Late Atiquer Rehman (ITAT, Del) 89 ITD 489
CIT Vs Chandra Mohan Verma (All) 244 ITR 430
CIT Vs Pushpa Devi (Raj) 250 ITR 495
A.K.M. Govindaswamy Chettiar & Ors. Vs ITO ( Mad ) 244 ITR 559
• Legal heir to whom notice has been issued cannot challenge the
validity of the reassessment proceedings on the ground that
notice has not been issued to all the legal heirs
CIT Vs Jasbir Kaur Bhatia 2011-TIOL-605-HC-HP-IT
• Assessment order against deceased passed after his death – His

son, with an advocate appeared in the proceedings Assessment
set-aside to ITO for impleading the legal heirs
CIT Vs Roshan Lal & Ors. (Del) 134 ITR 145
• Death of assessee – Notice issued in the name of a person who

was dead – Widow of such person participating in re-
assessment proceedings. Defect in notice stood automatically
cured.
Kausalyabai Vs CIT (MP) 238 ITR 1008
• Penalty u/s 271(1)( c) quashed by CIT(A) as ITO had not

obtained approval of IAC – On appeal, ITAT directed ITO to
pass order afresh in accordance with law – Order of ITAT
upheld.
Prabhudayal Amichand Vs CIT (MP) 180 ITR 84
Gayathri Textiles Vs CIT (Kar) 243 ITR 674
Sardar Harinder Singh Vs ITO & Ors. (All) 219 ITR 257
CIT Vs Damodardas Murarilal (AP) 222 ITR 401
• Act does not contemplate a hearing being given to the assessee

by IAC before approving the penalty.
Lachmandas Mahar Chand Vs ITAT (Lahore) 12 ITR 432.
• Office note is part of assessment order

Bimla Gulati Vs Appellate Asst. Commissioner (MP) 165 ITR 296
• Computation of Total income made in assessment order and

tax computed only on ITNS 50 – Valid.
CIT Vs Hotel Highland Park (J&K) 246 ITR 130
• Determination of tax not incorporated in assessment order but

on a separate sheet of paper accompanying it – Forms part of
assessment order
Kalyankumar Ray Vs CIT (SC) 191 ITR 634
• Remarks in the order sheet such as “no proceedings”, “filed”

could constitute as an order passed to dispose off the
proceedings in assessment
Esthuri Aswathiah Vs ITO (SC) 41 ITR 539
CIT Vs Bidhu Bhusan Sarkar (SC) 63 ITR 278
• Order sheet entry passed by A.O. stating assessment completed

Order served after few months – Valid and not time barred – It
is only a procedural irregularity
Sewduttroy Rambullay & Sons Vs CIT (Cal) 204 ITR 580
CIT Vs T.O. Abraham & Co. (Ker) 333 ITR 182
• Notice issued u/s 148 vague as 'status' not mentioned therein

Assessee consciously and intentionally waived his right to
object to defect in notice – Defect stood caused by sec. 292 B
Notice valid
CIT Vs Rajbir Singh (P & H) 233 ITR 126
• Mere mistake in language used in penalty notice and non-

striking of the inapplicable portion cannot by itself invalidate
the notice.
CIT Vs Kausalya and others (Bom) 216 ITR 660
H.P. State Forest Corpn. Ltd. Vs CIT & Ors. (HP) 267 ITR 285
CIT Vs Maharaj Krishnan (Del) 246 ITR 327
• Penalty notice served along with an enclosure – Enclosure

signed by ITO but notice not signed – Penalty not vitiated
There is nothing to indicate that the assessee was prejudiced by
the defective notice served on him.
Kashmir Vastralaya Vs CIT (Pat) 112 ITR 630
GENERAL TOPICS 55
• Failure to serve Demand Notice – Recovery proceedings – Not

valid
Mohan Wahi Vs CIT & Ors. (SC) 248 ITR 799
• Failure to quantify amount of penalty in the order will not

invalidate order
Assam Frontier Veneer & Saw Mills Vs CIT (Gau) 104 ITR 479
CIT Vs Jayantilal Meghani (Cal) 244 ITR 468
• Office copy of notice available in assessment records – Shows

notice validly issued by Assessing Officer – No evidence for
proper service of such notice – Illegality occurred at this stage
Assessing Officer can proceed further from this stage
Raju Saigal Vs ITO (ITAT, Del) 106 Taxman (Mag) 12.
• Non-service of assessment order before serving of demand

notice would not invalidate assessment order.
Surya Proteins Ltd. Vs ACIT ( ITAT, Indore ) 56 ITD 367
• Penalty proceedings conducted by IAC – IAC directed ITO to

levy penalty and to issue Demand Notice - Penalty valid
A.M. Shah & Co. Vs CIT (Guj) 238 ITR 415
• Omissions of Assessing Officer to confront assessee with

materials collected by him – Irregularity in exercise of
jurisdiction and not lack of jurisdiction – Remand to Assessing
Officer
CIT Vs Bharatkumar Modi (Bom) 246 ITR 693
• Omission to allow opportunity of cross-examination – Only a

procedural irregularity – Remanded to A.O.
ITO Vs M. Pirai Choodi (SC) 334 ITR 262
• Simply because an opportunity of being heard was not given to

the assessee, will not invalidate an assessment order or an
addition made therein – It is only a procedural lapse
Kailash Moudgil Vs DCIT (ITAT,SB-D) 72 ITD 97
Centurion Investment & International Trading Co. (P) Ltd. Vs ITO (ITAT,Del)
126 ITD 356
• Calling for information u/s.133(6) without approval of CIT

Procedural lapse – Curable defect – Still material obtained can
be used.
Gyarsi Lal Gupta & Sons Vs ITO (ITAT, JP) 94 ITD 329.
• Expl. 3 to sec. 153 – Direction by CIT(A) to initiate

re-assessment proceedings against third person – Such person
was aware of proceedings and given opportunity of being heard
Formal notice not necessary – Proceedings valid
Atul Traders Vs ITO ( All ) 282 ITR 536
• Assessment order in the name of non-existent entity was

passed on account of ignorance of fact of amalgamation.
Irregularity only – Remit to Assessing Officer to issue notice in
the name of Successor Company
Century Enka Ltd. Vs DCIT ( Mum ) 101 ITD 489
• Failure to give opportunity to assessee before direction for

special audit – Procedural irregularity – Remitted to A.O.
Supreme court decision in Sahara India Vs CIT (300 ITR 403)
apply prospectively only
ACIT Vs Sushila Milk Specialities P. Ltd. (ITAT,SB-Del) 122 ITD 48; 1 ITR
(Trib) 639
• Sec. 292BB is procedural in nature – It is applicable to all

pending proceedings – It is curative in nature – It cures all
existing infirmities in service of notice
ITO Vs Varia Pratik Engineering (ITAT, Ahd) 120 TTJ 1
CIT Vs Panchvati Motors Pvt. Ltd.(P&H) 59 DTR 289
• First notice u/s 153C issued in February, 2005 and a second

notice in Sept.,2006 – Second notice will not invalidate
proceedings
Trilok Singh Dhillon Vs CIT (Chattisgarh) 332 ITR 185
• Failure to mention the words 'principal officer' and 'Pvt. Ltd.' in

the notice u/s 148 is not fatal if the recipient of notice was not in
doubt that it was meant for it – If no prejudice / confusion is
caused, then assessment proceedings and consequent order
cannot be vitiated on the ground of mistake, defect or omission
in the notice
CIT Vs Jagat Novel Exhibitors (P) Ltd. (Del) 67 DTR 289
GENERAL TOPICS 57
SERVICE OF NOTICE
Where an assessee has appeared in any proceeding or
co-operated in any enquiry relating to an assessment or
reassessment, it shall be deemd that any notice under any
provision of the I.T. Act which is required to be served upon him,
has been duly served upon him in time in accordance with the
provisons of the Act and such assessee shall be precluded from
taking any objection that the notice was not served upon him / not
served in time / served in an improper manner. If the assessee
intends to object, the same should eb made before completion of
the assessment [sec. 292BB w.e.f. 01-04-2008]
• Notice in the name of Company received by Director Attended

further proceedings – Later on cannot challenge validity of
service of notice.
Southern Plantations Ltd.Vs Commissioner of Agrl. IT (Ker) 236 ITR 509
• Chartered Accountant representing assessee received notice

and assessee ratified receipt of notice – Estoppel from
challenging service of notice on Chartered Accountant.
Y. Rajendra, DCIT Vs Khoday Eshwarsa & Sons & Ors. (Kar) 272 ITR 448
• Notice served on assessee's husband – Assessee participating

in proceeding – Valid service
CIT Vs Kanti Devi Gupta (MP) 274 ITR 526
CIT Vs Uttam Chand Nahar (Raj) 295 ITR 403
• Notice served on the father of the assessee who was also the
Managing Partner of the firm in which assessee is a partner
Service valid
Latha Chandy Vs CIT (Ker) 260 ITR 385
• Notice by affixture – No objection to mode of service of notice

Assessee participating in proceedings before Assessing Officer
and CIT(A) Irregularity in notice waived by assessee
Assessment valid.
CIT Vs Premium Capital Market & Investment Ltd (MP) 275 ITR 260
• Notices dispatched by Registered Post – Either not received

back or received back with endorsement “refused” – Deemed
service
GENERAL TOPICS 59
Ramesh Khosla Vs ITO & Anr. (P&H) 155 ITR 556
• Notice send by speed post – It is reasonable to infer that it was

served within 3-4 days
Capital Gem Overseas (P) Ltd. Vs ITO ( ITAT, Del ) 101 ITD 117
• Service of notice on agent – Different persons have acted in the

past in absence of power agent to receive notices – Service on
one such person – Notices were complied with – Assessee
raised no objection before ITO – Such service constitute valid
service.
A.K. M. Govindaswamy Chettiar & Ors.Vs ITO (Mad) 244 ITR 559
X Vs. ITO (ITAT, Bang) 9 ITD 715
CIT Vs Regency Express Builders P. Ltd. (Del) 291 ITR 55
• Receipt of notice by employee who endorsed his

acknowledgement under the seal of firm – Valid service
M.X. De Nornha & Sons Vs CIT (All) 18 ITR 928
• Service of notice on Counsel authorized to receive all

documents – Valid service
Sultanpur Kshetriya Gramin Bank Vs JCIT (All) 336 ITR 156
• Though the notice sent to assessee firm was served on a person

who was not a partner of assessee firm, it is valid as the assessee
failed to establish that such person was a stranger and was not
concerned with day-to-day business of the firm.
Salar Publications Trust Vs ITO & Anr. (Kar) 235 ITR 13
• Burden on assessee to prove that there was no service of notice

under section 143(2) within time
CIT Vs Shanker Lal Ved Prakash (Del) 300 ITR 243
• “Forwarding” of draft assessment order – Date on which it was

given to process-server or delivered at post office or handed
over to representative of assessee is relevant
CIT Vs Shahzadi Begum (AP) 225 ITR 963.
• Record not disclosing envelope undelivered or received back –

Presumption that notice served not rebutted by assessee – Valid
service within time
CIT Vs Madhsy Films P. Ltd. (Del) 301 ITR 69
• Revenue having dispatched the notice to assessee and again re-

directed it in another address furnished by assessee, it is

evident that assessee declined to accept the notice – Due
service provided under sec. 27 of General Clauses Act.
Mayawati Vs CIT & Ors. (Del) 222 CTR 117
• Assessee having filed return in response to notice under sec.

148 and also actively participated in assessment proceedings
thereafter, by its conduct, abandoned the right to claim
non-service of the notice under sec. 148. Thus the irregularities
got cured by subsequent conduct of the assessee.
Yogesh Kumar & Sons (HUF) Vs AO (ITAT, Asr) 115 TTJ 696
CIT Vs Three Dee Exim Pvt. Ltd. 2011-TIOL-196-HC-DEL-IT
Thistle Properties (P) Ltd. Vs ACIT (ITAT, Mum) 134 ITD 6
• Assessee challenged service of notice on the ground that he

was hospitalized during that period – Records showed that for
contesting the notice u/s 148 dated 04-04-2005, assessee
purchased stamp paper on 09-04-2005 for giving power of
attorney to his C.A. – Claim for non-service of notice rejected
Avneeshkumar Singh Vs ITO (ITAT, Agra-TM) 126 ITD 1
• Photocopy of original notice served on assessee – Sufficient

since the purpose is served
Ambica Steels Ltd. Vs DCIT (ITAT, Del) 118 ITD 116
GENERAL TOPICS 61
STATEMENTS RECORDED
Use in Assessment - Retraction
Sec. 131(1) and 132(4) of I.T. Act gives power to Income Tax
authorities to examine on oath.
Sec. 133A(3)(iii) of I.T. Act gives power to Income Tax authorities

to record the statement of any person.
Sec. 133A(5) of I.T. Act gives power to Income Tax authorities to

record the statement of any person and such statements can be
used in evidence in any proceeding under this Act.
Sec. 133A(6) of I.T. Act provides for enforcing authority u/s 131 in
case any person evades / refuses to co-operate in a proceeding u/s
133A
• ITO is not bound by any technical rules of the law of evidence

He can record statement from witnesses in the absence of
assessee – But before using the same, assessee should be given
opportunity to cross-examine.
C. Vasantal & Co. Vs CIT (SC) 45 ITR 206
• Authorised Officer can record statement on oath on all matters

pertaining to suppressed income – Explanation to Sec. 132
inserted w.e.f. 1.4.89 is clarificatory - Assessment on the basis
of the voluntary statement was valid
V. Kunhambu & Sons Vs CIT (Ker) 219 ITR 235
Iswardin Mewalal Vs CIT (MP) 169 ITR 584
Greenview Restaurant Vs CIT (Gau) 263 ITR 169
• Addition made on the basis of admission by assessee is

justified.
Hira Singh and Co Vs CIT (HP) 230 ITR 791
• Where the petitioner entered into a voluntary settlement with

the Government and his liability to pay tax arose from such
settlement, he cannot question the settlement unless and until
he can establish that his consent was improperly procured.
Dewan Bahadur Seth Gopal Das Mohta Vs The Union of India & Ors.(SC) 26
ITR 722
• An admission is the best evidence that an opposing party can

rely upon and though not conclusive, is decisive of the matter,
unless successfully withdrawn or proved erroneous.
Narayan Bhagwantrao Gosavi Batajiwale Vs Gopal AIR 1960 SC 100
Pranav Construction Co. Vs ACIT (ITAT, Mum) 61 TTJ 145
• Preliminary statement recorded before start of actual search in

which questions put to assessee were general in nature and not
related to any specific asset / document – Not a valid legal
statement – Cannot be relied upon. Second statement during
search is valid – Could not be ignored
Rishab Kumar Jain Vs ACIT (ITAT, Del) 63 TTJ 236
• Customs Officials are not Police Officers. The confession

through retracted, is an admission and binds the petitioner.
Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560
• In statement u/s 132(4), assessee never indicated about receipt

of agricultural income outside the books – Later on assessee
cannot change stand.
Jaikisan R. Agarwal Vs ACIT (ITAT, Pune) 66 TTJ 704
• In a case where party relied on self-serving recitals in

documents it was for the party to establish the truth of these
recitals. - The taxing authorities were entitled to look into the
surrounding circumstances and find out the reality of such
recitals.
CIT Vs Durga Prasad More (SC) 82 ITR 540
• For retraction to be valid, threat or coercion has to be proved.

Manoharlal Kasturchand Chokshi Vs ACIT (ITAT, Ahd) 61 ITD 55
Param Anand Builders Vs ITO (ITAT, Mum) 59 ITD 29
Works of Art (P) Ltd, Vs ACIT (ITAT, Jp) 65 ITD 40
Amritlal Bhagwandas Soni Vs DCIT (ITAT, Ahd) 59 TTJ 418
Hiralal Maganlal & Co. Vs DCIT (ITAT, Mum) 96 ITD 113
Airport Authority of India Vs CBEC (Del) 207 CTR 196
Ravindra D. Trivedi Vs CIT (Raj) 215 CTR 313
• Addition on the basis of stock statement given to Bank – Valid.

Coimbatore Spinning & Weaving Co. Ltd. Vs CIT (Mad) 95 ITR 375
CIT Vs Ashok Textiles (P) Ltd. (Ker) 141 ITR 785
Kaila Sweet Supplier Vs CIT (All) 100 Taxman 59
S. Murugappa Chettiar Vs CIT (Ker) 174 ITR 245
Ramanlal Kacharulal Tejmal Vs CIT (Bom) 146 ITR 368
GENERAL TOPICS 63
• When statement was made voluntary and was not alleged to

have been obtained under threat or coercion, onus was on
assessee to prove that said declaration was made under any
misconception of facts – Since assessee had not taken any steps
to rectify its declaration before authorities before whom such
declaration was made, there was no valid reason for retraction
of same after a gap of about two and a half months
Carpenters Classics (Exim) (P) Ltd. Vs DCIT ( ITAT, Bang ) 108 ITD 142
• Note made in contemplation of death – Is admission within the

meaning of sec. 17 & 18 of Evidence Act – No satisfactory
explanation from assessee to counter the contents therein
Addition on the basis of such note was upheld.
Rakesh Mahajan Vs CIT (P&H) 214 CTR 218; 316 ITR 369
• Only because few entries made in a diary are contradictory to

part of the statement, is not a sufficient and conclusive reason
to hold that statement made earlier was false
Bachittar Singh Vs CIT (P&H) 328 ITR 400
GENERAL TOPICS 65
STAY ORDERS
• To grant interim relief straightaway will jeopardize public
interest.
Union of India & Ors. Vs Oswal Woollen Mills Ltd. (SC) 154 ITR 135
Assistant Collector of Central Excise Vs Dunlop India Limited & Others (SC)154
ITR 172
• Only when strong prima facie case is made out, in deserving

and appropriate cases, Tribunal should grant stay.
ITO Vs M.K. Mohammed Kunhi (SC) 71 ITR 815
Khivraj Motors Ltd. Vs DCIT & Ors. ( Mad ) 205 ITR 462
Sri Balaji Trading Co. Vs DCIT & Anr. (Mad) 175 ITR 428
• Non-compliance of Tribunal's direction was a clear act of

contempt of court – extension of stay sought after stay granted
by an earlier order got expired on account of such non-
compliance – Further application for stay needs to be rejected.
Endeavour Investments Ltd. Vs DCIT (ITAT, Mad – TM) 70 ITD 17
Roxy Eng. P. Ltd. Vs ACIT ( ITAT, Chd ) 68 TTJ 482
• Party to appeal cannot make any claim for early hearing when
demand is not huge – Bench has to order early hearing and it is
not an administrative act.
Olympia Paper & Stationery Stores Vs ACIT (ITAT, Mad) 63 ITD 148
• Demand for several assessment years – Separate stay petition

necessary.
Wipro Ltd.Vs ITO (ITAT, Bang) 86 ITD 407.
• Since High Court had granted stay of recovery of demand with

certain conditions, Tribunal during pendency of the said
proceedings had no power to interfere and start parallel
proceedings for granting stay
G. Venkateswaran Vs ACIT (ITAT, Chennai-TM) 119 ITD 1
WRIT JURISDICTION
• High Court is expected not to ordinarily entertain a petition
under article 226 of the Constitution of India if an efficacious
remedy is available to aggrieved person.
Union Bank of India Vs Satyawati Tondon (2010) 8 SCC 110
• Existence of alternate remedy – Not a bar for writ

CIT Vs Foramer France (SC) 264 ITR 566
• Jurisdiction of High Court is discretionary – Interference only

to cure substantial injustice
Aurora Educational Society Vs CCIT (AP) 339 ITR 333
• High Court can quash a notice only in exceptional

circumstances
Ganesh Housing Corporation Ltd. Vs Padam Singh (Guj) 339 ITR 441
• Petitioner took part in block assessment proceedings for 2

years and was not serious in challenging the search operation
and on smelling out that block assessment proceedings may go
against him sought to stall the proceedings by filing writ
petition – Not maintainable on the ground of delay and laches
V.S. Chauhan & Anr. Vs DIT(Inv.) & Ors. (All) 62 DTR 67
• It is not advisable for the Court to delve into and interpret the
provisions without being clear as to the factual matrix – It is
well settled that the High Courts normally should not entertain
writ petitions against issue of show-cause notice – Entertaining
such petition is premature unless vires of a provision is
challenged or an exceptional case is made out to prevent
harassment or there is compete lack of inherent jurisdiction
Interocean Shipping (I) (P) Ltd. Vs Union of India & Anr. (Del) 54 DTR 52
Chapter 2
STATUS OF ASSESSEE
STATUS OF ASSESSEE 69
GENERAL
• Total income of the previous year of the assessee is

chargeable to tax (sec. 4)
• Person defined in sec. 2(31) – an inclusive definition
• Right person to be assessed
• Correct person to be assessed – Assessment of different

persons in respect of same income will not absolve the correct
person's liability – The person lawfully liable to be taxed can
claim no immunity on the reason that ITO has taxed the said
income in the hands of another person which is contrary to law
CIT Vs Ch. Atchaiah (SC) 218 ITR 239
CIT Vs Sriram Jagannath ( Raj ) 250 ITR 689
S.P. Jaiswal etc. Vs CIT (SC) 224 ITR 619
Pradeep Agencies Vs ITO (ITAT,SB-Del) 111 TTJ 346
• Assessee bed-ridden – His son was doing business using

license in the name of assessee – Books of accounts and assets
seized from the bedroom of son – Son to be assessed – For the
purpose of income tax, the income belongs to a person who
earns it and not the person in whose name the business is
carried on
CIT Vs Nikunja Behari Das ( Cal ) 244 ITR 244
• Liquor business – Person paying license fee and taking

contract for sale of liquor – Assessment on such person on
profits from liquor business justified.
Rampal Thakurdin Gupta Vs CIT (MP) 234 ITR 304
CIT Vs Oswal Enterprises (P) Ltd. (Del) 234 ITR 483
• Agency in the name of assessee – Agreement to transfer

income to firm – Firm not having license to carry on insurance
business and could not have carried on the insurance business
Insurance commission is income of assessee
CIT Vs L. Alagappan (Mad) 254 ITR 77
• State Forest Corporation is not a local authority

CIT Vs U.P. Forest Corporation (SC) 230 ITR 945
• Co-operative Society has no power to make retrospective

amendment to by-laws
CIT Vs Bazpur Co-operative Sugar Factory Ltd. (SC) 172 ITR 321
• Investment by firm shown in Balance Sheet of assessee

Subsequent claim that amount belonged to partners – Not
relevant – Interest on investment assessable as income of firm .
G. Ramchand Vs CIT (Mad) 185 ITR 140
AOP / BOI
• Distinction between AOP & BOI very slender and there may be
some overlapping and the incorporation of this category into
the definition can be attributed to an anxiety not to leave out
any category from assessment – The meaning of the word
“body” would require an association for some common
purpose or for a common cause or there must be unity under
some common tie or occupation - A common purpose or a
common tie, actual or potential capacity to hold properties or
disposable income would be the minimum requirement of a
BOI
CIT Vs Deghamwala Estates (Mad) 121 ITR 684
• AOP means an association in which two or more persons join in

a common purpose or common action and the association must
be one the object of which is to produce income, profits or
gains. Liability of tax depends upon the earning of profits by a
unit and not upon the ultimate division of profits
N.V. Shanmugham & Co. Vs CIT (SC) 81 ITR 310
• Business carried on by individual – Death – Business

continued by wife on her behalf and on behalf of minor
children – When several individuals are found to have joined
together for the purpose of making profit, the group of
individuals may be conveniently described as BOI – A profit
yielding joint venture has to be taxed as a single unit.
Meera & Company etc. Vs CIT (SC) 224 ITR 635
Sakinabai Ibrahim & Sons Vs CIT (Mad) 101 Taxman 473
• A BOI need not necessarily be the result of an agreement,

arrangement or design
CIT Vs Pabbati Shankaraiah (AP) 145 ITR 702
• Male member of the family dies leaving his wife and three
married daughters – Property of the deceased would devolve
upon them in equal shares – Such property was sold without
dividing among the members – Capital gains on sale of
property to be assessed in the hands of BOI
ITO Vs Shanti Dubey (ITAT, Jab) 58 DTR 422
• Business conducted by Mohammedan – Heirs desiring to

continue business – Suit for partition – Receivers appointed
Though suits were brought by co-heirs none of the parties
wanted to break unity of control of business nor its continuity
Status of co-heirs is AOP
Mohamed Noorullah Vs CIT (SC) 42 ITR 115
• Suit for dissolution of firm – Receivers appointed to carry on

the business till winding up – Receivers carried on business on
behalf of erstwhile partners with their consent – Profits to be
assessed as an AOP.
N.V. Shanmugham & Co. Vs CIT (SC) 81 ITR 310
• Firm – Dissolution – Winding up under supervision of Court

Subsequent sale of assets after few years – Income earned for
the period upto sale of assets is assessable in the hands of AOP.
Raghurama Prabhu Estate, Executrix, M. Kaveri Bai & Ors. Vs JCIT (Kar) 335
ITR 394
• By deed of indenture R gifted her 50% of 1/3 share of a trust to

her sons M & J on principle of joint and survivorship as a BOI
Status is BOI
M.J. Associates Vs ACIT (ITAT, Ahd) 91 Taxman (Mag) 225
• Meeting of minds of members with common design and

common object of producing income and hence Joint Venture
constituted an AOP – Joint venture to provide consultancy
services – Lateron work allotted to members who are billing it
separately and each member bearing its own cost and expenses
– Do not derogate from existence of an AOP as members of JV
are jointly and severally liable for obligations under the
contract and in case of insolvency of any member, the other
members are irrevocably appointed to act for that member in
the matter of performance of the agreement
Geoconsult ZT Gmbh, In Re (AAR) 304 ITR 283
• Accounts seized from assessee shows that both of them

undertook and carried on the business together and shared
profits – Status of AOP need not be proved by an agreement –
Conduct of the parties is more relevant
CIT Vs T. George & M. Syed Alavi (Ker) 316 ITR 333
• AOP consisting of an adult and a minor – No evidence that

guardian of minor had given his consent to minor's
membership in AOP – Volition on the part of the members of
association is an essential ingredient - AOP was not valid.
Bhupindra Food and Malt Industries Vs CIT (HP) 229 ITR 496
• Agreement to share the prize money was entered into between

A & O after A had already purchased the prize winning lottery
ticket – There was no AOP as there was no consensus ad idem.
CIT Vs O.K. Arumugham Chettiar & Anr.(Mad) 224 ITR 391
Principle of mutuality
• Mutual concerns – Automobile association – Publishing
magazine – Advertisement charges received from members &
non-members – Profit of association chargeable to IT – For the
principle of mutuality to come into play, there must be an
identity between the contributors to the fund and the
participators in the fund
Automobile Association of Bengal Vs CIT (Cal) 69 ITR 878
• Principle of mutuality is confined to transactions with

members – Interest on FD with banks is assessable income
Deposit of surplus funds would enure to the benefit of that
member (ie. banks or public sector undertakings with whom
assessee made fixed deposits) alone, who would be in a
position to utilize the same in any manner it likes thereby
depriving other members of such benefit – This will not satisfy
the test of identity of contributors and participants
Madras Gymkhana Club Vs DCIT (Mad) 328 ITR 348
CIT Vs Bangalore Club (Kar) 287 ITR 263
Devi Ahilya New Cloth Mercahnt Co. Ltd. Vs CIT (MP) 12 DTR 33
Amar Singh Club Vs Union of India (J&K) 34 DTR 287
Sports Club of Gujarat Ltd. Vs CIT (Guj) 171 ITR 504
CIT Vs Secunderabad Club Picket (AP) 340 ITR 121
• Floor charges collected from non-members on the basis of

transaction in purchase and sale of shares by them – Surplus of
the assessee club is not distributable to its members but on
dissolution would go to the Govt. or another society - No
mutuality exists – Taxable.
Investors Club Vs ITO (ITAT, Coch) 84 ITD 273
• Firm engaged in property development, commission agency

and allied activities – Let out properties to partners – No
mutuality exists and income of firm is assessable – Crucial test
of mutuality is that all the contributors of the common fund
must be entitled to participate in the surplus and that all the
participators in the surplus must be contributors to the common
fund – There must be complete identity between the
contributors and the participators
Prabhashankar Plaza Vs ITO (Kar) 327 ITR 582
• Assessee firm engaged in money lending business - Interest

income earned by firm by lending money to partners also – Not
exempt under the principle of mutuality
Govindaraj Ganesh Enterprises Vs ITO (Kar) 23 DTR 219 ; 224 CTR 301
• Assessee is a society registered under the Co-operative

Societies Act and has a separate judicial status under the
provisions of that enactment – There is no aspect of mutuality
in the case of societies registered under the Co-operative
societies Act with the objective of making profits and declare
dividend to its members – Society not entitled to exemption on
concept of mutuality
Sri Laxminarayana Swamy Co-operative Society Ltd. Vs ITO (ITAT, Bang) 4 ITR
(Trib) 27
• Mutual concern - Complete identity between contributors and

participators in fund mandatory - Right to contribute not
enough – When the interest income earned by the society from
out of loan taken by some of the members is being distributed
amongst all the members including those members who did not
take loans from the society, complete identity between
contributors and participants is lost.
Wankaner Jain Social Welfare Society Vs CIT (Mad) 260 ITR 241
• Transfer fees charged by co-operative housing society on the

members transferring their plots – Such a charge was not a
voluntary contribution, but a cost for effecting change - No
mutuality exists since there is no identity between contributors
and participators as contributors went out after executing
transfer and in their place new persons came who became the
participators in income so received
Hatkesh Co-operative Housing Society Ltd Vs ITO (ITAT, Mum) 60 ITD 662
Jai Hind Co-op. Housing Society Ltd. Vs ITO (ITAT, Mum) 318 ITR (AT) 407
Walkeshwar Triveni Co-op. Housing Society Ltd. Vs ITO (ITAT,SB-Mum)
88 ITD 159
• When the assessee company receives deposits from the

shareholders of the company in lieu of the allotment of the land
with a perpetual, uninterrupted, absolute and exclusive right to
use and enjoy such apartment and the common area, along with
the right to exploit let out in proportion of their share, the
amount received has to be considered as business income and

the principle of mutuality is not applicable – When there is
private motive and possibility of exploitation for commercial
purpose, question of mutuality will not be there.
DCIT Vs G.S. Homes & Hotels Pvt. Ltd. 2012-TIOL-131-HC-KAR-IT
COMPANY
• Company defined in sec. 2(17).
• Company in which public are substantially interested

defined in sec. 2(18)
• Private Ltd. Company becoming a Public Ltd. Company by

virtue of deeming fiction under Companies Act – Articles of
Association restrict transferability of shares ie. a shareholder
had no right to transfer his shares to a person other than a
shareholder without getting clearance from the Board of
Directors – Company cannot be treated as a Company in which
public are substantially interested since all conditions
specified in item (B) of sub-cl. (b) of sec. 2(18) are not fulfilled
CIT Vs Light Publications Ltd (Guj) 251 ITR 120
• Official liquidator is principal officer of company within the

meaning of sec. 2(13) of the IT Act – Can be directed to file I.T.
Returns
ITO, Nellore Vs Official Liquidator (AP) 106 ITR 119
• Trusts for the benefit of general public holds more than 50%
shares in a company – But members of the Trust does not have
interest in the company – Company is not one in which public
are substantially interested – Shares held by public trusts
cannot be construed as held by public – It is the trusts as such
that could be said to have substantial interest in the company
and not the beneficiaries thereof
Tata Sons Ltd. Vs DCIT (ITAT, Mum-TM) 104 ITD 45
Effect of Amalgamation
• Amalgamation defined in sec. 2(1B)
• Demerger defined in sec. 2(19AA)
• Resulting company defined in sec. 2(41A)
• Scheme of amalgamation specifying date of transfer – Court

not modifying date of transfer – Amalgamation takes effect on
date of transfer specified in scheme and not on date of court's
order. – From that date, income of subsidiary company belongs
to holding company - During the period of effective date as
provided in the scheme of amalgamation to the date of the
order of High Court approving such scheme, amalgamating
company is deemed to have conducted business on behalf of
the amalgamated company
Marshall Sons & Co. (India) Ltd. Vs ITO (SC) 223 ITR 809
• When two companies are merged and are so joined as to form a

third company or one is absorbed into one or blended with
another, the amalgamating company loses its identity and the
amalgamated company acquires a new status
Saraswati Industrial Syndicate Ltd. Vs CIT (SC) 186 ITR 278
• Amalgamation of subsidiary companies with assessee-

company – Property, rights and powers of subsidiary
companies transferred and vested in assessee-company – All
liabilities and debts of subsidiary companies to become
liabilities and debts of assessee Company from the date of
amalgamation – Net assets of amalgamating companies taken
over by assessee much less / more in value than value of shares
held by assessee in subsidiary companies – Diff. is not capital
loss or capital gains as there is no transfer in view of sec. 47(v)
and (vi)
Shaw Wallace & Co. Ltd. Vs CIT (Cal) 119 ITR 399
Forbes Campbell & Co. Ltd. Vs CIT (Cal) 150 ITR 529
Alembic Chemical Works Co. Ltd. Vs ACIT (ITAT, Ahd) 72 ITD 251
• Closure of business of amalgamating company – No

rehabilitation of workers of amalgamating company – Carry
forward and set off of loss of amalgamating company not

allowed against profits of amalgamated company.
Indian Metals & Ferro Alloys Ltd,. Vs Union of India & Ors. (Ori) 262 ITR 553
• Unabsorbed depreciation of amalgamating company added to

the opening Written Down value of it for the year of
amalgamation and the claim of depreciation for the year was
worked out on this basis – This was claimed as set off against
profits of amalgamated company – Not correct – Expl. 2 to
Sec. 43(6) © will apply
ACIT Vs McDowell & Co. Ltd. (ITAT, Bang) 83 ITD 221
• Company incorporated through conversion of a partnership

firm – Payment of sales commission relating to sales made by
predecessor firm – Not deductible in the hands of the company.
Amin Machinery (P) Ltd. Vs DCIT (ITAT, Ahd) 114 ITD 413
• Amalgamating company can file revised return even after the

'record date' for transfer
Igate Global Solutions Ltd. Vs DCIT 2010-TIOL-719-ITAT-BANG
HUF
General
• An HUF cannot exist with one single individual alone.
Krishna Prasad Vs CIT (SC) 97 ITR 493
• Though a Hindu widow cannot be a coparcener, she has

coparcenary interest and she is also a member of the
coparcenory by virtue of the rights conferred on her under
Hindu Women's Right to Property Act, 1937.
Controller of Estate Duty Vs Alladi Kuppuswamy (SC) 108 ITR 439
• Wife of Karta cannot relinquish her status as member of HUF

by a unilateral declaration while retaining her marital tie –
Membership in HUF cannot be terminated by a unilateral act
leading to divesting of any right in the estate unless there is a
partition or family settlement
CWT Vs M.A.R. Rajkumar (AP) 226 ITR 804
• Jat Sikh is a Hindu – Ancestral property is HUF property.

Controller of Estate Duty Vs Homejit Singh (P&H) 223 ITR 139
• A Hindu marrying a Christian lady, whose daughter is brought

up as a Christian, cannot claim the status of HUF because for
claiming said status it is necessary that the child must be
brought up as a member of the family to which the Hindu
parent belongs
Addl.CIT Vs G. Venkataraman (Mad) 109 ITR 247
• Hindu law is not applicable for Cutchi Memons' right to

property, inheritance and succession
Hajee Abdulla Sait Vs CIT (Kar) 177 ITR 71
• The Kerala Joint Hindu Family System (Abolition) Act, 1975

has no application to assessee who is domicile in Tamil Nadu
having properties in Kerala.
Dayalan Rajes Vs State of Kerala & Anr. (Ker) 231 ITR 707
• Amount received by individual under accident insurance

policy covering risk to life of his father – To be included in his
hands as Individual and not in the status of HUF.
L. Bansi Dhar & Sons Vs CIT (Del) 157 CTR 340.
Partition
• Death of coparcener – No ipso facto partition of joint Hindu
family properties – Expl. 1 to sec. 6 of the Hindu Succession
Act, 1956, has nothing to do with actual disruption of status of
HUF. It only freezes or quantifies the share of a female heir in
the coparcenary property on the death of a coparcener
CIT Vs Charan Das (HUF) (All) 280 ITR 637
• No evidence that after the death of Kartha, partition by metes

and bounds took place – No partition as per Expl. 1 to Sec. 6
Sale deed executed by son of deceased Kartha on behalf of
HUF – Entire property treated as that of HUF for capital gains
computation – Share of deceased Kartha not to be excluded
CIT Vs Dharam Pal Singh (HUF) (All ) 280 ITR 629
• In the absence of more than on coparcener, a partition is

impossible – A sole surviving coparcener with female
members – Grant of share in property to female members could
only be in the nature of settlement of property.
V.V.S. Natarajan Vs CIT (Mad) 111 ITR 539
B.T. Ravindranath Punja Vs CIT (Kar) 179 ITR 243
Sat Pal Bansal Vs CIT (P&H) 162 ITR 582
• IT authorities had their own view to take and were not bound by
the partition decree – A junior member can act as the karta of a
HUF with the consent of all the other members.
Narendrakumar J. Modi Vs CIT (SC) 105 ITR 109
• Even after death of a male coparcener in the joint family and

even after the undivided shares of the family members became
defined under the Hindu Succession Act, until an order u/s.171
is passed by ITO recognizing the partition in the family on the
basis of any claim made in this behalf HUF continue to be
assessed to IT & WT.
Narendrakumar Modi Vs CIT (SC) 105 ITR 109
R.B. Tunki Sah Baidyanath Prasad Vs CIT (SC) 212 ITR 632.
Kalloomal Tapeswari Prasad (HUF) Vs CIT (SC) 133 ITR 690.
• Partition not registered – No physical division of assets by

metes and bounds – No actual division of assets – No partition
in HUF.
CIT Vs Venugopal Inani (SC) 239 ITR 514
• Partial partition not valid after insertion of 171(9) w.e.f.

1.4.1980
CIT Vs Tej Cloth Weaving Factory (P&H) 178 ITR 474
• Death of karta after Hindu Succession Act came into force

Female members of family entitled to definite share in family
property – Female members not becoming divided from
members of family.
State of Maharashtra Vs Narayana Rao Sham Rao Deshmuk & others (SC) 163
ITR 31
• Proviso to sec. 6 of Hindu Succession Act does not effect a

disruption in coparcenery family – No partition effected by
operation of law.
Addl. CIT Vs Maharani Raj Laxmi Kumari Devei (SC) 224 ITR 582
• HUF consisting of karta, wife, 2 daughters and adopted son

Karta died – Property continues to belong to HUF.
Gowli Buddanna Vs CIT (SC) 60 ITR 293
• Widow's share in coparcenary property must be ascertained by

adding the share to which she would be entitled at a notional
partition immediately before her husband's death and the share
which she would get in her husband's interest upon his death.
Gurupad Khandappa Magdum Vs Hirabai Khandappa Magdum & Ors.(SC) 129
ITR 440
• Karta cannot gift any HUF property to himself.

T.G.K. Raman (HUF) Vs CIT (Mad) 140 ITR 876
Balchand Malaiya HUF Vs CWT (MP) 227 ITR 651
• HUF consisting of 2 brothers – No partition took place by

virtue of Sec. 6 of Hindu Succession Act on death of one
brother – Interest of deceased in HUF cannot be excluded for
assessment.
CWT Vs Chandrasinhrao D.Gaekward (Guj) 237 ITR 875
• Sec. 20 applies to transactions entered into prior to enactment

of WT Act – Order of WTO recording partition, mandatory.
Tatavarthi Rajah & Anr Vs CWT (SC) 225 ITR 561
• Partial partition of HUF not recognized under WT Act – HUF

would continue to be assessable as if no partial partition had

taken place.
Lalchand Kothari Vs CWT (Raj) 225 ITR 142
• Deceased and his brother coparceners in HUF – Deceased

dying issueless leaving widow – His entire share in
coparcenery property passes – No question of deemed
partition with wife.
Bhartiben S. Jhaveli Vs Controller of Estate Duty (Guj) 238 ITR 995
• Setting up certain assets of HUF in respect of certain

coparcener on a condition that no further claim will be allowed
Amounts to partial partition which is not recognized in IT Act.
ITO Vs P. Shankaraiah Yadav (ITAT, Hyd) 91 ITD 228
Devolution of property
• Properties inherited by widow as sole heir on the death of her
husband – Adoption by widow subsequently – Does not divest
widow of properties – Properties do not become joint family
properties – Female cannot throw property into family
hotchpot.
R. Rajathy Ammal Vs CWT (Mad) 164 ITR 605
Punithavalli Ammal Vs Ramalingam AIR 1970 SC 1730
• As per Sec.14(1) of Hindu Succession Act, a widow after death

of her husband became absolute owner of properties left by her
husband – On adoption of a son subsequently, such rights did
not get divested – On death of such a widow, these rights
passed on to the adopted son.
Asst. Controller of Estate Duty Vs Channamma P. Jabin (ITAT, Bang) 70 ITD 194
• Widow inheriting limited right in property under will in lieu of

her right to maintenance – Limited right was transferred into
absolute right by Sec.14(1) of Hindu Succession Act - Gift of
property by widow valid.
Beni Bai Vs Raghubir Prasad (SC) 236 ITR 898
• Partner dying intestate – Wife of deceased admitted as partner –

Property devolved on class I heirs in individual capacity –
Declaration that shares held by new partner in partnership was
on behalf of her HUF, not relevant – Share income is her
individual income.
CIT Vs J.R. Lalwani (Bom) 240 ITR 750
• Individual property of deceased person devolves on his son in

his individual capacity and not on the HUF of son and his sons.
CWT etc. Vs Chander Sen etc. (SC) 161 ITR 370
CIT Vs C.G. Venkatasubban (Mad) 240 ITR 674
• Property received on partition of HUF by a single coparcener

became the HUF property on his subsequent marriage –
Assessment to be in HUF status.
H.P.A.R. Rajagopalan Vs CWT (Mad) 241 ITR 344
Dr. Prakash B. Sultane Vs CIT ( Bom ) 280 ITR 593
• Hindu female inherited property from her father or mother –

She has no children - Dying intestate – Property would devolve

on heirs of her father.
Bhagar Ram Vs Teja Singh (SC) 237 ITR 364
• Karta of HUF cannot gift HUF properties to member /

coparcener / stranger.
DCIT Vs A. Tenzing (ITAT, Mad) 62 ITD 76
• Assessee beneficiary in a Trust – No absolute right in beneficial

interest – He cannot impress his beneficial interest to HUF
hotch-pot.
Maharaja Bahadursingh, Kasliwal Vs WTO (ITAT, Indore) 64 ITD 305
INDIVIDUAL
• The expression 'individual' is a unit of assessment and referable
only to a natural person ie. a human being
Udham Singh Vs CIT (Ori) 171 ITR 471
• Status of deity is individual – The Hindu idol is a juristic entity

capable of holding property and of being taxed through its
shebaits who are entrusted with the possession and
management of its property
Jogendra Nath Naskar Vs CIT (SC) 74 ITR 33
Official Trustee of West Bengal Vs CIT (SC) 93 ITR 348
• Guru Granth Sahib is a juristic person

Shiromani Gurudwara Prabandhak Committee Vs Som Nath Daro (SC) 160
CTR 61
• Official receiver is not Representative of insolvent – He holds

properties on behalf of creditors of insolvent – Transfer of
property by official receiver – Capital gains are assessable in
his hands and not in the hands of debtor insolvent
CIT Vs J. Narayana Murthy (AP) 228 ITR 99
• Administrator of estate – Capital Gains arises on sale of assets

and administrator is liable to be taxed
James Anderson Vs CIT (SC) 39 ITR 123
• The executor will continue to be assessed until the estate is

distributed among the beneficiaries according to their several
interests.
Navnit Lal Sakarlal Vs CIT (SC) 193 ITR 16
• Mother can be natural guardian even during life time of father.

Githa Hariharan & Anr. Vs Reserve Bank of India & Anr. (SC) 236 ITR 380
PARTNERSHIP FIRM
• Firm defined in sec. 2(23)
• Firm is not an independent entity – Partners are real owners of

assets of firm – Distribution of assets on dissolution of firm
does not require registration u/s 17 of the Registration
Act,1908
N. Khadervali Saheb & Anr. Vs N. Gudu Sahib (Decd) & Ors. (SC) 261 ITR 1
• For transferring immovable property by a continuing firm to its

partners, registered document is necessary – Even if one takes
the firm's properties as the properties owned and enjoyed in
common by the partners, still such common properties cannot
be possessed and enjoyed in severalty unless there is a
document in writing – In a case where the properties are owned
in common by several persons, each of them is entitled to every
particle of those properties but when it is divided and enjoyed
in severalty, there is actually a transfer of interest by mutual
release.
CIT Vs Dadha & Co. (Mad) 142 ITR 792
CIT Vs Palaniappa Enterprises (Mad) 234 ITR 635
Jansons Vs CIT (Kar) 154 ITR 432
Ram Narain & Brothers Vs CIT (All) 73 ITR 423
S.N. Syed Mohammed Saheb & Bros. Vs CIT (Ker) 68 ITR 791
• Dissolution of firm takes place by operation of law on death of

one of the partners – Two assessments to be made ie. one on the
predecessor firm and the other on the successor firm – By
virtue of proviso added to sec. 187(2), applicability of sec.
187(2)(a) is excluded
CIT Vs Ayyanarappan & Co. & Anr. (SC) 236 ITR 410
• A partner in a firm cannot be employee of that firm since a

contract can only be bilateral and the same party cannot be a
party on both the sides
S. Magnas Vs CIT (Bom) 33 ITR 538
• Minors admitted as full partners – Partnership deed not signed

by guardians of minors – No valid partnership since minor is
not competent to contract
Addl. CIT Vs Uttam Kumar Pramod Kumar (All) 115 ITR 796
CIT Vs Khetan & Co. (Cal) 45 ITR 170

Kumar Financing Corpn. Vs CIT (Cal) 122 ITR 192
Udayalakshmi Hardware Stores Vs CIT (SC) 180 ITR (St) 39
CIT Vs Oriental T. Maritime (AP) 227 ITR 244
• Adult admitted to benefits of partnership – No valid

partnership since it is impliedly prohibited by sec. 30 r.w. Expl.
2 to sec. 6 of the Indian Partnership Act, 1932
CIT Vs B. Pandiah & Co. (AP) 143 ITR 464
CIT Vs Shankar Cottons (Mad) 222 ITR 445
CIT Vs J.B. Coal Traders (Patna) 164 ITR 450
• Deed not specifying share of one partner – No valid partnership

K.S. Badrinarayana Rao Vs CIT (Kar) 152 ITR 159
• Some partners held to be benamidars – Firm not genuine

S.P. Gramaphone Co. Vs CIT (SC) 158 ITR 313
CIT Vs Jayalakshmi Oil Farm (AP) 228 ITR 443
• Duty of ITO to find whether firm was genuine – Failure to

produce partners of firm on demand by ITO – Firm held not
genuine.
Frontier Construction Vs CIT (Gau) 221 ITR 878
• One partner acting as consultant, not contributing capital, not

taking interest in the business, not entitled to share in profits /
losses was paid fixed commission and to be indemnified
against claim for damage - No genuine firm
CIT Vs Ravi Constructions (AP) 169 ITR 662
• IT Authorities are not bound to recognise a firm merely

because the firm has been registered under the Partnership Act.
If ITO finds on investigation that number of firms carrying on
business under different names really belong to one and the
same group of persons, he can hold it as not a genuine firm.
Ladhu Ram Taparia Vs CIT (SC) 44 ITR 521
• The execution of a partnership deed is not by itself a talisman

which can entitle a firm to be registered - There must be
circumstances and facts to prove that it had come into
existence and that it had carried on business.
CIT Vs S.S.A.M. Shanmugha Nadar Financing Corpn. (Mad) 141 ITR 656
• No business carried on – No partnership firm – Sec. 4 of the

Partnership Act defines “Partnership” as “the relation between
persons who have agreed to share the profits of a business
carried on by all or any of them acting for all”. The actual
existence of a business carried on by the partners is essential to
constitute the partnership
Sudarshan & Company Vs CIT (Mys) 89 ITR 85
• Letting out building & collecting rent do not amount to

carrying on of business, but are only incidental to ownership –
No valid partnership – To be assessed as AOP.
CIT Vs Veerabhadra Industries (AP) 240 ITR 5
Ramniklal Sunderlal Vs CIT (Bom) 36 ITR 464
• Partnership formed with object of purchasing lottery tickets

and sharing prize money in case of winning – No business was
said to be carried on as it cannot be taken as activities relatable
to trade, commerce or business
CIT Vs S. Mariappan (Mad) 238 ITR 826
• State Abkari Act prohibiting licensee from selling or otherwise

transferring his license – Licensee entering into partnership –
Partnership not valid
Biharilal Jaiswal etc. Vs CIT (SC) 217 ITR 746
Motilal Chunilal Vs CIT (SC) 234 ITR 472
• Gold Control Act prohibits transfer of license – Dealing in

Gold by firm on the basis of license obtained by partner –
Partnership not valid.
CIT Vs Koonan's Jewellery (Ker) 226 ITR 588
• Business of firm having been demerged into two independent

business by division of assets and liabilities by metes and
bounds between two groups of partners – Both groups were
permitted to induct new partners or to retire old partners –
Consolidated amount paid as in the garb of 'gift' by one group
to another – This is a case of discontinuance of the business qua
the old firm and the MOU seemed to have been prepared in lieu
of Dissolution deed – Subsequent preparation of a Re-
constitution deed will not alter the factual position of
dissolution of firm.
ACIT Vs G.H. Reddy & Associates (ITAT, Chennai) 120 TTJ 89
• Firm of Chartered Accountants – Carries on “Profession” and

not “Business”
G.K. Choksi and Co. Vs CIT (SC) 295 ITR 376
• Firm of clearing, forwarding and shipping agents – Not

professional firm.
CIT Vs International Clearing & Shipping Agency (Mad) 241 ITR 172
TRUST
• Trustee is a representative assessee in respect of income
received or entitled to receive on behalf of any person
under a trust declared by a duly executed written
instrument whether testamentary or otherwise including
any wakf deed or oral trust [sec. 160(iv) & (v)].
• Every representative assessee is deemed to be an assessee

[sec. 160(2)]
• If income includes profits and gains of business, tax shall be

charged on the whole of the income at maximum marginal
rate [sec. 161(1A)]
• This provision not applicable if the trust was declared
by will exclusively for the benefit of any relative dependent
and such trust is the only trust declared by him
• Where share of beneficiaries is unknown or indeterminate,

Trustees will be taxed on the relevant income at maximum
marginal rate [sec. 164]. However tax will be charged @
applicable to AOP if
• None of the beneficiaries has any other chargeable

income
• None of the beneficiary is a beneficiary under any other
trust
• Is a trust declared by any person by will and is the only
trust so declared by him
• For oral trusts created before 01-03-1970, Assessing
Officer satisfied that the trust was created bonafide
exclusively for the benefit of the dependent relatives of
the settlor or dependent members of the HUF is HUF is
the settler
• It is provident fund, superannuation fund, gratuity
fund, pension fund or any other fund created bona
fide by a person carrying on business or profession
exclusively for the benefit of his employees
• If income includes profits and gains of business, it is
charged @ applicable to AOP only if it is a trust
declared by any person by will and is the only trust so

declared by him
• In case of oral trust, tax the income at maximum marginal

rate [sec. 164A]
• Direct assessment of beneficiary is also possible [sec. 166]
• In case of a discretionary trust, Assessing Officer has option to

assess trust or beneficiary directly.
CIT Vs Bharti Devi Sarabhai (SC) 231 ITR 526
CIT Vs Dr. Anand Sarabhai Trust (SC) 231 ITR 524
• Trustees do not have power to revoke or modify any of the

objects of the Trust originally constituted – Objects cannot be
deleted even by the founder of the Trust – District Courts can
delete some clauses, but it will not have retrospective effect
Sakthi Charities Vs CIT (Mad) 149 ITR 624
CIT Vs Kamla Town Trust (SC) 217 ITR 699
• Amendment to Trust deed has no retrospective effect.

Bhriguraj Charitable Trust Vs CIT (Del) 228 ITR 50
• Trust not specifying shares of beneficiaries – Subsequent

rectification deed specifying shares – Does not relate back –
Prior to rectification, trust assessable as discretionary Trust
Ranga Rao Lottery Agencies Vs CIT (MP) 287 ITR 542
• Sole beneficiary is minor – As per Trust deed, he is not entitled

to any income when he is a minor – Assessment on Trust u/s
164(1) upheld.
ITO Vs Sheetal Sunder Trust (ITAT, Bang) 96 ITD 128
• When Assessing Officer assessed Trust, in fact, it was made on

Trustees who were representing beneficiaries as representative
assessees u/s 160(1)(iv) – Sec. 161(1A) overrides provisions
of Sec. 166—It was the duty of Assessing Officer to tax the
right person – Hence eventhough assessments were made on
beneficiaries on the basis of return filed by Trustees on behalf
of beneficiaries, Assessing Officer can assess the right person
i.e., Trustees as representative assessee on whole of income
consisting of profits & gains of business at maximum marginal

rate.
DCIT Vs Manilal Bapalal Family Benefit Trust (ITAT, Mad) 66 ITD 179
• Business carried on in terms of Trust deed – Tribunal correct in

holding that trustees were not assessable as AOP.
CIT Vs K. Shyamaraju (Trustees) & Ors. (Kar) 189 ITR 392
• As per Trust deed, Trustees had no discretion with regard to

choice of beneficiary – All assets held by them were meant to
be held solely for benefit of one solitary beneficiary
Maximum marginal rate applicable.
CIT Vs Saroja Raman & T.G. Ranjini Trust (Mad) 238 ITR 34
• Trust deed named grand daughter of author of Trust as

beneficiary entitled to Trust income on attaining majority
During the year such beneficiary has not attained majority
Hence payment was left to absolute discretion of trustees,
beneficiary is unknown and share indeterminate – Tax at
maximum rate.
Anasuya Muthanna Vs CIT (Mad) 232 ITR 561
• Where the trust deed provided that the trust was for the benefit
of the would be wife who was not in existence when the trust
was created, and there was no certainty that a marriage would
ever take place to fulfill the object of the trust, the trust could
not be treated as for the benefit of individuals who were
determinate
CIT Vs Atreya Trust (Cal) 193 ITR 716
• A beneficiary having a contingent interest in property cannot

be said to have any defined share before the contingency arises
Nirmala Bala Sarkar Vs CIT (Cal) 74 ITR 268
• Since rights of beneficiaries to get corpus of trust fund come

into existence only on a future date, interest of beneficiaries is
indeterminate or unknown – Contingent – Sec. 21(4) of WT
Act attracted –Interest of beneficiaries to be assessed.
A.V. Reddy Trust & Ors. Vs CWT (SC) 240 ITR 409
• Will comes into operation on the death of testator and not “in
presenti” - Since the deed came into effect on the date of
execution, it is not Will – Since only 10% income went to the

benefit of relatives and balance went to charitable purposes, it
cannot be said to be solely for the benefit of relatives - Not
covered by provisions (ii) & (iii) to 164(1)
Chintamani Ghosh Trust Vs CIT (All) 222 ITR 578
• Trust deriving income from business – Assessment to be made

in the hands of trustee.
CIT Vs Manoranjitham Thanga Maligai Trust (Mad) 260 ITR 143
• Trust created by or on behalf of minor without prior sanction of

Civil Court – Not a valid Trust.
T.A.V. Trust Vs CIT (SC) 236 ITR 788
• Even prior to amendment in 1972, under Sec. 12(1) voluntary

contribution themselves were taxable if they were not applied
solely for charitable or religious purposes.
R.B. Shreeram Religious & Charitable Trust Vs CIT (SC) 233 ITR 53
• Amount credited to the account of beneficiaries cannot be

treated as loan – Interest paid to such beneficiaries cannot be
allowed as deduction.
Arun Family Trust Vs CIT (Guj) 165 Taxman 15
• Amount collected in the name of God / deities, but utilized for

benefit of family concerns – Trust to be assessed as AOP at
maximum marginal rate.
ITO Vs Shri Radha Dharmarth Trust (ITAT, Del) 66 ITD 253
Exemption
Registration of Trust [sec. 12A & 12AA]
• CIT shall call for necessary documents or information and
make necessary enquiry to satisfy about genuineness of
activities [sec. 12AA(1)]
• Order to be passed before the expiry of 6 months from the

end of the month in which application was received. [sec.
12AA(2)]
• Power given to CIT to cancel registration already granted

[sec. 12AA(3) w.e.f.01-10-2004]
• No power to grant registration with retrospective effect

[sec. 12A(2) if application made after 01-06-2007]
• Property held for charitable or religious purposes [sec. 11]
• Charitable purpose defined in sec. 2(15)
• Advancement of any other object of general public utility

shall not be a charitable purpose if it involves the carrying
in of any activity in the nature of trade, commerce or
business or any activity of rendering any service in relation
to any trade, commerce or business for a cess or fee or for
any other consideration irrespective of the nature of use or
application or retention of the income from such activity if
the aggregate value of the receipts from the said activities is
more than Rs. 10 lakhs during 01-04-2009 to 01-04-2012
and Rs. 25 lakhs thereafter [w.e.f. 01-04-2009 sec. 2(15)]
• Registration of a Trust u/s 12A is a condition precedent to claim

exemption u/s 11 & 12
U.P. Forest Corporation Vs DCIT (SC) 297 ITR 1
• Lodging of application filed u/s 12AA by CIT does not amount

to “deemed granting of registration”
DIT(Exem) Vs The Anjuman-E-Khyrkhah-E-Aam (Mad) 200 Taxman 27
• Advancement of charitable objects must not involve profit

making activities – It is not enough if the object be one of
general public utility. The attainment of that object shall not
involve activities for profit – If it runs certain specific types of
services and charges remuneration, it is undoubtedly an
activity which, if carried on by private agencies, would be
taxable – Assessee cannot be granted exemption for making
income by methods which in the hands of other people would
have been exigible to tax – Denial of exemption u/s 11 upheld
Indian Chamber of Commerce Vs CIT (SC) 101 ITR 796
• The very concept of 'charity' denotes altruistic thought and

action. Its object must necessarily be to benefit others rather
than one's self.
Sole Trustee, Loka Shikshana Trust Vs CIT (SC) 101 ITR 234
• Charitable and non-charitable objects – Trustees can apply

income to any of these objects – Not eligible for exemption
u/s 11.
Daulat Ram Public Trust Vs CIT (Del) 244 ITR 514
Yogiraj Charity Trust Vs CIT (SC) 103 ITR 777
• Manner in which trust property was to be utilized, not indicated

in trust deed – Not entitled to exemption u/s 11.
Assembly Rooms Vs CIT (Mad) 241 ITR 76
• Not only objects of trust, but application of its income for

charitable purposes, is also important – Assessee engaged
solely in the business of printing a newspaper for another trust
Voluntary contributions received were utilized for improving
the printing press as well as for making advances to the other
trust – Publication of newspaper is not a charitable activity
Not eligible for exemption u/s 11
Al Madeena Charitable Trust Vs ACIT (ITAT, Coch) 76 ITD 214
• Trust created by members of family for upkeep of temples - Not

public trust but only a private family trust – The fact that
members of the public are allowed to get entry into the temples
or the temple was declared as a public temple cannot lead to the
conclusion that the trust is a public trust – Not entitled to
exemption u/s 11.
Kizhakke Kovilakam Trust Vs ACIT (Ker) 256 ITR 238
• Objective of Trust is carrying on business of race club and

scientific breeding of horses – Registration u/s 11 refused since
it was not established for any object of general public utility
Hyderabad Race Club Vs CIT (AP) 153 ITR 521 impliedly approved in (SC) 223
ITR 703
• Trust for providing accommodation in religious places to

persons of a particular community – Not entitled to registration
u/s 11 – Reference to any particular religious community or
caste in sec. 13(1)(b) has to be read ejusdem generis, with the
charitable or religious purposes for which exemption is
granted u/s 11 and Expl. to sec. 13 lifting the bar contained in
sec. 13(1)(b) cannot be construed de hors the purpose
contained in sec. 11 – In the absence of any nexus with
religious or charitable purpose, merely because Dharmashala
is constructed at a religious place, it cannot be said that it is for
religious purpose
Shri Dhakad Samaj Dharamshala Bhawan Trust Vs CIT (MP) 302 ITR 321
• Local authority constituted for planned development of State

For carrying out its objects, assessee is acquiring lands at
nominal rates and selling the same after developing it to
general public at higher rates – Assessee is not allotting houses
to poor masses free of cost – Objects not of charitable nature
but more of commercialized nature involving profit motive
Application u/s 12A rightly rejected
Punjab Urban Planning & Development Authority Vs CIT ( ITAT, Chd ) 103
TTJ 988
Jalandhar Development Authority Vs CIT (ITAT, Asr) 27 DTR 41 ; 124 TTJ 598
• Regional Computer Centre manned by Government officers

Object to promote electronic data processing and earnings
mainly through consulting services – Not entitled to
exemption u/s 11
Regional Computer Centre Vs CIT (P&H) 311 ITR 182
• Production of television and radio programmes for purpose of

telecasting through network would not constitute
advancement of any object of general public utility within the
meaning of sec. 2(15) – Not entitled for registration u/s 12AA
CIT Vs A.Y. Broadcast Foundation (Ker) 340 ITR 166
• The word 'education' has been used in sec. 2(15) in the sense of
systematic instruction, schooling or training, and not in the
wide and extended sense according to which every acquisition
of further knowledge constitutes education. Thus publishing
newspaper and magazines is not 'education'
Sole Trustee, Loka Shikshana Trust Vs CIT (SC) 101 ITR 234
• Institution preparing and coaching students for various

examinations – Not imparting of education which has any
element of normal schooling – Eventhough profit motive is not
a criteria, running such private coaching institute would not
bring assessee within the purview of sec. 2(15) – Not entitled
for registration u/s 12A
Bihar Institute of Mining & Mine Surveying Vs CIT (Pat) 208 ITR 608
• Institution conducting coaching classes for merchant navy

cadets – Not a charitable activity – Not eligible for registration
u/s 12AA
Gurship Education Trust Vs DIT(E) 2011-TIOL-635-ITAT-MUM
• Mere imparting education for primary purpose of earning

profits cannot be said to be a charitable activity – Mere trade or
commerce in the name of education cannot be said to be a
“charitable purpose” u/s 2(15) wherein “charity” is the soul of
the expression – Denial of registration u/s 12AA upheld
CIT Vs National Institute of Aeronautical Engineering Educational Society
(Uttarakhand) 315 ITR 428
Rajah Sir Aannamalai Chettiar Foundation Vs DIT(Exem) (ITAT, Chennai) 10
ITR (Trib) 424
• When the assessee collects money over and above the fees
prescribed by the Government, it amounts to selling the
education and the element of charity no longer remain in the
activities of the assessee – Not eligible for exemption u/s 11
Vodithala Education Society Vs ADIT (Exem) (ITAT, Hyd) 20 SOT 353
• Main income of assessee is from sale of medicines prepared by

it and treatment of patients was only a negligible activity – Not
falling under the definition of charitable activities as per sec.
2(15)
CIT Vs P. Krishna Warrier (Ker) 84 ITR 119
• Assessee working as agent for banks and receiving

remuneration for its services – Activities in the nature of trade
or commerce – Not entitled for registration u/s 12AA
i25 Rural Mobile Commerce Services Vs DIT(Exem) (ITAT, Bang) 128 ITD 177;
135 TTJ 381
• Assessee, a sec. 25 company engaged in providing

microfinance to traders If the promoters are ready to take the
establishment costs, then microfinance is a charitable activity,
but if it is done on commercial lines then it is not charitable
Assessee charged interest @24% - Not entitled for exemption
u/s 12AA
Janalakshmi Social Services Vs DIT (Exem) (ITAT, Bang) 33 SOT 197
Socio Economic Development Association Vs ITO 2011-TIOL-754-ITAT-MAD
• Truck operators association – Welfare activities provided are as

in a business organization and cannot be termed for general
public utility – Not entitled for registration u/s 12AA
CIT Vs Truck Operators Association (P&H) 328 ITR 636 ; 198 Taxman (Mag) 196
• No prohibition against declaration of dividends to share

holders or dealing with its profits in any manner it liked –
Wherever there is a clause of distribution of profit in any
manner in the document through which such institution is
established, the institution cannot be said to be wholly for
charitable or religious purposes – Not entitled for registration
u/s 12AA
Delhi Stock Exchange Association Ltd. Vs CIT (SC) 225 ITR 235
Bihar State Forest Department Corporation Vs CIT (Pat) 224 ITR 757
National Labour Federation Co-operative of India Ltd. Vs DIT(Exem) (ITAT,
Del) 37 DTR 38, 130 TTJ 163
• Trust must be for public benefit – Only those subscribing to

fund continuously or their dependents eligible to benefit in this
case – Benefit conferred is not public but private – Not entitled
to exemption u/s 11
CIT Vs BEL Employees Death Relief Fund and Service Benefit Fund Association
(Kar) 225 ITR 270.
CIT Vs ITI Employees Death and Superannuation Relief Fund (Kar) 234 ITR 308
• Trust established for carrying out medical and educational

activities Constructing building and letting it out to
educational institution – Not part of charitable activity Denial

of renewal of registration u/s 12AA justified
D.R. Ranka Charitable Trust Vs DIT(Exem) (ITAT, Bang) 3 ITR (Trib) 151
• Assessee engaged in manufacturing and trading activities

Assessee converted incidental objects as main objects – As per
sec. 2(15) amended w.e.f 01-04-2009, carrying on an object of
general public utility cannot be considered as charitable
activity irrespective of the nature of application of profits
Even if assessee had made donations to other charitable trusts
and had accumulated available funds in accordance with law, it
cannot be considered as charitable trust – Cancellation of
registration upheld
Aurolab Trust Vs CIT (ITAT, Chennai) 12 ITR (Trib) 74
Registration u/s 80G

• Institution or fund established for charitable purpose is
eligible
• Conditions for eligibility specified [sec. 80G(5)]
• Deduction allowed u/s 80G will not be eligible for deduction

under any other provisions [sec. 80G(5A)]
• Can incur expenditure of religious nature upto 5% of total

income of the previous year [sec. 80G(5B)]
• Though objects of the trust were charitable, enquiry revealed

that trust was engaged mainly in the construction of temple
which is not a charitable activity – Denial of registration
upheld
KirtichandTarawati Charitable Trust Vs DIT (Exemption) & Ors. (Del) 232
ITR 11
• Though the trust deed contains aspects of culture and social

objectives, the main objective is to spread and preach Sufism, a
part of Islam – Such religious trusts cannot be granted
exemption u/s 80G
International Sufi Centre Vs DIT(Exem) 2011-TIOL-237-HC-KAR-IT
• For 80G registration, Trust should qualify for exemption

u/s 11.
Mundakapadam Mandirams Society Vs CIT (Ker) 258 ITR 395
• Though memorandum contains many charitable activities, the

only activity by the assessee Trust in the past was construction
of shopping complex – Renewal of 80G approval rightly
rejected by CIT.
Madani Musafir Khana Welfare Society Vs CIT & Anr. (Patna) 264 ITR 481
• Donation to charitable trust – Trust for religious purposes also

Trustees could spend the entire income of trust for religious
purpose – Donation to such trust not entitled to 80G deduction.
Upper Ganges Sugar Mills Ltd Vs CIT (SC) 227 ITR 578
• One of the objects of the trust is to publish original texts of all

Vedas, Ithihasaas, Darshanas and other works of Indian
philosophy, lectures, arts etc. – Contention that books like
Mahabharatha, Ramayana and Bhagavatham are not religious
books cannot be accepted – Denial of registration u/s 80G
upheld
Arsha Vijnana Trust Vs D.P. Sharma, DIT(Exemptions ) (AP) 295 ITR 437
• One of the aim is for religious nature and several other objects
are not for charitable purposes as they involve activities in the
nature of trade - Accounts of assessee not correlating with
charitable action – CIT rightly rejecting application u/s 80G
Vidya Institute Vs CIT (ITAT, Del) 3 ITR (Trib) 491
• Trust established for carrying out medical and educational

activities – Constructing building and letting it out to
educational institution are not part of charitable activity
Denial of renewal of registration u/s 80G justified
D.R. Ranka Charitable trust Vs DIT(Exem) (ITAT, Bang) 3 ITR (Trib) 151
• Charitable institution established for both charitable and

religious purposes – when expenditure on religious activities
including salary to preachers engaged to spread the teachings
of Lord Jesus Christ exceeds 5% of the total income, it is hit by
sec. 80G(5)(ii0 r.w.s. 80G(5B) – CIT rightly rejected
registration u/s 80G
Church of Christ Social service Society Vs CIT (ITAT, Visakh) 67 DTR 330
Registration u/s 10(23C)

[earlier sec. 10(22) and (22A)]
• University or educational institution existing solely for

educational purposes and not for profit if the aggregate
annual receipts do not exceed Rs. 1 crore
• Hospital or other institution existing solely for

philanthropic purpose and not for profit if the aggregate
annual receipts do not exceed Rs. 1 crore are exempt
• When application for renewal of exemption u/s 10(23C)(vi) is

made, prescribed authority shall examine whether income of
applicant has been applied solely for purposes of education –
Registration under State Act is not conclusive proof of an
assessee being a charitable organization and authority can
make independent examination
New Noble Educational Society Vs CCIT (AP) 334 ITR 303 ; 58 DTR 63
• Expression 'educational institution' would take colour from the

preceding word 'university' – Hence the expression “other
educational institution” would mean an institution imparting
formal education in an organized and systematic training
where the institution would be accountable to some authority
and where there would be teachers and taught, the former
having some degree of control over the latter – It must be more
than a body carrying on charitable activities in the field of
education as contemplated by sec. 2(15) – Assessee does not
conduct any courses in formal education Not affiliated to /
registered by any authority – Not eligible for exemption.
Saurashtra Education Foundation Vs CIT (Guj) 273 ITR 139
• Assessee conducting examinations for recruitment to various

public sector banks – Income earned not exempt u/s 10(22)
Institute of Banking Personnel Selection Vs ADIT (ITAT, Mum) 67 ITD 160
• Ignorance of law is not an excuse for filing belated application

for registration – Granting of registration u/s 12A and 80G in
earlier years does not automatically entitle the assessee to have
approval u/s 10(23C) in a later year – Assessee neither
maintained proper books of account nor proper receipts of
donations – Denial of registration upheld

All India J.D. Educational Society Vs DGIT(Exem) (Del) 338 ITR 218
• Assessee running hospital, income of which is exempt u/s

10(22) – Interest income from banks, UTI, gift shop income
etc. not entitled to exemption.
National Health & Education Society Vs ADIT (Exemption) (ITAT, Mum)
70 ITD 330
• If the surplus is a regular feature and is a result of intentional

charging of abnormal high fee not commensurate with the
expenditure, exemption u/s 10(22) cannot be allowed
ACIT Vs Bal Bharti Nursery School (ITAT, All) 82 ITD 71
All India Personality Enhancement & Cultural Centre for Scholars, AIPECS
Society Vs DCIT (ITAT, Del) 91 ITD 240
• When the assessee collects money over and above the fees
prescribed by the Government, it amounts to selling the
education and the element of charity no longer remain in the
activities of the assessee – Not eligible for exemption u/s
10(22)
Vodithala Education Society Vs ADIT (Exem) (ITAT, Hyd) 20 SOT 353
P.S. Govindasamy Naidu & Sons Vs ACIT (Mad) 324 ITR 44
• Violation of conditions u/s 11(5) regarding form of investment

/ deposit in any of the three F.Y. – Application made u/s
10(23C)(vi) rejected – Upheld
Priyadarshini Educational Academy Vs DGIT(Inv.) (AP) 333 ITR 347
• Search operation showed discrepancy in accounts, receipt of

deposits and payments of interest – Withdrawal of exemption
u/s 10(23C)(vi) for a subsequent period upheld – Term 'solely'
has to be construed exclusively and not with any proportion
Valliammai Society Vs DGIT(Inv.) (Mad) 327 ITR 337
• Trust established with the aim of imparting education

Educational institution not established – Income of trust
spent in providing scholarships and financial assistance to
students – Trust not entitled to exemption u/s 10(22).
CIT Vs Sorabji Nusserwanji Parekh (Guj) 201 ITR 939
CIT Vs Saraswath Poor Students Fund (Ker) 150 ITR 142
• Sec. 10(22) exemption – Assessee should establish that it is

engaged in some educational activity not for profit – Mere
publication of books not sufficient.
Oxford University Press Vs CIT (SC) 247 ITR 658
CIT Vs Assam State Book Production and Publication Corp. Ltd. (Gau) 288
ITR 352
• For claiming exemption u/s 10(22) institution must exist solely

for purpose of education – Trust having other objects running
educational institution – Not entitled for exemption
CIT Vs Gurukul Ghatkeswar Trust (AP) 332 ITR 611
Xavier's Institute of Management Vs State of Orissa & Ors. (Ori) 66 DTR 169
• Sec. 10(23C) – Income must be applied for educational

purposes in India – If application of income is in U.S.A., not
eligible for exemption
American Hotel and Lodging Association Educational Institute Vs CBDT (Del)
289 ITR 46
• Sec. 10(23C) – Educational Society earning net surplus –

Investment in fixed assets is no ground to claim exemption –
Claim rejected.
CIT Vs Queen's Educational Society (Uttarakhand) 177 Taxman 321
• The availability of the exemption should be evaluated each

year to find out whether the institution existed during the
relevant year solely for educational purposes and not for the
purposes of profit
Aditanar Educational Institution Vs Addl. CIT (SC) 224 ITR 310
• Since section uses the expression 'existing solely for

educational purposes', the actual existence of the educational
institution is a pre-condition for exemption – Mere taking of
steps for the establishment of the educational institution is not
sufficient to attract the provisions of exemption
CIT Vs Devi Educational Institution (Mad) 153 ITR 571
• Museum is not an educational institution – Simply because

certain persona may add something to their knowledge by
visiting the museum, it cannot be said that the museum exists
solely for educational purposes
CIT Vs Maharaja Sawai Mansinghji Museum Trust (Raj) 169 ITR 379
• Limitation laid down for making application u/s 10(23C) by

way of fourteenth proviso w.e.f. 01-06-2006 – Delay in
application cannot be condoned
• For claiming exemption u/s 10(23C), institution should exist

solely for purposes of education – Institution having other
objects – Amendment of objects made lateron omitting such
objects which are not educational in nature – No certificate
from Registrar of societies produced authenticating such
alteration – Exemption denied
• For claiming exemption u/s 10(23C)(vi), income earned by the

assessee is to be used solely for educational purposes – If
assessee diverted part of its funds to another Trust doing
educational activities along with other objects, it cannot be
said that income of the institution is applied exclusively to the
objects of the asssesee institution – Denial of benefit u/s
10(23C)(vi) upheld
St Francis Convent School Vs CBDT & Ors. (P&H) 67 DTR 251
Assessment of charitable trust

• Income from property held for charitable or religious
purposes is exempt if atleast 85% of such income is applied
to such purposes in India [sec. 11(1)]
• If 85% income was not applied and want to accumulate

more than 15% income, file Form No. 10 specifying the
object for which it is accumulated and period of
accumulation which should not exceed 5 years [sec. 11(2)]
• If such accumulated income is

• Applied for purposes other than the purpose
mentioned in Form No. 10, or
• Ceases to remain invested / deposited with the
modes specified in sec. 11(5), or
• Not utilized for the specific purpose in the specified
period, or
• Paid to other charitable trusts or institutions
Deemed to be income of the previous year of such default [sec.
11(3)]
• Business income not exempt unless the business is

incidental to the attainment of objectives of the trust and
separate books of account are maintained for such business
[sec. 11(4A)]
• Forms and modes of investing / depositing money specified

[sec. 11(5)]
• Voluntary contributions not specifically received towards

corpus of the trust is taxable [sec. 12]
• Value of any medical or educational services received by a

person referred to in sec. 13(3)(a), (b), (c), (cc) or (d) from a
trust running a medical or educational institution free of
cost or at concessional rate – deemed as income of trust
• In case of charitable or religious trusts, income not exempt

u/s 11 or 12 will be charged as if it is income of an AOP [sec.
164]
• If exemption u/s 11 or 12 is denied on account of violations

mentioned in sec. 13(1)© or (d), tax the relevant income at
maximum marginal rate [sec. 164]
• Anonymous donation received by a university or

educational institution, hospital or medical institution run
by a trust – to be taxed at 30% of the amount in excess of
higher of 5% of the total donations or Rs. 1 lakh. [sec.
115BBC]
• Repayment of loan originally taken to fulfill object of the

trust will amount to application of income for charitable
and religious purposes [Circular No. 100 dated 24-01-
1973]
• If object of the trust is advancement of education, granting

of loans even with interest will amount to application of
income for charitable purposes and repayment of loan will
be treated as income in the year of repayment [Circular No.
100 dated 24-01-1973]
• When amounts are taxed u/s 11(3) benefit available u/s

11(1) is not eligible [Circular No. 29 dated 23-08-1968]
• Registration u/s 12AA does not necessarily entitle the assessee

to get the income excluded – It only entitles the assessee to
claim such exemption which otherwise could not be claimed
CIT Vs Red Rose School (All) 163 Taxman 19
• The entire scheme of assessment of charitable trust is laid down

in sections 11, 12 & 13 and the provisions operate as an
integrated code.
Surat City Gymkhana Vs DCIT (Guj) 254 ITR 733
• Income of Trust to be arrived at in a commercial manner

without classification under various heads.
CIT Vs Rao Bahadur Calavala Cunnan Chetty Charities (Mad) 135 ITR 485
• Once the exemption u/s 11 & 12 is withdrawn, all the receipts

of the trust either by voluntary contribution or income derived
from its property would be an income of the trust in the normal
course and is chargeable to tax
Kanahya Lal Punj Charitable Trust Vs DIT (Exem) (Del) 297 ITR 66
Chairman, Andhra Pradesh Welfare Fund Vs CIT (AP) 143 ITR 82
• Interest on investments received by Trust would not be covered

by principle of mutuality – Not entitled to exemption.
CIT Vs ITI Employees Death and Superannuation Relief Fund (Kar) 234 ITR 308
• Surplus earned by organizing exhibition, is business income

No separate books maintained for this business, but income
can be deciphered from common books of the institution
→ Does not amount to compliance with requirement of sec.
11(4A) and hence not entitled for exemption
Indian Machine Tools Mfrs. Association Vs ADIT (Exemption) (ITAT, Mum) 70
ITD 304.
• Since assessee could not prove that donors were able to give
direction before / at the time of donation to corpus funds nor
assessee was maintaining separate accounts for this purpose,
Assessing Officer was right in denying exemption claimed u/s
12.
Shri Digambar Jain Naya Mandir Vs ADIT (ITAT, Cal) 70 ITD 121
• Donation sent to assessee Trust with specific directions to be

spent on organizing 'kisan rally' - To be treated as income of
assessee since such receipts could not be treated as corpus
donations.
Khemraj Nemichand Shrishrimal Charitable Trust Vs CIT (MP) 231 ITR 43
• Deemed income u/s 11(3) due to non-utilization of

accumulated income made in earlier years – Not eligible for
accumulation for further period
The Trustees, The B.N. Gamadia Parsi Hunnarshala Vs ADIT (Exemption)
(ITAT, Mum) 77 TTJ 274
• When the amount is returned by the beneficiaries to the trust,

receipt is income of the trust in the year of receipt
CIT Vs Cutchi Memon Union (Kar) 155 ITR 51
• Claim of depreciation on assets cost of which were already

allowed in earlier years as application of income was rejected
DDIT(Exem) Vs Lissie Medical Institutions 2010-TIOL-644-ITAT-COCHIN
DDIT(Exem) Vs Adi Sankara Trust 2011-TIOL-369-ITAT-COCHIN
• Income applied in earlier year cannot be treated as applied for

the subsequent year – Claim for set off of excess expenditure
over income of earlier years against shortfall of application of
income in a subsequent year needs to be rejected
Pushpawati Singhania Research Institute for Liver, Renal & Digestive Diseases
Vs DDIT (Exem) (ITAT, Del) 29 SOT 316
• Accumulation of income u/s 11(1)(a) should be calculated on

the basis of total receipts of the trust and not its total income
after deducting administrative expenses
Krishi Utpadan Mandi Samiti, Janpur & Anr. Vs DCIT (ITAT, Lucknow) 51
DTR 331
Denial of exemption
• Exemption u/s 11 & 12 to be denied, if
• Any part of income does not enure for the benefit of
public
• Created or established for the benefit of any particular
religious community or caste
• Any part of income enures or applied or property used
by person referred in sec. 13(3)
• Funds are invested or deposited otherwise than in any
of the modes specified in sec. 11(5) or as shares in a
public sector company
• Situations where income or property of trust is used for

benefit of person referred in sec. 13(3) enumerated [sec.
13(2)]
• Anonymous donation specified in sec. 15BBC not exempt

[sec. 13(7)]
Note : Principle of consistency laid down in Radhasoami Satsang

Vs CIT (SC) 193 ITR 321 does not have any application in other
cases since the decision reads as under :-
“The Counsel for the Revenue had told us that the facts of this
case being very special, nothing should be said in a manner which
would have general application. We are inclined to accept this
submission and would like to state in clear terms that the decision
is confined to the facts of case and may not be treated as an
authority on aspects which have been decided for general
application”
• Trust advanced money to a company in which trustees were

Directors – Advance was for construction of hospital but
amount not utilized during relevant accounting year However
assessee did not realize any interest on such advances which
remained unspent for hospital construction – Money cannot be
aid to be utilized for charitable purposes and in fact it was a
diversion to interested persons - Income not entitled to
exemption.
CIT Vs V.G.P. Foundation (Mad) 262 ITR 187
• Huge sums of money advanced to company having substantial

interest in Trust – No interest charged nor adequate security
taken – Violation u/s 13(3) r.w.s 13(1)© and 13(2)(a) – Denial
of exemption u/s 11 & 12 upheld
Kanahya Lal Punj Charitable Trust Vs DIT (Exem) (Del) 297 ITR 66
• Fixed deposits in the name of assessee trust were pledged as

security with bank for enabling one of the members of the
assessee to avail loan without adequate security and
consideration – Violation of 13(1)© r.w.s. 13(2)(b) Not
entitled for exemption
Action for Welfare & Awakening in Rural Environment Vs DCIT (AP) 263 ITR 13
• Property of trust let out at meager rent to a firm in which one of

the trustees is partner – Not entitled to exemption.
Ram Bhawan Dharamshala Vs State of Rajasthan (Raj) 258 ITR 725
• Trust – Payments made to interested persons – Not eligible for

exemption.
CIT Vs Nagarathu Vaisiyargal Sangam (Mad) 246 ITR 164
• Misappropriation and misutilization of trust funds – Not

entitled to exemption u/s 10(22)
CIT Vs Sir M. Visveswaraya Educational Trust (Kar) 319 ITR 425
• Assessee institution advanced amount to another institution

which was not entitled to exemption – Interest-free advance
given to Secretary of institution – Not entitled to exemption
New Noble Educational Society Vs CCIT (AP) 334 ITR 303 ; 58 DTR 63
• Refrigerator purchased by Trust and placed in residence of

managing trustee till trust buildings were ready – Trust not
eligible for exemption.
Agappa Child Centre Vs CIT (Ker) 226 ITR 211
• Donation received from associated companies used for the

benefit of children of Trustees – No exemption u/s 11
Concast (India) Educational Trust Vs ITO (ITAT, Bom) 57 ITD 599
• A part of Trust income was being used directly or indirectly for

benefits of its founder and Managing Director – No exemption

u/s 11 or 10(22).
Skin Institute & Public Services Charitable Trust Vs ADIT (Exemption) (ITAT,
Del) 65 ITD 125
Chandrika Educational Trust Vs CIT (Ker) 139 CTR 96
• Trust established in Kerala provided that the benefits were

available to muslims all over the world – Though muslims
were notified as backward community in Kerala, the position
is not so outside Kerala – Sec. 13(1)(b) is attracted and hence
not entitled to exemption
CIT Vs Palghat Shadi Mahal Trust (SC) 254 ITR 212
• Proviso to Sec. 13 of IT Act and Sec. 21A of WT Act lays down

that exemption will not be denied if part of the income is
applied for benefit of a person referred to in Sec. 13(3), if such
use or application is in compliance to mandatory terms of Trust
which is created before 1.4.62 – Mandatory terms should have
existed before 1.4.62 – Subsequent amendment of Trust deed
imposing such a term – Not eligible for exemption.
CIT Vs Rattan Trust (SC) 227 ITR 356
• Certain amount set apart as provision was not actually applied

for charitable purposes – Not entitled to exemption u/s. 11.
Nachimuthu Industrial Association Vs CIT (SC) 235 ITR 190
• Trust founded by members of family – Part of the income of

firms run by family members would go to the trust - Income
thus earned by the Trust from family concern in AY 80-81 but
actually given to the trust only in 1984 – During the period,
such sums remained with firm – Cannot be said to have been
used for charitable purposes – Violation as per provisions of
sec. 13(1)©(ii) r.w.s 13(3)(a) and (b) and hence not eligible for
exemption.
CIT Vs Muthoottu Charitable Trust (Ker) 227 ITR 203
• Assessee floated a joint venture company in order to facilitate

its public distribution system and contributed to its share
capital as promoter – Assessee thus holding shares in a
company not being a public sector company otherwise as
prescribed under sec. 11(5) – Provisions of sec. 13(1)(d)(iii)
applicable – Not entitled to exemption under sec. 11.

A.P. State Civil Supplies Corporation Ltd. Vs ACIT (ITAT, Hyd) 21 SOT 481
• Lease of land by trustee to trust – Trust invested huge sum on

such land by constructing a building – Such building was
leased back to transferee who derives advantage – Trust not
entitled to exemption u/s 11
Subharam Trust Vs DIT(E) (ITAT, Bang) 126 ITD 33; 317 ITR (AT) 65
• Payment of royalty by assessee trust running educational

institution to a company in which members of trust are
substantially interested – Collusive transaction to transfer
profits of assessee to interested persons and sec. 13(1)©
applies – Exemption u/s 11 correctly withdrawn
Addl.DIT(Exem) Vs Chirec Education Society (ITAT, Hyd) 58 DTR 453 ; 140
TTJ 117
• 'Any fund' occurring in sec. 13(1)(d) indicates that it is not

restricted to surplus funds alone but also includes other funds
like corpus fund, general funds, borrowed funds etc.
Contribution to chit fund scheme not an investment in the
mode prescribed u/s 11(5)
Priyadarshini Educational Academy Vs ACIT (ITAT, Visakh) 125 ITD 141
• Investment in chit funds is not in accordance with the modes

prescribed in sec. 11(5) – Not entitled for exemption
Rabindranath Educational Trust Vs Union of India (Ori) 191 Taxman 379
• When assessee Trust grants interest free loan to its Manager

without any surety, it amounts to violation of sec. 13(1)© and
13(2)(a) – Entire income of trust is liable to be taxed even if
only part of income is applied for the benefit of the specified
persons
CIT Vs Vijita Educational Society 2011-TIOL-591-HC-All-IT
• Assessee advanced certain sum without any security to its

treasurer – It could not furnish any detail about rate of interest
and mode of recovery of loan and same was also not reflected
in its books as well as audit report – Clear case of violation of
sec. 13 and exemption had been rightly denied
CIT Vs Audh Educational society (All) 202 Taxman 166
CLUBBING OF INCOME
• Transfer of income without transferring the asset to be
assessed in the hands of the transferor [sec. 60]
• Income arising on revocable transfer of any asset to be

assessed in the hands of the transferor [sec. 61]
• In case of transfer irrevocable for a specific period, to
be assessed in the hands of the transferor after expiry
of such period [sec. 62]
• Transfer and revocable transfer defined [sec. 63]
• Income of individuals to include income of spouse, minor

child etc.
• Salary commission, fees or any other remuneration
received by spouse from a concern in which individual
has substantial interest (20% or more voting power of
share of profits) – not applicable if spouse has technical
or professional qualification and the income is
attributable to such qualification
• Income from assets transferred directly or indirectly
to the spouse otherwise than for adequate
consideration or in connection with an agreement to
live apart
to the son's wife otherwise than for adequate
consideration
to any person or AOP otherwise than for adequate
consideration if such income is for the immediate or
deferred benefit of spouse or son's wife
• Clubbing to be done in the hands of the spouse whose total

income other than the income referred to above is higher;
once it is included in the hands of husband or wife, clubbing
to be done in the same hand in subsequent years
• Income accruing to minor child, except child suffering

from disability of the nature specified in sec. 80U
• Not applicable if income arises on account of any

manual work done by him or activity involving
application of his skill, talent or specialized
knowledge and experience
• Clubbing to be done in the hands of the parent whose total

income other than the income referred to above is higher or
income of the parent who maintains the child (in case the
marriage does not subsists); once it is included in the hands
of husband or wife, clubbing to be done in the same hand in
subsequent years
• Individual transferring his separate property to his HUF

without adequate consideration – income from such
property will be assessed in the hands of the individual
• To attract sec. 63 it is not necessary that power of revocation

vesting in transferor should be absolute or unconditional – Sec.
63 is attracted even where such a power has to be exercised by
transferor jointly with another person or with concurrence or
consent of another person
Jyotendrasinhji Vs S.I. Tripathi (SC) 201 ITR 611
• Gift made by a husband governed by the Portuguese Civil Code

to his wife are 'revocable gifts' within the meaning of sec. 61
CIT Vs Govind B.C. Ghanekar (Bom) 206 ITR 438
• Inclusion of income of minor child from firm – Parent need not

be a partner.
CIT Vs Dhanushkodi (Mad) 252 ITR 794
• Clubbing of income of minor with that of father eventhough

source of investment is not from father.
Chandrakala Bai Naila Vs CIT (MP) 178 ITR 341
CIT Vs Bajranglal (AP) 176 ITR 334
CIT Vs Chinubai M. Modi (Guj) 69 ITR 76
CIT Vs S.J.S. Selvalakshmi Ammal (Mad) 240 ITR 934
CIT Vs Pelleti Srideramma ( SC ) 216 ITR 826
• Inclusion of income of minor child from firm – Father need not

have any income.
CIT Vs Krishna Iyer (Decd) (Mad) 249 ITR 498
• Income of step-child can be clubbed u/s 64(1)(iii) – Step-child

is included in the definition of child u/s 2(15B) – There is no
question of examining the principles or provisions of personal
law of assessee for the purposes of IT assessment
CIT Vs Abdul Rahim Khan M. Pathan (Guj) 243 ITR 409
• Property given by an oral gift by a Mohammedan to his wife

out of natural love and affection is not for adequate
consideration or under an agreement to live apart. Hence Sec.
64 applicable – Clubbing to be done.
Syed Sadique & Ors Vs CIT (SC) 239 ITR 263
• A mere promise to marry is not adequate consideration

CIT Vs Vivian Bose (Bom) 118 ITR 989
• Assets transferred to wife – Capital Gains derived by wife by

selling the assets – To be clubbed in the hands of assessee,
husband.
Sevantilal Maneklal Sheth Vs CIT (SC) 68 ITR 503
• Cash transferred to wife which was invested by her in a firm –

Income from firm was includible in the Total Income of
husband
Kaushalyabai Vs CIT (MP) 238 ITR 1008
H.P. Dandiwala Vs CIT (All) 231 ITR 281
• Assessing giving gifts to wife – Wife invested this amount in

firm A – Later on, wife withdrew the amount from firm A and
invested it in firm B in which assessee is a partner – Clubbed in
the hands of assessee u/s 64(1)
CIT Vs Harkeshdas (MP) 228 ITR 289
• Spouse must have technical or professional qualification and

income must be solely attributable to the application of his / her
technical or professional knowledge and experience –
Otherwise, income to be clubbed
J.M. Mokashi Vs CIT (Bom) 207 ITR 252
• Cross-gifts to be included for clubbing purposes.

CIT Vs C.M. Kothari (SC) 49 ITR 107
Om Dutt Vs CIT (P&H) 277 ITR 63
• Clubbing of income of spouse / minor child – No separate

deduction u/s 80L is eligible for clubbed income.
ITO Vs Yogi H. Aggarwal (ITAT, Mum) 96 ITD 288
• Finding that firm's business was actually being conducted by

another firm – Firm was not genuine
Oswal Trading Co. Vs CIT (MP) 233 ITR 385
• Firm carrying on money lending business – Three ladies

closely related to partners of the firm forming another firm for
carrying on similar business – Finding that business was
actually carried on by original firm – Partnership formed by
ladies not genuine – Clubbing of income of both firm.
Sri Krishna Finance Corporation Vs CIT (AP) 169 ITR 611
• Assessee routed certain sales through a sister concern to make

that concern earn profit – Actual delivery made by assessee
directly to ultimate purchaser – Sister concern situated in the
same premises, has no godown, incurred no freight and
transportation charges – Colourable device – Profit shown to
have been earned by sister concern assessable in the hands of
assessee.
Bansal Ispat (Lucknow) (P) Ltd. Vs ACIT (ITAT, All) 61 ITD 246
• Assessee managing affairs of firm – Benami of assessee

Income to be included in the hands of assessee
CIT Vs G.M. Dharia ( Kar ) 243 ITR 104
• Assessee purchased lease rights of a firm for 5 years – Sold

such rights within 5 months to minor grand daughter and took
it back on lease – Assessee did all work relating to exhibition,
exploitation and distribution of the film and the asset in fact
remained with the assessee – Sham transaction – Income of
minor grand daughter to be clubbed with assessee as benami.
G. Krishnammal Vs DCIT (ITAT, Mad) 66 ITD 83
Chapter 3
INCOME – CHARGEABILITY
AND COMPUTATION
INCOME – CHARGEABILITY AND COMPUTATION 129
GENERAL
• Income defined in sec. 2(24) – It is an inclusive definition.
• Total income of the previous year is chargeable to tax

(sec. 4)
• Scope of total income prescribed (sec. 5)
• For a resident, total income includes all income from

whatever sources which is
• Received or deemed to be received in India by or on
behalf of such person
• Accrues or arises or deemed to accrue or arise in India
• Accrues or arises outside India
• For a not ordinarily resident, total income includes all

income from whatever sources which is
• Accrues or arises outside India only if it is derived
from a business controlled in or a profession set up in
India
• For a non-resident, total income includes all income from

whatever sources which is
• Under the scheduler system of taxation, income is classified

under different heads (sec. 14)
• Awards in the case of a sportsman who is not a professional,

will not be liable to tax as it would not be in the nature of
income [ Circular No. 447 dated 22-01-1986 ]
• A lump sum payment made gratuitously or by way of

compensation or otherwise to the widow or other legal
heirs of an employee who dies while still in active service, is

not taxable as income [ Circular No. 573 dated 21-08-1990 ]
• Ex gratia payment received by a person or his heir from

Govt. / local authority / PSU consequent upon injury to the
person or death of a family member, while on duty, is liable
to tax [ Circular No. 776 dated 08-06-1999 ]
WHETHER A RECEIPT IS INCOME

• Definition of 'income' in sec. 2(24) is an inclusive definition
Anything which can properly be described as income is taxable
under the Act unless it is exempted under one or other
provisions of the Act
Emil Webber Vs CIT (SC) 200 ITR 483
• Even if a receipt does not fall within the ambit of any of the sub-
clauses in sec. 2(24), it may still be income if it partakes of the
nature of the income – The word 'income' is of widest
amplitude and it must be given its natural and grammatical
meaning
• Sec. 2(24)(iv) merely provides that if any relative of a director

derives the benefit or perquisites from a company, it will be
deemed to be his income. It does not state that the income
should be derived by a relative in any particular capacity –
Rent free accommodation received by assessee who is a
relative of director – To be assessed under the head Other
Sources
Lala Lakshmipat Singhania Vs CIT (All) 104 ITR 466
• Shares allotted to a director pursuant to an agreement with

promoters constitutes benefit assessable to tax in the hands of
the director - In the case of a person having substantial interest
as statutorily defined, the capacity in which he was given the
benefit or perquisite is immaterial
D.M. Neterwalla Vs CIT (Bom) 122 ITR 880
• Even if the benefit derived by the director of the company is

capital in nature, it can also be brought under the term 'value' of
any benefit as contemplated u/s 2(24)(iv) – In order to tax the
benefit derived by a director from the company, it is not
necessary that the director should be an employee-director –
Assessee director of company purchasing buses from the
company at Written down value which was much lower than
the market value – Difference assessable as income
CIT Vs S. Varadarajan (Mad) 224 ITR 9
• Personal expenses of assessee director through credit cards

were paid for by a defunct company of the group to which
assessee belonged to – Addition u/s 2(24)((iv) upheld
Ravi Prakash Khemka Vs CIT (Mad) 295 ITR 33
• Assessee deposited 1 lakh with Company in which he was a

Director – Company advanced 3 lakhs loan to mother and
sisters of assessee – They in turn, advanced it to assessee and
assessee deposited the same with Company – Subsequently
Company wrote off loans to mother and sisters Colourable
device – Income of assessee u/s 2(24)(iv)
CIT Vs S. Kannan (Kar) 118 CTR 318
• Capital gains chargeable u/s 46(2) are also included in the

definition of income u/s 2(24)
Addl.CIT Vs Uma Devi Budhia (Pat) 157 ITR 478
CIT Vs M.A. Alagappan (Mad) 108 ITR 1000
• Slump sale – MOU specifying that the amount paid was

towards handing over vacant premises along with furniture
and not mentioned about transfer of goodwill – Transaction is
not slump sale – Not a Capital receipt
P. Shambu Aithal Vs ITO (ITAT, Chennai) 4 ITR (Trib) 291
• Winning from Caption contest – Not a casual and non-

recurring receipt – Income received on the basis of contract of
the contest
K.P.K. Ghouse Vs CIT (All) 268 ITR 260
• Winning from Sikkim Lottery – Income which accrued or

arose in Sikkim was liable to be taxed in India if either the
person to whom such income had accrued or arisen was
resident in India or if such income was received in India by any
person whether resident or non-resident – Even if it is taxed in
Sikkim under the local laws, it is taxable under the I.T. Act in
India – Where tax is imposed by two different legislatures,
under different enactments, question of double taxation in
stricto sensu does not arise
Mahaveer Kumar Jain Vs CIT (Raj) 277 ITR 166
• Winnings from Sales promotion Schemes – Taxable

consideration paid for purchasing the refrigerator also
included the consideration for the scratch card through which

he won the car
D.N. Thakur Vs ITO (ITAT, Chd) 105 ITD 692
HEAD OF INCOME
• Where an item falls specifically under one head, it has to be
charged under that head and no other
United Commercial Bank Ltd. Vs CIT (SC) 32 ITR 688
East India Housing & Land Development Trust Ltd. Vs CIT (SC) 42 ITR 49
CIT Vs Chugandas & Co. (SC) 55 ITR 17
• The method of book-keeping followed by the assessee will not

decide under which head a particular income will go
Nalinikant Ambalal Mody Vs S.A.L. Narayan Row,CIT (SC) 61 ITR 428
RECEIPT OF INTEREST
Assessable as “Income from Other Sources”
• Interest earned before commencement of business on short

term deposit with banks out of term loan secured from
financial institutions – To be assessed under the head “Other
Sources”
Tuticorin Alkali Chemicals and Fertilizers Limited Vs CIT (SC) 227 ITR 172
CIT Vs Coromandal Cements Ltd, (SC) 234 ITR 412
CIT Vs Autokast Ltd. (SC) 248 ITR 110
South India Shipping Corporation Vs CIT ( Mad ) 240 ITR 24
CIT Vs Kisan Sahakari Chini Mills ( All ) 280 ITR 617
Consolidated Fibres & Chemicals Ltd. Vs CIT (Cal) 273 ITR 353
Collis Line P. Ltd. Vs CIT (Ker) 135 ITR 390
CIT Vs L and T McNeil Ltd. (Bom) 202 ITR 662
CIT Vs Monarch Tools (P.) Ltd. (Mad) 260 ITR 258
• There is no relation between interest paid on capital borrowed

for setting up industry and interest earned on short term
deposits – Interest received to be assessed under “Other
sources income” and cannot be set off against interest
payments
Godavari Fertilizers and Chemicals Ltd,. Vs CIT (AP) 198 ITR 388
CIT Vs Hindustan Electro Graphites Ltd. (MP) 177 ITR 465
CIT Vs Tamil Nadu Industrial Development Corpn. Ltd. (Mad) 189 ITR 670
CIT Vs Manipur Spinning Mills Corpn. Ltd. (Gau) 226 ITR 551
• Share capital received deposited in bank – Interest earned is to

be assessed under “Other Sources”
Traco Cable Co. Ltd. Vs CIT (Ker) 72 ITR 503
Madhya Pradesh State Industries Copn. Ltd. Vs CIT (MP) 69 ITR 824
CIT Vs Assam Plantation Crops Dev. Corpn. Ltd. (Gau) 221 ITR 392
• Unpaid sale consideration can be treated as loan – Interest

accruing thereon to be assessed as “Income from other
sources” and not “Capital gains” as it is not part of profit on
sale of assets.
Mount Stuart Tea Estate & Amar Coffee Plantation Vs CIT (Mad) 239 ITR 489
Tiruchirapalli Co-op. Marketing Society Ltd Vs CIT (Mad) 247 ITR 830
• Taking FDRs and pledging them as securities for taking loans

are two separate transactions – FDRs pledged as securities in
bank for taking loans for business – Interest on such FDRs is

Income from Other Sources
CIT Vs V.P. Gopinathan (SC) 248 ITR 449
DCIT Vs Allied Construction (ITAT,SB-Del) 105 ITD 1
• Interest accrued on IDBI Bonds to be assessed as Income from

other Sources and not under the head “Capital gains”
ACIT Vs Jitender Kumar Gupta (ITAT, Del) 38 DTR 80 ;130 TTJ 328
• Interest accrued on IVP to be assessed as Income from other

Sources and not under the head “Capital gains”
Dr. R.P. Patel Vs CIT (Ker) 26 DTR 266
DCIT Vs Lakshmi General Finance Ltd. 2011-TIOL-804-ITAT-MAD
• Interest earned on Income tax refunds is assessable under the

head “Income from other Sources”
B. Seshamma Vs Cit (Mad) 119 ITR 314
Atria Power Corporation Ltd. Vs DCIT (ITAT, Bang) 128 ITD 322
• Interest on advance-tax paid to assessee – Interest reduced

subsequently – Amount received earlier does not lose its
character of income
CIT Vs Syndicate Bank (Kar) 159 ITR 464
Tamil Nadu Industrial Investment Corpn. Ltd. Vs DCIT (Mad) 270 ITR 566
• When assessee is not in the business of money lending, interest

income earned by it can be assessed as “Income from Other
Sources” only – Argument that it was assessed as business
income in earlier years and the principle of consistency will not
help the assessee
Indian Vaccines Corporation Ltd. Vs ITO 2010-TIOL-587-ITAT-DEL
• When the liquidator realized certain amounts by way of sale of

the assets of the company in liquidation and invested the
amounts in interest bearing deposits, he was merely realizing
the assets of the company and could not be considered as
carrying on any business – Hence interest earned on the deposit
assessable as income from other sources
Vijaya Laxmi Sugar Mills Ltd. Vs CIT (SC) 191 ITR 641
• Interest received by an employee on his own contribution to an

unrecognized provident fund is assessable under the head

CIT Vs G. Hyatt (SC) 80 ITR 177
• Interest awarded under Motor Vehicles Act is revenue receipt.

Kailash Narain Gupta Vs CIT (Raj) 225 ITR 921
• Interest on compensation is revenue receipt since it is on

account of delay in receipt of compensation
Spaco Carburetors (I) P. Ltd. Vs Addl. CIT (ITAT, Mum) 315 ITR (AT) 86
• Interest paid as per the directions of Supreme Court on buy

back of shares as a compensation for the loss due to the delay in
payment by the acquirer of shares cannot be treated as part of
sale consideration for computing Capital Gains – It was rightly
assessed as Income from Other Sources since it was paid as
compensation for loss of interest during the period of delay
Dai Ichi Karkaria Ltd. Vs ACIT 2012-TIOL-83-ITAT-MUM
Assessable as Capital Gains
• Property sold in auction – Purchaser given possession as lessee

and allowed to pay purchase price in installments which carry
interest – Sale certificate issued after entire consideration
including interest was paid – Interest is part of sale price
assessable as Capital Gains
Cauvery Spg. & Weaving Mills Ltd. Vs DCIT (Mad) 340 ITR 550
RECEIPT OF RENT
Assessable as House Property income

• Owner of property is liable to House Property income – It does
not depend on the power of the owner to let the property as also
not depend on the capacity of the owner to receive the rent -
Not business activity even if it was one of the main objects of
the company
East India Housing and Land Dev. Trust Ltd. Vs CIT (SC) 42 ITR 49
CIT Vs Chennai Properties & Inv. Ltd. (Mad) 266 ITR 685
• Assessee is owner of building on leasehold land – Rental

income is Income from House Property eventhough letting out
is an objective of company.
Tinsukia Development Corporation Ltd. Vs CIT ( Cal ) 120 ITR 466
CIT Vs Mithila Properties Publication & Contractor Enterprises P. Ltd. ( Pat ) 228
ITR 713
• Assessee was in possession and control of market area as a

lessee and not as a licensee – Lease was for a period exceeding
12 years – Rental income received from sub-letting is “Income
from House Property” and not Business income
ACIT Vs Raj Dadarkar & Associates (ITAT, Mum) 34 SOT 281
• Furnished premises let out on monthly rent basis to various

parties along with furniture, fixtures, light, air-conditioners
etc. for being used as “table space” – Under the agreement
assessee is also providing services like watch and ward staff,
electricity, water and other common amenities to the occupants
These services are not separately charged – Entire receipts
assessable as Income from House Property
Shambu Investment P. Ltd. Vs CIT (SC) 263 ITR 143
CIT Vs Indian Metal & Metallurgical Corporation (Mad) 215 ITR 424
• Lights, fans, partitions, Lifts etc. are part and parcel of building
Income from letting out – House Property income.
ACIT Vs Farida Begum Tazudeen (ITAT, Mad) 63 ITD 298
Neelam Cable Mfg. Co. Vs ACIT (ITAT, Del) 63 ITD 1
• Letting out properties with telephone facility to run as Business

Centres – House property income
Marwar Textiles (Agency) (P.) Ltd. Vs ITI (ITAT, Mum) 116 ITD 335
• Business premises sub-leased to bank – Merely because

advancement of loan by that Bank to the firm is mentioned in
the same agreement, it cannot be said that activity of leasing
was closely connected with loan – Rental income is income
from House Property.
CIT Vs Arvindkumar Odhavji (Bom) 213 ITR 551
• Letting out godowns and factories – Rental income is House

Property income since assessee failed to prove that it is
incidental to business.
Narayandas Kishandutt Vs CIT (MP) 149 ITR 636
• A single act of constructing a godown and letting it out year

after year – Not a business activity- To be assessed as House
Property income
CIT Vs Veerabhadra Industries (AP) 240 ITR 5
• Sale of flat to Non-Resident having not materialized due to

refusal by Reserve Bank of India, such flat were let out – House
property income.
Pragati Construction Co. Vs DCIT (ITAT, Del) 60 ITD 541
• Construction of hotel not completed during the year nor hotel

business commenced – Rental income received from property
assessable under “ Income from House Property ”
CIT Vs Hotel Ratanada International P. Ltd. (Raj) 293 ITR 557
• Assessee engaged in development, construction, sale and lease

of immovable property – Properties treated as stock-in-trade –
Rental income earned is Income from House Property
CIT Vs Haryana Urban Development authority (P&H) 322 ITR 61
Mangla Homes (P) Ltd. Vs ITO & Ors. (Bom) 15 DTR 110; 325 ITR 281
Azimganj Estate Pvt. Ltd. Vs CIT 2011-TIOL-700-HC-KOL-IT
• Merely because in earlier years receipt had been assessed under

the head “Other Sources”, assessee cannot claim as right that
income from letting out house property which is assessable
under the specific head “Income from House property” should
be assessed under any other head.
K. Bhaskaran Nair Vs CIT (Ker) 177 Taxman 478
• Letting out property with a condition that consideration will be

a certain percentage of licensor's sales turnover – Still

assessable as House Property income
Ocean Structures (P) Ltd. Vs CIT (Del) 214 CTR 338
• License fee received for allowing film shooting – House

Property income.
B.M. Chinai Vs ITO (ITAT, Mum) 63 ITD 77
• Assessee constructed dwelling units and leased out to sister

concern who in turn utilized it for film production – Rental
income to be assessed as House Property income
Margadarsi Housing (P.) Ltd. Vs ITO (ITAT, Hyd) 120 ITD 418
Assessable as Other Sources Income
• Assessee is the proposed purchaser of property – Rent received

before actual purchase of property while assessee was in
possession of such property – To be assessed as Other Sources
income since assessee was not the owner of the property.
Peninsular Plantations Ltd. Vs CIT (Ker) 227 ITR 490
• Income from letting out kutcha plinths on open land to FCI – To

be assessed as Income from other sources and not House
Property income – What is covered by the expression
“appurtenant” is the land which is necessary for the enjoyment
of the building
Gowardhan Das & Sons Vs CIT (P&H) 288 ITR 481
• Income from leasehold property, without raising a structure

thereon – Income from Other Sources.
CIT Vs Supreme Credit Corporation Ltd. (Cal) 230 ITR 700
• If bifurcation of rent and service charges is there in lease deed

itself, assess rent as House Property income and service
charges as income from other sources.
CIT Vs Sankaranarayana Hotels (P) Ltd. (Kar) 201 ITR 138
Assessable as Business Income

• Godown rent received was incidental to contract business Not
property income – To be assessed as business income
Mercantile and Marine Services Vs CIT (Ker) 233 ITR 257
• Assessee engaged in development, construction, sale and lease

of immovable property – Properties treated as stock-in-trade
Rental income earned is business income.
CIT Vs Neha Builders P. Ltd. (Guj) 296 ITR 661
Roma Builders P. Ltd. Vs JCIT (ITAT, Mum) 11 ITR (Trib) 503
• Letting out properties with telephone facility to run as Business

Centres – Business income
Harvindarpal Mehta (HUF) Vs DCIT (ITAT, Mum) 122 ITD 93
• Income from swimming pool and stadium maintained by a club

To be assessed as Business income and not House property
income
CIT Vs National Sports Club of India (Del) 230 ITR777
Rent received during discontinuance of Business

• When assessee's business has come to a close or when the
assessee let out the assets with the intention of closing the
business, the property which at one time was a commercial
asset would cease to be so and the income from letting out of
such an asset would not be business income even if such
leasing was in return for royalty worked out on the basis of
production – Measure of payment has nothing to do with the
character of payment – To be assessed as Income from Other
Sources
New Savan Sugar & Gur Refining Co. Ltd. Vs CIT (SC) 74 ITR 7
Madras Silk & Rayon Mills P. Ltd. Vs ITO & Anr.(Mad) 262 ITR 122
Universal Plast Limited etc. Vs CIT (SC) 237 ITR 454
CIT Vs Venkateswara Agro Chemicals & Minerals Pvt. Ltd. (Mad) 338 ITR 428
The Saswad Mali Sugar Factory Limited Vs CIT (Bom) 236 ITR 706
• Assessee not carrying on any business during the year – Lease

rent of machinery – Other Sources income.
CIT Vs K. Narendra (Del) 246 ITR 579
Express News papers Pvt. Ltd. Vs CIT (Mad) 227 ITR 325
• Income from letting out building and machinery of a factory

closed 17 years back – To be assessed as House Property
income
Metal Products of India Vs CIT (P&H) 293 ITR 618
• Business closed and quarters attached to factory let out Rental

income – Not business income and assessable as House
Property income.
CIT Vs Ramdas & Sons (Patna) 225 ITR 416
OTHER RECEIPTS
• Mutual concern – Income from swimming pool and stadium
which were used by members and outsiders – Income to be
assessed as “Business income” and not “Income from House
Property”
CIT Vs National Sports Club of India (Del) 230 ITR 777
• Sale of water from well – Well was not appurtenant to the

building – Income from sale of water – Income from Other
Sources.
M. Ramalakshmi Reddy Vs CIT (Mad) 232 ITR 281
• Lottery agent receiving 10% as bonus on prize winning tickets

sold by him – Bonus dependent on winning of ticket – The
agent participates in the lottery by retaining the counterfoil and
presenting the same for getting bonus - Not business income
but lottery income.
CIT Vs C. Krishnan (Mad) 228 ITR 557
CIT Vs Lachman Das Veerabhander (SC) 247 ITR 810 Jackpot winnings
• Lottery agent winning prizes on unsold ticket –Though

purchase and sale of tickets by the assessee is a business, there
is no business activity in claiming prize money from the
Lotteries Department by producing the lottery ticket – Entire
lottery tickets ceased to be stock-in-trade on the date of draw as
they are unsaleable after the draw and have no value – At the
time of the draw, assessee is only a participant in the draw for
all the tickets held by it and this does not involve any business
activity – Hence winnings from lotteries by the assessee is not
Business income – Sec. 115BB applies
CIT Vs Manjoo & Co. (Ker) 195 Taxman 39 ; 335 ITR 527
• Purchase of refrigerator under scheme under which purchaser

given scratch card – Assessee winning car from this Winnings
from lottery
D.N. Thakur Vs ITO (ITAT, Chd) 292 ITR (AT) 382
• Assessee retiring from partnership – Compensation received

for goodwill – Income from Other Sources
CIT Vs Nijrang Specific family Trust (Guj) 287 ITR 148
• Income realized from display of hoardings on top of building –

Other Sources income.
Mukherjee Estate (P) Ltd. Vs CIT (Cal) 244 ITR 1
• Withdrawal of deposit in National Savings Scheme which had

earlier obtained deduction u/s 80CCA is deemed to be income
liable to charge as income from Other Sources in the year of
withdrawal by virtue of fiction created u/s 80CCA(2)
Jai Pal Sharma Vs ITO (ITAT, Del) 72 ITD 485
• Money earned by fraudulent means / cheating – Amounts

received by assessee, a tax practitioner, from refunds obtained
from I.T. Department by preparing bogus TDS certificates is
income chargeable to tax – Income tainted with illegality has
no bearing on its taxability – Even if assessee was prosecuted
by law enforcing authorities for commission of offence, the
income earned by the offender still would be an income liable
for assessment
CIT Vs K. Thangamani (Mad) 309 ITR 15
• Amount embezzled by assessee from employer – Is income

eventhough there is a subsequent agreement to return the
money
CIT Vs Troilakya Chandra Bora (Gau) 261 ITR 299
• Assessee holding shares in the companies and having 100%

share holding in subsidiary – Dividends received is not
business income unless holding of shares is incidental to
assessee's tea business.
Brooke Bond and Co. Ltd. Vs CIT (SC) 162 ITR 373
• In terms of agreement, assessee advanced interest free loan to a

borrower at his request on condition that loan amount should
be utilized to purchase shares of a particular company, and that
50 % of the dividend income as and when received, to be paid
to the assessee – Since assessee was not shareholder, any
amount received from borrower could not be treated as
dividend and not eligible for exemption u/s 115 O – Receipt
should be assessed as Business income.
Rasoi Trading & Agencies (P.) Ltd. (ITAT, Mum) 101 ITD 399
• Assessee entered into MOU with D for development and

construction and paid some money – D failed to keep his

commitments under the MOU – Amount received under
release deed to indemnify payer against legal action – Income
from Other Sources – Since the payment was received not for
releasing or relinquishing any right, title or interest in the
immovable property income does not fall under “Capital
Gains”
Manoj B. Joshi Vs ITO & Ors. (Bom) 23 DTR 292 ; 179 Taxman 30 ; 224 CTR 481
• Assessee took on lease an asset from ITC – Sold the said asset
to BEL and took back it on lease – Proceeds received from BEL
to be assessed as Business income and not “Capital gains” as
assessee has not transferred any capital asset
ACIT Vs Sanghi Textiles Ltd. (ITAT, Hyd) 34 SOT 385
• As per the contract between assessee and the non-resident,

assessee was to recommend a strategy and to draw a business
plan to deliver safe, quality and free cleft surgeries and
implementing it after being approved by the non-resident –
Personal skill was the dominant factor of this activity – Since
the ultimate decision vested with the non-resident, control
exercised by it, is evident – Employer-employee relationship
exists – Receipts assessable as 'salary'
Satish Kalra Vs ACIT 2011-TIOL-242-ITAT-MUM
• Income from hoardings on top of buildings for advertisement

purposes is income from other sources only and not from house
property
Mukherjee Estate (P.) Ltd. Vs CIT (Cal) 244 ITR 1
• Receipt for early settlement of litigation vis-à-vis relinquishing

leasehold rights – Definition of “income” under sec. 2(24) is
not exhaustive and income not falling under any specific head
should be assessed under sec. 56
Visalakshy Kumaran Vs CIT (Ker) 18 DTR 139
• Unexplained investment in stock – Assessable as Income from

Other sources' and not as 'Business Income' since assessee
could not prove the nature and source of such investment
ACIT Vs Ratan Industries (P) Ltd. (ITAT, Agra-TM) 64 DTR 355
SALE OF LAND
Held as Business income

• When a person acquires land with a view to selling it later after
developing the same, he is carrying on activity resulting in
profit and the activity can only be described as a business
venture.
Raja J. Rameswar Rao Vs CIT (SC) 42 ITR 179
• Joint purchase of land by 4 persons and joint sale thereof within

a period of 15 months – Land fit only for house sites –
Adventure in the nature of trade There was no intention to use
such large piece of land for constructing their houses –
Business income
Smt. Parvathi Devi & Ors. Vs CIT (AP) 164 ITR 675
• Sale of land after plotting – Business venture

CIT Vs R. Ramaiah & ors. (Kar) 146 ITR 39
Indramani Bai & Another Vs Addl. CIT (SC) 200 ITR 594
Addl. CIT Vs Chikkaveerayya Lingaiah (Kar) 164 ITR 41
G. Venkataswami Naidu & Co. Vs CIT (SC) 35 ITR 594.
• Agriculturist purchasing lands in a series of transactions and

selling them within a reasonably short period – Adventure in
the nature of trade.
Hemachand Hirachand Shah Vs CIT ( Guj ) 206 ITR 55
• Land purchased had potentiality of being developed into

building site – No agricultural operations were carried out on
land by the assessee – Adventure in the nature of trade.
Badrilal Bholaram Vs CIT (MP) 139 ITR 207
CIT Vs B. Narasimha Reddy (Kar) 150 ITR 347
CIT Vs M. Krishna Rao (AP) 120 ITR 101
• AOP purchased a plot of land and constructed a commercial

complex – Adventure in the nature of trade – Excess realized to
be assessed as Business income.
ACIT Vs S. Prabhakar Kamath (ITAT, Bang) 116 ITD 155
• Purchase of plot of land already demarcated by Govt. for

acquisition – subsequent acquisition and receipt of
compensation – Compensation received is liable to be taxed as

Business income
DCIT Vs Gopal Ramnarayan Kasat (Bom) 328 ITR 556
SALE OF SHARES
• Principles for guidance of Assessing Officer for
determining whether the shaes are held by the assessee as
investment or as stock-in-trade [Circular No. 4 of 2007
dated 15-06-2007]

• Cumulative effect of all factors to be seen – It is Business
income if in earlier years, sale of shares treated as business of
assessee - Nothing on record to show that purchase of shares
was for non-commercial purposes Purchase of shares not for
getting controlling interest of company - Shares sold within a
short period - Manner in which shares are shown in the Balance
sheet is not conclusive
CIT Vs Karam Chand Thapar & Bros P. Ltd. (SC) 176 ITR 535
New Era Agencies Pvt. Ltd. Vs CIT (SC) 68 ITR 585
Matheson Bosanquet Enterprises Ltd. Vs DCIT (Mad) 316 ITR 375
• Magnitude of purchase and sale of shares shows that it is

business income
Raja Bahadur Visheshwara Singh & Ors. Vs CIT (SC) 41 ITR 685
• Since dealing in shares is authorized by Article of Association

of Company, income earned from share transactions to be
assessed as Business income
Dalmia Cement ltd. Vs CIT (Pat) 12 ITR 50
• Purchase & sale of shares in a Private Company within a short

period – Adventure in the nature of trade even if such shares are
shown as investments in the books of accounts.
V. Amirtham Ammal Vs CIT (Mad) 74 ITR 739
Burnside Investment & Holdings Ltd Vs CIT (ITAT, Mad) 61 ITD 501
• Shares purchased with borrowed funds – Sale made not to

liquidate debts and proceeds were kept in bank – Adventure in
the nature of trade.
CIT Vs Sutlej Cotton Mills Supply Agency Ltd (SC) 100 ITR 706
Neerja Birla Vs ACIT (ITAT, Mum) 66 ITD 148
• Considering the voluminous transaction and its frequency,

A.O. considered purchase and sale of shares as business

activity – Tribunal found that such transactions are continuous,
regular and systematic and period of holding was very short –
Further, borrowed funds were used for purchase of shares – To
be assessed as Business income
Jayshree Pradip Shah Vs ACIT (ITAT, Mum) 131 ITD 326
• Transaction in exchange traded derivatives – Life of short

duration and they do not yield any income like dividend –
Income can be derived only on their purchases and sales and so
they are held only as stock-in-trade – Hence the income from
such transactions is business income and not capital gains.
Morgan Stanley & Co. Intl. Ltd., IN RE (AAR) 272 ITR 416
Held as Capital gains

• Memorandum of Association of Company did not authorize
purchase and sale of shares – Purchased shares to get
controlling interest of company – Capital Gains arises on
transfer
Kishan Prasad & Co. Ltd. Vs CIT (SC) 27 ITR 49
• Purchase and sale of shares was a solitary transaction – No

dividend received – Capital gains arises on transfer
CIT Vs Jagarnath Prasad Chhawchharia (Pat) 176 ITR 217
• Annual report of company shows investment in shares is for

capital appreciation – Capital gains arises on transfer
India Nut Co. Ltd. Vs CIT (Ker) 39 ITR 234
• Shares were never treated as stock-in-trade – Held for earning

dividend only – Transfer results in Capital Gains only
CIT Vs N.S.S. Investments (P.) Ltd. (Mad) 277 ITR 149
• It is not established that assessee was holding shares as stock-

in-trade Therefore shares held as investment – Dividend
income is assessed as income from Other Sources. Holding of
investments by itself is not business – Capital gains arises on
transfer of such shares
CIT Vs West Coast Electric Supplies Corporation Ltd. (Mad) 243 ITR 565.
• Sale of shares of subsidiary company – Capital gains arises

CIT Vs Calcutta Discount Co. (P.) Ltd. ( Cal) 162 ITR 680
SALE OF OTHER ASSETS

• Purchase of silver bars when prices were going to rise due to
war and sales made at rising levels – Adventure in the nature of
trade.
Tribhuvandas Vallabhdas Vs CIT (Bom) 61 ITR 518
Wisdom Vs Chamberlain (CA) 74 ITR 306
• Import of four Cement Plants – Intention of re-sale was there

Adventure in the nature of trade
Dalmia Cement Ltd Vs CIT (SC) 105 ITR 633
• Transactions of acquiring leases and granting sub-leases of

coal mines, were in the nature of trading - Salami received is
revenue receipt.
Karanpura Development Co. Ltd. Vs CIT (SC) 44 ITR 362
• Purchased mortgage decree – As a result of execution

proceedings, realized excess money – To be assessed as
Business profit.
Jaldu Manikyala Rao Vs CIT (Mad) 28 ITR 220, 54 ITR 409.
• Assessee took over the liability to pay the shareholders of a

company controlled by him knowing that claims will not be
made by the share holders – It is an Adventure in the nature of
trade – Business income.
R. Dalmia Vs CIT (Del) 137 ITR 665
• Assessee advancing money to another to further litigation with

a condition that in case of borrower succeeds, the assessee
should get a share in the proceeds – Receipts are Business
income.
Goyaprasad & Chotey Lal, IN RE (All) 3 ITR 177
Held as Capital gains

• Rosewood trees after felling were dressed and sold - Assessee
not a dealer in trees - isolated transaction – Assessee is not a
dealer in timber – Income to be assessed under the head Capital
gains only and not as business income
C.G. Thimmaiah Vs CIT (Kar) 148 ITR 741
• Assessee purchased a factory shed at Silvassa for expansion of

its manufacturing activity – Trial production was carried out
with the help of tools and dyes from other factory – Further
construction was also made – However commercial
production could not be commenced and assessee sold this
factory shed resulting in profit – Since said factory shed was
not put to use, the sale price need not be reduced from WDV u/s
50 – Profit on sale of shed to be assessed as Capital gains
Modern Malleables Ltd. Vs CIT (Cal) 199 Taxman (Mag) 331
SALARY INCOME 155
SALARY INCOME
• Salary due / received in advance / received as arrears from
employer or former employer during the previous year is
taxable (sec. 15)
• Salary received by partner from firm not regarded as
salary under sec. 15.
• Tax paid on employment as well as entertainment
allowance granted to Govt. employees (limits prescribed)
are deductible while computing salary (sec. 16)
• Salary, Perquisites and Profits in lieu of Salary defined
(sec. 17)
• Rebate in tax available when salary etc. is paid in arrears or
in advance [sec. 89]
• Relevant Rules – Rule 2A to 3A.
• Pension paid to the employee himself will be assessable
under sec. 15 r.w.s.17 – Pension received by a widow from
former employer of her husband will be assessable under
'Other Sources' [ Letter F.No.45/118/66-ITJ dated
21-08-1967 ]
• Receipt of cash equivalent of leave salary by the family of
the deceased Govt. employee is not liable to tax [ Circular
No. 309 dated 03-07-1981 ]
• Salary received by a person as Member of Parliament will
not be chargeable under the head 'Salaries' but as “Income
from Other Sources' u/s 56 [ Letter F.No. 40/29/67-IT(A-I)
dated 22-05-1967 ]
• Valuation of perquisites [ Circular No. 9/2008 dated
29-09-2008 ]
• In Chandra Ranganathan & Ors. Vs CIT (326 ITR 49)
Supreme court held that amount received by retiring

employes of RBI are eligible for exemption u/s 10(10C)
SALARY INCOME 157
RECEIPTS – WHETHER SALARY ?
Salary or Profits in lieu of salary

• The distinction between a servant or an agent can be
ascertained by seeing the extent of direct control in respect of
the work entrusted to that person – Detailed tests laid out
Lakshminarayan Ram Gopal & Son Ltd. Vs Govt. of Hyderabad (SC) 25 ITR 449
Piyare Lal Adishwar Lal Vs CIT (SC) 40 ITR 17
• Pay and allowance received by Chief Minister of a state is

salary
Lalu Prasad Vs CIT (Pat) 316 ITR 186
• Salary received by a Judge of a High Court and Supreme Court

is income and taxable even though they do not have an
employer
Justice Deoki Nandan Agarwalla Vs Union of India (SC) 237 ITR 872
• Salary due to an assessee in the earlier years which was neither

paid nor was charged to tax in those years will have to be
treated as 'arrears of salary' and have to be brought tot ax in the
year in which it was paid
CIT Vs Sardar Arjun Singh Ahluwalia (SC) 240 ITR 693
• City Compensatory Allowance (CCA), House Rent Allowance

(HRA) and Dearness Allowance (DA) are income in view of
sub-clause (iiib) of sec. 2(24) – Inclusive definition of salary in
sec. 17 covers profits in lieu of or in addition to salary or wages
Because of the inclusive meaning given to the phrase 'profits in
lieu of salary', would include any payment due to or received
by an assessee from an employer even though it has no
connection with the profits of the employer – Word 'profit' is
used only to convey any advantage or gain by receipt of any
payment by any employee
Karamchari Union, Agra Vs Union of India & Ors. (SC) 243 ITR 143
• Commission received from employer in addition to salary –

Assessable as salary
CIT Vs Bijai Kishore Kapoor (Orissa) 202 ITR 129
CIT Vs R. Rajendran (Mad) 260 ITR 476
CIT Vs T. Abdul Wahid & Co. (Mad) 243 ITR 467
• Allowance given to the assessee for meeting the refreshment

expenses during office hours is taxable as income in view of
sec. 2(24)(iiia) and (iiib)
CIT Vs M.R. Kini (Ker) 190 ITR 282
• Assessee providing money to its officers to purchase club

membership – Is perquisite
CIT Vs Wipro systems (Kar) 325 ITR 234
• Incentive bonus / commission received by Development

Officer of the LIC is part of salary
CIT Vs M.D. Patil (Kar-FB) 229 ITR 71
• Value of encashment of leave salary by employees who

continue in employment – Assessable as profit in lieu of salary.
• Assessee, a Govt. doctor was permitted to work in paying

clinics run in medical colleges and received a share of the fees
from Govt. – Such fees received is part of salary in view of
sec. 17(1)(iv)
CIT Vs Dr. Usha Verma (P&H) 254 ITR 404
• Assessee, a Govt. servant was paid family allowance in

addition to salary to compensate for the high cost of living –
Money was paid to the family members on assessee making a
nomination, will not alter the situation – Allowance received
by virtue of employment of the assessee – Part of salary
CIT Vs Dr. P.L. Meyyappan (Mad) 244 ITR 543
• Assessee was paid 'income tax allowance' in addition to salary

Mere grant of such allowance would not result in his salary
becoming 'tax-free salary' – Salary received as well as such
allowance taxable as salary
CIT Vs Dr. Pauline E. King (Mad) 243 ITR 300
• Compensation received on voluntary retirement – Leave

encashment received – Profit in lieu of salary u/s 17(3)
G.N. Badami Vs CIT (Mad) 240 ITR 263
P. Arunachalam Vs CIT (Mad) 241 ITR 827
SALARY INCOME 159
• Ex-gratia payment on account of long service, received at the

time of retirement – Profit in lieu of salary u/s 17(3)
V.R. Ganti Vs CIT (AP) 216 ITR 48
J.K. Helene Curtis Ltd. Vs CIT (Bom) 236 ITR 403
• Payment of compensation under a termination clause in the

contract of service or at the time of unexpected break of
employment – It may be paid in respect of loss of future
remuneration or deprival of future promotion – Payment may
be contractual or voluntary – Termination of employment can
be due to voluntary resignation, superannuation, termination
by death Compensation received is taxable
CIT Vs P. Surendra Prabhu (Kar) 279 ITR 402
Yatindra Kumar Vs ITO (ITAT, Pune) 133 ITD 237
• Extra-ordinary compensation received in connection with

termination of service is profits in lieu of salary
ADIT (Int.Tax) Vs Ravinder Behl (ITAT, Del) 317 ITR (AT) 22
• Assessee took up voluntary retirement from a bank under a

scheme which provided for payment of only 50% of the ex
gratia payment in the year of retirement and the balance 50% in
annual installments over the succeeding years – Entire ex
gratia payment to be treated as salary which accrued to the
assesee in the year of retirement
Y.S.C. Babu Vs Chairman & Mg. Dir., Syndicate Bank (AP) 253 ITR 1
• Managing Director is subject to control of Board of Directors

Remuneration received is alary.
CIT Vs M.S.P. Rajes (Kar) 202 ITR 646
• Assessee is Director in company – Debit balance in books of

Company against assessee – Deemed to have derived benefit
from the company – Is income.
CIT Vs Tara Singh (Del) 233 ITR 669
• Personal expenses on credit card of director, paid by company

LIC premium of director paid by company – Assessable as
income of director
Ravi Prakash Khemka Vs CIT (Mad) 295 ITR 33
• Assessee, an architect was Managing Director of Company

Under agreement with company, he received monthly payment

in addition to salary as compensation for refraining from doing
practice independently - Part of salary.
P.M. Thackar Vs ACIT (ITAT, Bang) 62 ITD 160
• Employer company issued equity shares of face value Rs. 2

crores to assessee individual in terms of a restrictive covenant
whereby assessee has agreed to desist from participating in a
similar and/or competitive business for a period of 10 years
after termination of his employment or association with the
company – Records show that assessee was not deriving any
professional income in the past – Hence there is no loss or
destruction of source of income - Receipts are 'profits in lieu of
salary' and not capital receipts
Neville Tuli Vs ITO (ITAT, Mum) 38 DTR 325
S. Harishanker Vs DCIT (ITAT, Del) 19 DTR 42 ; 121 TTJ 662
• Arrears of salary received was compulsorily credited to

Provident Fund – Cannot be spread over u/R 21A.
Kerala Electricity Officers Federation & Ors. Vs CBDT & Ors. (Ker) 279 ITR 482
• Member of HUF joining partnership – Member given salary

for managing the firm – Salary is individual income of
member.
CIT Vs Trilok Nath Mehrotra (SC) 231 ITR 278
• Salary received by persons covered by Portuguese Civil Code

No over-riding title – To be assessed in the hand of employee
only.
CIT Vs Modu Timblo (Bom) 206 ITR 647
• Amount spent by employer on purchase of deferred annuity

policy for benefit of employee – Profit in lieu of salary.
CIT Vs Navnit Lal Sakar Lal (SC) 247 ITR 70
CIT Vs P. Jaiswal (Del) 252 ITR 453
SALARY INCOME 161
Perquisites
• Expenses on medical treatment of assessee met by employer, is
perquisite.
DCIT Vs P.G. Shanbagh (ITAT, Hyd) 54 ITD 417
• Air fare provided to Supervisors – Benefit to employee

Perquisite.
Clouth Gummiwerke Aktiengesellschaft Vs CIT (AP) 238 ITR 861
• Fee charged from children of employees at a concessional rate

Is a perquisite taxable
Birla Vidya Niketan Vs ITO (Del) 213 CTR 417
• Loan granted for house building at a concessional rate of

interest or interest subsidy on house building loan taken from
LIC/HDFC – Taxable perquisite u/s 17(2)(iv)
P. Bhavani Shankar & Ors. Vs CIT & Ors. (Mad) 242 ITR 152
All India PNB Offices Association Vs CMD,PNB (MP) 321 ITR 324
• Accommodation hired by employer and given to employees at

lesser rent – Perquisite.
All India Union Bank Officers Federation Vs UBI & Ors. (Mad) 155 CTR 28
• Valuation of accommodation provided by BSNL to a Govt.

employee on deputation – Valuation of accommodation to be
made not by treating the assessee as a Govt. employee
S. Sthanukumaran Thampi Vs CBDT (Ker) 322 ITR 503
• Employer taking an accommodation on lease at monthly rent

of Rs. 5,000 after paying interest-free deposit of Rs. 1.20
crores to the landlord – Said accommodation provided to the
assessee at the rent of Rs. 5,000 per month – Notional interest
on the interest-free deposit to be taken into account to compute
the value of perquisite in respect of the accommodation
Pratim B. Mukerjea Vs ACIT (ITAT, Mum) 39 SOT 268
• Partner using residential premises, car & telephone belonging

to firm – Value of benefits assessable as perquisites.
V.P. Warrier Vs CIT (MP) 181 ITR 303
• Flat received from employer at a cost very much below market

SALARY INCOME 163
value – Difference is perquisite u/s 17(2)(iii)

M.M. Ratnam Vs ITO (ITAT, Mumbai-TM) 62 ITD 21
• Tax paid by employer on behalf of assessee – Is a perquisite

taxable.
T.P.S. Scott & Ors. Vs CIT (Del) 232 ITR 475
S. Takenaka Vs CIT (Kar) 237 ITR 112
• Tax paid by employer on behalf of employees to be considered

as salary for computation of value of perquisites
Mitsubishi Corporation Vs CIT (Del) 337 ITR 498
• Redemption of stock appreciation rights taxable in the year of

redemption If it was received in connection with employment,
it is taxable either as salary or income from other sources.
Sumit Bhattacharya Vs ACIT (ITAT,SB-Mum) 112 ITD 1
• Difference between price of share allotted to assessee and

market price – Benefit derived under employment – Perquisite
taxable as salary income – Argument that assessee is an
associate of a promoter and hence shares were allotted on
account of personal consideration, rejected.
CIT Vs Kirtivan D. Kotian (Kar) 320 ITR 704
• Conversion of warrants into equity shares – Benefit extended

to assessee by virtue of his employment – Difference between
price of shares at the time of exercise of option and pre-
determined price liable for taxation as perquisite u/s 17(2)(iiia)
– Right accrues only when option is exercised
ACIT Vs Tripti Sharma (ITAT, Mum) 1 ITR (Trib) 471
DCIT Vs Vijay Gopal Jindal (ITAT, Del) 118 TTJ 676 ; 11 ITR (Trib) 451
• Assessee received rights under the Stock Optin grant from the
US based parent company – Assessee only held the right to the
shares and not the shares as such due to the exchange control
restriction on holding of foreign securities by resident Indians
Gain on sale of such securities is perquisites
Anil Kumar Nehru Vs Addl. CIT 2011-TIOL-770-ITAT-MUM
• Shares allotted to Director by the company – Benefit /

Perquisite – Part of salary.
• Director – Received no salary but only rent free

accommodation – It is Perquisite and taxable.
Lakshmipat Singhania Vs CIT (All) 93 ITR 162
• Company making advances to Directors – Non-charging of

interest on debit balances in running account of Directors
constitutes perquisites.
CIT Vs V.M. Salgoacar and Brothers P. Ltd. (Kar) 198 ITR 738
CIT Vs C. Kulandaivelu Konar (Mad) 100 ITR 629
CIT Vs Gurdial Singh (Del) 100 Taxman 507
SALARY INCOME 165
DEDUCTIONS
• Receipt of salary from firm – No standard deduction
CIT Vs K.V. Ramalingam Chettiar (Mad) 249 ITR 674
• Incentive Bonus to LIC Development Officers- Part of salary

No deduction other than standard deduction
K.A. Choudhary Vs CIT (AP) 183 ITR 29
ITO Vs P.M. Suthar (ITAT, Ahd-TM) 53 ITD 1
CIT Vs M..D. Patil (Kar) 229 ITR 71
CIT Vs Shiv Raj Bhatia (Raj) 227 ITR 7
CIT Vs G.S. Jhamad (MP) 227 ITR 219
CIT Vs S.L. Singhal (P&H) 238 ITR 170
CIT Vs Govind Chandra Pani (Orissa) 213 ITR 783
CIT Vs Surendra Kumar Gupta (All) 319 ITR 253
CIT Vs E.A. Rajendran (Mad) 235 ITR 514
• Contributions by assessee to the compulsory health scheme

Not deductible from salary
CIT Vs Dr. K.L. Parekh (Raj) 208 ITR 965
• 80CCA Deposit made by availing loans – Not deductible from

salary income – It should be from income chargeable to tax.
Inder Madhok Vs ITO (ITAT, Del) 24 ITD 93
Arun Kumar Jain Vs ITO (ITAT, Chd) 70 ITD 115
S.K. Jain Vs DCIT (ITAT, All) 65 TTJ 741
CIT Vs Abraham George (Ker) 242 ITR 171
ITO Vs Ranjan Kumar Dasgupta (ITAT, Cal) 25 ITD 104
EXEMPTIONS
• House Rent Allowance received by employees who occupy
their own houses – Not exempt
CIT Vs V. Karthikeyan (Mad) 239 ITR 815
• Dearness allowance to be included in salary while working out

House Rent Allowance exemption.
Industrial Finance Corpn. (I) Ltd. Vs ITO (ITAT, Coch) 72 ITD 449
• Salary does not include bonus for computing exemption of

HRA u/s 10(13A)
CIT Vs Ghosal (Ker) 125 ITR 744
• Salary does not include commission for computing exemption

of HRA u/s 10(13A)
CIT Vs H.Y. Yazdi (Cal) 114 ITR 14
• Fixed sum received as Leave Travel Concession – Not exempt

u/s 10(5).
Dr. Reddy Laboratories Ltd. Vs ITO (ITAT, Hyd) 58 ITD 104
• Voluntary Retirement Scheme not approved prior to date of

retirement of assessee – No exemption u/s 10(10C)
Jodhraj Singh Vs Union of India & Ors. (Del) 234 ITR 871
• “Termination of service” can take place either by resignation or

dismissal or compulsory retirement or on attaining
superannuation.
CIT Vs J. Visalakshi (Mad) 206 ITR 531
• Employee received gratuity in an earlier year from a former

employer – Receives gratuity again from another employer
Ceiling limit of 30,000 u/s 10(10) will be reduced by
exemption granted earlier.
CIT Vs N.J. Pavri (Bom) 237 ITR 472
• Living allowance to foreign technicians u/s 10(14) – Incurring

of expenditure to be proved.
CIT Vs Bellien Michael Andresmant & Ors (AP) 237 ITR 479
CIT Vs Arthur Fuchs (Pat) 202 ITR 656
SALARY INCOME 167
• Employee of foreign company working in India as part of

collaboration agreement – Pocket allowance paid to employee
by Indian Company by way of reimbursement of any expenses
incurred at usual place of employment or residence not being
the amount to meet the excess cost of living and paid even
when the assessee was at his headquarters – Part of Salary
Exemption u/s 10(14) not eligible
Alessandro Constantini Vs CIT (Guj) 226 ITR 883
• Fixed sum received as conveyance allowance – Not exempt u/s

10(14).
Dr. Reddy's Laboratories Ltd. Vs ITO (ITAT, Hyd) 58 ITD 104
• Fixed medical reimbursement on the basis of self declaration

Not exempt.
Dr. Reddy Laboratories Ltd. Vs ITO (ITAT, Hyd) 58 ITD 104
• Generation incentive paid by DESU to its employees under a

scheme – No approval by Central Government – No exemption
u/s 10(17B)
Rajinder Tiku Vs ITO (ITAT, Del) 59 ITD 410
• Pilot of Indian Airlines – Various allowances received – AO

restricted exemption to 30,000 u/s 10(14)(ii) - Upheld
Capt. Harminder Singh Vs ITO (ITAT, Del) 62 ITD 78
• Daily allowance received as Director of company – Not

exempt u/s 10(14).
Madhavrao J. Scindia Vs CIT (Bom) 243 ITR 683
• Conveyance allowance granted to LIC Officers – Not for

expenses wholly exclusively incurred for expenses of office
Not exempt u/s.10(14) .
LIC Class-I Officers (Bombay) Association Vs LIC of India (Bom) 229 ITR 510
ITO Vs L.N. Goswami (ITAT, Cal) 8 ITD 661
• As per Rule 2BB r.w.s. 10(14), only conveyance allowance and

clerical allowance received by an M.L.A. were exempt,
subject to furnishing proof of incurring the same in
performance of duties of office – Telephone allowance and
Constituency allowance are not exempt – Medical allowance
is exempt only if it is reimbursement
M. Venkata Subbaiah Vs ITO (ITAT, Visakh) 127 ITD 399
HOUSE PROPERTY INCOME
• Annual value of property – consisting of buildings or land

appurtenant thereto – owned by assessee – chargeable to
tax (sec. 22)
• Property occupied for own business exempt (sec. 22)
• Annual letting value defined (sec. 23)
• Taxes levied by local authority in respect of the property

will be deducted in the year of payment (sec. 23)
• Annual letting value of one house (at the option of assessee)

which is not let out, will be taken at NIL – Annual letting
value of other houses subject to tax even if remained vacant
(sec. 23)
• 30% of annual value allowed as deduction (sec. 24)
• Interest on capital borrowed for acquiring, constructing,

repairing, renewing or reconstructing the property (sec. 24)
• For self occupied property whose ALV taken at Nil,

deduction limited to Rs. 30,000
• For self occupied property whose ALV taken at Nil, if

capital borrowed is on or after 01-04-1999 and
acquisition / construction completed within 3 years from
the end of the F.Y. in which capital was borrowed,
deduction limited to Rs. 1,50,000 – Assessee to get
certificate from the payee specifying the interest payable
• Interest relating to pre-construction / pre-acquisition

period – allowed in 5 annual installments from the year
of construction / acquisition
• Interest payable outside India on which no TDS made and

nobody can be treated as an agent of recipient u/s 163 – not
deductible (sec. 25)
• Unrealized rent received subsequently chargeable to tax in

the year of realization even if assessee is not the owner of
such property in that previous year (sec. 25A & 25AA)
• Arrears of rent received – excess of what was already

charged to tax – deduct 30% - balance chargeable to tax in
the year of receipt even if assessee is not the owner of such
property in that previous year (sec. 25B)
• Property owned by co-owners and their respective shares

are definite and ascertainable – share of each person to be
assessed separately (sec. 26)
• 'Owner of house property' for the purpose of sec. 22 to 26

defined (sec. 27)
Owner is liable to be assessed

• Ejection suit filed against tenant – Rent not being collected –
Owner of property is still liable to be assessed on annual value
of property.
Swaika Oil and Produce Co. P. Ltd. Vs CIT (Cal) 201 ITR 520
• Owner of structure is liable to tax even if he is not owner of land

CIT Vs Madras Cricket Club (Mad) 2 ITR 209
Tinsukia Development Corpn. Ltd. Vs CIT (Cal) 120 ITR 476
• Income from property under mortgage is liable to tax under

House Property income
S. Ujjannappa Vs CIT (Kar) 255 ITR 455
Who is the owner of property for the purpose of

assessment ?
• Owner for the purpose of sec. 22 is a person who is entitled to

receive income from the property in his own right –
Requirement of registration of sale deed is not warranted to
become owner u/s 22
CIT Vs Podar Cement (P) ltd. Etc. (SC) 226 ITR 625
• Land taken on lease by 9 persons – Amount contributed in

specific ratio – Constructed godown – Income from lease of
godown – House Property income – To be taxed on Co-owners
u/s 26
CIT Vs Baba Estates (Mad) 244 ITR 413
• Contribution of capital by partners in the form of land – No

document evidencing Registration of transfer by partner in
favour of partnership under Registration Act. – Transfer not
genuine – Land does not become property of firm – House
property income to be assessed in the hands of partners
CIT Vs Kashiram Ramgopal Agencies (Gau) 231 ITR 10
• Firm transferring its immovable property to partners without a

registered deed – Transfer is invalid – Rental income from
property to be assessed in the hands of firm.
CIT Vs Palaniappa Enterprises (Mad) 234 ITR 635
Jansons Vs CIT (Kar) 154 ITR 432
Ram Narain & Brothers Vs CIT (All) 73 ITR 423
S.N. Syed Mohammed Saheb & Bros. Vs CIT (Ker) 68 ITR 791
• Purchase of properties in joint names of partners with funds of

firm – Properties treated as that of firm right from inception
and depreciation claimed on it – Income from properties
treated as firm's income and divided among partners –
Properties cannot be transferred to partners by book entries of
firm – Income from property cannot be assessed as that of AOP
but belong to firm.
Abdul Kareemia & Bros Vs CIT (AP) 145 ITR 442
• A gift by a Mohammedan to his wife in lieu of the dower debt

after marriage is sale of property – Such a transfer has to be

made by a registered instrument if value of immovable
property is more than Rs.100 – Till such registration, house
property income to be assessed in the hands of the husband
CIT Vs Syed Saddique Imam and Others (Patna)111 ITR 475, 117 ITR 62
• Under Mohammedan Law, lady cannot make family

settlement on her self-acquired property – Property continues
to belong to assessee.
CIT Vs Bibijan Begum (Gau) 221 ITR 836
• Flats transferred to vendees, but registration not completed –

Vendees are owners – House Property income chargeable in
their hands.
CIT Vs Suresh Amichand Shah (HUF) (Guj) 240 ITR 291
• Co-widows inheriting certain immovable properties in equal

shares would be co-owners
CIT Vs Indira Balkrishna (SC) 39 ITR 546
Determination of Annual Letting Value

• Annual value of the property is charged u/s 22 irrespective of
the fact whether or not any income was actually accrued or
received
Ram Pershad & Sons Vs CIT (Del) 81 Taxman 332
• Let out property – Fair rental value can be determined u/s

23(1)(a) by ITO If tenant sub-let it at a higher rent, the same
can be adopted as fair rental value
CIT Vs G. Ramesan (Ker) 241 ITR 426
N. Nataraj Vs DCIT (Mad) 266 ITR 277
• If the rent received or receivable is higher than the sum for

which the property might reasonably be expected to let, the
amount received or receivable shall be annual value of
property
CIT Vs Johny Joseph (Ker) 241 ITR 423
• Property let out for less than standard rent – Annual Letting
Value is standard rent.
CIT Vs Parasmal Chordia (Mad) 233 ITR 147
Visveswaraya Ind. Res. Dev. Centre Vs DCIT (ITAT, Mum) 59 ITD 156
• Where the property has not been let out at all during the year,
there is no question of granting any vacancy allowance u/s
23(1)© - Period for which a let out property may remain vacant
cannot exceed period for which property has been let out
Vivek Jain Vs ACIT (AP) 202 Taxman 499 ; 63 DTR 174
• Provisions of sec. 23(1)© dealing with vacancy allowance

applies only to a property which is let out – Self-occupied
property is not eligible for vacancy allowance
Ramesh Chand Vs ITO (ITAT, Agra) 21 DTR 257 ; 29 SOT 570 ; 130 TTJ 12
• Agreement to sell property – Property in occupation of

agreement holder and owner not receiving rent – Owner
voluntarily foregoing rent – No vacancy allowance.
CIT Vs Dhun D. Dalal (Mad) 233 ITR 143
• Sec.23(3) applies only when such a house is in occupation of

assessee, owner.
DCIT Vs A.K. Ganju (ITAT, Del) 88 ITD 311
• Surcharge on Municipal tax collected by assessee from its

tenants – Part of Annual Value.
ACIT Vs Poddar Projects Ltd. (Kol) 92 ITD 468
• To avail exemption, property must be in the occupation of the

owner for his own residence and not by his relative even if it
was free of cost
Jashvidyaben C. Mehta Vs CIT (Guj) 172 ITR 680
• Where property is let out to employer and got reallotted,

benefit of self-occupation is not available
D.R. Sunder Raj Vs CIT (AP) 123 ITR 471
• A firm cannot get benefit of self-occupation as the expression

'occupation of the owner for the purpose of his own residence'
would only refer to a human owner and not a fictional entity –
Since a firm cannot physically reside, benefit of exemption not
available
CIT Vs Dewan Chand Dholan Dass (Del) 132 ITR 790
• Property owned by partner, used in firm's business – Notional

income is rent for the purpose of house Property income –
Exemption not available
CIT VS K.N. Guruswamy(Kar) 146 ITR 34
Prodip Kumar Bothra Vs CIT (Cal) 62 DTR 47
• Building let out to employees of subsidiary company who are

separate and independent assesses – Not entitled to exemption
since it cannot be treated as used for the purpose of business of
assessee
CIT Vs T.V. Sundaram Iyengar & Sons Ltd. (Mad) 271 ITR 79
• Relief for unoccupied property owing to employment or

business at a different place, is available only to an 'individual'
and not to an HUF
Deepak L. Banker Vs CIT (Mad) 145 CTR 489
• Building let out to sister concerns / related parties – Annual

Letting Value is fixed at 8% of cost.

Emtici Engineering Limited Vs ACIT (ITAT, Ahd) 58 TTJ 27
• Suit for recovery of enhanced rent pending – Both parties

agreed for enhanced rent – Annual Letting Value to be
determined on the basis of enhanced rent.
Vijay Pal Singh Vs ITO (ITAT, Del) 62 ITD 23
• Assessee company purchased a property – Divided it into 17

stalls and allotted to its members – Subsequently entered into
tripartite agreement with its members and a bank as per which
said stalls were given to bank on lease for a consideration of
Rs. 7 per sq. ft. out of which Rs 1 was to be paid to assessee
company for meeting municipal charges and maintenance
expenses and Rs. 6 to be paid to the members. Assessee liable
to pay House property income at the rate of Rs. 7 per sq. ft.
ITO Vs Janta Bazar & Stores (P.) Ltd. (ITAT, Mum) 110 ITD 331
• Increase of rent with retrospective effect under compromise

settlement with tenant – Assessable as arrears of rent
B.M. Gupta & Sons (HUF) Vs ACIT (Del) 299 ITR 410
• Benefit derived by assessee from interest free deposit can be

considered for determining fair rental value u/s 23(i)(a)
ITO Vs Baker Technical Services (P) Ltd. (ITAT, Mumbai-TM) 125 ITD 1
• Interest-free security deposit taken by assessee hugely

disproportionate to monthly rent charged – Device to
circumvent liability to income tax – Notional interest on
security deposit to be treated as income from House Property
CIT Vs Streetlite Electric Corporation (P&H) 336 ITR 348
• Interest-free security deposit taken by assessee hugely

disproportionate to monthly rent charged –While remitting the
issue back to the HC, the observation of Apex Court enlists the
factors to be considered while determining the ALV, such as:
Whether rent has been understated?

Whether rent has been brought down by interest free deposit,
bank guarantees etc.?
Whether the entire arrangement has been entered to evade
taxes?
Whether the arrangement is sham?
CIT Vs M/s Transmarine Corporation (SC) SLP CC 8999/09 in CA no. 5470/2011
- order dated 15/07/2011.
• Sec. 25B introduced as a special provision to assess arrears of

rent received is clarificatory in nature and should be given
retrospective effect
CIT Vs Dowager Maharani Residential Accommodation Welfare association
Trust (Raj) 217 CTR 497
Deductions
• If a particular expenditure is not specifically provided to be
deductible, deduction thereof cannot be claimed u/s 24 since
the word used is 'namely'
CIT Vs H.G.Gupta & Sons (Del) 149 ITR 253
ITO Vs Chunilal Jain (ITAT, Gau) 60 TTJ 448
• Brokerage paid for introducing the tenants is not a charge

created on the property and hence not to be deducted from rent
u/s 23 or as a deduction u/s 24
Tube Rose Estates (P) Ltd. Vs ACIT (ITAT, Del) 123 ITD 498
Aravali Engineers P. Ltd. Vs CIT (P&H) 335 ITR 508
Piccadily Holiday Resorts Ltd Vs DCIT (ITAT, Del) 94 ITD 267
• Deduction of interest on borrowed capital – Assessee to prove

nexus with acquisition / construction / reconstruction / repair /
renewal of property.
CIT Vs Four Fields (P) Ltd. (P&H) 231 ITR 262
K. Sunandamma Vs CIT (Kar) 164 ITR 446
CIT Vs Indramani Devi Singhania (All) 189 ITR 124
• Assessee inheriting property with mortgage from his father –

Assessee also took loan for investment in shares and other
business on the security of this property – Taking second loan
to pay off all previous loans – Original loan taken by assessee
and father not for the purpose of construction / acquisition of
House Property – Interest paid on loan not deductible
K.S. Kamalakannan Vs ACIT (ITAT, Chennai) 10 ITR (Trib) 321
• Advance received by builder from buyers of flat – Failure to

deliver in time and interest paid – Capital not borrowed for
construction of property – Not deductible from House
Property income.
Akash & Ambar Trust Vs CIT (Cal) 268 ITR 93
• Only interest on capital / mortgage / charge is deductible from

House Property income – Not interest on interest i.e.,
compound interest.
Shew Kissen Bhatter Vs CIT (SC) 89 ITR 61
• Interest paid on a mortgage created to secure unpaid

consideration for the purchase of the property could not fall u/s
24(1)(iv) or (vi) –
K. Govinda Bhatt Vs CIT (Mad) 235 ITR 528
• Borrowed money utilized for paying a tenant, for handing over

possession of property or for surrendering tenancy right –
Interest on such loan not allowable as deduction
ACIT Vs Virender Singh (ITAT, Del) 104 ITD 365
• Interest on Estate Duty payable - Not deductible.

K. Sunandamma Vs CIT (Kar) 164 ITR 446
• Partition creating only life interest to karta – During

subsistence of his life interest, karta to pay annual charge to his
sons and wife – Amount so paid by Karta, not allowable as
creation of charge was voluntary.
CIT Vs Late Sohanlal ( by L/H ) (Del) 257 ITR 242
CIT Vs Satyanarayana Sikaria (Gau) 238 ITR 855
• Property vested in deity – Expenses on puja of itself – Not

deductible – Any expenditure incurred by an owner on itself or
himself or any obligation of the owner to incur certain
expenditure on itself or himself could not form part of any
annual charge of the property.
CIT Vs Saradeswar Siva Linga (Cal) 140 ITR 953
• Remuneration payable to Shebaits by the assessee deity does

not amount to annual charge on the property – Deduction not
allowable
Estate of Sree Sree Radha Kishan Jew Vs CIT (Cal) 58 DTR 131
• As per lease agreement, lessees were to carry out day-to-day

repairs – No deduction to lessor on account of repairs.
A.K. Mahindra Vs ITO (ITAT, Del) 44 ITD 430
• Deduction u/s 24 on account of repairs has to be made after

allowing rebate u/s 23(2)(i)
CIT Vs J.V. Gupta & Sons (HUF) (Del) 241 ITR 861
• Municipal tax pertaining to an earlier year, demand for which

was also made before commencement of accounting year –

Not deductible.
Industrial Consulting Bureau (P) Ltd. Vs CIT (Bom) 239 ITR 151
• Damages recovered by tenant by way of adjusting from rent

payable- Not deductible.
ITO Vs Purshottam Lal Roongata Family Welfare Trust (ITAT,SB-Jaipur) 58
ITD 19
BUSINESS INCOME 181
BUSINESS INCOME
Sec. 28 is the charging section whereby the following income are

chargeable under the head “Profits and gains of business or
profession” :-
• Profits and gains of any business or profession carried on

during the previous year
• Value of any benefit or perquisite arising from the business

or profession
• Compensation or other payment received by any person at

or in connection with
• Termination of his management or modification of its
terms and conditions when he was managing an Indian
company or affairs in India of a company
• Termination of his agency or modification of its terms
and conditions
• Vesting in Govt. / Govt. Corporation the management
of any property or business
• Income derived by a trade / professional or similar

association from specific services provided to its members
• Profit on sale of licenses granted under the Imports

(Control) Order, cash assistance received or receivable
against exports, drawback received, profit on transfer of
Duty Entitlement Passbook Scheme and Duty free
Replenishment Certificate
• Interest, salary, bonus, commission or remuneration due to

or received by a partner from the firm
• Sums received or receivable in cash or kind under a non-

compete agreement or for not sharing any know-how,
patent, copyright, trade-mark, license, franchise or any
other business or commercial right of similar nature or
information or technique likely to assist in the
manufacture or processing of goods or provision for

services
In Guffic Chem (P) Ltd. Vs CIT (332 ITR 602) Supreme Court
held that this provisions ie. sec. 28(va) is not clarificatory and
applies from A.Y. 2003-04 only
• Sum received under a Keyman insurance policy including

sum allocated as bonus
• Sum received or receivable in cash or kind on account of

any capital asset being demolished, destroyed, discarded or
transferred if the hole expenditure was allowed as
deduction u/s 35AD
BUSINESS INCOME 183
RECEIPTS – WHETHER INCOME ?
Income from profession / vocation

• Teaching of 'vedanta' is a vocation, like any other teaching –
Value of car given by disciples is income of assessee from
carrying on a profession Activity constituting vocation need
not be an organized one – Motive of person doing the act is
immaterial, so long the act produces income Imparting of
teaching was causa causans of making such gifts – Same
taxable as income arising from a vocation
P. Krishna Menon Vs CIT (SC) 35 ITR 48
Addl. CIT Vs Ram Kripal Tripathi (All) 125 ITR 408
• Assessee engaged in a religious movement and for fighting the

forces for atheism – Used to receive donations from abroad
through an organization engaged in similar activities –
Assessee was carrying on a vocation of preaching against
atheism – Receipts in question were received as donations for
furtherance of objects of his vocation – Receipts arose to the
assessee out of his vocation
K. George Thomas Vs CIT (SC) 156 ITR 412
• Assessee a priest – Amount received for performing mass –

Receipts for vocation or occupation of assessee – From the
standpoint of the recipient, it accrues to him by virtue of his
office or position, though there was no legal obligation on the
part of the persons remitting or paying the money to do so –
Assessable as income from profession
Father Epharam Vs CIT (Ker) 176 ITR 78
Acharya D.V. Pande Vs CIT (Guj) 56 ITR 152
• Prize won in photography contest by a professional

photographer is income.
CIT Vs Avinash Pasricha (Del) 251 ITR 360
• Winnings from races and other games of any sort – Prize

received in Car rally – Is income since what he got was a
'return' for his skill and endurance Even if a receipt does not
fall within the ambit of any of the sub-clauses in sec. 2(24), it
may yet constitute income – The word 'income' is of widest
amplitude and it must be given its natural and grammatical

meaning Even the casual income is 'income'.
• Architect submitted building plan in response to an open

invitation by an institute – Prize won – Revenue receipt as it is
part of his professional activity.
Parelkar, Gore & Parpia Vs CIT (Bom) 34 ITR 312
• Partner of law firm was expelled from firm and he started his
own practice Fees relating to work done up to the date of
expulsion received directly from the clients – Part of
professional income
CIT Vs M. Uttama Reddy (Mad) 148 ITR 580
• Assessee an advocate acting for one client, received payment

from another who was incidentally benefited by his act - Even
if receipt is casual and non-recurring nature, since it arose from
the exercise of his profession, it was part of income
Sushil C.Sen, In Re (Cal) 9 ITR 261
• Firm of Chartered Accountants – Carries on “Profession” and

not “Business”
G.K. Choksi and Co. Vs CIT (SC) 295 ITR 376
BUSINESS INCOME 185
Business Income
• Cloth dealer receiving gifts from supplier as incentive Taxable
as revenue receipt – Fact that the amount was given to the
recipient without any demand for the same by the recipient, or
without any legal obligation on the part of the donor to make
the payment or the fact that the person who makes the payment
regards it as a donation or a gift would not make any difference
It is a benefit arising from business which is convertible into
money
Boeing Vs. CIT (Mad) 250 ITR 667
• Dealer in shares – Shares in one company valued at cost and

held as stock-in-trade – Exchange of such shares for shares in
another company – Difference between book value of original
shares and market value of new shares – Taxable as business
profit.
Orient Trading Co. Ltd. Vs CIT (SC) 224 ITR 371
• Business of dealing in shares and debentures – Detachable

warrants received along with debentures is stock-in-trade and
profit on sale of the same is taxable income.
J.T. Holdings (P) Ltd Vs ITO (ITAT, Mum) 89 ITD 569
• On dissolution of firm, assessee took over the business of firm

including the unfinished contract – Arbitration award received
in respect of the said work – Revenue receipts in the hands of
assessee
CIT Vs J.H. Tarapore (Mad) 257 ITR 305
• Assessee, a distributor & exhibitor of films entering into

partnership agreements for raising finance for its business
Assessee selling its interest in firm – Assessee in reality sold its
rights to exhibit films for un-expired period of contracts
Amount received was revenue receipt.
CIT Vs Manoranjan Pictures Corporation (P) Ltd. (Del) 228 ITR 202
• Cash incentive received against exports, is income.

CIT Vs Maya J. Daryani (Del) 231 ITR 554
• Premium earned on sale of import entitlements – Business

income in view of retrospective amendment to sec.28.
Raunaq International Vs CIT (Del) 231 ITR 106

CIT Vs Rajasthan Udyog (Raj) 225 ITR 468
Industrial Cables (India ) Ltd. Vs CIT (P&H) 156 CTR 185
• Buses transferred by transport company to its Director and a

person who had substantial interest in Company at prices much
below market value – Difference between fair market value of
buses and prices paid are assessable as income in the hands of
those individuals
CIT Vs S. Varadarajan (Mad) 224 ITR 9
• Embezzlement by employee allowed as business loss

Subsequent recovery is income from business
Union Bank of Bijapur and Sholapur Ltd., IN RE (Bom) 10 ITR 21
• When property acquired from a debtor in satisfaction of debt is

sold, to the extent the purchase price exceeds the principal,
represents realization of interest - Such Immovable Property
constituted stock-in-trade of assessee Profits on sale of such
property assessable as business income - Expenses incurred
towards completing title, entering into possession etc. of this
property are not deductible expenses.
L.M. Devare, Liquidator of Bank of Karand Ltd. Vs CIT (Bom) 234 ITR 813
Lachhmandas Brij Ballabh Das, IN RE (All) 10 ITR 186
• Mining Lease – Minimum royalty is like annual guarantee

income flowing from the covenants in lease - Business income.
Raja Bahadur Kamakshya Narain Singh of Ramgarh Vs CIT (PC) 11 ITR 513
• Deposits / advances received from customers not claimed by

them – Claim barred by limitation – Unclaimed balance
transferred to P&L a/c. – Income – If an amount is received in
the course of trading transaction, eventhough it is not taxable
in the year of receipt as being not of revenue character, the
amount changes its character when the amount becomes the
assessee's own money because of limitation or by any other
statutory or contractual right.
CIT Vs T.V. Sundaram Iyengar and Sons Ltd. (SC) 222 ITR 344 - This decision
will take Precedence over Sugauli Sugar Works (SC) 236 ITR
518 being decision rendered by a larger Bench.
CIT Vs Sundaram Industries Limited (Mad) 253 ITR 396
BUSINESS INCOME 187
• Trial run of plant – Power generated was sold – Revenue

receipt
DCIT Vs Karnataka Power Corporation (ITAT, Bang) 67 ITD 391
• Co-operative Housing Society granting leases to its members -

Agreement shows that on transfer of lease, member has to pay
a portion of excess received to the society – Amount received
by society is revenue receipt – This is neither an amount which
is received by the society for the transfer of any of its capital
assets nor is it an amount received by the society for the
creation of any new rights in the capital assets which it
possesses. The rights of the society in its capital assets are not
affected in any manner by the transfer in question – It is not a
capital receipt and rather it is an amount which the society
receives by exploitation of its capital. It is different from the
premium which an owner may receive for creating a lease
CIT Vs Presidency Co-operative Housing Society Limited (Bom) 216 ITR 321
• Commission received on real estate transaction – Business

income.
CIT Vs Assam Hard Board Limited (Gau) 224 ITR 318
• Assessee obtaining contract for supply of commodities to

military – Contract transferred / sub-let to third party –
Consideration received for the same is revenue in nature as it
was received in the normal course of business – Income in the
year of receipt.
N.R. Sirker Vs CIT (Gau) 111 ITR 281
• Additional quota for free sale sugar at lower excise rate given
by Government – Amount received on sale is revenue receipt
CIT Vs Kisan Sahkari Chini Mills Ltd. (All) 284 ITR 418
• Sugar industry – Amount realised on account of Cane

Development Fund – Business income
CIT Vs Shri Bhogawati Sahakari Sakhar Karkhana Ltd. (Bom) 283 ITR 374
• Assessee carrying on activity of maintenance of horses with

object of earning income by letting out and sale of horses in a
systematic and organized manner over a period of time –
Income from horses is business income – Horses are stock-in-
trade – Closing stock of horses to be valued at market value

ACIT Vs S. Pathy (HUF) (ITAT, Chennai) 100 ITD 53
M. Ct. Muthiah Vs CIT (Mad) 260 ITR 629; (Mad) 259 ITR 194
• Assessee engaged in real estate business - Possession of plot of

land transferred and transferees even making constructions
thereon – Dominion over property passing on to transferees
Amount received as advances or earnest money – Revenue
receipt
CIT Vs Dhir & Co. Colonisers P. Ltd. (P&H) 288 ITR 561
• Stock found at the time of search less than stock as per books
Difference represents suppressed sales – GP on such sales to be
assessed
Janta Tiles Vs ACIT (ITAT, Pune) 66 TTJ 695
• Interest on molasses storage fund – Though the amount on

which interest was received did not belong to the assessee, it
admittedly have treated the interest received as belonging to it
and utilized the interest for its own purposes; it had not treated
the interest as forming part of molasses storage fund – Hence it
is treated as income of assessee
CIT Vs Madurantakam Co-op Sugar Mills Ltd.(Mad) 263 ITR 388
• Foreign travel expenses of wife of Director met by company

Income of wife of Directors u/s 2(24)(iv) as it is a gratuitous
payment from the company of which her husband was the
managing director – Even if the said payment was allowed as
deduction in the hands of the company, it is assessable as
income in the hands of assessee
CIT Vs Surekha P. Kothari (Mad) 267 ITR 406
• Sale consideration of earth removed from own land – Revenue

receipt since the land is not consumed or exhausted
CIT Vs E.M. Johny (Ker) 279 ITR 34
• Assessee advances loan to firm on interest –Assessee stopping

charging of interest from 1.4.64 – Debtor also not crediting
interest to assessee's a/c. Assessee filing suit for recovery of
amount with interest – Interest accrued to assessee even after
1.4.64.
Addl. CIT Vs Swadeshi Cloth Dealers (All) 187 ITR 620
BUSINESS INCOME 189
• Surplus due to devaluation of Indian Rupee – Revenue receipts

to be taxed as business income – Surplus on un-repatriated
foreign exchange being a trading receipt to be valued at the end
of every accounting year
Khandelwal Brothers P. Ltd. Vs CIT (Cal) 117 ITR 452
IRCON International Ltd. Vs DCIT (ITAT, Del) 74 ITD 117
• Wholly-owned subsidiary company of assessee in Saudi

Arabia went into liquidation – Assessee transferred its shares
and got Saudi Riyals and suffered loss which was treated as
capital loss – During the year, assessee repatriated Saudi
Riyals and earned profit due to exchange rate difference in the
period – Revenue receipts
Reliance Energy Ltd. Vs DCIT (ITAT, Mum) 103 ITD 223
• Loan taken by assessee for trading activities and ultimately

upon waiver, the amount was retained in the business – Taxable
as business income u/s 28(iv) – When the money / loan was
received in the course of carrying on business, even if it was
treated as loan at the time of receipt which was of capital
nature, on waiver it had become assessee's own money. This
benefit was in the revenue field as the money had been
borrowed for day-to-day affairs and not for the purchase of
machinery; the loans were for circulating capital and not fixed
capital
Solid Containers Ltd. Vs DCIT (Bom) 308 ITR 417
DCIT Vs Logitronics Pvt. Ltd. (Del) 333 ITR 386
Rollatainers Ltd. Vs CIT (Del) 339 ITR 54
• Time barred unclaimed mature debentures transferred to

General Reserve a/c and utilized for business purposes
Assessable as trading receipt
Hindustan Foods Ltd. Vs DCIT (Bom) 328 ITR 392
• Assessee doing hire-purchase business – It collected insurance

amount for vehicles financed by it in round figures from its
customers – In some cases the hirers did not claim return of
excess amount and hence assessee took it into P & L a/c
Taxable income of assessee
Motor General Finance Ltd. Vs CIT (Del) 199 Taxman 51
• Gains under escrow agreement for sale of shares of dissenting

group – Assessee ventured to sell shares of the divesting

promoters at an agreed price and undertaking given to
compensate them in case shares are sold at a lesser price
Ultimately assessee could sell the shares at a higher price than
the agreed price and thereby earned surplus amount – Surplus
is taxable as income of assessee
P.V. Chandran Vs ACIT (Mad) 28 DTR 179
• Cost of capital assets purchased by assessee in earlier year was

reduced by seller on settlement – Amount of depreciation
granted to the assessee in earlier years on the alleged excess
amount is income u/s 28(iv) and re-determine closing WDV of
the block of assets from the current year
Binjrajka Steel Tubes Ltd. Vs ACIT (ITAT, Hyd) 50 DTR 89 ; 130 ITD 46
• Assessee, a builder constituted partnership firm by

contributing his development rights in a plot – Retired from the
firm after 11 days and rights in shops / flats were allotted to
assessee in terms of retirement deed – Whole transaction is not
genuine – Value of such shops / flats assessable as Business
income in the year of transaction, though such shops / flats are
to be allotted in future
ACIT Vs Dilip S. Hate (ITAT, Mum) 136 TTJ 40 ; 131 ITD 348
• Amount received on maturity of Keyman Insurance Policy is

taxable though policy was taken prior to amendment
Binjrajka Steel Tubes Ltd. Vs ACIT (ITAT, Hyd) 50 DTR 89
• Salami received in lieu of rent – The amount so collected was in

the nature of advance as the monthly rent charged by the
assessee from those parties were much lesser than the rent of
nearby properties - Revenue receipt
B.R. Associated Vs CIT (AP) 236 ITR 465
BUSINESS INCOME 191
Collection kept in separate account

• Excise duty payable by manufacturer – Part of turnover of
manufacture.
McDowell and Co. Ltd. Vs Commercial Tax Officer (SC) 154 ITR 148
• ST collected is part of trading receipts.

Chowringhee Sales Bureau (P) Ltd. Vs CIT (SC) 87 ITR 542
Sinclair Murray & Co. P. Ltd. Vs CIT (SC) 97 ITR 615
Addl. CIT Vs T. Nagi Reddy (SC) 202 ITR 253
Jonnalla Narasimharao & Co. & Anr. Vs CIT (SC) 200 ITR 588
• Amount realized as excise duty from customers on sale of

poppy seeds is part of price of goods - Are trading receipts
assessable to tax.
Jagdish Prasad Nigam Vs CIT & Ors. (All) 228 ITR 112
• Luxury tax collected but not paid is income

Pandyan Hotels Ltd Vs CIT (Mad) 266 ITR 172
• Security Deposit collected by assessee towards bottles – Part of

sale consideration eventhough it is credited in separate L/F
“empty bottles return deposit a/c”.
Punjab Distilling Industries Ltd. Vs CIT (SC) 35 ITR 519
• Amount deducted by Society by way of “deposit” from price

of sugarcane payable to producer members, to be adjusted
towards losses, repayment of loan etc. of the Society – Is
revenue receipt - Entry in account books or name given is not
determinative.
CIT Vs Bazpur Co-operative Sugar Factory Ltd. (SC) 172 ITR 321
• Assessee was permitted to charge only Rs.11.70 per bag – On

appeal, High Court as an interim measure permitted to charge
Rs. 13 per bag and excess over Government rates to be
deposited in bank in the name of D.C. during pendency of
petition – Said sum is trading receipt of assessee and is income.
CIT Vs Mangat Ram Hazari Lal (P&H) 221 ITR 797
• Interest, guarantee commission and commitment charges

collected by assessee and kept in suspense a/c is income.
CIT Vs Tamil Nadu Industrial Investment Corpn. Ltd.(Mad) 240 ITR 573
BUSINESS INCOME 193
Compensation received
• Two groups of shareholders holding substantial shares of a
company – Managing Director who belonged to one group
retired prematurely as a result of agreement whereby his group
sold its shares to rival group – Compensation received is
business income u/s 28(ii)(a)
CIT Vs D.R. Sondhi (Del) 248 ITR 695
• Business rival paying money to assessee to keep off

competition – Business income when income earning
apparatus is not lost – Amount received is in the course of
business
Ram Kumar Agarwalla & Bros. Vs CIT (SC) 63 ITR 622
CIT Vs Mineral Mining Co. Pvt. Ltd. (Mad) 194 ITR 258
[w.e.f. 01-04-2003, non-compete fee received is specifically
brought under the head Business income by inserting cl.(va) to
sec. 28(1) – these are decisions prior to that]
• Compensation for loss of earnings – Revenue receipt – Method

of computing compensation would not alter the real character
of the receipt
CIT Vs Manna Ramji & Co. (SC) 86 ITR 29
Indo Foreign Traders (P) Ltd. Vs CIT (Mad) 166 ITR 308
Bishambhar Nath Swaroop Narain Vs CIT (All) 119 ITR 681
Chemplant Engineers (P) Ltd. Vs CIT (Mad) 234 ITR 23
• Compensation received for termination of managing agency

business Payment in relation to the business – Revenue receipt
Chidambaram Mulraj & Co. P. Ltd. Vs CIT (SC) 102 ITR 7
Gillanders Arbuthnot & Co. Ltd. Vs CIT (SC) 53 ITR 283
CIT Vs Best and Co.(Pvt) Ltd. (SC) 60 ITR 11
• In the course of business, contract was entered upon

Compensation received for its termination is revenue receipt.
Payments made in settlement of rights under a trading contract
Trading receipts
CIT Vs Gangadhar Baijnath (SC) 86 ITR 19
CIT Vs Rai Bahadur Jairam Valji & Others (SC) 35 ITR 148
CIT Vs South India Pictures Ltd. (SC) 29 ITR 910
• Receipt for relinquishment of certain posts held by assessee in

BUSINESS INCOME 195
a society that runs schools – Not a capital receipt since no

capital asset is transferred – Since assessee was not earning any
income by holding such posts, relinquishment of the same did
not result in monetary loss and there is no loss of income
earning apparatus
CIT Vs H.S. Ramachandra Rao (Kar) 330 ITR 322
• Assessee engaged in business of manufacturing as well as

undertaking job works – Termination of a job work contract
Compensation received is Revenue receipt.
Elegant Chemicals Enterprises (P) Ltd. Vs ACIT (ITAT, Hyd) 91 ITD 85
• Correspondence between parties indicate that the sum received

was by way of compensation for loss of business in some
locations – Assessee continuing business in other places – No
permanent cessation of business No part of profit making
apparatus of assessee extinguished – Revenue receipt
CIT Vs All India Films Corporation (Del) 297 ITR 358
• Lump sum consideration received by managing agents for

reduction of remuneration in future is only a commuted
amount – Revenue receipt.
M.E.R. Malak Vs CIT (Nag) 29 ITR 238
• On break-down of machinery, assessee incurred repairs

Lateron received insurance money – Surplus arising is income
A.T.E.(P) Ltd. Vs ACIT (ITAT, Mum) 68 ITD 18
• Insurance receipt on loss of raw material, stores, spare parts

etc. – Excess received over the book value is income
CIT Vs Needle Industries (India) Ltd (Mad) 245 ITR 556
• Amount received for transfer of skilled personnel and sharing

customer data base is Revenue receipt – Personnel transferred
had acquired the training, experience and work culture at the
cost of assessee and hence connected with the occupation
carried on by the assessee
IBM India Ltd. Vs CIT(Appeals) (ITAT, Bang) 105 ITD 1
• Assessee parted with information relating to marketing of

certain products for a period of 3 years – Trading and
marketing structure of assessee not affected – No transfer of

capital asset – Revenue receipt.
DCIT Vs Lyka Labs Ltd. (ITAT, Mum) 116 ITD 457
• Amount received for surrender of market rights – Assessee

having no exclusive rights over controlled products and
composite agreement entered into for supply of fixed quantity
Compensation received for loss of income – Revenue receipt
Kochi Refineries Ltd. Vs DCIT (ITAT, Mum) 4 ITR (Trib) 95
• Consideration received for transfer of marketing network

Profit making structure not impaired – Revenue receipt
DCIT Vs Bayer (India) Ltd. (ITAT, Mum) 7 ITR (Trib) 381
• Assessee providing various corporate services including

custodial services – Compensation received for shifting major
clients to another entity – Does not amount to parting with
asset of enduring value – No impairment of trading structure of
asset – Revenue receipt
IIT Corporate Services Ltd. Vs DCIT (ITAT, Mum) 4 ITR (Trib) 147
• Non-compete fee received for restrictive covenant – Transfer

between two sister concerns – Assessee does not have
exclusive expertise in the business transferred – Payment for
sharing customer database and sharing of trained employees
Revenue receipt
ACIT Vs Helios & Matherson Information Technology Ltd. (Mad) 332 ITR 403
• Assessee doing manufacturing and sale of Coca-Cola

Destruction of bottles and compensation received – Revenue
receipt
CIT Vs Sri Krishna Bottlers P. Ltd. (AP) 274 ITR 11
• Lumpsum amount received for allowing a company to

exclusively use its trade mark in certain territories without
parting with the trade mark.- Revenue receipt since assessee
did not part with or assign its trademark but merely permitted
its use and ownership of the trademark continued to be vested
with the assessee
CIT Vs I. Miller & Co. Ltd (Mad) 246 ITR 316
• Contract for supply of commodity – Agreement providing for

BUSINESS INCOME 197
minimum quantum of purchase – Payment to be made for

shortfall – Amount received towards shortfall is revenue
receipt
Eastern Air Products P. Ltd. Vs CIT (MP) 290 ITR 562
• Contract of sale of goods – Forfeited security deposits and

encashment of bank guarantee when buyers failed to carry out
the terms of the contract – Revenue receipt since it is to
compensate trading loss
CIT Vs State Trading Corpn. of India Ltd (Del) 247 ITR 114
• Assessee bank in course of its business purchased securities for

its constituents on receiving margin money – Subsequent
default by constituents and margin money forfeited – Business
income of assessee
CIT Vs Lakshmi Vilas Bank Limited (SC) 220 ITR 305
• Compensation received by contractor – Interest for delayed

payment – Revenue receipt
K.S. Krishnamurthy Vs CIT (Mad) 241 ITR 186
• Assessee purchased a property in Court auction – Ultimately

gave up in a compromise recorded in Court and received
compensation for the same – Assessee did not have any right in
the property and did not transfer any such right –
Compensation received is not a capital receipt – Casual & non-
recurring receipt u/s 10(3)
Gynendra Bansal Vs ACIT (ITAT, Del) 86 ITD 421
• Assessee's Power of Attorney holder misusing Power of

Attorney and doing business – On compromise paid certain
sum to assessee – Revenue receipt – Taxable
CIT Vs Deepak Kumar Agarwal (Mad) 244 ITR 448
• Damages paid by lessee for occupation of property after the

period of lease – Amount is payable for the use and occupation
of the property - Revenue receipt
S. Kempadevamma Vs CIT (Mad) 251 ITR 871
• Sharebroker held talks with a non-resident company to set up

Joint Venture Company – Non-resident company withdrew
and paid a lumpsum – Revenue receipt
Sunil M. Shah Vs ACIT 2007-TIOL-425-ITAT-MUM
• Assessee getting into a contract for development of a large plot

of land and construction of flats and factory complex – After
the work gets underway, the contract is terminated and
assessee is paid compensation – Revenue receipt
Ansal Properties & Industries Ltd. Vs DCIT (ITAT,Del) 115 ITD 443 confirmed in
2010-TIOL-810-HC-DEL-IT
Kailash Nath Associates Vs ITO (ITAT,SB-Del) 121 ITD 563
• Assessee withdrawing its membership in one leading public

accounting firms – Assessee was compensated for probable
loss of professional fee – Compensation arises in course of
carrying on profession – Revenue receipt.
JCIT Vs Khanna & Annadhanam (ITAT, Del) 305 ITR(AT) 336; 116 ITD 267
• Non-compete fee received – Agreement not confined to a

particular A.Y. – No parity between point of accrual and period
of obligation cast on the assessee – Entire amount of
compensation not accrued to the assessee in the first A.Y. itself
Proportionate allocation of income to each year to be made
DCIT Vs International Business Services Group P. Ltd. (ITAT, Cochin) 314 ITR
(AT) 114
• Compensation received upon termination of a Joint venture

Revenue receipt
Ion Exchange (India) Ltd. Vs ITO (ITAT, Mum) 52 DTR 411
• Amount received as compensation for infringement of

copyright – Compensation towards loss of income – Revenue
receipt
CIT Vs Eastern Book Company (All) 322 ITR 605
• Assessee was looking after a property owned by MW and was

doing fish farming in the ponds located in the property – On
sale of property, assessee received sum of Rs. 25 lakhs for not
carrying out any activity in relation to fish farming – Benefit
u/s 28(va)(a) – Question of capital gains does not arise as the
assessee was not owner of any asset which got transferred
during the year
John D'Souza Vs CIT & Anr. (Bom) 28 DTR 321 ; 226 CTR 540
BUSINESS INCOME 199
• Compensation received for termination of technical know-how

agreement – Only a limited right for limited period to use
patent and trademark was given to the assessee for running the
business of manufacture and sale of tyres and tubes – It did not
create any right in favour of assessee in any tangible asset so as
to form a capital asset of enduring nature – Hence the
compensation received upon termination of the agreement was
not against any price for relinquishment of any right in capital
asset or parting with any asset of enduring nature – Amount
received is revenue receipt
S. Kumars Tyre Manufacturing Company Ltd. Vs CIT (MP) 30 DTR 256 ; 227
CTR 181
• Payment for covenant for non-user of trade name – Assessee

stopped his restaurant business and was paid compensation for
not using the old name There was no restriction on continuing
the business by the assessee in any other name – Amount
received is income and falls u/s 28(i)
Padmanabha Udupa Vs ITO (Ker) 189 Taxman 408
BUSINESS INCOME 201
Diversion by over-riding title

• Diversion by over-riding title – The true test is to consider
whether the amount never reached the assessee as his income
The nature of obligation is the decisive test – There is a
difference between an amount which a person is obliged to
apply out of his income and an amount which by the nature of
the obligation cannot be said to be a part of the income of the
assessee – Maintenance paid to wife and children under
consent decree by which no charge on the property of the
assessee was created – Amount paid was not diversion at
source but application of income to discharge an obligation
CIT Vs Sitaldas Tirathdas (SC) 41 ITR 367
• Sugar Factory – Part of price of molasses set apart under

Molasses Control Order to a specific fund to be utilized for
erection of adequate storage facilities – Assessee did not lost
title to fund – Amount not diverted by over-riding title Amount
set apart is assessable as trading receipt.
Jiwaji Rao Sugar Co.Ltd. Vs CIT (MP) 176 ITR 182
• Assessee was allowed retail margin of Re.1 per bottle of liquor

sold and against which it was to construct fly-over and
pedestrian facilities as directed by DDA – Assessee created
'transportation infrastructure utilization fund' during the year
instead of actually constructing the same – No diversion by
over-riding title - To be included in income of assessee
Delhi Tourism & Transport Dev. Corpn. Ltd. Vs DCIT (ITAT, Del) 54 TTJ 316
• Obligation to transfer part of net profit to reserve fund Reserve

funds remains part of assessee's corpus and is to be applied for
assessee's business only – There is no overriding title vesting in
a third party to lay claim independent of assessee - No
diversion by overriding title – Transfer to reserve happened
only after assessee earned profits and it is only an
appropriation of profits - Not deductible u/s 37 also.
CIT Vs Jodhpur Co-operative Marketing Society (Raj) 275 ITR 372
• Amount set apart by co-operative society as capital

contribution redemption fund – No diversion by over-riding
title – The amount set apart belonged to the assessee and was
kept apart with a view to ensuring the availability of the

requisite funds to the assessee for redemption of a part of its
share capital - Where the income is required to be applied to
discharge an obligation after it reaches the assessee, it is
apportionment of income accrued and not diversion by
overriding title - Not deductible.
Colaba Central Co-operative Consumers' Wholesale and Retail Stores Ltd. Vs
CIT (Bom) 229 ITR 209
• Dividend used to finance research activity of company – On its

own volition assessee decided that preference dividend would
be used to finance research activity – No charge was created in
respect of the dividend - No diversion by over riding title.
Warner Lambert Co. Ltd. Vs CIT (Bom) 234 ITR 516
• Race Club – License fees, fines etc. credited to benevolent fund

created by club – Amounts are not paid by the members with
the intention that it be a contribution to the charitable or
benevolent fund – There is no earmarking of those amounts for
benevolent fund ab initio - No diversion by over riding title
CIT Vs Madras Race Club (Mad) 255 ITR 98
• Assessee earmarked certain amount as “charity” from out of

sale consideration collected by the distributors / dealers on his
behalf – There is nothing on record to show that the customers
made any separate payment on account of “charity” over an
above the price of the product or they were aware that a part of
sale price is being taken to charity – Said amount rightly
treated as sale proceeds and included in total income.
DCIT Vs G. Ramaswamy (ITAT, Chennai) 16 DTR 176
• Assessee inheriting assets and liabilities on his father's death

Overdraft taken by assessee's father for paying tax liabilities
and Overdraft was secured by assessee's father by pledge of
shares with bank – Interest on overdraft paid by assessee is not
deductible from dividend earned on shares pledged – No
diversion by over riding title.
CIT Vs Mathubhai C. Patel (SC) 238 ITR 403
• Assessee transferred certain amounts to general reserve in

accordance with sec. 205(2A) of the Companies Act,1956 –
This only restricts distribution of dividend and does not have
BUSINESS INCOME 203
any restrictions on its use for the purpose of business - No

diversion by over riding title – Not deductible.
Seshasayee Paper Boards Ltd. Vs CIT (Mad) 237 ITR 488
• Statutory contribution of portion of profit of assessee

Co-operative society to Education Fund – Only application of
income – Not deductible.
CIT Vs South Arcot District Co-operative Supply & Marketing Society (Mad)
127 ITR 467
• Tariff & Dividend reserve, Development reserve and

Contingency reserve created by an Electric Supply Company
Not deductible.
Vellore Electric Corpn. Ltd. (SC) 227 ITR 557
• Crediting amounts to Statutory Reserve Fund under provisions

of Multi-State Co-operative Societies Act – No diversion by
over-riding title
National Heavy Engg. Co-operative Ltd. Vs DCIT (ITAT, Pune) 105 ITD 485
• Assessee charged 3 paise per unit of electricity supplied to

consumers and transferred it to a special appropriation account
created for financing a power project – No diversion by over
riding title – Part of income
Reliance Energy Ltd. Vs DCIT (ITAT, Mum) 103 ITD 223
• Amount transferred to reserve fund u/s 67 of Gujarat Co-op.

Society Act – Assessee having control over such funds – No
diversion by overriding title.
CIT Vs Mehsana District Co-op. Milk Producers' Union Ltd. (Guj) 307 ITR 83
• Amount disbursed by assessee, a nodal agency, to co-operative

societies – Grant received from Government credited directly
to project accounts – Grant not routed through assessee's profit
& Loss account – Disbursement cannot be allowed as
expenditure.
National Dairy Development Board Vs Addl. CIT (ITAT, Ahd) 310 ITR (AT) 325
• Claim of assessee that it was conducting business on behalf of

21 parties, not proved – There was no written or oral agreement
between the parties for purchase and sale of commodities –
Assessee invested its own funds and all the purchase and sales
were made in the account of the assessee – It was assessee's

own infrastructure which was used in all the transactions.
Hence profit of the commission agency business diverted to 21
parties, is income of assessee.
New Kailash Cotton Factory Vs ITO (P&H) 166 Taxman 339
• Payment made by assessee to retiring partner as per partnership

agreement is an obligation voluntarily agreed to – No diversion
by overriding charges – It is only application of income
S.B. Billimoria & Co. Vs ACIT (ITAT, Mum) 125 ITD 122
• Fee paid for Portfolio Management Services was to discharge

contractual obligation after profit on sale of shares accrued to
assessee – No diversion by overriding title
Devendra Motilal Kothari Vs DCIT (ITAT, Mum) 50 DTR 369 ; 132 ITD 173
• RBI made it mandatory for every NBFC to create a reserve

fund and transfer minimum of 20% of net profit every year
before declaration of dividend – Only appropriation of income
Cannot be allowed as deduction
Shriram Transport Finance Co. Ltd. Vs ITO (ITAT, Chennai) 31 DTR 449 ; 126
TTJ 858
• Infrastructure fund maintained by assessee to which a fixed

portion of its receipts is credited pursuant to an order issued by
State Government – Not a separate entity independent of the
assessee – Govt. order did not create any overriding title on
such fund – Such fund to be applied towards fulfillment of
assessee's object – No diversion of income by overriding title
Mussoorie Dehradun Development Authority Vs Addl. CIT (ITAT, Del) 65 DTR
297
BUSINESS INCOME 205
Subsidy received
• Refund of sales tax, subsidies on Power consumed and
exemption from payment of water charges etc. – Amounts
received were production incentives and operational subsidies
and not capital subsidies – What is material is the purpose for
which susbsidy was granted – If the purpose is to help the
assessee to set up its business or complete a project, the monies
must be treated as to have been received for capital purposes
but if monies are given to the assessee for assisting him in
carrying out the business operation and the money is given
only after and conditional upon commencement of production,
such subsidies must be treated as assistance for the purpose of
the trade and revenue in nature
Sahney Steel and Press Works Ltd. Vs CIT (SC) 228 ITR 253.
CIT Vs Rajaram Maize Products (SC) 251 ITR 427
Wardex Pharmaceuticals P. Ltd. Vs ACIT (Mad) 307 ITR 387
• Sales tax subsidy quantified at percentage of fixed capital

investment – Revenue receipt since it is provided for smooth
running of business
• Subsidy received from SIPCOT by way of reimbursement of

revenue expenditure – Revenue receipt.
Sree Ayyanar Spinning & Weaving Mills Limited Vs CIT (Mad) 240 ITR 106
• Subsidy received from Race Club for horse expenses is income

M.A.M. Ramaswamy Vs CIT (Mad) 245 ITR 478
• Incentive from Government in the form of levy free sugar

quota and excise duty concession on condition that surplus
income thus generated be utilized for loan repayment
Revenue receipt.
Chengalrayan Co-operative Sugar Mills Ltd. Vs DCIT (ITAT, Mad) 65 ITD 475
• Grants received from Government for trading – Revenue

receipt.
CIT Vs Steel Authority of India Ltd. (Del) 263 ITR 211
• Film subsidy granted by State Government – Assessable as

income since the receipt was in the course of business of film

making .
CIT Vs Udaya Pictures (P) Ltd. (Ker) 225 ITR 394
Jagapathy Art Pictures Vs CIT (Mad) 240 ITR 625
• Subsidy to cinema owner by way of adjustment of

entertainment tax – Revenue receipts.
Mudit Refrigeration Industries (P) Ltd. Vs ACIT (ITAT, All) 84 ITD 289
• After construction of cinema house, received subsidy from

Government on the condition that cinema house would run for
3 years – Revenue receipt.
ITO Vs Shreejee Chitra Mandir (ITAT, Indore ) 97 ITD 66
• Received subsidy from Government on account of sale of

fertilizers at subsidized rates – Held certain portion of
production / sale of fertilizers as bogus and reconstructed
trading account – Amount of subsidy referable to such bogus
production and sale, were retained in the total income
Assessee claimed that if production and sale is disallowed,
then subsidy referable to such sale is refundable to
Government and hence not part of total income – Subsidy,
though illegally earned, is income of the assessee during the
year – Deduction can be allowed only when a liability to repay
such subsidy arises in future
Harshavardhan Chemicals & Minerals Ltd. Vs ACIT (ITAT, Jodh) 101 ITD 66
• Incentive received from Government – Capital receipt if

granted for expansion of plant and machinery and revenue
receipt if granted for use in business
CIT Vs Kisan Sahkari Chini Mills Ltd. (Uttarakhand) 318 ITR 218
• If purpose of giving subsidy is to help in setting up of business

or completing project, it is capital receipt – If subsidy is given
to assist in carrying out business operations and for
commencement of production, it is revenue receipt
DCIT Vs A.P. State Electricity Board (ITAT, Hyd-TM) 130 ITD 1
BUSINESS INCOME 207
WHEN INCOME ACCRUES ?

• In Mercantile system, profit arises / accrues on the date of
transaction. The “receipt” of income refers to the first occasion
when the recipient gets the money under his own control.
Keshav Mills Ltd. Vs CIT (SC) 23 ITR 230
• The two words 'accrue' and 'arise are used to contradistinguish

the word 'receive' – Income is said to be received when it
reaches the assessee; when the right to receive the income
becomes vested in the assessee, it is said to accrue or arise –
Such accrual may depend upon the provisions of certain
statutes or agreements which may give rise to such right
CIT vs Ashokbhai Chimanbhai (SC) 56 ITR 42
• Later events cannot affect the earlier nature of a receipt as also

its quantum.
• Assessee follows mercantile system – Resolution passed after

the close of the accounting year forgoing interest – Will not
wipe out interest accrued during the year – It only means that
assessee is giving up the money which had accrued to it – The
concept of real income cannot be employed so as to defeat the
provisions of the Act and the Rules. There is no room – nor
would be permissible for the Court – To import the concept of
real income so as to whittle down, qualify or defeat the
provisions of the Act and the Rules
CIT Vs Shiv Prakash Janak Raj & Co. (P) Ltd. (SC) 222 ITR 583
CIT Vs Sarabhai Holdings P. Ltd. (SC) 307 ITR 89
H.P. Mineral & Ind. Development Corporation Vs CIT (HP) 302 ITR 120
CIT Vs United Breweries Ltd. (Kar) 321 ITR 546
• When moneys were credited in the a/c of Non-resident

company in the books of assessee, it should be treated as
“received” by the said Company and deposited with assessee.
Raghava Reddi & Anr. Vs CIT (SC) 44 ITR 720
Standard Triumph Motor Co. Ltd. Vs CIT (SC) 201 ITR 391
• Vast land purchased was divided into plots and sold all but one
plot – Argument that adventure will terminate only after all
BUSINESS INCOME 209
plots are sold is unjustified.

P.M. Mohammed Meerakhan Vs CIT (SC) 73 ITR 735
Tirath Ram Ahuja (P) Ltd. Vs CIT (Del) 103 ITR 15
Estate Investment Co. Ltd. Vs CIT (Bom) 121 ITR 580
• Development and sale of industrial sheds – Though allotment

rules provide for transfer of rights to allottees only on payment
of the last installment, amount actually received by the
assessee from the allottees during the year is assessable as
income accrued
CIT Vs Chandigarh Industrial & General Dev. Corpn. Ltd. (P&H) 319 ITR 85
• Assessee entered into agreement for purchase of land – After

dividing the land into plots, sold them to prospective buyers
and advances were received – Sale deeds were then executed
directly by the vendor in the name of such prospective buyers
Possession having been handed over and substantial amount
having been received, the amount received by the assessee
from the prospective buyers was trading receipt and not merely
earnest money – Income accrues to assessee
CIT Vs Fair Deal Traders (P&H) 30 DTR 61
• Assessee entered into a collaboration agreement with 'M'

Agreement did not subsist due to disputes and received
compensation – It is a revenue receipt – Since settlement was
made on 22.11.91, income accrued in FY 92-93
S. Kumars Tyre Mfg. Co. Ltd. Vs DCIT (ITAT, Indore) 61 ITD 326
• Mercantile system – Right to receive cash incentive accrued

when assessee filed its claim for it.
CIT Vs Punjab Bone Mills (P&H) 232 ITR 795 affirmed in 251 ITR 780 (SC)
• Mercantile system – Application for refund of excise duty

Right accrues when application made
Nathpa Jhakri Joint Venture Vs ACIT (ITAT, Mum) 5 ITR (Trib) 75
• Interest granted by income tax Department to assessee u/s

244A has to be taxed in the year of receipt – The fact that
quantum of such interest may vary in future, does not affect
accrual of income during the year
Avada Trading Co. (P) Ltd. Vs ACIT (ITAT,SB-Mum) 100 ITD 131
DCIT Vs Seshasayee Paper & Boards Ltd. (ITAT, Chennai) 125 ITD 111; 23 DTR
401
• Advance remuneration received on completion of assignment

is income even before the bill was passed – Bill submission is
relevant to decide date of accrual of income
CIT Vs Shaik Md. Rowther Shipping & Agencies (P) Ltd. (Mad) 246 ITR 161
• Service charges receivable by assessee under an agreement

constituted income of assessee for that year irrespective of the
fact that the amount has not been allowed as a deduction in the
assessment of payer company.
CIT Vs Shah Construction Co. Ltd. (Bom) 230 ITR 51
• Assessee contractor claimed 'Project completion Method'

Rejected u/s 145(2) since income accrues every year – Receipt
of 'on money' was there in all the years.
Param Anand Builders (P)Ltd. Vs ITO (ITAT, Mum) 59 ITD 29
Uttam Singh Duggal & Co. P. Ltd. Vs CIT (Del) 127 ITR 21
CIT Vs Nandram Himatram (Ori) 103 ITR 433
• Contractor made claim of completed contract method – As per

contract, assessee entitled to receive payment by 31.3.83
Vested right arose on that day eventhough some payments
were received subsequently – Assessable in AY 83-84
IAC Vs Punj & Sons (ITAT, Del) 56 ITD 281
• Finance income / interest in relation to Hire Purchase

agreements recognized by assessee on the basis of sums of
digits (SOD) method in its books of a/c represented real
income accrued to assessee and which having been
apportioned from amount of EMI also represented income
received / receivable in relevant accounting year.
DCIT Vs Nagarjuna Invesment Trust Ltd. (ITAT, Hyd-SB) 65 ITD 17
• Guarantee commission – No clause in agreement for refund of

guarantee commission in case of revocation of guarantee
Entire commission accrues at the time of executing guarantee
DD(Int.Tax) Vs Chohung bank (ITAT, Mum) 126 ITD 448; 4 ITR (Trib) 627
DCIT Vs Bank of Bahrain & Kuwait (ITAT,SB-Mum) 5 ITR (Trib) 301
• Foreman of chit –Mercantile system – Commission accrues on

date of each auction and not on completion of chit period.
Shriram Chits and Investments Vs ACIT (ITAT,Chennai-SB) 263 ITR (AT) 65
BUSINESS INCOME 211
• Assessee company in the business of disbursing housing loans

Administration and service charges deducted at the time of
loans disbursement – Income accrues at this stage.
Kerala Urban Dev. Fin. Corn Ltd. Vs CIT (Ker) 266 ITR 245
• Assessee leased out distribution of rights of a film produced by

it for 5 years for 70 lakhs as total consideration – Received
entire amount as interest free deposit to be adjusted in 5 years
as per lease agreement- Assessee being under no obligation to
return all or any part of it under any circumstances whatsoever
at any point of time in future, entire amount is income in this
year and not proportionate amount.
CIT Vs G.S.R. Krishnamurthy (Mad) 262 ITR 393
P.L. Ganapathi Rao Vs CIT (AP) 285 ITR 501
• Royalty receivable by assessee for leasing out dubbing rights

of movie accrued to assessee on the date of agreement where
the offer and acceptance was completed on that date and
substantial consideration was paid.
Lakshmi Narayana Films Vs CIT (Mad) 244 ITR 344
• Mercantile system of accounting – Income from lease of horses

Income accrues in the year of auction.
M. Ct. Muthiah Vs CIT (Mad) 260 ITR 629
• Mercantile system of accounting - Development agreement

Consideration to be received in 6 installments and interest to be
paid in case of default – When default is committed by the
other party, interest accrues to assessee.
Naik Wvg. Mills Vs ITO (ITAT, Pune) 74 ITD 401
• Interest on IDBI Bonds – Discounted interest received for

entire period – Assessable in the year of receipt.
EID Parry (I) Ltd. Vs CIT (Mad) 258 ITR 404
CIT Vs A.R. Santhanakrishnan (Mad) 256 ITR 187
• Mercantile system of accounting – Coffee sold to coffee Board

Excess received in subsequent year – Accrues in year of sale.
Bison Field A Estate Vs IAC & Ors. (SC) 248 ITR 341
• Assessee constructing office-cum-shopping complex – Air-

conditioning and car park facilities provided to purchasers of
built-up area and received service charges for 5 years as

advance – Amount received by assessee is assessable fully in
the year of receipt and cannot be spread over for several years
since assessee actually recouped the expenses incurred by it for
providing these facilities
CIT Vs Mangal Tirth Estates Ltd. (Mad) 303 ITR 366
• Commission due to a director of company – No specific

provision regarding date on which commission would become
payable – Commission accrued when profits of company were
finalized.
Sanjib Kumar Agarwal Vs CIT (Cal) 310 ITR 295
• Loan given by State govt. to sugar mill to compensate for price

paid to farmers in various years – Loan converted to grant-in-
aid on 31-12-2002 – No restriction on use of grant – Grant is
revenue receipt assessable in A.Y. 2003-04
Gurdaspur Co-operative Sugar Mills Vs DCIT (ITAT, Amritsar) 3 ITR (Trib) 101
• AMC Charges received by assessee accrued when assessee

raised bills – Recognition of income cannot be spread pro rata
over the period in which the services are to be rendered
Financial Technologies (I) Ltd. Vs ACIT (ITAT, Mum) 50 DTR 441
• Assessee company engaged in the business of housing finance

following mercantile system of accounting – Interest on NPA
Guidelines issued by NHB in relation to bad and doubtful debts
cannot override r. 6EB – Interest on NPA not covered by sec.
43D accrues each year
GIC Housing Finance Ltd. Vs Addl.CIT (ITAT, Mum) 53 DTR 419
• Assessee, travel agent received bookings for cruises and

retained 25% of full ticket charges while making remittance to
RCCL who was responsible to render services to the customers
Commission accrues to the assessee with the booking of ticket
against full payment notwithstanding whether customer may
ultimately cancel the trip
CIT Vs Gautam R. Chadha (Del) 62 DTR 58
• Assessee raised external commercial borrowings from its

parent company for meeting working capital requirement –
BUSINESS INCOME 213
Loans were reinstated on year end which resulted in notional

foreign exchange gain – Such gains were income accrued
during the year since assessee followed mercantile system and
also in view of AS-11
Convergys India Securities Pvt. Ltd. Vs DCIT 2011-TIOL-352-ITAT-DEL
• In respect of business dealings, issue was mutually settled for a

sum of Rs. 58 lakhs out of which 50% would be recoverable in
future in respect of further business transactions – Assessee
offered only 50% as income during the year of settlement
Since the full amount got crystallized during the year of
settlement, entire amount was assessable in such year
Rohini Holdings (P) Ltd. Vs CIT (Mad) 202 Taxman 341
• Interest on mortgage loan accrued during the year and hence

assessable during the year
Rohini Holdings (P) Ltd. Vs CIT (Mad) 202 Taxman 341
• Mesne profits awarded by Court for wrongful possession

Income accrues when actually quantified.
P. Mariappa Gounder Vs CIT (SC) 232 ITR 2
Sushil Kumar & Co. Vs JCIT (ITAT, Kol-SB) 88 ITD 35
• On making the application for DEPB, assessee acquired the

right to receive the same – Income accrues at that stage – Face
value of DEPB is income – When it is transferred
subsequently, profit / loss arises at that stage on the excess /
deficit realized
Topman Exports Vs ITO (ITAT,SB-Mum) 124 ITD 1; 318 ITR (AT) 87
BUSINESS INCOME 215
Pending Litigation - When the income accrues ?

• Excess over authorized price of sugar, collected by assessee
Litigation over authorized price pending before Supreme
Court – Excess collected is income in the year of collection
even if it is retained in a separate account and subsequently
transferred to sugar Equalization Fund of the Govt.
CIT Vs K.C.P. Limited (SC) 245 ITR 421
UP State Agro Industrial Corporation Vs Addl. CIT (SC) 201 ITR 707
• Acquisition of electrical undertaking – Profits chargeable in

the year of receipt – Pendency of arbitration proceeding will
not affect accrual of income.
CIT Vs United Provinces Electric Supply Co. (SC) 244 ITR 764
• ST, excise duty etc. collected from customers – Did not pay to
Government – Kept by assessee as deposit– Contingency that
assessee may have to refund the money lateron does not mean
that any liability is attached to the said sums when it was
collected - Income of assessee in the year of collection
Assessee can claim deduction in the year in which it refunds
any amount out of it
CIT Vs Thirumaliswamy Naidu & Sons (SC) 230 ITR 534
CIT Vs Southern Explosives Co.(Mad) 242 ITR 107
CIT Vs Beirsdorf (India) Ltd. (Bom) 324 ITR 106
• Mercantile system – Amount awarded as compensation

Litigation regarding quantum of compensation continued
Court allowing assessee to receive part amount on execution of
bank guarantee – Such amount received by the assessee was
deposited in bank and earned interest - Interest on bank
deposits accrued to assessee entirely since there is no liability
for assessee to refund the amount received with interest in case
of an adverse order by Court at a later point of time.
Shri Pateshwari Electrical and Associated Industries P. Ltd. Vs CIT (All) 287
ITR 165
• Interest on enhanced compensation awarded by Court – Appeal

pending in Supreme Court – Need not wait for final disposal of
case by Supreme Court – Assessee can claim refund if
Supreme Court later on reverses order.
CIT Vs M. Sarojini Devi (AP) 250 ITR 759
• Loss of goods claimed as deduction – Insurance claim made,

accrued to assessee during the F.Y. – Subsequent non-
acceptance of claim by Insurance company not relevant.
JCIT Vs Deva Singh Sham Singh (ITAT, Asr) 95 ITD 235.
• Assessee follows mercantile system – Compensation

provided in managing agency agreement in case of termination
Since agency got terminated in 1951, compensation is income
of AY 51-52 eventhough issue was pending in Court and
assessee received it only in 1955.
CIT Vs Chunilal V. Mehta & Sons P. Ltd. (SC) 82 ITR 54.
• Mercantile System – Arbitration award confirmed by High

Court decree on 30.3.79 – Accrues on that date.
CIT Vs Highway Construction Co.(P) Ltd. (Gau) 223 ITR 32
• Assessee not maintaining books of accounts – Though he won

lottery prize in 1983, court stayed disbursement of prize Prize
disbursed in Oct.,'87 – Assessable in AY 88-89.
ACIT Vs M. Ramachandran (ITAT, Mad) 74 ITD 385
• Where govt. accepted a bill given by the assessee for services

rendered, but withheld the payment because they had made a
counter-claim regarding breach of contract by the assessee, the
claim for services accrued at the time when the bills were
accepted and the claim of the Govt. would not make any
difference to accrual of income to assessee
Vishnu Agencies (P.) Ltd. Vs CIT (Bom) 48 ITR 444
• Cash incentives granted to exporters under the Export

Promotion Scheme would accrue to the assessee as son as the
proof of export is tendered and application for incentives filed
Date of actual disbursement is not relevant
CIT Vs Ashoka Lungi Co (Mad) 120 ITR 413
BUSINESS INCOME 217
Profits chargeable to tax u/s 41(1) – Remission of

Liability
• Any allowance or deduction made in the assessment in
respect of loss, expenditure or trading liability incurred by
the assessee for any year, will be
• Business income of the year in which remission /
cessation of such loss / expenditure / liability took place
• Receipt can be in cash or in any other manner
• Income, even if the business / profession for which
allowance was granted earlier is not in existence
• Receipt may be by the very same assessee or his
successor
• Income accrues even when assessee writes off such
liability by a unilateral act
• Capital expenditure on scientific research for which

deduction claimed u/s 35
• when such assets are sold, excess of the aggregate of sale
price and deduction claimed over the capital
expenditure or the deduction actually claimed,
whichever is less, deemed as income in the year of sale
• such gains are taxable even if the business is not in
existence
• Bad debt recovered is income in the year in which it is

recovered even if the business is not in existence
• Amount withdrawn from a special reserve created u/s

36(1)(viii) and allowed is income in the year in which it is
withdrawn even if the business is not in existence
• When business or profession is not in existence and income

is charged under the above provisions, loss brought
forward from the said business can be set off against such
income.
BUSINESS INCOME 219
• Assessee collecting amounts from purchasers towards possible

liability to sales-tax – Amounts collected were deposited with
the Government Assessee was allowed deduction – Provisions
relating to liability to sales tax struck down by High Court
Assessee obtaining refund of sales tax paid – Such refund is
income liable to tax.
CIT Vs Thirumalaiswamy Naidu and Sons (SC) 230 ITR 534
• Central Excise duty refund is assessable u/s 41(1) even when

the payment was not claimed as expenditure in the earlier years
The court has to take notice of the fact that taxes form integral
part of the value of goods and the manner of accounting
followed by the assessee is immaterial – When the legislature
referred to deductions in respect of assessments it did not only
take into account what happened at the time when the officer
finalized the assessment order but it took into account the fact
that if the assessment order is finalized on the basis of a
situation whereby the amount so depleted or deducted is
accepted, that it would still come within the ambit and scope of
the section
M/s Mysore Thermo Electric (P)Ltd. Vs CIT (Kar) 221 ITR 504
• Refund of Excise levy as “litre fee” – Sec. 41(1) applicable.

K.G. Subramanyam Vs CIT (Kar) 195 ITR 199
• Amount allowed as deduction in earlier year – Assessee itself

showed it as income in P&L a/c in a subsequent year – Profit
u/s 41(1).
CIT Vs Haryana Co-operative sugar Mills Ltd. (P&H) 154 ITR 751
ACIT Vs Cutch Oil & Allied Industries P. Ltd. (ITAT, Ahd) 58 ITD 1
• Refund of kist by way of adjustment – Revenue receipt

CIT Vs Lakshmamma (Mys) 52 ITR 789
• Sales Tax refund obtained after re-constitution of firm – No

change in identity of assessee – Includible as income of re-
constituted firm.
CIT Vs Chandajee Khubajee & Co. (AP) 143 ITR 365
CIT Vs Wockahardt Pvt. Ltd. (Bom) 215 ITR 793 – Firm taken over by
company – Fact that deduction was allowed to erstwhile firm
does not make any difference in view of specific provision in
sec. 176(3A)
• Benefit by way of remission received need not be in cash

Provision made for interest payable later on got reduced on
settlement – Sec. 41(1) applies.
Express Newspapers P. Ltd. Vs CIT (Mad) 227 ITR 325
• Transfer of unclaimed amounts to P&L a/c. – Chargeable u/s

41(1).
Indian Motor Transport Co. Vs CIT (All) 114 ITR 677
• Unclaimed liabilities written back and credited to P & L a/c -

Taxable u/s 41(1) – Decision of Supreme Court in T.V.
Sundaram Iyengar & Sons (222 ITR 344) to be followed in
preference to the decision in Sagauli Sugar Works (P) Ltd. (236
ITR 518).
DCIT Vs Eicher Goodearth (ITAT, Del) 72 ITD 360
• Refund from Electricity Board – Chargeable u/s 41(1)

irrespective of the object of such refund.
CIT Vs Vispro Foundry Engineers (P) Ltd. (Mad) 245 ITR 21
• Unclaimed credit liability – Liability barred by limitation and

no possibility of any claim in future – Remission or cessation
of liability – Falls u/s 41(1)
Distinctive Properties & Leasing Ltd. Vs ITO (ITAT, Del) 1 SOT 460
• Interest on loans deducted from income in earlier years – Credit
entry for loans transferred to capital account of partners of
assessee firm – Liability to pay interest ceased – Sec. 41(1)
applies
Sree Hanuman Trading Co. Vs ITO (Ker) 328 ITR 662
• Assessee failed to prove the genuineness of brought forward

trade creditors – Addition upheld
Suresh Kumar T. Jain Vs ITO (ITAT, Bang) 128 ITD 74
• Assessee was assigned sales tax liability by another company

Subsequent remission or cessation thereof – Deemed income
of assessee u/s 41(1)
MIRC Electronics Ltd. VS DCIT (ITAT, Mum) 319 ITR (AT) 130
BUSINESS INCOME 221
• Assessee writing off liability in its books and offered the same
as income in the return – Subsequently creditor filed suit for
recovery – Income already offered by the assessee need not be
altered
Aey Gee Bros Vs ITO (ITAT, Mum) 34 SOT 519 ; 37 DTR 250 ; 130 TTJ 54
When remission takes place ?

• Deduction allowed in respect of PF liability – Assessee
objected such contribution by means of writ petition – Writ
petition allowed by order passed on 'x' date – Appeal against
decision barred by time - Dismissal of petition for
condonation of delay – No effective appeal against order dated
'x' - Remission of liability took place on 'x' date .
P.P.M.S. Nagarathinam Vs CIT (Mad) 178 ITR 304
• Excise duty refund – 41(1) applicable irrespective of the fact

that SLP filed by Department is pending – In a case where a
statutory levy in respect of goods dealt in by the assessee is
discharged and subsequently the amount paid is refunded, it is
the first clause ie. obtained any amount in respect of such loss
or expenditure” more appropriately applies – Consideration
whether there is a possibility of the refund being set at naught
on a future date is not a relevant consideration
Polyflex (India) P. Ltd. Vs CIT (SC) 257 ITR 343
CIT Vs Beirsdorf (India) Ltd. & Anr. (Bom) 28 DTR 188
• Assessee maintains accounts on mercantile basis – Date of

accrual of the right to receive the amount is material and not the
date of actual payments by the Government to assessee – Date
of order of Supreme Court ruling that sales tax not leviable on a
particular commodity – Income accrued on that date
Assessable in that year.
Motilal Ambaidas Vs CIT (Guj) 108 ITR 136
CIT Vs Kabbur Brothers (Kar) 128 ITR 43
• Assessee provided import duty at Rs. 825/MT – Dispute

Government issued Notification dated 19.12.85 and paid duty
at 550/MT – Circular issued on 10.2.86 – Demand notice
pursuant to notification issued on 13.10.86 – Remission of
liability in AY 87-88 i.e. when demand notice in pursuance of
notification and circular issued.
Indian Express (Madurai) (P) Ltd. Vs DCIT (ITAT, Mad) 68 ITD 374
• Assessee collected excess levy sugar price in respect of earlier

years in terms of earlier order of High Court and showed same
along with interest thereon, as liability in the Balance sheet
BUSINESS INCOME 223
Government issued notification on 22-2-95 re-fixing the price

Cessation of liability in A.Y. 1995-96
Ugar Sugar Works Ltd. Vs JCIT (ITAT, Pune) 104 ITD 141
COMPUTATION OF BUSINESS INCOME
Single / Separate Business

• Composite business – Tests – Single books of accounts, carried
on business in the same premises, no bifurcation in the bank
accounts, common administration, common funds, common
management, unity of control etc.
CIT Vs Kothari & Sons ( Agencies ) P. Ltd. ( Mad ) 211 ITR 928
Veecumsees Vs CIT ( SC ) 220 ITR 185
B.R. Ltd. Vs V.P. Gupta ( SC ) 113 ITR 647
Produce Exchange Corpn. Ltd. Vs CIT ( SC ) 77 ITR 739
CIT Vs Late T.S. Srinivasa Iyer ( Mad ) 192 ITR 50
• Assessee is engaged only in one business ie. purchasing or

producing television software which are exploited in the
Indian and foreign markets. It is one composite business and it
cannot be split into two on the basis of market covered.
Business is identified with the nature of product dealt in and
not the sphere of activity.
ACIT Vs Star India (P) Ltd. 2008-TIOL-195-ITAT-MUM
Sri Adhikari Brothers Television Networks Ltd. Vs ACIT (ITAT, Mum) 130
ITD 439
BUSINESS INCOME 225
DEDUCTIONS
Computation should be in accordance with the provisions
contained in sec. 30 to 43D [sec. 29]
CURRENT REPAIRS, INSURANCE, RATES &

TAXES [sec. 30 & 31]
• Relates to building, machinery, plant and furniture used
for the purpose of business
• Repairs should not include capital expenditure
• When not exclusively used for the purpose of business,

restrict the deduction to a fair proportionate part [sec. 38]
• Renovation of theatre to make the halls more attractive and

comfortable – Replacement of furniture, sanitary fittings,
electrical installation etc. – capital expenditure – The
expression 'current repairs' means expenditure not for the
purpose of renewal or restoration but which is only for the
purpose of preserving or maintaining an already existing asset
and which does not bring a new asset into existence or does not
give to the assessee a new or different advantage
Ballimal Naval Kishore & Anr. Vs CIT (SC) 224 ITR 414
• Textile mill does not constitute one plant – It cannot be said that
the manufacturing process in the textile mill is one continuous
integrated process - Each machine including the ring frame is
an independent and separate machine - Replacement of worn
out ring frames – Not current repairs falling u/s 32(1)(ii) since
current repairs to preserve and maintain an already existing
asset.
CIT Vs Saravana Spinning Mills P. Ltd. (SC) 293 ITR 201
• Reconstruction of damaged plant – Design & capacity of plant

changed – Capital Expenditure.
Prestige Foods Ltd Vs DCIT (ITAT, Indore ) 61 ITD 390
• Expenditure on overhauling and reconditioning of machinery

Not deductible as current repairs
Bharat Gears Ltd. Vs CIT (Del) 337 ITR 368
• Fishing Boats fitted with imported engines with higher HP No

finding that engines needed repairs or replacements – Renewal
resulted in enduring advantage – Expenditure not revenue in
nature.
CIT Vs Neroth Oil Mill Co. Ltd. (Ker) 140 ITR 173
• Amount spent in replacing electric control panel Replacement

of a machinery as such would not be a “current repair” – With
the repair the defective condition of the equipment is cleared
and the equipment is restored to the position to be used as it was
new – If the equipment as a whole is replaced, it is not repaired
- Capital expenditure.
DCIT Vs S.T.N. Textiles Ltd (Ker) 257 ITR 161
• Replacement of an existing compound wall – Capital

expenditure
Senapathy Synams Insulations (P) Ltd. Vs CIT (Kar) 248 ITR 656
• If there has been a wear and tear on an item over a number of

years and ultimately they were replaced –Not current repairs
Marbling done in administrative block – Not current repairs u/s
30(a)(ii)
Modi Spinning & Weaving Mills Co. Ltd. Vs CIT (Del) 200 ITR 544
• Expenditure for purchase of furniture and racks for

replacement – Capital expenditure.
Delhi Cloth & General Mills Co. Ltd. Vs Addl. CIT (Delhi) 160 ITR 857
• Installation of new cement mill technology superior to old

mills discarded Not current repairs
CIT Vs Madras Cements Ltd (Mad) 255 ITR 243
• Expenditure Incurred for purchasing generator is capital exp.

Nuchem Plastic Ltd Vs DCIT (ITAT, Delhi) 44 TTJ 261
• Expenses for constructing a new toilet and pantry – Capital

expenditure.
M.N. Dastur & Co. Ltd Vs DCIT (ITAT, Bang) 62 ITD 113
• Expenditure incurred on leasehold premises by way of LAN
equipment, Access Control System, electrical work, Interior
work, Furniture & fittings etc. – Not revenue expenditure
BUSINESS INCOME 227
ACIT Vs E.I. Dupont India Ltd. (ITAT, Del) 107 ITD 63
• Assessee acquired a premise on lease – It paid certain amount

to lessor towards renovation and alterations carried out in the
premises on its behalf Capital expenditure
ITO Vs Pritam Juice (ITAT, Mum) 124 ITD 237
• Building not ready to be put to use for business – Rent paid not
allowable
Jainsons Vs ACIT (ITAT, Del) 76 ITD 51
DEPRECIATION [sec. 32]

Eligibility
• Tangible assets – buildings, machinery, plant or

furniture
• Intangible assets – know-how, patents, copyrights, trade
marks, licenses, franchises or any other business or
commercial rights of similar nature
• Owned wholly or partly
• Used for the purpose of the business / profession
Rate
• Assets of an undertaking engaged in generation or

generation and distribution of power – prescribed
percentage of actual cost
• Block of assets - prescribed percentage of WDV
• No depreciation if actual cost is allowed as deduction in one

or more years u/s 42
• Only 50% of eligible depreciation if the asset is put to use

for less than 180 days
• In case of succession [sec. 47(xiii), (xiiib) & (xiv) or sec.

170], amalgamation, demerger – compute depreciation at
the prescribed rates and apportion it to both concerns in
the ratio of the number of days for which the assets were
used by each
• Capital expenditure incurred in a building not owned by

assessee but having lease or occupancy rights towards
construction of any structure, renovation, extension or
improvement – eligible for depreciation
• Depreciation to be granted irrespective of claim made by

assessee
BUSINESS INCOME 229
• Know-how defined
Additional depreciation @ 25%

• New machinery or plant (other than ships and aircraft)
acquired and installed after 31-03-2005
• Engaged in business of manufacture or production of an
article or thing
Not allowable if :
• Such machinery or plant was earlier used within or
outside India by any other person
• Such machinery or plant is installed in any office
premises or residential accommodation including guest
house
• Machinery is office appliances or road transport
vehicles
• Whole of the actual cost is allowed as deduction
• Terminal depreciation eligible in the year in which the

depreciable asset is sold, discarded, demolished or
destroyed
• Unabsorbed depreciation to be added to the depreciation of

the following year and will be treated as depreciation of
such year and so on.
• When not exclusively used for the purpose of business, to

restrict the deduction to a fair proportionate part [sec. 38]
• Relevant rules : 5 & 5A
• Block of assets defined in sec. 2(11) to mean assets falling

within a class of assets in respect of which same rate of
depreciation is prescribed – Rate of depreciation is
prescribed in New Appendix –I [w.e.f. A.y. 2006-07]
• In Techno Shares & Stocks Ltd. & Ors. Vs CIT (327 ITR
323) Supreem Court held that Stock Exchange
Membership Card is eligible for depreciation
BUSINESS INCOME 231
When not allowable ?
Double deduction
• Capital expenditure for scientific research allowed as
deduction u/s 35 – No depreciation allowable on same assets –
Double deduction not allowed in respect of same outgoing,
unless clearly expressed.
Escorts Ltd. & Anr. Vs Union of India & Ors. (SC) 199 ITR 43
Assets not eligible

• Stallions & Mares are not plant in view of sec. 43(3)
Depreciation not allowable
CIT Vs Nadir Rashid (MP) 227 ITR 727
CIT Vs Ruia Stud & Agricultural Farms P. Ltd. (Bom) 240 ITR 312
• Depreciation not allowable on cost of land

CIT Vs Alps Theatre (SC) 65 ITR 377
• No depreciation on land – Where composite price is

mentioned, bifurcate it as price of land and building
CIT Vs Hoogly Mills Co. Ltd. (SC) 287 ITR 333
• No depreciation on non-compete fee as it is not an asset – Right

in restrictive covenant is “right in personam” which is
available against the contracting parties only and not against
the world at large and hence it is not an asset
A.B. Mauria India P. Ltd. Vs ACIT 2008-TIOL-107-ITAT-MAD
Srivatsan Surveyors P. Ltd. Vs ITO (ITAT, Chennai) 318 ITR (AT) 283
Lanxess India (P) Ltd. Vs ACIT (ITAT, Chennai) 20 DTR 310
Sharp Business Systems (India) Ltd. Vs DCIT (ITAT, Del) 133 ITD 275
• Payment for continuous use of premises is deposit for

acquiring use of leasehold property – Payment not for
acquiring intangible property – Not entitled for depreciation
ACIT Vs Malayala Manorama Co. Ltd. (ITAT, Cochin) 4 ITR (Trib) 513
Drilbits International (P) Ltd. Vs DCIT (ITAT, Pune) 62 DTR 171
• Amount given to retiring partners as goodwill – Not an

intangible asset for the purpose of sec. 32(1)(ii) – Not eligible

for depreciation.
Bharatbhai J. Vyas Vs ITO (ITAT, Ahd) 97 ITD 248
R.G.Keswani Vs ACIT (ITAT, Mum) 308 ITR (AT) 271; 116 ITD 133
Borkar Packaging (P) Ltd. Vs ACIT (ITAT, Panaji) 40 DTR 29 ; 131 TTJ 99
• Assessee paid certain amount to retiring partners in terms of

retirement deed and claimed depreciation on such expenditure
Assessee did not create any tangible or intangible asset by
making such payment – Depreciation not allowable
P.D. Warehousing Corpn. Vs ACIT (ITAT, Mum) 132 ITD 157
• For claiming depreciation, description of assets to be made

available by assessee – During search assessee disclosed
certain income and claimed this as investment in plant and
machinery, but failed to furnish necessary particulars of such
assets – Depreciation claim rejected
DCIT Vs Sheth & Sura Engg. (P.) Ltd. (ITAT, Pune-TM) 110 ITD 39
• Assessee holding membership card in Bombay Stock

Exchange and claiming depreciation thereon – Subsequently
BSE under scheme of 'corporatisation' and 'Demutualisation'
was succeeded by a company by name BSEL. In the process
assessee got ownership rights by virtue of receipt of 10,000
shares of BSEL whereas trading right was obtained subject to
deposit of certain amount by the assessee – Since ownership
right gave assessee a right to participate in ownership of assets
and management of BSEL, it was not a business and
commercial right mentioned in sec. 32(1)(ii) and hence not
eligible for depreciation – Since value of trading right was
equal to refundable deposit made by assessee, it could not be
depreciated and hence not eligible for depreciation
Sino Securities (P) Ltd. Vs ITO (ITAT, Mum) 134 ITD 321
BUSINESS INCOME 233
Sale & Lease back transactions

• Lease agreement was not genuine and assessee was not owner
of asset – Sham transaction – No identification of machinery -
Depreciation not eligible
Indian Management Advisors and Leasing P. Ltd. Vs CIT (Del) 289 ITR 179
Avasarala Automation Ltd Vs JCIT (Kar) 266 ITR 178,
Mid East Portfolio Management Ltd. Vs DCIT ( ITAT, Mum-SB ) 87 ITD 537
• Financing business camouflaged as Leasing business – Not

eligible for depreciation
Gowri Shankar Finance Ltd. Vs CIT (Kar) 248 ITR 713
I.C.D.S. Ltd. Vs CIT (Kar) 291 ITR 18
• Sale and lease back transaction – Assets sold were not

physically transferred from assessee's premises to that of
purchaser – Sec. 54 of T.P. Act not fulfilled and thus sale is not
complete – Sham transaction – not eligible for depreciation
CIT Vs Softlab Pvt. Ltd. 2011-TIOL-331-HC-MAD-IT
• Assessee made claim of depreciation which was rejected by

treating it as bogus transaction – Alternate claim made by
assessee for allowing business loss cannot be entertained
CIT Vs English Indian Clays Ltd. (Ker) 328 ITR 647
• Lessor claimed depreciation on leased assets – Lease held to be

sham – Disallowance of depreciation upheld – Alternate claim
by assessee to substitute lease rental income offered with
finance charges alone, not allowed
Mcorp Global P. Ltd. Vs CIT (SC) 309 ITR 434
• Enquiry revealed that alleged supplier of machinery has no

capacity to manufacture such assets – partner of the supplier
firm disowned the invoice produced by the assessee – Claim of
purchase of machinery cannot be allowed simply because
assessee produced evidence to show that such machinery was
leased out to somebody – Claim of depreciation rejected
CIT Vs S & s Power Switchgear Ltd. (Mad) 67 DTR 59
• As per AS-19 a lease is classified as 'Finance lease' if it transfer

substantially all the risks and rewards incidental to ownership
– when the lessee chooses the equipment and pays for
insurance and taxes and agrees to buy the asset at the end of the
non-cancellable lease period at 1% of original cost, it is finance
lease – While deciding the monthly lease rental and period of
lease, the assessee's investment has been duly taken into
consideration to ensure that the full cost of the asset leased out
buy the assessee together with interest is recouped within the
period of lease – It is the sole responsibility of lessee to bear
repairs and maintenance cost and also insurance premium –
What the assessee as a lessor owns is not any asset but the
contracted stream of payments in the shape of lease rental
covering its entire investment and interest – Thus lessee is the
actual and real owner and assessee-lessor is only nominal or
symbolic or the so-called perceived owner and hence not
Indusind bank Ltd. Vs Addl. CIT 2012-TIOL-150-ITAT-MUM-SB
Ownership of asset
• Ownership of asset is a must – Assessee was not the owner of
the land and shed but only a lessee – Claim on the ground that
the said deed was not a lease deed but a hire purchase
agreement and assessee had thereunder become equitable or
beneficial owner, is not sustainable – As per the deed, assessee
had to return the plot and the structures on the expiry of the
lease deed – Hence assessee is not the owner of asset and not
CIT Vs O.P. Monga (Bom) 162 ITR 224
• Hire purchase agreement provides option to assessee to

purchase machinery on the expiry of 3 years, if installments
regularly paid – On expiry of 3 years, assessee claimed
depreciation without paying entire price – Assessee not
became owner – Depreciation disallowed.
Changanlal Automobiles Vs CIT (Raj) 156 ITR 58
BUSINESS INCOME 235
DCIT Vs M.K. Jinachandran (Ker) 205 ITR 328

Sardar Tara Singh Vs CIT (MP) 47 ITR 756
• Financial lease – Lessor is not owner of asset – No depreciation

allowable to lessor – Only if the vehicles are purchased by the
assessee and retained their ownership with registration in their
name and vehicles were either given on lease or given under
hire purchase agreement giving an option to the hirer to
purchase it after the payment of lease rentals or hire charges
during the agreed period, then the assessee will be entitled to
depreciation
J.M. Share & Stock Brokers Vs DCIT (ITAT,Mum) 109 ITD 329
CIT Vs Manappuram General Finance & Leasing Ltd. (Ker) 191 Taxman 313
• Assessee company allotted constructed areas/units or

properties to its members with absolute and exclusive right of
use, enjoyment and income therefrom – Assessee not owner of
such properties and not entitled for depreciation claim – Mere
non-execution of a registered conveyance deed in favour of the
unit holders is of no consequence – Principle laid down while
interpreting sec. 27(iii) can be extended to the interpretation of
the words “owned” appearing in sec. 32(1)
Century Galaxy Developers Ltd. Vs ACIT (ITAT, Bang) 27 SOT 162
Used for business

• Car confiscated by Customs authorities – No depreciation
allowable – It cannot be treated as 'sold' also – Confiscation in
the relevant context means appropriation to public treasury by
way of penalty
Cement Agencies Ltd. Vs CIT (Bom) 146 ITR 136
• Factory under lock-out throughout 2 previous years – Plant and

Machinery not used for a single day during the period – Not
eligible for depreciation.
CIT Vs Oriental Coal Co. Ltd. (Cal) 206 ITR 682
• Machinery should be “actually used” in the previous year

“Kept ready for use” not sufficient.
CIT Vs Jiwaji Rao Sugar Co. Ltd. (MP) 71 ITR 319
CIT Vs J.K. Transport (MP) 231 ITR 798
CIT Vs Maps Trans. & Travels (Mad) 260 ITR 655
Dineshkumar Gulabchand Agarwal Vs CIT & Anr. (Bom) 267 ITR 768
CIT Vs Air Travel Enterprises (India) Ltd. (Ker) 265 ITR 537 - Contract
carriage permit obtained in subsequent year only – No
depreciation
DCIT Vs Yellamma Dasappa Hospital (Kar) 290 ITR 353
• There should be actual use of asset to be eligible for

depreciation – Not put to use because of strike / lock out – No
depreciation allowable – By merely including an item in the
block of assets will not make it eligible for depreciation, if
other conditions for allowability of the claim are satisfied
ACIT Vs Rishiroop Polymers (P) Ltd. (ITAT, Mum) 102 ITD 128
• Assets given on lease – Lease period over and assets not re-
possessed by assessee – No lease rental income on such assets
Assessee did not use the asset – Not eligible for depreciation.
ACIT Vs First Leasing Company of India Ltd. (ITAT, Chennai) 311 ITR (AT) 332
• Passive users will be allowed depreciation only where the

assets are supporting the existence and running of business
ACIT Vs Mohit K. Mehta (ITAT, Bang) 3 ITR (Trib) 580
• Factory building owned by assessee but used for the purpose of

firm in which assessee is a partner – Not entitled for
BUSINESS INCOME 237
depreciation since under the I.T. Act both firm and partners are
distinct entities
Karan Raghav Export (P) Ltd. Vs CIT (Del) 196 Taxman 504
• Identity of an asset is not lost in 'block of assets' concept

Depreciation on car relating to personal use can be disallowed.
Singla Agencies Vs ACIT (ITAT, Chd) 60 ITD 410
Sushil Kumar Jalani Vs ACIT ( ITAT, Jodh ) 108 ITD 613
• Farm assets used for purpose of growing sugarcane. – No

depreciation allowable from non-agricultural income as
income relating to growing of sugarcane is agricultural income
Rule 7 does not permit expenses relating to agricultural
segment of income as allowable expenditure against non-
agricultural portion of income.
Arooran Sugars Ltd Vs CIT (Mad) 239 ITR 16
• To claim write off of discarded / obsolete plant and machinery

u/s 32(1)(iii), said plant and machinery must have been used
during such year in which claim is made -
Allied Electronics and Magnetics Ltd. Vs DCIT (Del) 304 ITR 160
• When personal expenses on car disallowed u/s 38(2) an equal

proportion of depreciation on car can also be disallowed.
Gulati Saree Centre Vs ACIT (ITAT,SB-Chd) 71 ITD 73
CIT Vs K.L. Bhasin & Co (Pat) 158 ITR 623
CIT Vs Chitram & Co. (P) Ltd. (Mad) 191 ITR 96
Rate
• Rate of depreciation available on the first day of the assessment
year is the applicable rate – Rate is not retrospective in
operation
Andhra Cements Co. Ltd. Vs CIT (AP) 232 ITR 364
CIT Vs N. Sathyanathan & Sons (P) Ltd. (Mad) 242 ITR 514
Sundaram Finance Ltd. Vs CIT (Mad) 250 ITR 86
KEC International Ltd. Vs CIT (Bom) 322 ITR 465
• Roads within factory premises and drains which are integral

part of buildings – Eligible for depreciation at the rate of
buildings
CIT Vs Gwalior Rayon Silk Mfg. Co. Ltd. (SC) 196 ITR 149
• Hotel & Theatre building – Not plant – Scheme of sec. 32 and

I.T. Rules clearly envisages separate depreciation for building,
machinery and plant, etc. – Word 'plant' is given inclusive
meaning u/s 43(3) but it nowhere includes building – Building
is not an apparatus or adjunct for running hotel or cinema
business – It is a shelter or home for conduct of such business
Even the functional test which is not conclusive in all cases, is
not satisfied
CIT Vs Anand Theatres (SC) 244 ITR 192
CIT Vs Abad Hotels India P. Ltd. (SC) 251 ITR 204
• Building used in poultry business to house cages for fowls Not

factory building – Housing of cages and chickens in the
building is not likely to cause any wear and tear or stress and
strain as in the case of factories – Not entitled to depreciation at
the rate applicable to factory building
Siddharth Agencies Vs CIT (Mad) 244 ITR 826
CIT Vs Henly Farm (Bom) 160 CTR 46
CIT Vs Shivalik Poultries (P & H) 274 ITR 529
• Assessee claimed that warehouses and godowns were tools and

apparatus used to carry out the business of storage of
commodities which is its main business and therefore they are
to be classified as plant and machinery eligible for depreciation
@ 25% - Legislature never intended to give such benefit of
depreciation to a 'building' which is usually more durable than
machinery or plant – Building structure plays no part in the
BUSINESS INCOME 239
carrying on of those activities but merely constitutes a place

within which they are carried on and hence it cannot be
regarded as a plant – Eligible for depreciation @ applicable for
building
AP State warehousing Corporation Ltd. Vs DCIT (ITAT, Hyd) 47 SOT 47
• Hospital not a welfare centre – Furniture and fittings in a

hospital eligible for depreciation at 10% only
CIT Vs Upasana Hospital & Nursing Home ( Ker) 251 ITR 104
CIT Vs Kovai Medical Centre and Hospitals Ltd. (Mad) 313 ITR 262
• Hospital – Only part of building such as operation theatre,

x-ray room etc. can be treated as plant.
CIT Vs Ganga R. Menon (Ker) 259 ITR 661.
• Hotel furniture cannot be treated as plant – Furniture items

costing less than Rs.5000 is not entitled for 100% depreciation
CIT Vs Vrindavan Hotels P. Ltd. (Ker) 262 ITR 402
• Electrical fittings and installations of call bell, indicators etc.

- Not plant – Depreciation can be allowed only @ 10%
CIT Vs Hoechst Dyes and Chemicals P. Ltd. (Bom) 240 ITR 1
• A pontoon is not a ship- Not entitled for higher rate of

depreciation,
Gammon India Ltd. Vs CIT (Bom) 228 ITR 691
• Jeeps are to be classified as motor cars for allowing

depreciation.
Crompton Engineering Co. Ltd Vs CIT (Mad) 193 ITR 483
Commissioner of Agrl. IT Vs Good Hope Plantations (Ker) 170 ITR 173
• A Tractor is not basically used for transportation of goods or

passengers on roads – It is a machinery used for tilling of
agricultural land – Not entitled for depreciation at higher rate
CIT Vs U.P. Paschimi Kshetriya Vikas Nigam Ltd. (All) 264 ITR 273
• JCB, Earth moving machines and Tippers are not “road

transport vehicles” even though it is termed so in Motor
Vehicle Act.
CIT Vs Progressive Engg. Co. (AP) 230 ITR 729
Magtron Earth Movers Vs ITO 2011-TIOL-105-ITAT-BANG
• Rigs and compressor mounted on motor lorry – Not an integral

part of lorry – Not entitled to depreciation at higher rate.
CIT Vs Popular Borewell Service and Others (Mad) 194 ITR 12
• Hot mixing plant and pavers finishing machine for road

construction – Not earth moving machines – Not entitled for
depreciation @ 30%
CIT Vs Utkarsh Builders (Guj) 264 ITR 697
• Entire Plant & Machinery not exposed to corrosive substance

Hence entire machinery not entitled to 15% depreciation.
CIT Vs Sal Udyog Ltd. (MP) 230 ITR 192
• Iron, Lead and Copper are not corrosive chemicals Machinery

coming into contact with corrosive chemicals is only entitled
to higher rate of depreciation.
Gwalior Sugar Co.(P) Ltd. Vs CIT (MP) 178 ITR 415
• Drilling machinery used in digging bore wells – Not entitled

for higher rate of depreciation.
CIT Vs Tamil Nadu Agro Industries Corpn. (Mad) 192 ITR 108
• Assessee manufacturing of insulated cables and wires – Plant

cannot be treated as one manufacturing rubber and plastic
goods – Not eligible for special rate of depreciation.
CIT Vs Falcon Wires (P) Ltd (Mad) 123 ITR 427
• Only electric generator run on wind energy is eligible for 30%

depreciation and not other generators.
Kansal Woollen & Hosiery Mills (P) Ltd Vs CIT (P& H) 237 ITR 93
CIT Vs Anang Polyfil P. Ltd. (Guj) 267 ITR 266
• Energy saving devices on which 100% depreciation is

allowable are the equipments named in Entry III(8)(ix) of the
Table of Depreciation in Appendix I to the I.T. Rules - Fluid
bed Drier is not eligible for higher rate of depreciation as per
this Entry
CIT Vs Adar Tea products Co. (Mad) 221 CTR 597
• UPS is not an integral part of computer – Not entitled to higher

rate of depreciation
Nestle India Ltd. Vs DCIT (ITAT, Del) 111 TTJ 498
BUSINESS INCOME 241
• ATM are not entitled to depreciation at the rate applicable to

computers
HDFC Bank Ltd. Vs ACIT 2011-TIOL-101-ITAT-MUM
• EPABX and Mobile phones are not computers – Not entitled to

depreciation @ 60%
Federal Bank Ltd. Vs ACIT (Ker) 332 ITR 319
• Machines for designing and printing using computer

technology are not computers – Not entitled for higher rate of
depreciation
S.T. Reddiar & Sons Vs DCIT (ITAT, Cochin) 49 DTR 326 ; 129 ITD 475
• License for use of computer software – Eligible for

depreciation @ 25% only being an intangible asset and not at
60% applicable for computers including software
Sony India (P) Ltd. Vs Addl.CIT (ITAT, Del) 56 DTR 156 ; 141 TTJ 432
• Each item of Centering and shuttering material does not form

plant – Not entitled to 100% depreciation
CIT Vs Vijaya Enterprises (AP) 332 ITR 235
• Pre-weaving machines not covered under block III(6) of

Appendix-I – Not entitled to depreciation at higher rates
Eagle Synthetics P. Ltd. (ITAT, Ahd) 8 ITR (Trib) 211
• 40% depreciation is allowable only when assessee is carrying

on the business of running trucks on hire and not when trucks
are used for transporting assessee's own goods.
CIT Vs Gupta Global Exim P. Ltd. (SC) 305 ITR 132
CIT Vs Anupchand & Co. (MP) 239 ITR 466
CIT Vs Bimalchand Jain (Raj) 322 ITR 346
• Assessee leasing out vehicles on monthly rent to different

concerns – Entitled to depreciation only at general rate and not
40%.
Soma Finance & Leasing Co. Ltd. Vs CIT (Cal) 244 ITR 440
DCIT Vs Pradip N. Desai (HUF) 2011-TIOL-529-HC-AHM-IT
• Assessee engaged in leasing motor vehicles not entitled for

higher rate of depreciation applicable for vehicles running on
hire / transportation
Bhagwati Appliances Vs ITO (Guj) 199 Taxman 131 ; 337 ITR 286
• Amount of hire charges of vehicles received is very nominal

and hence it cannot be construed that these vehicles were used
for the running on hire – Occasional hiring does not disturb the
classification for depreciation.
CIT Vs Manjeeth Stone Co. (Raj) 190 ITR 183
Veeneer Mills Vs CIT (Kar) 201 ITR 764
• Asset put to use for less than 6 months – Only 50% of additional
depreciation allowable
M.M. Forgings Ltd. Vs Addl. CIT (Mad) T.C.(A) No. 1130 of 2010 – order
dated 11-01-11
• Assessee imported old / used parts which were assembled and

fabricated – Cannot be considered as new machinery – Not
entitled for additional depreciation
Anurena Tristar vs ITO (Del) 330 ITR 168 ; 186 Taxman 205
• Directors of company are responsible for affairs of the

company and once they have admitted that the installed
capacity of the current and previous year is not ascertainable,
would show that installed capacity has not been enhanced Not
entitled to additional depreciation
Anjani Synthetics Ltd. Vs DCIT 2011-TIOL-421-ITAT-AHM
BUSINESS INCOME 243
Cost for the purpose of depreciation

• Sec. 43 defines actual cost written down value and
prescribes methods for computing the same under
different circumstances
• Cost met directly or indirectly by other person to be
reduced
• Sec. 43A provides for varying the cost of acquisition of

assets consequent to changes in rate of exchange of
currency. These provisions are applicable in case of :
• Assets acquired from a foreign country
• Change in exchange rate in previous years after such
acquisition
• Increase or decrease in the liability expressed in Indian
currency compared to the liability at the time of making
acquisition
• At the time of making the payment towards cost of such

assets or repayment of the loan taken for purpose of
acquiring such assets – adjust towards cost
• Upto 01-04-2003 such liability could have been claimed on

accrual basis whereas after such date it is available only on
payment basis
• In CIT Vs Woodward Governor India (P) Ltd. (312 ITR

254) Supreme Court held that increase or reduction in the
liability of the assessee in terms of Indian rupees to pay the
price of an asset payable in foreign exchange or to repay
moneys borrowed in foreign currency specifically for the
purpose of acquiring the asset should be taken into account
to modify the figure of actual cost in the year in which the
increase or decrease in liability arisies on account of the
fluctuation in the rate of exchange, irrespective of the date
of actual payment in foreign currency. Amendment is not
clarificatory and applicable only w.e.f. 01-04-2003
• In CIT Vs Doom Dooma India Ltd. (310 ITR 392) Supreme

Court held that the words “depreciation actually allowed”
BUSINESS INCOME 245
mentioned in sec. 43(6)(b) means depreciation actually

granted ie. in tea business only 40% of income is taxed and
hence only proportionate depreciation can be treated as
allowed which is to be deducted from WDV. Subsequently
Expl. 7 was inserted below sec. 43(6) by Finance (No.2) Act,
2009 w.e.f. 01-04-2010 so as to treat the entire depreciation
computed as actually allowed.
• During the year assessee acquired by way of amalgamation the

entire business of MPL – MPL did not have any asset as
goodwill in its balance sheet – High court in its order merely
gave approval to the amalgamation scheme and did not order to
pay any specific amount as goodwill – There was thus no cost
of acquisition on account of goodwill to the assessee – Mere
accounting entries did not give a right to the assessee to claim
depreciation on goodwill (intangible asset)
Chowgule & Co. P. Ltd. Vs ACIT (ITAT, Panaji) 9 ITR (Trib) 21 ; 131 ITD 545
• Assets of firm taken over by assessee Company – Assets

revalued and depreciation claimed on enhanced value – Not
allowed
CIT Vs Poulose and Mathen (Pvt) Ltd. (Ker) 236 ITR 416
• If circumstances exist showing that a fictitious price has been

put on the asset or there is collusion between the vendor and
assessee and there has been inflation / deflation of value for
ulterior purposes, it is open to ITO to reject price and ascertain
the actual cost.
JCIT Vs Mahindra Sona Ltd (ITAT, Mum) 96 ITD 303
Guzdar Kajora Coal Mines Ltd Vs CIT (SC) 85 ITR 599
• Premium paid on leasehold land – Not includible in cost of

building constructed thereon for allowance of depreciation.
CIT Vs Heredilla Chemicals Limited (Bom) 225 ITR 532
• Interest paid to partners and expenses connected with dealings

in raw-materials – No nexus with setting up of business or
installation of machinery – Capitalization not possible – No
depreciation on such expenditure.
CIT Vs Bharat Agrico Co. (Pat) 233 ITR 643
• Foreign buyer gave assessee certain interest free loans for

purchase of machinery which was subsequently converted it as

gift – Cost to be reduced by such grant.
Rashi Leathers (P) Ltd. Vs CIT (Mad) 240 ITR 702
• Future interest payable on loans availed for purchase of

machinery – Cannot be capitalized for claiming depreciation.
CIT Vs Textool Co. Ltd. (Mad) 263 ITR 523
• Interest paid under deferred schemes for purchase of Plant &

Machinery – Cannot be treated as part of actual cost
Depreciation & Investment allowance not allowable on this
CIT Vs L.G. Balakrishnan & Bros Ltd. (Mad) 247 ITR 131
CIT Vs Tractors and Farm Equipments Ltd. (Mad) 294 ITR 163
• Incentive received under Special Capital Incentive Scheme

could be reduced from WDV while computing actual cost
under sec. 43(1).
Alfa Laval India Ltd. Vs DCIT (ITAT, Pune) 116 ITD 186
• Subsidy received from State Govt. for the special purpose of

purchase of generator set – To be deducted from cost for the
purpose of calculating depreciation
CIT Vs Paliwal Glass Works (All) 326 ITR 407
• Depreciation – Actual cost – Conditional subsidy received

from Rajasthan Government under the subsidized Housing
Scheme for Industrial Workers shall be reduced from the cost
u/s 43(1) and depreciation to be worked out on the reduced
amount
Associated Stone Industries Kota Ltd. Vs CIT (Raj) 215 ITR 226
• Purchase of hotel - Amount paid as retrenchment

compensation to workers of previous owner – Depreciation
not allowable on this amount.
CIT Vs Sea Lord Hotel P. Ltd. (Ker) 245 ITR 601
• Land & building purchased by assessee – Agreement between

vendor & Revenue whereby vendor agreed to pay extra Capital
Gains tax – Assessee voluntarily paying such tax – Not
includible in the cost of asset for depreciation Purpose.
Kumudam Printers P. Ltd. Vs CIT (Mad) 226 ITR 680
BUSINESS INCOME 247
• Dissolution of firm – Amount paid by continuing partners to

retiring partner – Not part of cost of acquisition of asset of old
firm for depreciation purpose.
CIT Vs Theatre Sri Rangaraja (Mad) 260 ITR 453
• After insertion of Expl. 2 to section 43(6), actual cost of block

of assets to be WDV of the assets of amalgamating company
Unabsorbed depreciation cannot be added back to the cost of
such assets
EID Parry (I) Ltd. Vs DCIT 2008-TIOL-208-ITAT-MAD
• Assessee company received capital assets from its holding

company – WDV to be worked on the basis of Expl. 6 to sec.
43(1) and sec. 47(iv) – Change in shareholding subsequently
and before the close of the accounting year will not alter this
legal position
DCIT Vs NTPC-SAIL Power supply Co. Ltd. 2011-TIOL-385-ITAT-DEL
• Waiver of loan granted for purchase of assets will result in

reduction of actual cost u/s 43(1) and consequently
depreciation is to be allowed on the reduced WDV
Steel Authority of India Ltd. Vs CIT 2012-TIOL-276-HC-DEL-IT
EXPENDITURE ON SCIENTIFIC RESEARCH

[sec. 35]
• Expenditure on scientific research related to the business
allowable as deduction – expenditure towards salary to an
employee engaged in scientific research and purchase of
materials used in scientific research or capital expenditure
(to the extent certified by the prescribed authority) within
3 years immediately preceding the commencement of the
business deemed to be laid out in the previous year in which
business commenced
• 175% of sum paid to approved and notified research

association with the object of undertaking scientific
research, university, college or other institution to be issued
for scientific research [125% upto 01-04-2011]
• 125% of sum paid to an approved Indian company having

main object of scientific research and development, to be
used by it for scientific research [w.e.f.01-04-2009]
• 125% of sum paid to an approved and notified research

association with object of undertaking of research in social
science or statistical research or to an approved and
notified university or college or other institution to be used
for research in social science or statistical research
[research association became eligible from 01-04-2011]
• 200% of sum paid to a National Laboratory or a University

or IIT or a specified person with a specific direction that
the said sum shall be used for scientific research
undertaken under a programme approve by prescribed
authority [175% for A.Y. 2011-12 and 125% prior to that]
• 200% of sum incurred by a company engaged in the

business of bio-technology or manufacture or production
of article or thing not specified in 11th Schedule – for
scientific research or in house development and research
facility approved by prescribed authority [125% upto
01-04-2011]
BUSINESS INCOME 249
• No deduction will be allowed under other provisions of

the Act
• Companies approved u/s 35(1)(iia) clause C - not eligible
for this deduction after 31-03-2008
• Drugs & pharmaceutical business – such expenditure
includes clinical drug trial, obtaining approval from
regulatory authority and filing application for patent
• No deduction for expenditure incurred after 31-03-2012
• Deduction is allowable even if the approval was withdrawn

subsequent to the payment made by assessee
• Capital expenditure on scientific research related to the
business carried on by the assessee eligible for deduction -
• Expenditure on acquisition of land or interest in land,

not eligible
• Capital expenditure incurred within 3 years

immediately preceding the commencement of the
business – deemed as incurred in the year of
commencement of business
• Depreciation will not be allowed on such assets
• Rules 5C, 5D, 5E, 5F & 6 are relevant
• Scientific research should be related to the business of the

assessee to be eligible for deduction u/s 35 – The assessee's
research is related to business of the subsidiary company and
the scope of 'related to business carried on by the assessee' does
not extend to the cases of business of subsidiary company.
CIBA India P. Ltd. Vs ITO (ITAT, Mumbai) 305 ITR(AT) 75; 121 ITD 94
• Deduction u/s 35 cannot be allowed on advance paid for

acquiring research equipments – Deduction is allowable only
when the machinery is acquired
TCM Ltd. Vs CIT (Ker) 196 Taxman 129
• Expenditure incurred on clinical trials not done in the in-house

facility – Not eligible for weighted deduction u/s 35(2AB)
Phraseology used is “on in-house research” and not “by in-

house research”
Concept Pharmaceuticals Ltd. Vs ACIT (ITAT, Mum) 43 SOT 423
BUSINESS INCOME 251
AMORTIZATION OF CERTAIN PERLIMINARY

EXPENSES [sec. 35D]
• Only Indian companies and residents in India eligible
• Incur specified expenditure

• before commencement of business, or
• after the commencement in connection with extension of
industrial undertaking or in connection with setting up
new industrial unit [the word 'industrial' omitted w.e.f.
01-04-2009]
• one-fifth in each year for 5 years beginning from the

previous year in which business commences or extension of
new unit is completed or new unit commences production
• Types of eligible expenditure specified
• Limit : 5% of cost of the project or capital employed in the

business of the company
• Audit report to be filed
• In case of amalgamation or demerger during the eligible

period, amalgamating / demerged company not eligible for
deduction in the year of amalgamation / demerger and
instead amalgamated / resulting company is eligible
• Deduction claimed under this section will not be eligible for

deduction under any other heads
• Rule 6AB is relevant
• Deduction u/s 35 D available only if it is before

commencement of business or in connection with extension of
the industrial undertaking or setting up a new industrial
undertaking
Hero Honda Motors Ltd. Vs JCIT (ITAT, Del) 103 ITD 157
D.S.J Communications Ltd. Vs ACIT (ITAT, Mum) 10 SOT 390
Ranbaxy Laboratories Ltd. Vs Addl. CIT (ITAT, Del) 26 DTR 420 ; 124 TTJ 771
Indbank Merchant Banking Services Ltd. Vs ACIT (Mad) 334 ITR 271
• To avail deduction u/s 35D, industrial undertaking must be

engaged in some manufacturing, producing or processing
activity
LIC Housing Finance Ltd. Vs DCIT (ITAT, Mum) 105 ITD 86
• Assessee in the business of construction of buildings – Not an

industrial undertaking – Section 35D will not apply
Ansal Housing & Construction Ltd. Vs DCIT (Del) 320 ITR 430
• Expenditure incurred on issue of debentures, the proceeds of

which were used for expansion of industrial undertaking
Assessee claimed that expenditure corresponding to “ non-
convertible ” part of debenture is revenue expenditure – Not
correct – If it falls under the specific provisions of sec. 35D,
then sec. 37 will not apply
Shree Synthetics Ltd. Vs CIT & Anr. (MP) 205 CTR 386
• Tribunal cannot include within sec. 35D items not enumerated

therein by the Parliament
CIT Vs Ennar Steel & Alloy (P) Ltd. (Mad) 261 ITR 347
• Fee paid for increase in share capital is not deductible u/s 35D
as sec. 35D(2)©(iii) provides for only fees paid for registration
of a company
CIT Vs Hindustan Insecticides Ltd. (Del) 250 ITR 338
• Share premium collected by the company on the issue of its

share capital would not constitute capital employed in the
business of the company u/s 35D(3)
DCIT Vs Axis & T. Ltd. (ITAT, Del) 41 SOT 348
• Expl. (6) to sec. 35D(3) – Issued share capital – Reserves &

Surplus a/c. not to be considered.
JCIT Vs Sirhind Steel Ltd. (ITAT, Ahd) 97 ITD 502
BUSINESS INCOME 253
BONUS OR COMMISSION PAID TO

EMPLOYEE
[sec. 36(1)(ii)]
• Not allowable if such sum would have been payable to him
as profits or dividend
• Commission paid to directors (shareholders) of assessee

company to be disallowed u/s 36(i)(ii) since the same was in
lieu of dividend – No exceptional services rendered by the said
directors so as to get such commission
Dalal Boacha Stock Broking Pvt. Ltd. Vs Addl.CIT (ITAT, Mum-SB) 10 ITR
(Trib) 357; 131 ITD 36
BUSINESS INCOME 255
INTEREST ON BORROWED CAPITAL

[sec. 36(1) (iii)]
• For the purpose of business
• Interest paid in respect of capital borrowed for acquisition

of an asset for extension of business will not be allowed as
deduction till the asset is first put to use (w.e.f. 01-04-2004).
• This proviso was held to be not retrospective in operation

by Supreme Court in L.K. Trust Vs CIT & Anr. (222 CTR
214) and DCIT Vs Core Health Care Ltd. (298 ITR 194)
• Business commences only when production commences

Purchase and installation of machinery does not amount to
commencement of business - Interest paid before
commencement of business is capital expenditure.
K. Sampath Kumar Vs CIT (Mad) 158 ITR 25
CIT Vs Travancore Cochin Chemicals Ltd (Ker) 99 ITR 24
• Assesee raised term loan from bank for acquisitioning new

machinery for increasing spindle capacity of its unit – Since
this amounts to extension of business and machinery was not
put to use during the previous year, interest incurred is to be
capitalized till the machinery is put to use – Proviso to sec.
36(i)(iii) considered
Nahar Poly Films Ltd. Vs CIT (P&H) 201 Taxman 304
• Interest paid on capital borrowed for setting up of a new unit in

the same line of business – Capital expenditure – Interest on
capital borrowed for the purpose of acquisition of the assets of
the new unit is to be allowed as a revenue expenditure only
when such assets start yielding income and not for any period
prior thereto – Sec. 36(1)(iii) to be read along with Expl. 8 to
sec. 43(1) – Proviso to sec. 36(1)(iii) added by Finance Act,
2003 is merely clarificatory as it has made explicit what was
already implicit
CIT Vs Vardhman Polytex Ltd. (P&H) 299 ITR 152
• Borrowed money capitalized in books – Treated as part of

actual cost of machinery – Not eligible for deduction of interest
u/s 36(1)(iii)
J.C.T. Ltd Vs ACIT (ITAT, Cal) 65 ITD 169
• Purchase of shares with a view to acquire controlling interest in

company – Object was not to earn dividend – Interest on loan
taken to purchase shares not deductible.
CIT Vs Amritaben R. Shah (Bom) 238 ITR 777
• Dividends paid on preference shares – Not deductible since it is

n tin the nature of interest on borrowed funds and it is only
distribution of profits already earned by the assessee
Kirloskar Electric Co. Ltd. Vs CIT (Kar) 228 ITR 674
• Payment of betterment charges is capital expenditure.

Therefore, payment of interest on annual installments of the
betterment charges will have to be regarded as capital
expenditure, because it has no direct nexus with the day-to-day
running of the business of the assessee
CIT Vs Ahmedabad Mfg. & Calico Printing Co. Ltd. (Guj) 215 ITR 735
• The interest that is paid by the assessee on any sum borrowed

by him for payment of income tax is nor deductible from his net
income since it is only application of profits and not
expenditure incurred to earn profits
East India Pharmaceutical Works Ltd. Vs CIT (SC) 224 ITR 627
H.H. Maharaja Martand Singh Judeo Vs CIT (MP) 239 ITR 404
Kishinchand Chellaram Vs CIT (Bom) 114 ITR 654
• Interest paid for late payment of Income Tax – Not deductible

as it is not incurred for the purpose of carrying on of the
business – Interest takes colour from the nature of the principal
Saraspur Mills Ltd. Vs CIT (Guj) 226 ITR 533
CIT Vs Chennai Properties & Investment Ltd. (Mad) 239 ITR 435
Ferro Alloys Corporation Ltd. Vs CIT (Bom) 196 ITR 406
CIT Vs International Instruments (P) Ltd.(Kar) 144 ITR 936
ABN Amro Bank Vs JCIT ( ITAT , Kol-TM ) 97 ITD 1
• Interest paid / payable to I.T. Department not allowable as

deduction against interest received from it – Interest payable to
I.T. Department is in the nature and part of tax payable - Tax
payable is an application of income and cannot be treated as
expenditure for earning any income
Wolkem India Ltd. Vs DCIT (ITAT, Jp) 65 TTJ 68.
BUSINESS INCOME 257
• Interest for delayed filing of return not deductible as revenue

expenditure since it has no connection with the business of the
assessee
Orient General Industries Ltd. Vs CIT (Cal) 209 ITR 490
• VDIS Tax paid in installments with interest – Interest not

deductible as business expenditure or as interest on borrowed
capital.
Bharat Commerce and Industries Ltd. Vs CIT (SC) 230 ITR 733
• Interest, Bank commission, guarantee fee etc. connected with

I.T. payment not deductible.
Modi Spinning & Weaving Mills Co. Ltd. Vs CIT (Del) 200 ITR 544
Diversion for non-business purposes

• Amount diverted to sister concerns - If the directors of the
sister-concern utilize such amount for their personal benefit, it
cannot be said that such money was advanced as a measure of
commercial expediency – Not deductible expenses
Commercial expediency behind advancing loan is the criteria
to be proved by assessee to get deduction of interest paid on
funds diverted as interest free loan
S.A. Builders Ltd. Vs CIT (SC) 288 ITR 1
Punjab Stainless Steel Industries Vs CIT (Del) 324 ITR 396 ] applied SC
decision
CIT Vs Accelerated Freeze Drying Co. Ltd. (Ker) 324 ITR 316 ] in S.A. Builders
• Borrowing must be for purpose of business – Borrowings from

bank overdraft account for giving donation to a college in part
fulfillment of promised donation with a view to commemorate
the memory of assessee's deceased husband – Borrowings
were to meet her personal obligation and not the obligation of
the business – Payment of interest thereon was not for carrying
on the business nor in the capacity as a person carrying on that
business – Deduction therefore not allowable either u/s
36(1)(iii) or u/s 37(1)
Madhav Prasad Jatia Vs CIT (SC) 118 ITR 200
• Amount borrowed had not been used for purpose of business

but for advancing money to managing Director without
interest – Disallowance of interest justified.
Highways Construction Co. Pvt. Ltd. Vs CIT (Gau) 199 ITR 702
CIT Vs India Silk House (Mad) 152 ITR 79
Marolia & Sons Vs CIT (All) 129 ITR 475
Tirupati Trading Co Vs CIT (Cal) 242 ITR 13
CIT Vs Sujanni Textiles (P) Ltd. (Mad) 225 ITR 560
CIT Vs H.R. Sugar Factory (P) Ltd. (All) 187 ITR 363
CIT Vs P. Ganu Rao and Sons (Mad) 185 ITR 324
• Borrowed funds invested in financially fragile sister concerns

No intention to earn income but merely to assist sister concerns
Deduction of interest paid on borrowings not allowable
CIT Vs Swapna Roy (All) 331 ITR 367
• When Department established the fact of diversion of

BUSINESS INCOME 259
borrowed funds for non-business purposes, the presumption

that assessee had sufficient capital and the diversion is out of
such funds cannot exist – Disallowance justified
CIT Vs M.S. Venkateswaran (Mad) 222 ITR 163
K. Somasundaram & Brothers Vs CIT (Mad) 238 ITR 939
• Assessee claimed that it gave interest-free advances from its

own funds and then borrowed funds from banks on interest for
business purposes – Such borrowing from banks can be treated
as for supplementing cash diverted by assessee without any
benefit to it - Claim for deduction of interest on borrowings to
be disallowed
ACIT Vs Punjab Stainless Steel Industries (ITAT, Del) 128 ITD 12
• Interest paid by partners on the debit balance with the firm
Though this is treated as income in the hands of the firm, it is
not allowable as deduction in the hands of the partner as the
same was not used by the partner for earning profits
C. Bhaskaran Nair Vs CIT (Ker) 185 ITR 15
ITO Vs Anna Masu Deokar (ITAT, Pune -TM) 60 ITD 19
PAYMENT TO / PROVISION MADE FOR

APPROVED FUNDS
[sec. 36(1)(iv) / (v) and 40A(7) / (9)]
• Any sum paid by the assessee as an employer by way of
contribution towards
• a recognized provident fund or an approved
superannuation fund, subject to specified limits and
conditions
• an approved gratuity fund created by him for the
exclusive benefit of the employees under an irrevocable
trust is deductible
• Provision made for the purpose of gratuity to employees on

retirement or termination (except as contribution towards
approved gratuity fund or for the purpose of payment of
gratuity that has become payable during the year) - not
allowable
• If a provision was allowed as deduction in a year, sum paid

out of such provision subsequently will not be allowed as
deduction.
• Sum paid towards setting up or formation of or as

contribution to any fund, trust, company, AOP, BOI,
society or institution for purposes other than what is
mentioned in sec. 36(1)(iv) / (iva) / (v) or as required by or
under any other law - No deduction allowed
• Contributions towards gratuity and superannuation funds,

which were not approved in the previous year – Not deductible
Claim of the assessee based upon provisions of sec. 43B has no
merits – Before the provisions of sec. 43B can be held
applicable, a deduction must otherwise be allowable under the
Act – Sec. 43B does not dispense with the requirements of
funds being approved funds nor does it alter the basis on which
the contributions are admissible as deductions
Sony India P. Ltd. Vs CIT (Del) 285 ITR 213
CIT Vs Petroleum and Minerals P. Ltd. (Bom) 187 ITR 560
TCM Ltd. Vs CIT (Ker) 196 Taxman 129
BUSINESS INCOME 261
• Sec. 40A(9) overrides sec. 43B – Even if payment was made,

not deductible since it was made to an unapproved fund
CIT Vs Shasun Chemicals & Drugs Ltd. (Mad) 199 Taxman 107
• Recognized provident fund does not belong to assessee but its

holding company – Contribution made to such funds are not
deductible – Simply because it is a subsidiary of another
company, it does not loses its separate identity – Both assessee
and holding company are assessed separately The effect of
registration of the assessee as a company under the companies
Act is that from the ate of its incorporation, it shall be a body
corporate by its name, capable forthwith of exercising all the
functions of an incorporated company, and having perpetual
succession and a common seal.
CIT Vs Mica Trading Corporation of India (Patna) 229 ITR 268
• During the previous year, assessee did not have any approved
Gratuity Fund. Hence provision made for payment of gratuity
was not a provision made for the purpose of payment of that
sum as contribution of approved gratuity fund. Further no
gratuity was payable or paid during the year – Gratuity liability
not deductible.
CIT Vs Orient Pharma P. Ltd. (Mad) 241 ITR 259
• Sec. 40A has an overriding effect over the provisions of any

other sections in view of the non-obstante clause – Payments
which could have been eligible u/s 28 & 37 would be subject to
the provisions of sec. 40A – Conditions in 40A(7) must be
fulfilled for allowing deduction under the head gratuity
payments
Shree Sajjan Mills Ltd. Vs CIT & Anr.(SC) 156 ITR 585
• Only contributions towards recognized Provident Fund or

approved Superannuation Fund or approved Gratuity Fund for
the purpose and to the extent provided u/s 36(1)(iv) or (v) or as
required by any law are allowable as deduction u/s 40A(9) –
There is no law requiring the assessee to make contributions to
Executives Welfare Trust / Executive staff provident fund /
Employees Recreation Trust or expend money on the said
account – In view of sec. 40A(9), no deduction can be allowed

u/s 37 also
Raasi Cement Ltd. Vs CIT (AP) 275 ITR 579
Aspinwall and Co. (Travancore) Ltd. Vs DCIT (Ker) 295 ITR 553
• Contribution to Education Trust of company - Not allowable -

Sec. 40A(9) applies.
Alfa Laval India Ltd. Vs DCIT (ITAT, Pune) 298 ITR (AT) 333
• On a conjoint reading of the provisions contained in sec. 36 and

40A(9), the amount of liability alleged to have accrued to the
employer towards an unapproved scheme of superannuation
fund for the payment of the employees would not be entitled to
deduction – sec. 40A(9) overrides provisions of sec. 36 – It is
preposterous to suggest that an expenditure of the nature
provided in any of the provisions of sec. 30 to 36 would be
allowed u/s 37 ie. the residuary section. In that event, the
purpose of putting various restrictions in sec. 30 to 36 of the
Act would become ineffective and an assesee can easily bypass
those restrictions by claiming the benefit under the residuary
section
Brooke Bond India Ltd. Vs JCIT 2011-TIOL-712-HC-KOL-IT
BUSINESS INCOME 263
BAD DEBTS [sec. 36(i)(vii) & (viia)]

• Bad debts written off in the accounts is allowed as
deduction [sec. 36(1)(vii)] subject to the conditions :-
• It is taken into account in computing the income in the
previous year of write off or in an earlier year, or
• Money lent in the ordinary course of business of banking
or money-lending carried on by the assessee
• Provision made for bad and doubtful debts not eligible
for deduction
• Provision for bad and doubtful debts made is eligible for

deduction in the following cases [sec. 36(1)(viia) :
• For Scheduled bank incorporated in India, non-
scheduled bank and Co-operative bank other than a
primary agricultural credit society or a primary co-
operative agricultural and rural development bank
(w.e.f. 01-04-2007) – Upto 7.5% of income (5% upto 01-
04-2003) before making deduction under Chapter VI-A,
and 10% of the aggregate average advances made by
rural branches [see Rule 6ABA]
• For a bank incorporated by or under the laws of a

country outside India – 5% of the total income before
making deduction under Chapter VI-A
• For a public financial institution, State financial

corporation or State industrial Investment corporation
– 5% of the total income before making deduction
under Chapter VI-A
• Rural branch defined as one situated in a place with

population not more than 10,000 as per the last census
figures published before the first day of previous year
• Bad debt can be allowed only to the extent it exceeds the

credit balance in the provision for bad and doubtful
debts [sec. 36(1)(vii)]. Bad debt written off should be
debited to such provision made [sec. 36(2)]
BUSINESS INCOME 265
• After 01-04-1989 to claim deduction of bad debt, it is enough if

the bad debt is written off as irrecoverable in the accounts of
the assessee [ T.R.F. Ltd. Vs CIT (SC) 323 ITR 397 ]
• For banks etc. claiming deduction u/s 36(1)(viia), no need to

close the individual account of each debtor in its books and a
mere reduction in the “loans and advances a/c” or debtors to
the extent of the provision for bad and doubtful debts, is
sufficient [ Vijaya bank Vs CIT & Anr (SC) 323 ITR 166 ]
• In Catholic Syrian bank Ltd. Vs CIT (68 DTR 1) Supreme

Court held that provisions of sec. 36(1)(vii) and (viia) are
distinct and independent items of deduction and operate in
their respective fields. Bad debts written off other than those
for which provision is made under cl. (viia) will be covered u/s
36(1)(vii) while the proviso will operate in cases under cl. (viia)
to limit deduction to the extent of difference between the debt
or part thereof written off in the previous year and the credit
balance in the provision for bad and doubtful debts made u/s
36(1)(viia).
• For claiming deduction as bad debts, amount to be actually

written off – Making provisions is not sufficient – Provision for
Non-Performing Assets claimed as bad debt - RBI direction is
only in the context of presentation of NPA in the balance sheet
of an NBFC and it has nothing to do with computation of
taxable income or accounting concepts – I.T. Act and RBI
directions operate in different fields – Nature of expenditure
under the I.T. Act cannot be conclusively determined by the
manner in which accounts are presented in terms of RBI
directions
Southern Technologies Ltd. Vs JCIT (SC) 320 ITR 577
• Non-banking Financial Companies are not covered by

36(1)(viia) – Not entitled to deduction of any provision created
as per RBI directions
Art Leasing Ltd. Vs CIT (Ker) 33 DTR 277 ; 187 Taxman 29 ; 229 CTR 272
• Writing off debt is not an empty formality – Assessee cannot

convert any live amount to a bad debt only on the basis of
technical rule of write-off – Decision of SC in TRF Ltd.

distinguished
Embassy Classic Pvt. Ltd. Vs DCIT 2010-TIOL-591-ITAT-BANG
• A debt is an outstanding which if recovered would have

swelled the profits – It is not money handed over to someone
for purchasing a thing which that person has failed to return
eventhough no purchase was made
A.V. Thomas & Co. Ltd. Vs CIT (SC) 48 ITR 67
• It is well settled that a business or trading debt should spring

directly from the carrying on of a business or trade and should
be incidental to it and it cannot be just any loss sustained by the
assessee even if it has some connection with his business
Indian Aluminium Co. Ltd. Vs CIT (SC) 79 ITR 514
• When an agent misappropriates money belonging to his

employer on fraud on him and in breach of his obligation to
him, it cannot be said that he owes those monies under any
agreement – The misappropriated amounts would, therefore,
not be deductible as a bad debt
Badridas Daga Vs CIT (SC) 34 ITR 10
• If debt is written off and no credit is simultaneously made in
debtor's account, in view of Explanation to sec. 36(1)(vii), bad
debt is not allowable
Jubilant Organosys Vs CIT (All) 265 ITR 420
• Write off of bad debts in re-assessment proceedings is against

the scheme contemplated in the Act – Unless the debt is written
off at the time of finalization of accounts and is reflected in the
books of account, it cannot be treated as a write off at all
CIT Vs Hotel Ambassador (Ker) 253 ITR 430
• Amount advanced proving irrecoverable – Interest accrued on

such debt offered for tax - Subsequently such debt including
the interest accrued was utilized to acquire shares of debtor
company – Sale of such shares at a loss Notional interest on
advance not deductible as bad debt as the moment the amount
of debt was utilized for the purpose of acquiring shares, there
was no question of any interest due.
Aspinwall & Co. Travancore Ltd. Vs CIT (Ker) 230 ITR 587
BUSINESS INCOME 267
• Assessee is partner of a firm – Her share of profit in the firm and

interest on accumulated profits were credited to a current
account – This sum was written off as bad debt – Not
deductible since it is not money lent in the ordinary course of
money-lending business – There was no contract to convert the
share of profit to a debt.
T. Seetha Vs CIT (Mad) 244 ITR 404
• Assessee took over all assets and liabilities of RHPB - He

debited to P&L a/c, the stock of yarn given to various weavers
of RHPB – No justification to write off inventory in an
arbitrary manner.
Rajasthan State Handloom Dev. Corpn. Ltd. Vs DCIT (ITAT, Jp) 64 ITD 356
• 'B' handed over certain amount to 'M' to deposit in bank – 'M'

lost it in dacoity – Subsequently business of 'B' taken over by
'A' – 'A' claimed it as bad debt – Not allowable – Claim of
business loss also not allowable since it was lost by 'B' and not
by 'A'
Balaji Enterprises (P) Ltd. Vs DCIT (ITAT, Del) 123 ITD 528
• Assessee waiving a portion of amount due from debtor – Not

bad debt, but trading loss – Can be allowed only in the year in
which waiver took place.
Devi Film P. Ltd. Vs CIT (Mad) 75 ITR 301
• Sugar Mill purchased in auction – Authorized Controller

appointed by Government, running sugar mill – Assessee
advanced money for running this and received back sale
proceeds – Shortfall is not bad debt or business expenditure.
Cawnpore Sugar Works Ltd. Vs CIT (All) 243 ITR 345
• Nothing to show that amount written-off was taken into

account in computing income. – Parties making counter-
claims against each other – Bad debt disallowed
Indian Express (Madurai )(P) Ltd. Vs DCIT (ITAT, Mad) 68 ITD 374
• Amount advanced to sister concerns is not in the course of

money lending business – Not deductible.
West Bengal Financial Corpn. & Anr. Vs CIT (Cal) 263 ITR 332
Greaves Ltd. Vs CIT (Bom) 251 ITR 190
Bengal & Assam Co. Ltd. Vs CIT (Cal) 31 DTR 314 ; 227 CTR 399
Vijayakumar Mills Ltd. Vs CIT (Mad) 247 ITR 176 – Advance not for
business purposes.
• Assessee advanced loans in the shape of inter-corporate

deposits – Offered interest income on such deposits as
Business income – Memorandum of Association permitted
assessee company to do the business of financing of loans
Assessing Officer held that these are isolated transactions and
not part of regular business of advancing loans – These are
basically investment made by assessee out of surplus funds
Hence such deposits written off cannot be allowed as bad debt
u/s 36(1)(vii)
Datamatics Financial Services Ltd. Vs DCIT 2011-TIOL-124-ITAT-MUM
• Non-recovery of amounts paid as guarantors of loans to

associated and subsidiary companies – Not deductible as bad
debts or business expenditure
CIT Vs United Breweries Ltd. (Kar) 321 ITR 546
DCIT Vs Sarup Tanneries Ltd. (ITAT, Asr) 19 DTR 322 ; 121 TTJ 388
• Penal interest received by assessee accounted on cash basis –

Board of Directors deciding to waive / write off such interest in
certain cases – Deductible only in the year in which such levy
was refunded to the debtors.
CIT Vs Tamilnadu Small Industries Development Corporation (Mad) 308
ITR 294
• Benefit of sec. 36(1)(viia) not available to Co-operative bank

prior to 01-04-2007
Manasarovar Urban Co-operative Bank Ltd. Vs DCIT (ITAT, Lucknow) 126
ITD 72
• “Rural branch” – To be decided on the basis of population of

the concerned village and not merely that of a Ward where the
bank branch is located
CIT Vs The Lord Krishna Bank Ltd. 2010-TIOL-715-HC-KERALA-IT
• Computation of deduction u/s 36(1)(viia) – Deduction

allowable u/s 36(1)(viii) should be deducted from total income
before computing the deduction u/s 36(1)(viia)
Tourism Finance Corporation of India Vs JCIT (ITAT, Del) 31 SOT 495
Rural Electrification Corpn. Ltd. Vs Addl. CIT (ITAT, Del) 34 SOT 159
BUSINESS INCOME 269
• As per sec. 36(1)(viia) while computing the business income of

a bank deduction is allowable in respect of any provision for
bad and doubtful debts to the extent of an aggregate amount not
exceeding 7.5% of the total income and 10% of the aggregate
average advances made by its rural branches – An option is
given in the first proviso to this sub-clause to claim for a period
of 5 years any provision made by it in respect of doubtful or
loss assets in accordance with the guidelines issued by RBI not
exceeding 5% of such loss or doubtful debts – The above
option is only an alternative to sub-clause (a) and not in
addition to deduction allowable under sub-clause (a) of cl.
(viia)
DCIT Vs HDFC Bank Ltd. 2011-TIOL-691-ITAT-MUM
BUSINESS INCOME 271
Deduction for Special reserve created by a specified

entity [sec. 36(1)(viii)]
• Upto 20% of the profits derived from eligible business
carried to such reserve
• Aggregate of sums taken to such reserve can go upto twice

paid up share capital and general reserve
• Specified entity, eligible business and infrastructure

facility defined
• Long term finance means any loan or advance where

repayment along with interest to be made after 5 years
• Rule 6ABAA is relevant
• Assessee not earning income from providing long-term

finance – Interest earned on deposits – Not eligible for
deduction u/s 36(1)(viii)
Gruh Finance Ltd. Vs ACIT (ITAT, Ahd) 126 ITD 416; 316 ITR (AT) 440
• Income derived from long-term finance – Receipts on account

of dividends and profits on sale of investments – Not eligible
for deduction u/s 36(1)(viii)
Tourism Finance Corporation of India Ltd. Vs JCIT (ITAT, Del) 2 ITR (Trib) 1
• A Scheduled bank is not a financial corporation – Benefit of

sec. 36(1)(viii) not available till A.Y. 2007-08 to Scheduled
banks
The Federal Bank Ltd. Vs ACIT (Ker) 198 Taxman.491
• Dividend for redeemable preference shares shall not constitute

income from business of providing long term finance and
deduction u/s 36(1)(viii) cannot be allowed – Interest earned
on short term deposit with banks is an investment of idle funds
and hence not eligible for deduction u/s 36(1)(viii) – Service
charges on SDF loans are also not eligible for deduction since
funds of the assessee are not involved. Interest on advances /
deposits or loan to employees, miscellaneous receipts etc. are
also not eligible for deduction u/s 36(1)(viii)

National Cooperative Development Corporation Vs ACIT (Del) 65 DTR 295
BUSINESS INCOME 273
GENERAL EXPENSES [sec. 37]

Conditions
• Expenditure not specified in sec. 30 to 36
• Not capital expenditure
• Not personal expenses
• Laid out or expended wholly and exclusively for the

purpose of the business
• Expenses for any purpose which is an offence or prohibited

by law not eligible
• Expenditure incurred on advertisement in any souvenir,

brochure, tract, pamphlet etc. published by a political
party not eligible
• In CIT Vs Woodward Governor India (P) Ltd. (312 ITR

254) Supreme Court held that loss suffered by an assessee
in respect of a revenue liability on account of exchange
difference as on the date of balance sheet is an item of
expenditure allowable u/s 37(1)
• In DCIT Vs Gujarat Alkalies & Chemicals Ltd. (299 ITR

85) Supreme Court held that commitment charges and
finance charges in connection with loan taken are revenue
expenditure allowable u/s 37(1)
• Sec. 37(1) being a residual provision, it cannot be taken aid of,

unless and until it is established that none of the provisions of
sec. 30 to 36 are applicable to a given case.
Malwa Vanaspati & Chemical Co. Ltd. Vs CIT (MP) 154 ITR 655
Khimji Visram & Sons(Gujarat) (P) Ltd. Vs CIT (Guj) 209 ITR 993
• If a claim properly arising u/s 36(1)(vii) as bad debt cannot be

upheld under that section, it cannot be brought u/s 37(1)
Southern Agencies Ltd. Vs CIT (Mad) 45 ITR 602
• To be an allowable expenditure u/s 37(1), the money paid out or

away must be (a) paid out wholly and exclusively for the
purpose of the business or profession, and further (b) must not
be : (i) capital expenditure; (ii) personal expense; or (iii) an
allowance of the character described in sec. 30 to 36
CIT Vs Indian Mollasses Co. (P) Ltd. (SC) 78 ITR 474
J.K. Cotton Mfrs. Ltd. Vs CIT (SC) 101 ITR 221
• Expenditure is what is 'paid out' or 'away' and is something

which is gone irretrievably
Indian Molasses Co. (P.) Ltd. Vs CIT (SC) 37 ITR 66
• A mere liability to satisfy an obligation by an assessee is not

'expenditure' – A mere forbearance to realize a claim is not
expenditure
CIT Vs Nainital Bank Ltd. (SC) 62 ITR 638
• For gratuity to be deductible under the Act, it must fulfill the

conditions laid down in sec. 40A(7). The deduction could not
be allowed on general principles under any other sections of
the Act
Shree Sajjan Mills Ltd. Vs CIT (SC) 156 ITR 585
• Insurance premium paid by the assessee to the LIC under the

group gratuity scheme cannot be claimed as deduction u/s 37
since the said claim which relates to gratuity cannot be allowed
under general principles under any provisions of the Act other
than sec. 40A(7)
CIT Vs Coimbatore Premier Corporation (P) Ltd. (Mad) 244 ITR 753
BUSINESS INCOME 275
Capital Expenditure
• To decide whether an expenditure is capital or revenue in
nature, what is decisive is the nature of the business, the nature
of the expenditure, the nature of the right acquired, and their
relation, inter se
K.T.M.T.M. Abdul Kayoom Vs CIT (SC) 44 ITR 689
• In deciding whether a particular expenditure is capital or

revenue in nature, what the Courts have to see is whether the
expenditure in question was incurred to create any new asset or
was incurred for maintaining the business of the company. If it
is the former, it is capital expenditure.
Dalmia Jain & Co. Ltd. Vs CIT (SC) 81 ITR 754
• The expression 'enduring benefit' and 'rights of a permanent

nature' are only descriptive and not definite and are relative in
meaning not synonymous with 'perpetual' or 'everlasting'
Devidas Vithaldas & Co. Vs CIT (SC) 84 ITR 277
• Capital expenditure would not become revenue expenditure

simply by reason that it was incurred in connection with
business activities which ultimately resulted in efficiently
carrying on day-to-day business
Arvind Mills Ltd. Vs CIT (SC) 197 ITR 422
Expenses relating to Acquisition of assets

• Agreement with film producers for reproduction of film songs
Ascertained sum paid at the time of entering into contract
Copyright assigned is in the nature of capital asset and hence
the sum paid is capital expenditure.
CIT Vs M. Subramaniam (Mad) 272 ITR 525
• Price paid for purchasing copyright of a book by a publisher

and seller of books, is capital expenditure
Hira Lal Phoolchand Vs CIT (All) 15 ITR 205
• Purchase of entire business – Gratuity liability of transferor

discharged by assessee – Capital expenditure since as per the
deed of transfer itself assessee took over this liability and it was
a known and ascertained liability which formed part of the
purchase consideration
Sree Akilandeswari Mills Pvt. Ltd. Vs DCIT (Mad) 274 ITR 1
• Legal and professional charges incurred in connection with

merger of company is capital expenditure
Triveni Engineering Works Ltd (Del) 232 ITR 639
• Amount paid for acquisition of goodwill – Capital expenditure

R.V. Pandit Vs ACIT (ITAT, Mum) 70 ITD 1
• License fee paid to Government for construction and working

of distillery Capital expenditure
Mohan Meakin Breweries Ltd Vs CIT (HP) 227 ITR 878
• Legal expenses incurred by assessee relating to payment of

additional compensation in respect of the land acquired by it –
It is an expenditure laid out for acquisition of capital asset and
not for maintenance of capital asset as it has a direct bearing on
the cost of acquisition of the land - Capital expenditure.
Ambica Mills Ltd Vs CIT (Guj) 235 ITR 264
• Betterment charges – Capital expenditure

Vikram Mills Ltd. Vs CIT ( Guj ) 242 ITR 290
• Contribution to building fund of stock exchange – Capital

expenditure.
Mahesh B. Shah Vs ACIT (Ker) 238 ITR 130
BUSINESS INCOME 277
JCIT Vs Master Capital Services Ltd (ITAT, Chd) 88 ITD 496

JCIT Vs Peerless Developers Ltd (ITAT,SB-Kol) 103 ITD 349 -
Development Fees Paid to become member
• Expenses for acquiring membership of Stock Exchange

Capital expenditure
• Refundable deposit with Stock Exchange – Capital
expenditure
DCIT Vs Khandwala Finance Ltd. (ITAT, Mum) 121 TTJ 66; 122 ITD 111
• Assessee encroached land – Compromise order of High Court

Assessee paid consideration and got land – Capital
expenditure since assessee either acquired the title or got rid of
the defective title
Sandvik Asia Ltd Vs DCIT (ITAT, Pune) 71 ITD 217
• Dismantling of building in order to construct a hotel

Dismantling expenditure is capital exp.
Lake Palace Hotels & Motels P. Ltd. Vs CIT (Raj) 213 ITR 735
• Sum paid in consideration of relinquishment by legal heirs of

right and title to goodwill of deceased partners – Payment for
acquisition of a capital asset
Mehra Khanna & Co. Vs. CIT (Del) 250 ITR 436
• Under deed of retirement, continuing partners making

payments to outgoing partner in lieu of their right, title and
interest in firm including its assets and goodwill – Not
deductible.
CIT Vs Standard Maltings and Allied Products Corpn. (Guj) 226 ITR 1
R.V. Pandit Vs ACIT (ITAT, Mum) 70 ITD 1
• Payments made to retiring partners in consensus with an

agreement – No diversion by overriding charges – Application
of income – Not deductible
S.B. Billimoria and Co. Vs ACIT (ITAT, Mum) 317 ITR (AT) 203
• Goodwill amount payable by incoming partner, but firm

paying interest on Goodwill liability to outgoing partner – Not
deductible.
CIT Vs Rajkumar Dipchand Phade (Bom) 249 ITR 520
• Expenses on acquiring computer software in canned or

uncanned form is a tangible asset and assessee purchasing such

software becomes owner of it More radical the changes, the
more likely the expenditure will be capital in nature.
CIT Vs Arawali Constructions Co.(P) Ltd (Raj) 259 ITR 30
• Assessee acquired ERP business software with unlimited user

license – capital expenditure
Escorts Ltd. Vs ACIT (ITAT, Del) 104 ITD 427
• Assessee entered into a license agreement with SAP for a

period of 25 years for use of a software – Capital expenditure
since it was for acquisition of a tangible asset
Sudarshan Chemical Industries Ltd. Vs ACIT (ITAT, Pune) 110 ITD 171
• Standing trees not stock-in-trade – Expenses incurred to obtain

title over such asset – Not revenue Expenditure.
ITO Vs Tropical Timbers (ITAT, Bang) 62 ITD 147
• Legal fees paid to obtain new bus route permits which is a

distinct asset – Capital expenditure since each route permit is a
separate entity – Expenses incurred for getting new route
permits cannot, therefore, be said to be laid out for the purpose
of business of running buses covered by other permits
Erode Transports (P) Ltd Vs CIT (Mad) 71 ITR 283
• Expenditure incurred in valuation of transfer of human skill –

Credit given to employees who came on transfer in respect of
their services to erstwhile company – Capital expenditure
IBM Global Services India P. Ltd. Vs DCIT (ITAT, Bang) 316 ITR (AT) 364
• Agreement with L&T for creating a new trademark – It resulted

in creating a new asset with independent identity and
ownership for exclusive use of assessee – Capital expenditure
L&T DEMAG Plastics Machinery (P) Ltd. Vs ITO (ITAT, Mum) 123 ITD 391
• Building tax paid is capital expenditure since it is paid once for

all on completion of building – It is on the capital value of the
building and paid in the capacity of owner
Michael Joseph & Co. Vs CIT (Ker) 225 ITR 786
• Expenses Incurred in completing title of property purchased

eventhough purchase and taking possession are already over
BUSINESS INCOME 279
Capital expenditure.
Lachhman Das Bigballabh Das , IN RE (All) 10 ITR 186
• Litigation expenses to enforce right to obtain title to land – Not

revenue exp.
Rajasthan Construction Co.(P) Ltd. Vs CIT (Bom) 148 ITR 61
V. Jaganmohan Rao & Ors. Vs CIT (SC) 75 ITR 373
Sankranti Agarbathi Co. Vs DCIT (Kar) 243 ITR 712
• Legal expenses for sale of shares and acquisition of investment

Registration Expenses of sale deed – Capital expenditure
Raza Sugar Co. Ltd. Vs CIT (Del) 130 ITR 421
CIT Vs Malabar Building Products Ltd (Ker) 251 ITR 487
• Amount paid towards bank guarantee commissions and

expenditure incurred in obtaining L.C. – Necessary to bring
machineries into existence and to put them in working
condition – Forms integral part of payment of cost price of
machineries which are capital assets – Capital Expenditure
even if incurred after commencement of business
CIT Vs Vallabh Glass Works Ltd. (Guj) 137 ITR 389
• Expenditure by way of premia paid on life insurance policies

taken on partner's names by assessee-firm to ensure payment
to legal heirs in eventuality of a partner's death was capital in
nature
CIT Vs Khodidas Motiram Panchal (Guj) 161 ITR 399
• Payment made to the outgoing partners would be clearly a

payment of capital nature relatable to the settlement of
accounts between the partners inter se
CIT Vs Standard Maltings & Allied Products Corporation (Guj) 226 ITR 1
• Payment made for obtaining monopoly rights is capital

expenditure
Mewar Sugar Mills Ltd. Vs CIT (SC) 87 ITR 400
• Expenditure incurred on dismantling plant and machinery and

shifting it from leased premises to assessee's owned premises
is of capital nature
CIT Vs Bimetal Bearings Ltd. (Mad) 210 ITR 945
CIT Vs Otis Elevator Co. (I) Ltd. (Bom) 51 Taxman 443
• An assessee's contribution towards the cost incurred on

construction of a new road to serve assessee's factory is capital
expenditure
Travancore Cochin Chemicals Ltd. Vs CIT (SC) 106 ITR 900
• Where the assessee had made a contribution towards the

construction of a road, when it was under no obligation to make
this contribution and there was nothing to show that this road
was in any way advantageous to the assessee or that the
contribution had anything to do with its business the impugned
amount was not deductible as expenditure
L.H. Sugar Factory & Oil Mills (P) Ltd. Vs CIT (SC) 125 ITR 293
• Outright grant to Government by the assessee who is an

exporter of ore for development of roads and port damaged by
rains was not business expenditure since not even an incidental
connection between the expenditure and the assessee's
business was brought on record
State Trading Corpn. Of India Ltd. Vs CIT (Del) 94 ITR 496
• Converting a kaccha road into a pucca road could by no stretch

of imagination be regarded as restoration of the kaccha road to
its original state and thus the expenditure incurred on it had to
be disallowed being in the nature of capital expenditure
Modella Woollens Ltd. Vs CIT (Bom) 120 ITR 726
• Water treatment plant installed permanently in factory in

compliance with statutory requirement for preventing
pollution – Capital expenditure since enduring benefit is
achieved
CIT Vs Glen View Rubber Co. (P) Ltd. (Ker-FB) 291 ITR 1
• Securities purchased at price with reference to actual value as

well as interest accrued till date of purchase – The entire
consideration paid for purchase of securities is capital
expenditure – No part can be treated as revenue expense and
deduct from interest received.
Vijaya Bank Limited Vs Addl. CIT (SC) 187 ITR 541
BUSINESS INCOME 281
Expenses connected with leased assets

• Assessee running Sugar Mill leasing out land to housing board
for construction of staff quarter for factory – Building to
remain property of housing board – Assessee incurred
expenditure towards part of the cost of construction – An
advantage of enduring nature derived by assessee eventhough
it is not the owner – Fact that such expenditure was incurred out
of compulsion is also not relevant - Capital expenditure.
Raza Buland Sugar Co. Ltd Vs CIT (All) 122 ITR 817
• Construction of temporary structures in a leased (2 year)

property – Capital expenditure since the structure is an
enduring asset.
Uttar Bharat Exchange Ltd. Vs CIT (Punj) 55 ITR 550
Free India Assurance Services Ltd. Vs DCIT (ITAT, Mum) 62 DTR 349
• Expenditure incurred for renovation of leased premises

Capital expenditure in view of Expl. 1 to sec. 32
ITO Vs Pritam Juice (ITAT, Mum) 5 ITR (Trib) 664
ACIT Vs Efftronics Systems (P.) Ltd. (ITAT, Visakh) 133 ITD 460
• Premises taken on lease – Amount paid to previous tenant to

vacate premises is capital expenditure since the payment was
made to acquire the right possessed by that party.
Chloride India Ltd Vs CIT (Cal) 130 ITR 61
• Assessee entering into agreement for acquiring mining lease

Assessee not operating mines in relevant accounting year
Liquidated damages paid to owners of mines – Capital
expenditure since amount payable is referable to acquisition of
mining lease and not operation of the same.
Salgaonkar Mining Industries Vs CIT (Bom) 228 ITR 183
• Advance lease rent for mining paid for entire period of lease in
the form of a deposit which was adjustable against stipulated
monthly rent – Capital Expenditure
Aditya Minerals (P) Ltd Vs CIT (SC) 239 ITR 817
Enterprising Enterprises Vs DCIT (Mad) 268 ITR 95
• Expenditure for acquisition of leasehold right in sugar factory
Gobind Sugar Mills Ltd Vs CIT (SC) 232 ITR 319
BUSINESS INCOME 283
• Land taken on lease for 99 years – Premium on leasehold land

paid in addition to rent, is capital expenditure since assessee
got an advantage of enduring nature – No evidence to show
that it was towards advance rent
JCIT Vs Mukund Ltd. (ITAT,SB-Mum) 106 ITD 231
• Rent paid for acquiring leasehold right of a property – Capital

Expenditure
• Salami / Commissions paid for renting office premises – Not

rent – Capital expenditure
Bharat Steel Tubes Ltd. Vs CIT (Del) 252 ITR 622
• Assessee took over a running hotel business and executed a

lease deed in respect of which it had incurred expense on stamp
duty, registration fee and legal expenses. Lease was for a
period of 10 years with option for renewal for another 10 years
Capital expenditure
Hotel Rajmahal Vs CIT (Kar) 152 ITR 218
Expenditure relating to assets – intention not

relevant
• Securities purchased at price with reference to actual value as
well as interest accrued till date of purchase – Whatever be the
consideration to purchase the securities, entire consideration
paid for purchase of securities is capital expenditure – No part
can be treated as revenue expense and deduct from interest
received.
Vijaya Bank Limited Vs Addl. CIT (SC) 187 ITR 541
• Assessee running Sugar Mill leasing out land to housing board

for construction of staff quarter for factory – Building to
remain property of housing board – Assessee incurred
expenditure towards part of the cost of construction – An
advantage of enduring nature derived by assessee eventhough
it is not the owner – Fact that such expenditure was incurred out
of compulsion is also not relevant - Capital expenditure.
Raza Buland Sugar Co. Ltd Vs CIT (All) 122 ITR 817
• Loss incurred in premature encashment of cash certificate for

paying off debt to Bank – Capital loss since loss is part of
capital assts being fixed deposits with bank – Argument that
such deposits were prematurely encashed in order to reduce
bank overdraft which resulted in reduction in bank interest and
consequently conservation of profits, is far-fetched and
untenable
Krishna Chandra Dutta (Cookme) Pvt. Ltd. Vs CIT (Cal) 204 ITR 23
CIT Vs South Arcot Dist cooperative Supply & Marketing Society (Mad)
127 ITR 467
• Litigation & others expenses for recovering sale consideration

of factories - Capital expenditure since the expenditure relates
to fixed assets
Dalmia Dairy Industries Ltd Vs CIT (Del) 241 ITR 9
• Supplier paying damages to assessee for delay in delivery of

capital goods within time – Lateron supplier requesting for
refund of damages and assessee refunding such amount –
Amount returned is capital in nature and hence not allowable
as deduction
BUSINESS INCOME 285
Mahanagar Telephone Nigam ltd., IN RE (AAR) 286 ITR 211
• Interest paid on unexpired hire purchase period is capital

expenditure since it was paid in respect of an asset acquired by
the assessee and was intimately linked with the value of the
asset – Fact that the exercise of option was necessary for
carrying on the business more effectively or a rebate was
granted on outright purchase did not make the expenditure a
revenue expenditure
CIT Vs Sharpedge Ltd. (Del) 249 ITR 319
• Amount paid towards foreclosure of lease agreement – Capital

expenditure
Aztec Software & Technology Services Ltd. Vs ACIT ( ITAT,SB-Bang) 107
ITD 141
• Where the assessee-company was running a paper mill, which

generated effluents and since it was under an obligation to
arrange discharge of said effluents, incurred expenditure on
building a drain through forest land for discharge of effluents
generated from its mills under an agreement with forest
department, the facility acquired by the assessee to discharge
effluents was not merely a facility for carrying on business, but
such facility became available to the assessee with right and
advantage of enduring nature. The assessee having incurred
expenditure for acquiring a permanent right, said expenditure
could not be treated as revenue expenditure
CIT Vs Shreyans Industries Ltd. (P&H) 157 Taxman 417
• Assessee incurred expenditure on providing alternate sites to

villagers whose lands were required by the assessee for
extension of the air port – Expenditure capital in nature since it
resulted in bringing into existence an enduring benefit
International Airports Authority of India Vs CIT (Del) 254 ITR 657
• Amount paid towards institutional membership of club – Since

it is a payment once for all resulting in an enduring benefit to
the assessee, it is a capital expenditure – Argument that it
promotes assessee's business does not change the character of
the payment
Framatone Connector OEN Ltd. Vs DCIT (Ker) 294 ITR 559
• Assessee doing money lending business – Partial partition in

HUF where assessee is a member – As per that assessee has to
pay certain sum to two firms in which other family members
are partners – Firm made debit in its book – Interest paid to
those firms not deductible from income of assessee Intention
of the assessee to keep the capital invested by him in money
lending business intact so as not to reduce his income from
business is absolutely irrelevant to ascertain whether the
expenditure could be treated as business expenditure
CIT Vs Krishnadas Govindas (Guj) 242 ITR 443
BUSINESS INCOME 287
Transaction in assets got aborted half-way

• Capital expenditure need not result in creation of intended
asset Expenses for boring tube well which would have
provided water for a very long time – Water obtained not
suitable for use – Capital expenditure since the outcome will
not change the nature of expenses
Shree Digvijay Woollen Mills Ltd. Vs CIT (Guj) 204 ITR 398
• Agreement for purchase of property for creation of

infrastructural facilities for business – Termination of such
agreement and payment of compensation – Payment to
discharge capital liability since it was connected with creation
of new facilities – Capital Expenditure
SAP Labs India Pvt. Ltd. Vs ACIT (ITAT, Bang) 6 ITR (Trib) 81
• Report on study for amalgamation and merger for efficient

functioning of group companies – Study not commissioned by
assessee – Not wholly and exclusively incurred for carrying on
the business of assessee Disallowance upheld.
Gujarat Gas Financial Services Ltd. Vs ACIT (ITAT,SB-Ahd) 307 ITR (AT) 370
• Amount deposited for acquisition of distribution rights of

products of a company – Failure of company to produce
articles – Part of deposit written off being irrecoverable
Capital expenditure
Cochin Malabar Estates & Industries Ltd. Vs CIT (Ker) 325 ITR 129
• Irrecoverable advance to licensor / lessor – It is a capital loss

since the investment was made to start a new business – Hence
not deductible
Hasimara Industries Ltd. Vs CIT (SC) 230 ITR 927
• Agreement to purchase cinema theatre – Compensation paid

on failure to complete agreement – Capital expenditure since
assessee was intending to carry on the business of exhibiting
films and thus a capital asset was sought to be acquired
CIT Vs Jaipur Mineral Development Syndicate (Raj) 216 ITR 469
• Amount advanced to a contractor for construction of cold

storage plant - Work could not be executed and part of the
advance could not be recovered Capital loss
Kwality Fun Foods & Restaurants (P.) Ltd. Vs DCIT ( ITAT, Chennai ) 108
ITD 274
• Amount advanced for purchase of an asset could not be

recovered Capital loss since it pertains to acquisition of an
asset
CIT Vs R.G. Scientific Enterprises P. Ltd. (Del) 311 ITR 401
• Advance paid for purchase of a factory was forfeited by the

recipient since assessee gave up the deal – Capital expenditure
CIT Vs Southern Gas Ltd. (Ker) 198 Taxman (Mag) 165
• Where the assessee had contracted to purchase textile

machinery, but cancelled the contract because of changed
circumstances, and paid compensation to vendors for breach of
contract, the payment was really made for breach of contract in
respect of purchase of textile machinery which would have
been a capital asset – Such a payment made was clearly in the
nature of capital expenditure and not revenue expenditure
Swadeshi Cotton Mills Co. Ltd. Vs CIT (SC) 63 ITR 65
BUSINESS INCOME 289
Loss in writing off of assets

• “Loss of capital” and “Capital loss” different – Money
deposited was written off lateron being irrecoverable – Such
loss is 'Loss of Capital'
J.P. Srivatsava & Sons Vs CIT (All) 86 ITR 730
CIT Vs Chidambaranatha Mudaliar (Mad) 240 ITR 552
Grindwell Norton Ltd. Vs DCIT ( ITAT, Mumbai-TM) 91 ITD 412
• Assessee entering into contract for purchase of machinery

Cancellation of contract – Cancellation charges paid is loss of
capital
Patel Brass Works Vs CIT (Guj) 286 ITR 598
• Write-off of debts due from erstwhile partners – Not revenue

loss
JCIT Vs Rasi Silks ( ITAT, Chennai ) 97 ITD 58
• Assessee having shares of ACIL – Liabilities of ACIL far

exceeded its assets – Company not dissolved and still continue
to exist, only certain undertaking was taken over by
Government – Assessee wrote off value of shares and claimed
capital loss – Not correct since there was no transfer of shares
Bharat Hari Singhania (HUF) Vs ACIT (ITAT, Cal) 58 ITD 189
Kerala Small Industries Dev. Corpn. Ltd Vs CIT (Ker) 270 ITR 452
• Deposit made by assessee as share application money – Shares

not allotted – Requested to consider it as loan – Writing off as
bad debt lateron – Not allowable – Loss of capital
DCIT Vs Kanchanjungha Advertising P. Ltd. 2008-TIOL-159-ITAT-DEL
• Amount advanced for purchase of land – Irrecoverable – Loss

of capital
Tulip Star Hotels Ltd. Vs Addl.CIT (ITAT, Del) 114 ITD 202
• Loan advanced to subsidiary company gone bad – Money

lending not part of business of assessee – Writing off of such
loans – Not business loss
DCM Ltd. Vs DCIT (ITAT, Del) 317 ITR (AT) 261
Salem Magnesite P. Ltd. Vs CIT (Bom) 321 ITR 43
JCIT Vs Rallis India Ltd. (ITAT, Mum) 3 ITR (Trib) 1
• Investment by assessee in acquisition of shares with ultimate

purpose of merging 'S' company with itself is capital

investment – Loss arising from writing off such amount in its
books is capital expenditure.
APS Star Industries Ltd. Vs DCIT (ITAT, Ahd) 86 ITD 182
• Assessee, film distributor making advance payment to film

producer for getting distribution rights of a particular film
Payment for acquiring a capital asset – Irrecoverability leads to
capital loss – Not deductible as a business loss.
CIT Vs Sembi Traders (Mad) 221 ITR 410
• Assessee engaged in business of manufacturing & marketing

of soft drinks as licensee – Licensor withdrawing from Indian
market – Value of stock of bottles is Capital loss.
CIT Vs Soft Beverages (P) Ltd. (Mad) 245 ITR 194
• Assessee-bank invested in Government Securities – No loss

arises on revaluation of such securities – Nomenclature given
to classification of assets in the accounts alone need not
determine the true nature of assets. One has to examine the real
purpose and intent for which the relevant assets are held There
is no direct evidence to show that assessee company carried on
business of dealing in shares and securities – Since these assets
are investments made by assessee, profit or loss arise only on
transfer of the same
Bank of Rajasthan Ltd. Vs IAC (ITAT,Jp) 68 ITD 69
ACIT Vs B.N. Rathi Securities Ltd.(ITAT, Hyd) 71 ITD 31
• Catalyst purchased by assessee became obsolete – Deduction

can be claimed only when the catalyst is sold or disposed off.
CIT Vs Heredilla Chemicals Ltd. (Bom) 225 ITR 532
• Assessee is hire purchase financier – Hire purchasers making

default in payment to assessee. – Assessee taking repossession
of vehicles – Loss on revaluation of vehicles not allowable
deduction.
Motor & General Sales (P) Ltd. Vs CIT (All) 226 ITR 137
• Assessee paying recoverable bonus in 1971 – In 1973 decided

not to recover such amount – No evidence that sum paid to
employees was loan. Not allowable as bad debt / business loss
/ expenditure in AY 74-75.
BUSINESS INCOME 291
CIT Vs Wheel & Rim Co. of India Ltd. (Mad) 225 ITR 648
• Lease equalization reserve created by assessee is not a

deductible expenditure
Goodwill India Ltd. Vs DCIT (ITAT, Del) 114 ITD 665
Incurred before commencement of business

• Commencement of business is relevant for allowance of
expenditure u/s 37 and not setting up of the business
Expenditure incurred prior to commencement of business
Capital expenditure
Citi Financial Consumer Finance India Ltd. Vs Addl. CIT (ITAT, Del) 33 SOT 414
• Expenditure incurred till commercial production starts Capital

expenditure.
Orient Cosmetics Ltd. Vs DCIT (ITAT, Mad) 74 ITD 135
• Expenses incurred before trial-run of factory – Capital

Expenditure since it was incurred to bring the assets into
working condition and hence, is cost of assets
CIT Vs Saurashtra Cement & Chemical Industries Ltd (Guj) 127 ITR 47
• Assessee in the business of air transportation – No aircraft

available during the year and no setting up of business – Not
entitled to claim pre-operative expense as deduction
Kingfisher Training and Aviation Services Ltd. Vs ACIT (ITAT, Bang) 8 ITR
(Trib) 692
• Carrying out business will require activity systematically and

continuously. If assessee is in a position to deliver goods, it
means that the business is set up. Steps like incorporation of
company, appointment of director etc. are preliminary things
in the direction of setting up of business. No office space, no
space for storage of goods etc. during the year – As assessee
has not set up its business, it was not entitled for deduction of
expenses.
Akzo Nobel Car Refinishes India (P) Ltd. Vs DCIT (ITAT, Del) 25 SOT 226
• A business is set up when it reaches a stage where it is in a

position to procure business and not before that – Expenses
incurred till setting up of business is Capital expenditure
ITO Vs Omni Globe Information Technologies India (P) Ltd. (ITAT, Del) 131
ITD 280
BUSINESS INCOME 293
Expenditure in connection with expansion of

business / new product
• Engineers of company sent on tour to select proper machinery
for expansion of business – Machinery purchased soon after
Travelling expenses is capital expenses.
Dalmia Dadri Cement Co. Ltd. Vs CIT (P&H) 77 ITR 405
CIT Vs L.G. Balakrishnan (Mad) 95 ITR 284
Cooper Engineering Ltd. Vs CIT (Bom) 135 ITR 597
CIT Vs Vadilal Dairy Intl. Ltd. (Guj) 328 ITR 544
• Expenses incurred for the purpose of launching a new project

or initiating a new line of business separate from the existing
business cannot be held to be revenue expenditure incurred in
connection with the existing business
Indian Oxygen Ltd. Vs CIT (Cal) 164 ITR 466
Trade Wings Ltd. Vs CIT (Bom) 185 ITR 267
• Amount spent on project report to set up a new unit – Capital

expenditure.
Triveni Engineering Works Ltd Vs CIT (Del) 232 ITR 639
CIT Vs Ambica Mills Ltd (Guj) 236 ITR 921
MAC Industrial Products Ltd. Vs ACIT ( ITAT, Chennai – TM ) 101 ITD 191
• Expenditure incurred to commence production of new article

E.I.D. Parry (India) Ltd Vs CIT (Mad) 257 ITR 253
• Expenditure in connection with exploring feasibility of setting

up new line of business – Capital expenditure
Tradewings Ltd. Vs CIT (Bom) 185 ITR 267
General Sales Ltd Vs ACIT (ITAT, Del) 59 TTJ 489
• Assessee intending to set up manufacturing unit in Malaysia

Not part of existing business – Travel expenses incurred is
capital expenditure.
McGaw Ravindra Laboratories (India) Ltd Vs CIT (Guj) 210 ITR 1002
Hyderabad Allwyn Metal Works Ltd. Vs CIT (AP) 98 ITR 555
• Interest paid on delayed payment of security deposit for

National Stock Exchange membership – Capital Expenditure
eventhough paid after commencement of business since such
BUSINESS INCOME 295
deposit was necessary to start business with NSE

CFL Securities Ltd. Vs DCIT (ITAT, Mum) 110 ITD 611
• Expenditure incurred for construction of an approach road to a

plant in the new unit – Since that plant was not in operational
during the relevant year, it could not be said that approach road
was for efficient working of plant – Expenditure was in
connection with augmentation to existing profit earning
apparatus of assessee – Capital expenditure
Aditya Birla Nuvo Ltd. Vs ACIT (ITAT, Mum) 131 ITD 511
Non-competition fee paid

• Expenditure to prevent trading competition – Assessee,
manufacturer of cement took on lease certain limestone
quarries – Annual payment to lessor to prevent lessor from
granting similar rights in neighbouring quarries – Capital
expenditure since assessee acquired the right to carry on
business unfettered by any competition – It went to appreciate
the whole of the capital asset and make it more profit yielding.
Assam Bengal Cement Co. Ltd. Vs CIT (SC) 27 ITR 34
• Amount paid to competitor to withdraw – Capital expenditure.

Beharilal Beni Prasad Vs CIT (Punj) 35 ITR 576
Hewlett Packard Indust. Ltd. Vs DCIT (ITAT, Del) 85 ITD 455
• Payment to eliminate competition – Assessee to pay specified

sum every month for 5 years – Rival firm not to do similar
business during that period – Capital expenditure
Grover Soap Pvt. Ltd. Vs CIT (MP) 221 ITR 299
Neel Kamal Talkies Vs CIT (All) 87 ITR 691
Gujarat Mineral Development Corporation Ltd Vs CIT (Guj) 143 ITR 822
CIT Vs Hindustan Pilkington Glass Works (Cal) 139 ITR 581
DCIT Vs Saraf Chemicals Ltd. (ITAT, Mum) 102 ITD 356
• Re-organization of business in same group- Consideration paid

for closure of one particular type of business by another
company – Enduring advantage – Capital expenditure
Lucent Technologies Hindustan Ltd. Vs JCIT (ITAT, Bang) 106 TTJ 205
• Compensation paid for acquiring assets, Goodwill and to avoid

competition in trade – Expenses to acquire enduring benefit –
Capital Expenditure.
Tamil Nadu Dairy Dev. Corpn. Ltd Vs CIT (Mad) 239 ITR 142
TI Diamond Chain Ltd. Vs CIT (Mad) 274 ITR 59
Tecumseh India P. Ltd. Vs Addl. CIT (ITAT,SB-Del) 127 ITD 1; 5 ITR (Trib) 150
• Payment made to Ex-Managing Director not to carry on any

competitive business for 5 years – Capital expenditure since
derived benefit of enduring nature – Expenditure was not for
protecting the business – Since expenditure is capital in nature,
it cannot be allowed as deferred expenditure over the years
since only revenue expenditure can allowed to defer over the
BUSINESS INCOME 297
period of exploitation
Sharp Business Systems (India) Ltd. Vs DCIT (ITAT, Del) 133 ITD 275
Chelpark Company Limited Vs CIT (Mad) 191 ITR 249
B.K. Khanna & Co. (P) Ltd. Vs CIT (Del) 247 ITR 705
Montgomery Watson Consultants India (P) Ltd. Vs ACIT (ITAT, Mum) 90
ITD 324
Vinod Kothari Consultants (P) Ltd. Vs DCIT (ITAT, Kol-TM) 91 ITD 153
• Amount paid for restructuring and re-organization of business

framework and profit earning apparatus – Compensation paid
for termination of Joint Venture – Capital expenditure
Procter & Gamble Home products Ltd. Vs JCIT 2011-TIOL-16-ITAT-MUM
Payment for technical know-how / royalty

• Issue of shares to foreign company in consideration for supply
of know-how - Value of shares does not represent expenditure
of company – Not deductible as revenue expenditure. Any
expenditure for the purpose of bringing into existence a
business is not deductible
CIT Vs Eimco K.C.P. Limited (Mad) 147 ITR 603
• Publisher of books – Royalty on net sales paid to party for

obtaining recognition of education department – Capital
expenditure since such recognition brought enduring
advantage
CIT Vs Naya Sahitya (Del) 84 ITR 567
• Collaboration agreement for 5 years which can be extended

Another company transferring to assessee technical know-
how and right to use its trade mark – These are fundamental to
assessee's manufacturing activity - Amount paid is capital
expenditure even when the payment is linked to turnover /
production
CIT Vs Polyformalin (P) Ltd (Ker) 161 ITR 36
Fenner Woodroffee & Co. Ltd Vs CIT (Mad) 102 ITR 665
• Assessee company taking over sole selling agency acquired by

firm – Payment of royalty @ 75% of profits to firm in
consideration of assignment of agency – Capital expenditure.
CIT Vs Jalan Trading Co. P. Ltd. (SC) 155 ITR 536
M.K. Brothers P. Ltd. Vs CIT (SC) 86 ITR 38.
• Lump sum payment for acquiring technical know-how for

manufacturing textile machinery – Capital expenditure since
assessee acquired exclusive rights and licenses - Sec. 35AB
applies & not Sec. 37(1).
APS Star Industries Ltd. Vs DCIT (ITAT, Ahd) 86 ITD 182
• Technical know-how acquired for a new process so as to

produce totally new products – Capital Expenditure.
Voltas Ltd Vs DCIT (ITAT, Mum) 64 ITD 232
• Collaboration agreement – Grant of technical aid for setting up

factory and right to sell products – Foreign Company agreeing
BUSINESS INCOME 299
not to manufacture similar products in India or give rights for

manufacture to others – Exclusive and enduring advantage
Southern Switch Gear Ltd. Vs CIT & Anr. (SC) 232 ITR 359
• Collaboration agreement between assessee and foreign

company Composite payment for supply of technical know-
how and services for setting up plant and manufacture of
products – No embargo on manufacture even after expiry of
agreement – Enduring benefit to assessee Payment partly
capital expenditure though paid on percentage of turnover.
Jonas Woodhead & Sons (India) Ltd. Vs CIT (SC) 224 ITR 342
• Technical know-how for setting up a new plant for

manufacture of a new product with imported machinery
CIT Vs W.S. Insulators of India Ltd (Mad) 243 ITR 348
Share issue expenses

• Expenditure in connection with additional issue of shares
Expenditure directly related to expansion of capital base – is
capital expenditure
Brooke Bond India Ltd. Vs CIT (SC) 225 ITR 798
Punjab State Industrial Development Corporation Ltd Vs CIT (SC) 225 ITR 792
CIT Vs Motor Industries Co. Ltd. (Kar) 229 ITR 137 - issue of right shares
CIT Vs Sesa Goa ( India ) Ltd. ( Bom ) 282 ITR 197 - Bonus share issue
Ashima Syntex Ltd. Vs ACIT ( ITAT – SB, Ahd ) 100 ITD 247 – issue of wholly
Convertible debentures
Medreich Ltd. Vs DCIT (ITAT, Bang) 8 ITR (Trib) 639 – even if for raising
working capital
• Expenditure is capital in nature even if the additional shares

were allotted to maintain capital base as per FERA requirement
Reason is immaterial and the end result is restructuring of
capital base
Eskayef Ltd Vs DCIT (ITAT, Bom) 71 ITD 419
Union Carbide India Ltd Vs CIT (Cal) 203 ITR 584
CIT Vs Commonwealth Trust Ltd. (Ker) 167 ITR 365
CIT Vs Kodak India Ltd. (SC) 253 ITR 445
• Expenses on issue of partly convertible debenture Convertible

portion of the debenture cannot be termed as a debt because
convertible debentures have characteristics of equity shares
Conversion was mandatory and date and manner of conversion
was certain – Proportionate expenditure on the convertible part
of debentures is for the augmentation of the equity base of the
company and it is capital expenditure.
Banco Products (India) Ltd Vs DCIT (ITAT, Ahd) 63 ITD 370
• Expenditure on issue of share certificate, bond etc. as a

consequence of amalgamation of companies – Amalgamation
of company results in alteration of capital structure – It is not an
expenditure for operating the profit-making apparatus -
Capital expenditure
CIT Vs Official Liquidator of Ahmedabad Mfg. & Calico Prg. Co. Ltd. (Guj)
244 ITR 156
• Legal and professional charges incurred in connection with

merger of company – Not deductible
BUSINESS INCOME 301
Triveni Engg. Works Ltd. Vs CIT (Del) 232 ITR 639
• No set off of interest income earned on short-term deposits of

share application money against share issue expenses since
share issue expenses are Capital in nature
Eicher Motors Ltd. Vs DCIT (ITAT, Indore) 94 Taxman (Mag) 316
D.S.J. Communications Ltd. Vs ACIT (ITAT, Mum) 10 SOT 390
• Expenditure on allotment of shares of subsidiary company to

assessee – Capital expenditure – There is no difference
between the share capital raised for the capital expansion of the
company and the share capital raised and utilized for acquiring
shares of a subsidiary company because in either case
expenditure is for raising capital
G.T.N. Textiles Ltd. Vs DCIT (Ker) 326 ITR 352
Fluctuation in foreign exchange

• Roll over charges for repayment of principal amount of foreign
exchange loans for capital investment – Not revenue
expenditure – To be capitalized in view of Expl. 3 to sec. 43A
ACIT Vs Elecon Engineering Co. Ltd. (SC) 322 ITR 20
CIT Vs Indian Rayon and Industries Ltd. (Bom) 336 ITR 479
• Non-resident assessee rendering technical service to Indian

company – Agreement for payment of fees in India Rupees –
Loss on account of exchange fluctuation while remitting fees
abroad – Not deductible since loss incurred on transmission of
income already received – Once income is received, it is
capital and any loss on remittance of capital to a foreign
country is not revenue expenditure
CIT Vs Phillips Petroleum International Corporation (Del) 272 ITR 355
BUSINESS INCOME 303
Expenses not wholly and exclusively for the purpose

of business
• The words “Expenditure incurred” used in sec. 37 relates to
“pay-out” and not “pay-back” – A loss in a transaction of
securities is “pay-back”
CIT Vs Walfort Shares and Stock Brokers P. Ltd. (SC) 326 ITR 1
• Every loss is not so deductible unless it is incurred in carrying

out the operation of the business and is incidental to the
operation.
CIT Vs Nainital Bank Ltd. (SC) 55 ITR 707
CIT Vs Textool Co. Ltd. (Mad) 135 ITR 200
• Taxing authorities have right to consider whether expenditure

was excessive.
Lakshminarayan Madan Lal Vs CIT (SC) 86 ITR 439
Swadeshi Cotton Mills Co. Ltd. Vs CIT (SC) 63 ITR 57
Lakshmiratan Cotton Mills Co. Ltd. Vs CIT (SC) 73 ITR 634
• Income tax authorities can examine reasonableness and

genuineness of any payment like royalty even if such payment
was made after obtaining permission from RBI
CIT Vs Nestle India Ltd. (Del) 199 Taxman (Mag) 321
• The doctrine that the businessman is the best judge of business

expediency does not affect the right, any duty, of the assessing
authorities to know whether it was incurred for business
purposes and not for other extraneous consideration
Jaipur Electro (P.) Ltd. Vs CIT (Raj) 134 CTR 237
• The adverb 'wholly' in the phrase 'laid out or expended ….for

business' refers to the quantum of expenditure – The adverb
'exclusively' has reference to the object or motive of the act
behind the expenditure. Unless such motive is solely for
promoting the business, the expenditure will not qualify for
deduction
CIT Vs T.S. Hajee Moosa & Co. (Mad) 153 ITR 422
Mysore Kirloskar Ltd. Vs CIT (Kar) 166 ITR 836
Siddho Mal & Sons Vs ITO (Del) 122 ITR 839
• Burden on assessee to prove that expenses were laid out wholly

and exclusively for purposes of business.

Goodlas Nerolac Paints Ltd. Vs CIT (Bom) 137 ITR 58
Assam Pesticides & Agro Chemicals Vs CIT (Gau) 227 ITR 846
• The mere fact that payment has been made under contract or
agreement is not conclusive that the expenditure is incurred
wholly and exclusively for the purpose of business
Jayshree Tea & Indsutries Ltd. Vs CIT (Cal) 272 ITR 193
CIT Vs Premier Breweries Ltd. ( Ker ) 279 ITR 51
• Transfer of shares of assessee company – Loss incurred due to

personal settlement between directors of assessee company
and rival factions – Business interest of assessee company not
involved in such sale – Not Business loss
CIT Vs Sharath Investments P. Ltd. (Kar) 317 ITR 294
• Chit loss not allowable as business expenditure since it was not

a part of the business of the assessee.
Soda Silicate and Chemical Works Vs CIT (P&H) 179 ITR 588
• Expenditure on products manufactured and marketed by

subsidiary company not allowable as deduction since no nexus
with assessee's business
Acqua Minerals (P) Ltd. Vs DCIT (ITAT, Ahd) 96 ITD 417
• Furnishing guarantee is not in assessee's line of business

though he is in money-lending business – No consideration
received for giving guarantee – Loss incurred on transaction of
guarantee not allowable as bad debt or business loss.
CIT Vs T.N. Krishnaswami (Mad) 150 ITR 365
Brij Mohan Laxmi Narain Vs CIT (Punj) 36 ITR 147
• Guaranteeing of loan of selling agent was not a part of

assessee's business – No privity of contract between selling
agent and assessee existed – Assessee under no legal obligation
to finance selling agent of its managed company – Guarantee
not in the interest nor in the course of business - Loss arising
out of same is not deductible.
CIT Vs Birla Bros P. Ltd. (SC) 77 ITR 751
• Assessee received sum from its client for investment in

securities – Assessee advanced it to brokers who mis-
BUSINESS INCOME 305
appropriated it – Assessee refunded money to its client – Not

operational loss of assessee
ABN Amro Bank N.V. Vs ADIT ( ITAT , Kol-TM ) 97 ITD 1
• Agreement by assessee company with its directors providing

for payment to each of them @ 1.66% of its total collection for
a period of 25 years – For services rendered by directors, they
were paid salary separately. Hence these payments were not
for the purpose of business – Not allowable as deduction
I.D.O.R.I. (P.) Ltd. Vs DCIT (ITAT, Pune) 112 ITD 149
• Assessee engaged in manufacture of spice extracts – Taking

land on lease and cultivating white chillies to encourage better
farming practices among local farmers – Expenditure incurred
thereon not deductible from business income
Kancor Flavours & Extracts Ltd. Vs DCIT (ITAT, Cochin) 123 ITD 97
• Company – Misappropriation by Director –No material to

show company was unaware of misappropriation or had taken
steps to recover amount - Not allowable as business exp.
Yoosuf Sagar Abdulla & Sons (P) Ltd. Vs CIT (Ker) 185 ITR 371
CIT Vs Ashwani Kumar Liladhar (All) 225 ITR 576
• Embezzlement by employee – Reasonable prospect of

recovery of embezzled amount – Loss cannot be allowed.
Canara Sales Corporation Limited Vs CIT (Kar) 176 ITR 340
North Arcot District Co-op. Supply & Marketing Society Ltd. Vs CIT (Mad) 230
ITR 33
Associated Banking Corporation of India Limited Vs CIT (SC) 56 ITR 1
• Received loan from employee – Employee died – Dispute

between assessee and employee's wife who carried away
books of a/c – Arbitration Assessee repaid that amount and
retrieved books of a/c. – Not allowable deduction since the
payment made was not on account of the fact that she had taken
away assessee's books of account but in terms of the award
which has made to settle the dispute arising out of outstanding
debt
Rao Narain Singh v. CIT (Raj) 250 ITR 838
• A profit making company advances huge amount of money as

subsidy to its loss-making subsidiary – Not allowable as
business expenditure – Even if it had stood guarantor or had

furnished undertaking or assurance to the financial institutions
for securing the loan raised by the sister company, it is not
eligible as business deduction
Hero Cycles Ltd. Vs CIT 2011-TIOL-194-HC-P&H-IT
• Guarantee commission paid to Chairman of company –

Though Chairman stood as a guarantor in his personal
capacity, banks had lent money not on the personal guarantor
but on assets of company which were offered as security –
Further assessee and its group companies borrowed sum of Rs.
115 crores whereas net wealth of Chairman was hardly Rs. 70
lakhs – Guarantee commission paid to chairman is not wholly
and exclusively for the purpose of business of assessee
company
CIT Vs United Breweries Ltd. (Kar) 204 Taxman 244
BUSINESS INCOME 307
Personal expenses
• Legal expenses for purchase of firm incurred by the purchasing
partners Personal expenses – Not deductible
Mangalore Ganesh Beedi Works (Kar) 264 ITR 142
• Expenditure met by company on foreign education expenses of

son of directors – Training undergone by him had nothing to do
with business of assessee and such type of education is very
much available in the country – Expenditure only to earn
personal gain and not for the purpose of business - Not
allowable
Mac Explotec P. Ltd. Vs CIT (Kar) 286 ITR 378
Silicon (India) Ltd. Vs DCIT (Mad) 295 ITR 422
Echjay Forgings Ltd. Vs ACIT (Bom) 328 ITR 286
Enkay (India) Rubber Co. Pvt. Ltd. Vs CIT (Del) 263 ITR 521
• Expenses on education abroad of son (who is also a partner) of

a partner – Not allowable eventhough there is an agreement by
which he has to serve the firm for 5 years
K. Subramaniam Bros Vs CIT (Mad) 250 ITR 769
S.N. Naik Vs ACIT (ITAT, Pune ) 104 ITD 516
• Expenses on foreign tour of wife of director of assessee

company – No evidence to show expenditure incurred for
business – Not deductible in spite of the argument that it will
increase the efficiency of the assessee in attending the business
Harisons Malayalam Ltd. Vs DCIT (ITAT, Coch) 53 TTJ 207
D.B. Madan Vs CIT (Mad) 261 ITR 193
CIT Vs Shahibag Entrepreneurs P. Ltd. (Guj) 215 ITR 810
Eskayef Ltd. Vs DCIT (ITAT, Bang) 71 ITD 419
CIT Vs T.S. Hajee Moosa & Co.(Mad) 153 ITR 422
CIT Vs Bhor Industries P. Ltd. (Bom) 284 ITR 319
• Medical expenses of advisor to company met by company as

decided by Board of Directors – Not deductible as there is
nothing on record to show that the payment was made for the
purpose of facilitating the carrying on of the business of the
company or as a matter of commercial expediency.
CIT Vs TIAM House Service Ltd. (Mad) 243 ITR 695
• Litigation expenses incurred in defending civil litigation

instituted by shareholder for restraining the company from
distributing dividend - Dispute is relating to sharing of profits

and not regarding conduct of business – Legal expenses
incurred is not incidental to business – Not allowable as
deduction.
Buland Sugar Co.Ltd. Vs CIT (Del) 130 ITR 434
• Telephone expenses attributed to personal use of telephone

installed at residence – Not allowed as deduction - Upheld.
P. Navinkumar & Co. Vs ITO (ITAT, Ahd) 62 TTJ 620
• Insurance premium paid on policy taken for Managing

Director to secure against death and accident – No finding that
Managing director had exceptional qualification or was
indispensable to organization – Expenses incurred in assesee's
character as a trader alone is deductible as being for the
purpose of business - Not wholly and exclusively for business
purposes – Not deductible – One must look to the direct
concern and direct purpose for which the money is laid out and
not to the remote or indirect results, which may motivate or
flow from the expenditure
Meattles Ltd. Vs CIT (Del) 68 ITR 79
• Expenses for erecting a gate and statute of founder Director in

Municipal garden – No commercial expediency in incurring
such expenditure and hence not deductible – Even if it is
assumed that it enhances goodwill of the company, then it was
an advantage of enduring nature and not a revenue
expenditure.
Saru Smelting & Refining Corpn. (P) Ltd. Vs CIT (All) 116 ITR 766
• Expenditure on garden maintenance, depreciation on garden

building – Not advertisement – It only improves the image of
assessee – No direct bearing on the business carried on by the
assessee - Not deductible
CIT Vs Jaipur Udyog Ltd. ( Raj ) 272 ITR 349
• Insurance against loss of personal luggage, accident, sickness

etc. of Director – No obligation on the assessee company to
guard against such losses - Insurance premium not business
expenses.
Rajasthan Construction Co.(P) Ltd. Vs CIT (Bom) 148 ITR 61
BUSINESS INCOME 309
• Criminal proceedings against actor in his individual capacity –

Litigation expenditure incurred in defense – Not deductible
DCIT Vs Salman Khan (ITAT, Mum) 8 ITR (Trib) 150 ; 52 DTR 137 ; 130 ITD 81
• Company incurred expenditure in defending its directors and

employees involved in criminal proceedings – the mere fact
that the transaction which has given rise to the prosecution
pertains to the assessee's business is not enough – Assessee has
to establish that the expenditure in question was incurred
purely out of business consideration and not for any other
purposes
Swadeshi Cotton Mills Co. Ltd. Vs CIT (All-FB) 100 ITR 59
• Expenses incurred by assessee company in defending

disciplinary proceedings by shareholders against its auditors
are not allowable as decision of such proceedings, one way or
other, would not have affected assessee's business
CIT Vs Decan Sugar & Abkari Co. Ltd. (Mad) 104 ITR 458
• Heart of a human being is not a plant as it is not appearing as an

asset in his balance sheet and its cost of acquisition cannot be
determined – Heart is not a tool for a lawyer or any such
professional – Further, heart operation expenses are not
incurred wholly and exclusively for the purpose of carrying on
the business or profession
Shanti Bhushan Vs CIT (Del) 336 ITR 26
• Fees paid to chartered accountant for preparing and filing

return of income cannot be considered as an expenditure laid
out wholly and exclusively for the purpose of business and
hence not an allowable deduction
Associated Stone Industries (Kotah) Ltd. Vs CIT (Raj) 123 Taxman 643
• Reimbursement of expenditure towards education, food,

clothing, travelling expenses and tennis training given by
father to assessee during incipiency – Claim of deduction not
sustainable – Such an agreement is unheard of and not entered
into prior to incurring such expenditure – Sham arrangement -
It is the pious and moral obligation of the father to maintain the
son during his minority or till he independently starts earning
CIT(Int.Tax) & Anr. Vs Mahesh Bhupathi (Kar) 43 DTR 163
BUSINESS INCOME 311
Tax payments
• Earned income in foreign country – Tax paid to foreign
Government – Not allowable as deduction while computing
domestic income.
South India Shipping Corporation Vs CIT (Madras) 240 ITR 24
K.E.C. International Vs ITO (ITAT, Mum) 63 ITD 278
DCIT Vs Tata Sons Ltd. (ITAT, Mum) 135 TTJ 1 ; 9 ITR(Trib) 154
• I.T. liability of old firm taken over by assessee – Not deductible

as it is only a personal liability
CIT Vs Hyderabad Race Club (AP) 249 ITR 391
• Company – Surtax not deductible

CIT Vs Motor Industries Co.Ltd. (Kar) 229 ITR 137
• Assessee paying I.T. on behalf of its employees – Assessee

bound to deduct tax at source from salary as it is not tax-free
salary- I.T. paid was claimed as deduction from business – Not
allowable.
Flour and Ford Ltd. Vs CIT (MP) 140 ITR 648
• Assessee, a 100% subsidiary of a Japanese company took

employees of parent company on deputation – Those
employees received salary and perquisites from Japanese
company – Assessee paid them incentives in the form taxes
payable by them in respect of salary earned by them in India –
No agreement for such payment – Not deductible as
expenditure of assessee company
Marubeni India (P.) Ltd. Vs JCIT (ITAT, Del) 101 ITD 437
• Land & building purchased by assessee – Agreement between

vendor & Revenue whereby vendor agreed to pay extra Capital
Gains tax – Assessee voluntarily paying such tax – Not
includible in the cost of asset for depreciation Purpose - Not
deductible as business expenses.
Kumudam Printers P. Ltd. Vs CIT (Mad) 226 ITR 680
• Amount spent in discharging income tax liabilities of business

purchased is capital expenditure
Dashmesh Transport Co. (P) Ltd. Vs CIT (P&H) 125 ITR 681
BUSINESS INCOME 313
Donation / Gifts / Welfare expenses

• Nexus to business to be proved by assessee – Contribution to
Basket Ball Association, Noon meal centers etc. disallowed
Tamil Nadu Minerals Ltd Vs JCIT (ITAT, Chennai) 95 ITD 294
• Amount donated to charitable Trust created by assessee and

utilized for rehabilitation of earthquake victims – mere fact
that indirectly assessee earned goodwill of the victims and the
general public does not imply that the expenditure was
incurred for business purposes - Expenditure not deductible
Malayala Manorama Co. Ltd. Vs CIT (Ker) 284 ITR 69
• Donation to Chief Minister's Relief Fund – No evidence for

benefit to assessee – Not deductible since there is nothing on
record to establish that donation was directly connected with
and related to carrying on of business
CIT Vs Industrial Dev. Corporation of Orissa Ltd. (Ori ) 249 ITR 401
• Grants made by assessee, a PSU, in spite of being in

accordance with objects of Oil Industries (Development) Act,
1974 and in public interest, would not be allowable
expenditure u/s 37 since the same was not incurred wholly and
exclusively for the purpose of business of assessee
Oil Industry Development Board Vs ACIT (ITAT, Del) 123 ITD 67
• Donation to Political Party – Absence of link between donation

& business of assessee – Not deductible
Delhi Cloth & General Mills Co. Ltd. Vs Addl. CIT (Del) 160 ITR 857
• Assessee an advocate claiming deduction on donation made to

Court library building – No direct nexus between donation and
professional income – Deduction not allowable
A.M. Mathur Vs DCIT (ITAT, Indore) 308 ITR (AT) 160
• Expenditure incurred towards promoting 'Pace foundation' for

training budding cricketers – Not incurred for the purpose of
business – Only a charitable activity
MRF Ltd. Vs DCIT 2011-TIOL-250-ITAT-MAD
• Where there was nothing on record to establish that the

donation made by the assessee to the Chief Minister's relief
fund was directly connected with and related to the carrying on

of the assessee's business, the said donation was not allowable
as business expenditure
CIT Vs Industrial Development Corporation of Orissa Ltd. (Ori) 249 ITR 401
• Assessee failed to satisfy that amount donated towards staff

welfare expenditure is in furtherance of its business interest –
Not entitled to deduction – Donation made to the trust was for
securing admission for 2 students every year regardless of
whether they are family members of employees or not.
Indian Hume Pipe Co. Ltd. Vs DCIT (Bom) 311 ITR 146
• Donation to political party by Company – No specific clause in

memorandum and articles of association authorizing such gift
Donation not exempt.
CIT Vs T.V. Sundaram Iyengar & Sons Ltd. (Mad) 238 ITR 666
Macleods Pharmaceuticals Pvt. Ltd. Vs ACIT 2011-TIOL-199-ITAT-MUM
• Gifts on occasion of marriages in the families of business

associates – Not for business purposes - Not deductible.
CIT Vs Jeevandas Laljiee & Sons (Mad) 245 ITR 719
• Pooja Expenses, salary to poojari – It is not a welfare measure

and no way connected with the business of the assessee - Not
business expenses.
Sanghameshwar Coffee Estates Ltd. Vs State of Karnataka (Kar) 160 ITR 203
Hira Ferro Alloys Ltd. Vs DCIT (Chattisgarh) 326 ITR 261
• Assessee had not been able to establish business purpose for

performing poojas throughout the year and constructing
temple in the business premises – Expenses disallowed
ACIT Vs Maharashtra Metal Powers Ltd. (ITAT, Nag) 102 ITD 214
• Payment for Garba festival - Not allowable deduction

ACIT Vs E.I. Dupont India Ltd. (ITAT, Del) 298 ITR (AT) 296
• Difference between market value of shares and the value at

which they were allotted to the employees – Not allowable as
expenditure u/s 37
VIP Industries Ltd. Vs DCIT 2010-TIOL-654-ITAT-MUM
Ranbaxy Laboratories Ltd. Vs Addl. CIT (ITAT, Del) 26 DTR 420 ; 124 TTJ 771
• Compensation paid to widow on death of Chairman of Board of

BUSINESS INCOME 315
Directors Chairman dies during the course of a travel which

had nothing to do with assessee's business – Not an expense
laid out wholly for the purpose of assessee's business
Andrew Yule & Co. Ltd. Vs CIT (Cal) 49 ITR 57
Indian Express (Madurai) (P) Ltd. Vs DCIT (ITAT, Mad) 68 ITD 374
• Pension paid to thee widows of ex-directors on humanitarian

ground is not an allowable expenditure
ITAT Vs B. Hill & Co. (P) Ltd. (All) 142 ITR 185
CIT Vs Amalgamations Ltd. (Mad) 214 ITR 399
• Trust for welfare of dealers and Trustees were given discretion

to spend money – Assessee has no liability to donate money to
trust – No direct and immediate benefit to assessee by payment
of sum to trust – Not deductible.
CIT Vs Dynavision Ltd. (Mad) 265 ITR 289
• Articles distributed to customers (who are members of

assessee association) as sales incentive – Indirect distribution
of profits among members – Expenditure not deductible.
Salem District Lorry Owners Association Vs CIT (Mad) 242 ITR 458
• Company Law Board refusing sanction for remuneration of

Managing Director – Company paid gratuity and retirement
compensation in lieu of remuneration – Not deductible.
CIT Vs N.C. John & Sons Ltd (Ker) 226 ITR 934
Expenditure incurred after cessation of a particular

business
• Cessation of business transactions – Collection of outstanding
dues does not amount to carrying on business – Disallowance
of part of salary to employee justified –Assessee had not taken
steps for recovery of interest from the parties – Assessee
claimed deduction on account of waiver of interest Deduction
claimed disallowed.
P.V. Gajapathy Raju Vs CIT (Mad) 176 ITR 238
CIT Vs Lahore Electric Supply Co. Ltd. (SC) 60 ITR 1
• Expenditure relating to business can be allowed as deduction

only if business was actually carried on at any time during the
previous year – Position will not change even if addition was
made u/s 41(1) during the year on items relating to such
business
Karnataka Instrade Corpn. Ltd. Vs ACIT (ITAT, Bang) 127 ITD 74
• Distillery business run as a separate undertaking and separate

set of accounts maintained – Unit closed in 1997 – Expenditure
including depreciation in distillery business not deductible in
A.Y. 2003-04
Gurdaspur Co-operative Sugar Mills Vs DCIT (ITAT, Amritsar) 3 ITR (Trib) 101
• Assessee carrying on trading in typewriter and servicing of

typewriters – No evidence that both activity formed one single
business – Retrenchment compensation paid on closure of
servicing Department - Not allowable from income of other
business.
India Manufacturers (Madras) P. Ltd. Vs CIT (Mad) 155 ITR 774
Jay Shree Tea & Industries Limited Vs ACIT (ITAT, Cal) 63 ITD 260
Venkatesa Colour Works Vs CIT (Mad) 108 ITR 309
Binani Printers (P) Ltd. Vs CIT (Cal) 143 ITR 338
• If business discontinued or creased to exist, salary paid

subsequently to maintain staff is not deductible
Inderchand Hari Ram Vs CIT (All) 23 ITR 437
BUSINESS INCOME 317
Infraction of Law
• A payment made under a statutory obligation, because the
assessee was in default could not constitute expenditure laid
out for the purpose of assessee's business
Indian Aluminium Co. Ltd. Vs CIT (SC) 79 ITR 514
• Redemption fine paid to Central Excise department for release

of confiscated goods which were confiscated on detecting
suppression of production – Assessee cannot be permitted to
take advantage of violation of a provision of law – Violation of
a statute cannot be made use of in any other proceedings and
no gain can be made out of it - Not allowable
CIT Vs Jayaram Metal Industries (Kar) 286 ITR 403
P. Soman Vs ITO (Ker) 196 Taxman 335
• Penalty and fine in lieu of confiscation of goods levied under

Central Excise Rules for removal of goods without making
entries in the register are not admissible deduction
CIT Vs Rane Brake Linings Ltd. (Mad) 255 ITR 218
CIT Vs Jayaram Metal Industries (Kar) 286 ITR 403
• Penalty levied for FERA violation – Not deductible since

Violation of a statute cannot be made use of in any other
proceedings and no gain can be made out of it.
Maddi Venkataraman and Co. (P) Ltd. Vs CIT (SC) 229 ITR 534
• Redemption fine paid under Customs Act – Not deductible An

expenditure is not deductible unless it is a commercial loss in
trade and a penalty imposed for breach of the law during the
course of trade cannot be described as such. Such penalties
which are incurred by an assessee in proceedings launched
against him for an infraction of the law cannot be called
commercial losses incurred by an assessee in carrying on his
business. Infraction of the law is not a normal incident of
business and, therefore, only such disbursements can be
deducted as are really incidental to the business itself
Haji Aziz & Abdul Shakoor Borthers Vs CIT (SC) 41 ITR 350
Jain Exports (P) Ltd. Vs DCIT (ITAT, Del) 68 ITD 126
CIT Vs Jamiyatrai Rajpal (MP)232 ITR 437
• Business of goldsmith – Loss on account of confiscation of

BUSINESS INCOME 319
Gold by Customs – Not deductible – If a lawful business is

carried on by the assessee and while carrying on the aforesaid
business, the assessee commits infraction of law in smuggling
gold resulting in confiscation of said gold and loss occurs, in
such an event no deduction can be allowed for carrying on a
lawful business. The said loss from an illegal activity cannot be
allowed as a loss in a legal business
Ishwar Das Alias Ishwar Lal Sindhi Vs CIT (All) 244 ITR 146
ITO Vs Laxmi Prasad (ITAT, Pat –TM) 63 ITD 166
Mahendra D. Jain Vs ITO (Bom) 323 ITR 644
Soni Hinduji Kushalji & Co. Vs CIT (AP) 89 ITR 112
Kasturi Lal Dhir Vs ITO (ITAT, Asr) 71 ITD 187
• Assessee committing default in delivering “levy rice” – Loss

due to confiscation of rice – Not deductible as business loss or
expenses since such confiscation is a penalty for breach of law.
Sri Satyanarayana Rice Mill Vs CIT (AP) 155 ITR 676
• Assessee allowed to cut blazes on trees for collecting resin

Penalty levied for putting blazes on trees not allotted to him
Not deductible.
Khushal Eingh Subash Chander Vs CIT (HP) 228 ITR 608
Baldev Singh Kanwar Vs CIT (P&H) 145 CTR 131
• Penalty for delayed payment of Sales Tax – No deduction.

CIT Vs Bharat Steel Tubes Ltd. (Del) 226 ITR 750
• Penalty for contravention of the provisions of Central sales tax

Act – Not deductible
Swadeshi Cotton Mills Co.Ltd. Vs CIT (SC) 233 ITR 199
• Penalty payable for non-payment of sales tax within the

prescribed time is not deductible as business expenditure
u/s 37
CIT Vs Bharat Steel Tubes Ltd. (Del) 226 ITR 750
CIT Vs Bharat Barrel & Drum Mfg. Co. (P) Ltd. (Bom) 182 ITR 21
CIT Vs Rajdevd Kirana Stores (MP) 181 ITR 285
• Failure to file Sales tax return – Payment made is penal in

nature and hence not deductible
Malwa Vanaspati & Chemical Co. Vs CIT (SC) 225 ITR 383
• Fines and Penalties – Damages for late payment of Provident

Fund – Levy u/s 14B of EPF Act - Not deductible since it is

penal in nature as held by the apex court in Organics Chemical
Industries AIR 1979 SC 1803
CIT Vs A. Albuquerque and Sons (Kar) 198 ITR 609
Hasimara Industries Ltd. Vs CIT (Cal) 200 ITR 659
Rohtak Textile Mills Ltd. Vs CIT (Del) 226 ITR 485
CIT Vs Bharath Plywood & Timber Products (P) Ltd. (Ker) 233 ITR 315
• Fines and penalties paid for traffic offences by the assessee

company's truck drivers being penalty for infringement of
law,could not be allowed as deduction.
CIT Vs Jaipur Golden Transport (Del) 226 ITR 399
• Expenses incurred in giving bribe not deductible even if

business run by the assessee was illegal.
CIT Vs Sauser Liquor Traders (MP) 222 ITR 33
• Regularization / Compounding fee paid for violation of

building construction is an amount paid for compounding of an
offence – Penal in nature and hence not deductible – The fact
that it is termed as 'compounding fee' cannot alter the character
of payment
CIT Vs Mamta Enterprise (Kar) 266 ITR 356
Millennia Developers P. Ltd. Vs DCIT (Kar) 322 ITR 401
• Construction business – Penalty levied for exaggerated

measurement – To be disallowed since it was not levied for
breach of contract
Tam Tam Pedda Guruva Reddy Vs JCIT (Kar) 291 ITR 44
• Amount of penalty imposed by Municipal Corporation for

default in payment of municipal taxes is not deductible
CIT Vs Dhanraj Mills (P) Ltd. (Bom) 209 ITR 851
• Amount paid to drop pending prosecution proceedings by Anti

Corruption Unit - Not deductible.
J.K. Cotton Spinning & Weaving Mills Co.Ltd. Vs CIT (All) 64 ITR 444
• Tips allegedly paid to RTO staff and policemen by assessee

operating transport vehicles – Expenditure not verifiable since
it is illegal payment.
Gwalior Road Lines Vs CIT (MP) 234 ITR 230
BUSINESS INCOME 321
• Protection money paid to terrorists - Payment against public

policy – Not deductible
Ralson (India) Ltd. Vs DCIT (ITAT, Del) 60 TTJ 451
Balarghat Trnasport Co. Ltd. Vs ACIT (ITAT, Cal) 63 TTJ 302
• Assessee, a Customs House agent was issuing untrue or bogus

out agency receipts so as to enable its client to raise loan from
the bank – When the recovery proceedings were initiated by
the bank, assessee readily agreed to make the payment – Such
amount was claimed as deduction on the reasoning that
payment was made to avoid adverse publicity and thus
commercial expediency is involved – Assessee not entitled to
deduction u/s 37 in respect of such liability being against
public policy as assessee was also habitually conniving with its
client to cheat the bank by giving bogus out agency receipts
Jhai Narain Trades Vs DCIT (ITAT, Cochin) 63 TTJ 318
• Payments to employees and agents for procuring Govt. supply

orders – Not allowable u/s 37(1) as it is against public policy –
Assessee supplied material directly to Govt. department – No
evidence to prove that services were rendered by agent or
employee in procuring supply orders
JCIT Vs Tablets (India) Ltd. (ITAT, Chennai) 8 SOT 1
• Payments to police personnel and rowdies to ensure security of

business premises – Payments not legal and hence not
deductible
CIT Vs Neelavathi (Kar) 322 ITR 643
CIT Vs M.N. Swaminathan (Kar) 198 Taxman (Mag) 140
• Contribution made to traffic police towards traffic regulation is

not wholly for the purpose of business of assessee – Not
deductible u/s 37 since it can only be treated as donation
CIT & Anr. Vs Infosys Technologies Ltd. (Kar) 65 DTR 353
• Excise contractor - Raid expenses incurred is not allowable

CIT Vs A.J. Shetty & Co. P. Ltd,. (Kar) 255 ITR 180
• Commission paid to Govt. doctors for prescribing assessee's

medicines to patients – Contravenes public policy and is an
offence punishable under Prevention of Corruption Act –
Cannot be treated as expenditure incurred for purpose of
business or profession
CIT Vs Pt. Vishwanath Sharma (All) 316 ITR 419
• Provision requiring banks to maintain certain percentage of

assets and file returns thereof – Since there was shortfall, penal
interest was levied u/s 24 of Banking Regulation Act – such
payment is not compensatory and it is penal in nature – Not
deductible
ANZ Grindlays Bank Vs DCIT (ITAT, Del) 88 ITD 53
• Certain goods given to depositors at the time of accepting

deposits – Such schemes are prohibited by law – Cost of such
goods not deductible
CIT Vs Manjit Singh Sachdev (Kar) 285 ITR 359
• Amount paid to managing agents in excess of what was

permissible u/s 348 r.w.s.349 of the Companies Act Infraction
of sec. 349 of Companies Act – IT authorities are not to close
their eyes to infraction of other laws – The fact that business
often violate the law does not entitle the assessee to claim the
expenditure incurred or the payment made by violating the
applicable law as deductible expenditure – IT Act is an
enactment which is to be enforced along with other laws – Not
entitled to deduction
CIT Vs India Cements Limited (Mad) 241 ITR 62
• Payment of secret commission for procuring contract – It is an

illegal gratification made to the directors of the company
which awarded the contract to the assessee – It is a scheme
adopted to siphon out the money belonging to the company
Even if it is not an offence, it is immoral and expenditure
incurred on such immoral acts cannot be construed as
expenditure incurred for the purpose of business and the
benefit of deduction cannot be extended to such expenditure
J.K. Panthaki & Co. Vs ITO (Kar0 64 DTR 283
BUSINESS INCOME 323
Expenses not proved by assessee

• In order to claim that an expenditure falls u/s 37(1), the burden
of proving the necessary facts in that connection is on the
assessee
CIT Vs Calcutta Agency Ltd. (SC) 19 ITR 191
Lakshimaratan Cotton Mills Co. Ltd. Vs CIT (SC) 73 ITR 634
• Mere production of vouchers in support of the claim for

deduction of the expenditure would not prove the claim made
by the assessee. It is his duty to prove payment especially when
the ITO doubts the genuineness thereof
CIT Vs Chandravilas Hotel (Guj) 164 ITR 102
CIT Vs Modi Stone Ltd. (Del) 203 Taxman 123
• The broad proposition that once there is tax audit u/s 44AB, the
ITO should not insist upon production of records or vouchers
or details cannot be laid down
Goodyear India Ltd. Vs CIT (Del) 246 ITR 116
• Deduction claimed in respect of presentation articles and other

trade Commission paid to agents – No evidence to prove
commission agents rendered services to assessee – Deduction
cannot be allowed
CIT Vs McDowell and Co. Ltd. (Kar) 291 ITR 107
• Litigation expenses – Burden on assessee to substantiate

factum of expenditure and also its permissibility.
Annamma Alexander Vs CIT (Ker) 176 ITR 229
CIT Vs S. Devraj (Mad) 73 ITR 1
• No details of services rendered by selling agent – No

confirmation of any arrangement between parties – No
longstanding relationship between assessee and selling agent
Commission payments disallowed.
Schneider Electric India Ltd. Vs CIT (Del) 304 ITR 360
• Assessee firm paying commission to another firm – Partners of

both the firms same – No evidence regarding any other service
rendered by firm except to assessee – Creation of firm is a
device for siphoning off profits of assessee in the form of
commission, marketing and sales promotion expenses – Claim
BUSINESS INCOME 325
disallowed.
Onam Agarbathi Co. Vs DCIT (Kar) 310 ITR 56
• Labour charges – Onus on assessee to identify parties along

with evidence of payment
CIT Vs S.G. Exports (P&H) 336 ITR 2
• Amount paid for corporate services to company in the same

group – No evidence for rendering of actual services –
Disallowance of 50% claim justified
MIL Controls Ltd. Vs CIT (Ker) 340 ITR 190
Liability only contingent – Not deductible

• Contingent liabilities do not constitute expenditure and cannot
be the subject mater of deduction even under the mercantile
system of accounting – Expenditure which is deductible for
income-tax purposes is towards a liability actually existing at
the time but setting apart money which might become
expenditure on the happening of an event is not expenditure
Shree Sajjan Mills Ltd. Vs CIT (SC) 156 ITR 585
Indian Molasses Co. (P.) Ltd. Vs CIT (SC) 37 ITR 66
• State Government Transport undertaking – Amounts

contributed to statutory insurance fund for making payments
to third party - Provision was to meet a contingent liability
The fact that assessee for fulfilling a statutory obligation
imposed on it by the Motor Vehicles Act created the fund and
contributed the amount which is payable on the happening of
an event, would not entitle the assessee to ask for deduction of
the amount contributed to the fund as admissible revenue
expenditure. The amount appropriated to the contingent
reserve, which was set apart to meet the possible exigencies is
not a provision for known existing liabilities and therefore it is
not deductible as business expenditure
CIT Vs Pallavan Transport Corporation Limited (Mad) 230 ITR 288
CIT Vs Kattabomman Transport Corporation Ltd. (Mad) 324 ITR 71
• Putting aside of money in “Annuity Schemes” which may

become expenditure on the happening of an event, is not
expenditure – It is only contingent liability – Not deductible –
Expenditure which is deductible for income tax purposes is
one which is towards a liability actually existing at the time,
but the putting aside of money which may become expenditure
on the happening of an event is not expenditure
Indian Molasses Co. (Pvt.) Ltd. Vs CIT (SC) 37 ITR 66
• Contribution made to Contingency Reserve created under

Electricity (Supply) Act – Assessee has control over such funds
and can be used to its benefits ie. meet expenses arising due to
certain contingencies Contingent liability
Kumbakonam Rural Electric Co-operative Society Ltd. Vs JCIT (ITAT, Chennai)
101 ITD 46
BUSINESS INCOME 327
• Land taken by assessee from Government – Estimated interest

on cost of land is a contingent liability – Not deductible
Tamil Nadu Small Industries Dev. Corpn. Ltd. Vs CIT (Mad) 242 ITR 122
• Provision for payment of retrenchment compensation is in the

nature of doubtful contingent liability – Not allowable
Retrenchment depends on the volition of the employer dictated
by reasons of economy, convenience as well as bonafides and
cannot ordinarily be assumed to take place or be given effect to
in any business establishment in any given year. Thus,
retrenchment in a business establishment may or may not take
place and in that sense, it would be a doubtful and uncertain
future event.
Chandamama Publications Vs CIT (Mad) 176 ITR 321
• Show-cause notice received from Excise Department

regarding payment of Excise Duty and no demand notice
received – Assessee denying liability – No provision made in
its accounts – Not deductible.
Indian Smelting & Refining Co. Ltd. Vs CIT (SC) 248 ITR 4
• Assessee agreed with the manufacturer to pay excised duty

Not statutory liability of assessee since manufacturer has to
pay as per the statute and it is only a contractual liability in the
hands of the assessee – Provision made towards differential
excise duty is contingent liability only since it arises only if the
manufacturer is liable to pay such duty and he in turn demands
it from assessee
Peico Electronics and Electricals Ltd. Vs CIT (Cal) 201 ITR 477
• Order of High Court levying interest on excess realization from

levy sugar Appeal pending before Supreme Court against such
order – Liability to pay interest is contingent in nature – Not
deductible
Triveni Engineering & Industries Ltd. Vs CIT (Del) 320 ITR 430
• Assessee need not have to pay sales tax as sales are made to
registered dealers against declaration forms – Such declaration
forms to be filed at the time of assessment which is much after
the sales - Assessee made provision towards Sales Tax liability
for non-receipt of declaration forms Contingent liability only
since whether assessee will be able to produce such declaration
forms at the time of assessment which happens much later, is

not certain.
Hiundustan Lever Ltd. Vs IAC (ITAT, Bom) 58 ITD 555
• Voluntary Retirement Scheme of assessee company

According to this, Part- I of payment to be made before end of
accounting year and Part-II ten months after date of retirement
if the employee has not taken up any employment with a
similar concern – Part-II liabilities, though determined, is only
a contingent liability since liability will not accrue unless all
these events have taken place
DCIT Vs Associated Capsules (P) Ltd. (ITAT, Mum) 71 ITD 20
• No accrual of liability in this year – Only estimate made -

Contingent liability. If the liability is contingent then it would
amount to allowing the apprehended losses in future from the
profits of the current year which is not accepted on any
principle of law or accountancy
Rajasthan State Mines and Minerals Ltd. Vs CIT (Raj) 208 ITR 1010
T.N. Small Industries Dev. Corpn. Vs CIT (Mad) 242 ITR 122
• Assessee committing breach of contract – Matter referred to

arbitration and award passed – Liability to pay damages
accrued only on passing of award and not on date of breach of
contract – Debt becomes due only on passing of the award.
Asuma Cashew Company Vs CIT (Ker) 182 ITR 175
CIT Vs Grand Cashew Corporation (Ker) 182 ITR 216
CIT Vs Ganesh Stores (MP) 162 ITR 493
CIT Vs Roberts McLean & Co. Ltd. (Cal) 111 ITR 489
• Dispute regarding contractual liability – Only contingent

liability since liability arises only when the dispute is settled or
finally adjudicated
Alembic Chemical Works Ltd. Vs DCIT (Guj) 266 ITR 47
ITO Vs Sicgil India Pvt. Ltd. (ITAT, Chennai-TM) 1 ITR (Trib) 749
• As per an agreement between assessee and manufacturer,

assessee took over the liability towards excise duty claims in
future - Demand raised subsequently by the Excise
Department from the third party manufacturer Demand not
accepted and appeal pending – Not deductible since liability
did not crystallize
Cadbury India Ltd. Vs JCIT 2010-TIOL-658-ITAT-MUM
BUSINESS INCOME 329
• Assessee providing portfolio management services – Loss

occurred to a client on account of embezzlement by an
employee of assessee – Assessee made provision in its
accounts towards such losses – It is only a contingent liability
until the client asks assessee to pay the amount embezzled.
Birla Sunlife Asset Management Co. Vs DCIT (ITAT, Mum) 128 ITD 64
• Under a contributory scheme assessee had liability to

contribute to expenditure for marriage of daughters of
employees – Since such an occasion may happen in future
without any certainty, it is only a Contingent liability
Elgin Mills Co. Ltd. Vs CIT (All) 288 ITR 85
• Assessee engaged in mining of clay – As per the agreement

with landowners, assessee to compensate them if land is not fit
for agriculture when mining is over - Created provision under
the head 'premium for land excavation' and claimed it as
deduction – Since mining is not over, such claim is not
allowable during the year
CIT Vs Alpha Clays (Ker) 198 Taxman (Mag) 170
• Damages for breach of contract – Contract providing for

arbitration – damages were unliquidated in the accounting year
– Not deductible till the quantum is fixed in arbitration
N. Sundareswaran Vs CIT (Ker) 226 ITR 142
CIT Vs Bharat Fire Bricks & Pottery Works (P) Ltd. (Cal) 202 ITR 821
Navjivan Roller Flour & Pulse Mills Ltd. Vs DCIT (ITAT, Ahd) 73 ITD 265
• Disputed liability for additional ground rent – Contractual

nature – Deductible in the year of settlement of dispute.
CIT Vs Purushotham Gokuldas (Ker) 237 ITR 115
• Option was given to redeem debenture into equity shares after

six months on payment of premium – Assessee made
'provision for premium on debenture' and claimed loss – Since
event of redemption had not occurred during the previous year,
there was not crystallization of liability
Mahindra Intertrade Ltd. Vs DCIT (ITAT, Mum) 133 ITD 597
BUSINESS INCOME 331
When Liability Accrue ?

• Mercantile system – liability of custom duty accrued in the year
of import – Entries in books of account and date of demand
notice not relevant.
CIT Vs Century Enka Ltd. (Cal) 239 ITR 804
• Mercantile System – Sales Tax liability accrues in the year of

making sales.
Haji Lal Mohd. Biri Works Vs CIT (SC) 224 ITR 591
• Sales Tax – Charge to tax arises in the year of sale / transfer

Additional liability to Sales Tax arises in the year in which
assessment made and demand raised – In Mercantile System of
accounting, liability can be claimed only in the above
mentioned manner
Avery India Ltd. Vs CIT (Cal) 199 ITR 745
• Even though statutory liability to pay market fee arose in A.Y.

80-81 when Government passed ordinance, it became real and
enforceable only in A.Y. 83-84 i.e., when collector demanded it
Hence deductible in A.Y. 83-84 only.
CIT Vs Padmavati Raje Cotton Mills Ltd. (Cal) 203 ITR 375
• Mercantile system – Penalty imposed in A.Y. 79-80 for

infraction of Customs Act and assessee paid the same – Order
of penalty set-aside in 1982 – It “relates back” to date of
levying penalty – Penalty stood wiped out in A.Y. 79-80 itself
Deduction not allowable in A.Y. 79-80.
Assam Roller Flour Mills Vs CIT (Raj) 227 ITR 43
• Mercantile system - Claimed Sales Tax liability on turnover

though not debited to P&L a/c nor charged from customers nor
paid to Government – Not allowable.
CIT Vs Assam Roller Flour Mills (Raj) 226 ITR 876
• During accounting year 69-70 relevant to A.Y. 70-71 an

ordinance has been issued which made it obligatory for
employers to set aside certain amount for payment as gratuity
for its employees – Assessee, instead of debiting said liability
relating to A.Y. 70-71 and earlier years in AY 70-71, debited
the same in AY 71-72 – Not allowable.

K.J. Francis Vs CIT (SC) 236 ITR 308
• Mercantile system – Liability to electricity tariff though

obligatory by contract, is a statutory liability accruing
simultaneously with the taxable event, even though the
assessee might dispute the liability – Since assessee did not
make provisions for stayed portion in respective years, not
deductible in the subsequent year.
Sarvaraya Textiles Ltd Vs DCIT (ITAT, Hyd) 54 ITD 542
Hukumchand Jute & Industries Ltd. Vs CIT (Cal.) 241 ITR 517
Delhi Tourism & T.D.C. Ltd. Vs CIT (Del) 285 ITR 114
• Electricity Company – Mercantile system – Statutory

“consumers rebate reserve fund” not created and liability
disputed – Dispute settled in F.Y. 72-73 and reserve created for
that year and earlier years – Reserve created in a subsequent
year in respect of / for earlier years not deductible since
liability is statutory and it accrues in the F.Y. in which
electricity was consumed
South Madras Electric Supply Corporation Ltd. Vs CIT (Mad) 240 ITR 503.
• Amount paid for acquisition of technical know-how

Collaboration agreement subject to approval by Government
of India – No liability accrues till date of approval of
agreement.
CIT Vs John Fowler (India) Ltd. (Bom) 239 ITR 312
• Payment under collaboration agreement (which is subject to

Government approval) – Payment pertaining to the period for
which Government approved, is only deductible.
Dorr-Oliver (India) Ltd. Vs CIT (Bom) 234 ITR 723
• Mercantile System – Assessee cannot claim deduction of

payment for technical know-how where the liability had
accrued in an earlier year Cash system cannot be followed for
one transaction alone – Provisions of FERA has nothing to do
with accrual of liability which arose under the terms of contract
with the foreign contractor.
CIT Vs Super Scientific Clock Co. (Guj) 238 ITR 731
• Mercantile – Accrual of liability – Time of accrual – Amount

BUSINESS INCOME 333
payable as commission to non-resident as per an agreement

Such agreement did not require approval of RBI and only
remittance abroad required permission of RBI – What was
deferred is discharge of liability and not accrual of liability -
Liability accrued as per the agreement
Bhai Sunder Dass & Sons Co. P. Ltd. Vs CIT (Del) 259 ITR 33
• Mercantile system – Liability for damages arising in F.Y.

1989-90 Proceedings against liability pending – Not relevant
Amount not deductible in subsequent year
CIT Vs Southern Cables and Engineering Works (Ker) 289 ITR 167
• As per agreement, sales commission is payable only on

realization of full price – Even if assessee follows mercantile
system, it is not allowable in the year of sale and only in the
year of realization of full price.
Concord Controls Vs ITO (ITAT, Del) 57 TTJ 143
• Loss by theft in 1987 – Insurance claim rejected in Feb., '90 –

Loss allowable in AY 90-91
Gulati Saree Centre Vs ACIT (ITAT,SB-Chd) 71 ITD 73
• Mercantile – Provision for reduction in contract price by ½%

per week of delay, as per contract terms – No demand made
against assessee by the contractee – No determination of
damages by any adjudicatory forum Mere entries in books as
compensation payable – Not an accrued liability.
CIT Vs Seshasayee Industries Ltd. (Mad) 242 ITR 691
• Mercantile system – Contractual liability – Liability accrues on

the date when arbitrator's award was made rule of Court and
not on the date when arbitrator passed the award
National Agricultural Co-operative Marketing Federation of India Ltd. Vs CIT
(Del) 338 ITR 36
• Mercantile system – Liability for increase in rates and royalty

in relation to gas supply – Higher price demanded by supplier
got finally upheld by Supreme Court – Liability accrued during
the year when supply of gas was received – Deduction
allowable in respective years.
DCIT vs Jayant Paper Mills Ltd. (ITAT, Ahmedabad) 41 ITD 153
• High Court enhancing rate of interest payable during 21.2.43 to

21.2.63 vide order dated 5.9.72 – Extra interest accrued only in
AY 73-74
RSH Verma and M. Kanhaiyalal Vs CIT (MP) 234 ITR 702
• Proper method of deduction of debenture premium payable at

the end period of debenture is pro rata method i.e., by
spreading extra premium over all years occupied between date
of issue and redemption.
Madras Industrial Investment Corpn. Ltd. Vs CIT (SC) 225 ITR 802
• Chit fund company – Mercantile system – Prized subscriber

Net dividend or loss to be reckoned in the year of auction
Bilahari Investments P. Ltd. (Mad) 288 ITR 39
• Time of accrual of liability – Difference between pooled price

and retention price payable to Government – Assessee
contesting liability for A.Y. 1981-82 – Demand stayed by order
of Court – No accrual of liability – Not deductible in A.Y.
1981-82
Synbiotics Ltd. Vs CIT (Guj) 288 ITR 572
• Assessee paid certain amount of bottling fee pertaining to

earlier years on account of High Court judgement – During
pendency of appeal against this decision, claimed deduction –
Disallowed since liability not finally settled
Udaipur Distillery Co. Ltd. Vs JCIT (ITAT, Jodh) 100 ITD 422
• Project Completion Method – Interest identifiable with a

project be allowed only when that project is completed and
income offered for tax
Wall Street Constructions Ltd. & Anr. Vs JCIT (ITAT,SB-Mum) 101 ITD 156
• Assessee stood as guarantor for loans taken by subsidiary

company – Subsidiary company going into liquidation – Loss
deductible in the year in which final payment was received
from liquidator.
CIT Vs Amalgamations P. Ltd. (SC) 226 ITR 188
• In respect of debentures issued with a right of repurchase,

liability for payment of premium accrues at the time of
payment only – In respect of debentures redeemable after
BUSINESS INCOME 335
expiry of 7 years, liability for payment of premium was

incurred in the year of allotment and discounted value thereof
is deductible.
Mahindra & Mahindra Ltd. Vs DCIT (ITAT, Mumbai-TM) 61 ITD 129
• Expenses on acquisition of distribution rights of feature film

Original agreement in 1974 for acquisition of right
Modification of agreement in 1978 for sharing overflow
profits for unexpired period of contract – Payment of lump
sum advance – Not entirely deductible in that year – Amortize
over the period of contract.
CIT Vs Prakash Pictures (Bom) 260 ITR 456
• Embezzlement – Loss must be deemed to have occurred when

embezzlement was discovered.
CIT Vs Shree Shew Shakti Mills (P) Ltd. (Cal) 239 ITR 129
• Liability for compensation did not accrue on the closing date of

the accounting year - Amount paid subsequent to that date but
before finalization of the balance sheet - Not deductible
expenditure as liability did not accrue during the accounting
year - Assessee argued that as per AS-4, all liabilities accruing
till the date of approval of balance sheet to be provided in
accounts - Argument not maintainable to compute taxable
income as per I.T. Act.
M.S. Raju Vs DCIT (AP) 298 ITR 373
• Mercantile system – Lease agreement requiring lessee to make

payment in March preceding financial year in which asset is to
be used – Amounts to pre-paid expenses – Not deductible since
no liability accrued during the year
DCIT Vs FAG Bearings India Ltd. (ITAT,SB-Ahd) 115 ITD 53
• Prior period expenses – Not eligible for deduction. Each year is

a self-contained period in regard to which profit or loss to be
computed. Where the accounts are kept on mercantile basis,
allowance must be granted in the year in which the liability is
incurred, irrespective of the question whether the
disbursement has been made or not.
Madras Fertilizers Ltd. Vs CIT (Mad) 209 ITR 174
• Amount paid to franchisees under incentive scheme

Communicated to them on 04-04-01 ie. after close of

accounting year – Amount not deductible in F.Y. 2000-01
Yum! Restaurants (India) P. Ltd. Vs CIT (Del) 327 ITR 150
• Reduction in selling price of LPG cylinder with retrospective

effect – Corresponding loss can be claimed only when the
purchasers issued debit note and other documents and
recovered the amount
CIT Vs Alampally Brothers Ltd. (Ker) 50 DTR 325
• Amount relating to transactions of earlier years not deductible

as trading loss of current year
CIT Vs Popular Vehicles & Services Ltd. (Ker) 326 ITR 387
BUSINESS INCOME 337
EXPENSES ON WHICH TAX NOT DEDUCTED

[sec. 40a(i) & (ia)]
[ Also see decisions under the heads “Accrual of income” under
Int. Tax. as well as “Tax Deduction at Source” ]
• Interest, royalty, fees for technical services or other sum
chargeable under I.T. Act
• which is payable outside India or in India to a non-
resident not being a company or to a foreign company
• on which tax is deductible at source under Chapter
XVII-B
• such tax not deducted, or
• after deduction not paid during the previous year
or in the subsequent year before expiry of time
prescribed u/s 201(1)
• Interest, commission or brokerage, fee for professional

services or fees for technical services or amounts payable to
a contractor or sub-contractor for carrying out any work
including supply of labour, [rent and royalty added w.e.f.
01-04-2006]
• Payable to a resident
• on which tax is deductible at source under Chapter
XVII-B
• such tax not deducted, or
• after deduction not paid during the previous year
• in cases where tax was deductible and deducted
during the last month of previous year, time granted for
payment of TDS upto the due date specified u/s 139(1)
• w.e.f. 01-04-2010, time limit for payment was
granted upto the due date specified u/s 139(1) for all cases
Such amounts will not be allowed as deduction in computation of

profits and gains of business or profession. But it will be allowed
as deduction in the year of TDS payment.
• Services of installation etc. being rendered by non-resident

sub-contractors to the assessee at Indian sites on a continuing
basis in connection with a telecom project in India lasting for
about 5 years were technical services - Fee for technical
services paid to non-resident without deduction of tax at source
and without making application u/s 195(2) - Sec. 40(a)(i)

applies – Disallowance upheld
HNS India VSAT INC Vs DDIT (ITAT, Del) 95 ITD 157
• Sec. 40(a)(i) covers both revenue expenditure and capital

expenditure – provisions of sec. 40 are in the nature of
overriding provisions – It starts with the words
“notwithstanding anything contrary in sections 30 to 38”,
which shows that even if an expenditure or allowance comes
within the purview in all the sections from 30 to 38 as well as
sec. 40, the provisions of sec. 40 will prevail.
SPACO Carburettors (I) Ltd. Vs ACIT (ITAT, Mum) 3 SOT 798
V Kay Translines (P) Ltd. Vs ITO 2011-TIOL-318-ITAT-MUM
• Short deduction of tax - Assessee while making payment to

non-resident, deducted tax at source on 10% gross payments
by applying sec. 44BB on the ground that said 10% was the
profits and gains of non-resident – As per , assessee was liable
to deduct tax at 30% plus surcharge on gross amount and hence
he allowed credit for the proportionate amount of taxes
deducted and disallowed the balance payment u/s 40(a)(i)
Non-resident payee having not filed any return, consideration
of applicability of sec. 44BB was out of question in the appeal
filed by the assessee - Assessee cannot decide tax liability of its
customer – Sec. 40(a)(i) applies for such payments – Argument
of assessee that sec. 40(a)(i) shall not apply in case of short
deduction of tax, is not tenable – Once it is shown that tax has
not been deducted in accordance with the provisions of
Chapter XVII-B, the burden is on the assessee to show that
either tax has been deducted or assessee was not required to do
so – If assessee feels that a particular portion alone is taxable,
assessee cannot decide so and it has to approach the tax
authorities u/s 195(2)
Frontier Offshore Exploration (India) Ltd. Vs DCIT (ITAT, Chennai) 118 ITD 494
• Demurrage paid by Indian company to foreign company

without TDS – Sec. 172 not applicable – Disallowance u/s
40(a)(i) upheld
CIT Vs Orient (Goa) P. Ltd. (Bom) 325 ITR 554
• Interest paid to foreign banker without deducting tax at source

Sec. 40(a)(i) applies – Disallowance upheld in the absence of
BUSINESS INCOME 339
any material to indicate as to whether the interest has been paid

by the assessee-importer to the foreign banker for the amount
due to the foreign seller or as to whether the usance bills or
hundis are negotiated or discounted by the foreign supplier.
CIT Vs C.C.C. Holdings (Mad) 260 ITR 433
• Assessee made payments to contractor for civil work including

labour charges and materials under a composite contract for
repairs – Tax not deducted towards cost of materials – Assessee
cannot artificially split contracts - Sec. 40(a)(ia) invoked
ACIT Vs Grandprix Fab (P) Ltd. (ITAT, Del) 34 DTR 248
• When assessee did not make TDS, disallowance u/s 40(a)(ia)

to be made on the whole payments relating to the eligible
transaction during the year and not on the amount payable as
on the last day of the F.Y. alone
Marc Signage Vs ITO 2010-TIOL-778-ITAT-KOL
Matrix Glass & Structures Pvt. Ltd. Vs ITO 2011-TIOL-181-ITAT-KOL
• Providing of services of carrying of passengers by vehicles is

deemed as work u/s 194C - Assessee took vehicle contract and
from the receipts on such contract, a part was paid to vehicle
owners – Assessee claimed that overriding title exists and
hence deductible u/s 28(i) and not under sec. 37 Claim
rejected
Mukesh Travels Co. Vs ITO 2011-TIOL-249-ITAT-AHM
• Sec. 40(a)(ia) fixes responsibility on the assessee claiming

deduction of expenses to make TDS – If some one else made
TDS on payments made on behalf of assessee, it will not
exonerate assessee from the liability to make TDS and remit it
to Government
Torque Pharmaceuticals Pvt. Ltd. Vs Addl. CIT 2011-TIOL-577-ITAT-CHD
• Upto 01-04-2010 assessee deducting tax at source during the

first 11 months of the previous year and paying it before close
of the previous year was a requirement for grant of deduction
in the year of incurring such expenditure – Amendment made
w.e.f. 01-04-2010 allowing the assessee to make such
payments before the due date of filing such return is
prospective only and does not apply to A.Y. prior to 2010-11
Bharati Shipyard Ltd. Vs DCIT (ITAT, SB-Mum) 11 ITR (Trib) 599 ; 132 ITD 53
• Assessee cannot withhold the deposit of TDS in the garb of

claiming excess deposit of TDS made in an earlier year – Sec.
40(a)(ia) apply in case of non-deposit of TDS under such
circumstances – Assessee to make separate claim for refund of
excess deposit of TDS for the earlier year
HCC Pati Joint Venture Vs ACIT 2011-TIOL-308-ITAT-MUM
• Payment of tax due by the payee would exonerate the assessee

from being treated as 'assessee in default' u/s 201 but would not
obliterate the other statutory consequences for non-deduction
of tax at source including disallowance u/s 40(a)(ia)
Provisions of sec. 40(a)(ia) are attracted when the assessee
fails to deduct tax at source under Chapter XIV-B or pay such
tax to the exchequer within the stipulated period
Maharashtra State Electricity Distribution Co. Ltd. Vs ACIT 2011-TIOL-722-
ITAT-MUM
BUSINESS INCOME 341
PAYMENT BY FIRM TO PARTNERS OR BY

AOP / BOI TO ITS MEMEBRS [sec. 40(b)]
• Salary, bonus, commission or remuneration paid to a non-
working partner
• Remuneration to working partner or interest to any

partner not authorized by or in accordance with the
partnership deed
• Interest payable- maximum limit 12% p.a. simple interest
• Remuneration payable – maximum limit prescribed in sec.

40(b)(v)
• Interest, salary, bonus, commission or remuneration by

AOP/BOI to members [sec. 40(ba)]
• Firm declared income under the heads “House Property” and

“Other Sources” – Hence interest paid to partners is not
deductible u/s 40(b)(iv) as such deduction is allowable only
while computing business income – Amount contributed by
partners as capital of firm cannot be treated as borrowings by
firm and hence interest on capital cannot be allowed as
deduction u/s 24(b) while computing income from House
property
Mata Vaishno Estates Vs ITO 2011-TIOL-647-ITAT-DEL
• Partnership deed did not specify the quantum of salary payable

to partners or the method of computing the same – It only fixed
the upper limit of salary payable to partners – Requirement of
sec. 40(b)(v) not satisfied – Salary paid to partners not
deductible while computing the taxable income
Sood Brij & Associates Vs CIT (Del) 203 Taxman 188
Sri Balaji Agencies Vs ITO (ITAT, Chennai) 106 ITD 419
• Partnership deed did not specify the quantum of salary and

interest on capital payable to partners or the method of
computing the same – It was left to the discretion of the
partners at the end of the F.Y. – Requirement of sec. 40(b)(v)
not satisfied – Salary and interest paid to partners not

deductible while computing the taxable income
Sood Bhandari & Co. & Ors. Vs CBDT (P&H) 64 DTR 338
• Interest paid to partners u/s 40(b) – Partners withdrawing

amounts during the year but interest was calculated on the
whole capital amount – Not justified - Calculate interest by
Reducing Balance method – Contention of assessee that
amounts withdrawn were out of profits could not be accepted
as no profits / interest accrue from day-to-day nor was there
any such stipulation in the partnership deed
Architectural Associates Vs ACIT (ITAT, Hyd) 92 ITD 479
• Firm used liquor license in the name of partner without getting

permission from Excise Department – Illegal act since this is
violative of provisions of Abkari Act – No valid partnership
exists and it has to be assessed as AOP – No deduction towards
remuneration paid to partners allowable – Even after
amendment of sec. 184 and 185 by Finance Act 1992,
Assessing Officer has power to enquire into legality of firm
DCIT Vs Cochin Residency (ITAT, Cochin) 50 DTR 275
CIT Vs Swarna Bar Restaurant (AP) 334 ITR 387
A.C.Chenna Reddy (Firm) Vs DCIT (ITAT, Mum) 61 DTR 292
• Where assessment is made u/s 144, Firm is to be treated as AOP

in view of sec. 184(5) – Not entitled to deduction towards
payment of salary, bonus, commission, interest etc. to partners
Rama Boiled Modern Rice Mill Vs ITO (ITAT, Hyd) 97 ITD 379
Radha Picture palace Vs DCIT (Ker) 196 Taxman 534
Mubarak Trading Company Vs CIT (Ker) 19 DTR 133 ; 174 Taxman 339
• A deity cannot be a partner of a valid partnership firm – No

interest and remuneration can be allowed to partners of such
an invalid partnership
Ramakrishna Chit Fund Co. Vs ITO (ITAT, Hyd) 106 ITD 350
• Amount paid to member of AOP for services rendered, is not

deductible while computing taxable income
K.S. Sathyanarayana Vs ACIT (ITAT, Bang) 114 ITD 227
BUSINESS INCOME 343
EXCESS PAYMENTS TO RELATIVES ETC.

[40(A)(2)]
• Payment to persons specified u/s 40A(2)(b)
• is of the opinion that such expenditure is excessive or

unreasonable having regard to
• the fair market value of the goods or services or facilities
for which the payment is made, or
• the legitimate needs of the business or profession, or
• the benefit derived by or accruing therefrom
• such excessive or unreasonable expenditure will not be

allowed as deduction
Payment to relatives – Reasonableness has to be proved by assessee

and not by Department.
Nund & Samonta Co. P. Ltd. Vs CIT (SC) 78 ITR 268
CIT Vs NEPC India Ltd. (Mad) 303 ITR 271
CIT Vs Shatrunjay Diamonds (Bom) 261 ITR 258
Finding on any one of the three requirements in sec. 40A(2) is

sufficient – Finding that expenses excessive having regard to
legitimate needs of business – No need to record finding as to market
value of goods – Disallowance upheld
Coronation Flour Mills Vs ACIT (Guj) 314 ITR 1
Commission paid to wife of partner having 50% share in the firm on

sales effected by the firm – Wife neither educated nor trained to carry
on such business – Test of commercial expediency not satisfied – Part
of commission disallowed.
Ganesh Soap Works Vs CIT (MP) 161 ITR 876
Anandji Shah Vs CIT (Ker) 181 ITR 171 – interest payment @ 24%
ACIT Vs Ives Drugs (India)(P)Ltd. (ITAT, Indore) 59 ITD 625 – salary to relative
K.R. Motilal Vs CIT (Mad) 240 ITR 810– salary to relative
Expenses incurred on account of transportation of bricks through

outside agencies was very low when compared to that of Director's
trucks – Sec. 40A(2) rightly invoked
ITO Vs Mansi Sales (P) Ltd. (ITAT, Jp) 54 ITD 346
BUSINESS INCOME 345
CASH PAYMENTS [sec. 40A(3) & (3A)]

No deduction to be allowed, if
• Aggregate payment to a person in a day exceeding Rs.

20,000
• Otherwise than by an a/c payee bank cheque or a/c payee
bank draft
• Liability allowed in one year and payment made in a

subsequent year as above, will be deemed as business
income of the year of payment [upto 01-04-2008 such
addition to be made in the year in which deduction was
originally allowed by taking recourse u/s 154]
• Payment made for plying, hiring or leasing goods carriages

– Rs. 35,000 is the limit [w.e.f. 01-10-2009]
• Upto 01-04-2008, only 20% disallowance could be made
• Rule 6DD provides for exemption in certain cases or

circumstances [w.e.f 01-04-2008]
• In interpreting a taxing statute, the court cannot be oblivious of

the proliferation of black money which is under circulation in
our country. Any restraint intended to curb the chances and
opportunities to use or create black money should not be
regarded as curtailing freedom of trade or business – Genuine
and bonafide transactions are not taken out of the sweep of sec.
40A(3) – It is open to the assessee to furnish to the satisfaction
of the the circumstances under which the payment in the
manner prescribed in sec. 40A(3) was not practicable or would
have caused genuine difficulty to the payee.
• The word “expenditure” had not been defined in the Act. It is a

word of wide import. Sec. 40A(3) refers to the expenditure
incurred by the assessee in respect of which payment is made.
It means all outgoings are brought under the word
“expenditure” for the purpose of the section. The expenditure
for purchasing the stock-in-trade is one of such outgoings. The
BUSINESS INCOME 347
value of the stock-in-trade has to be taken into account while

determining the gross profits u/s 28 on principles of
commercial accounting. The payments made for purchases
would also be covered by the word “expenditure”.
Attar Singh Gurmukh Singh etc Vs ITO (SC) 191 ITR 667 (pp.673)
• Payment for purchase of goods covered by 40A(3) – Argument

that sec. 40A(3) deals with only deductions dealt with in sec.
30 to 37 and cost price of goods is covered by sec. 28 and hence
sec. 40A(3) will not apply, was rejected – The expression
'expenditure' used in sec. 40A(3) should not be given too
narrow a meaning to restrict it from applying to payments for
purchase of goods – To give such a narrow interpretation to the
expression 'expenditure' and to exclude from its meaning
payments made for goods purchased is to make it difficult for
the revenue to properly investigate the payments, to open the
door wide to allow evasion and thus to defeat the very object
which the provision was designed to achieve.
CIT VS Grewal group of Industries (P&H) 110 ITR 278
U.P. Hardware Store Vs CIT (All) 104 ITR 664
CIT Vs Kishan Chand Maheshwari Dass (P&H) 121 ITR 232
Sajowanlal Jaiswal Vs CIT (Ori) 103 ITR 706
Hari Chand Virender Paul Vs CIT (P&H) 140 ITR 148
[ these decisions are equally for disallowance u/s 4o(a)(ia)
where assessee is making similar claim ]
• Explanation of assessee that parties insisted on cash payment

No evidence placed to corroborate this – Payments made not
allowable deduction eventhough assessee carried on
smuggling which is an illegal business in which cash payment
is necessary on several occasions.
S. Venkata Subba Rao Vs CIT (AP) 173 ITR 340
• Assessee showed a certificate from the other party insisting for

cash payment – This is not sufficient as no cause was shown
necessitating cash payment
Narayan Bijoy Kumar Vs CIT (Pat) 163 ITR 695
• It would amount to defeating objective of enactment, if claim

allowed on the basis of transaction is genuine, identity of party
established etc. – Assessee has not been able to make out a case
of unavoidable circumstances so as to claim benefit of Rule
6DD(j)
T.G. Mutha Vs ITO (ITAT, Pune) 54 ITD 460
• Payment of market fees to market committee – Assessee to

establish that there were unavoidable circumstances
necessitating cash payment
CIT Vs Padmavathi Raje Cotton Mills Limited (Cal) 239 ITR 355
• Assessee had bank account in the same place of customers - No

reason to issue bearer cheques - Not merely genuineness of
transaction, but existence of circumstances warranting cash
payment to prove
Associated Engg. Enterprise Vs CIT (Gau) 216 ITR 366
Late Smt. Jyoti Chellaram Vs CIT (AP) 173 ITR 358
Evershine Platers Vs CIT (All) 295 ITR 349
Aggarwal Steel Traders Vs CIT (P & H) 250 ITR 738
• Even if transaction is entered in the books of other party,

unavoidable circumstances to be proved
CIT Vs Assam Tribune (Gauhati) 221 ITR 488
• Running account for commission in the books – Payments

made out of them in excess of Rs. 2,500 in cash at various
points – 40A(3) applies
Porwal Udhyog (India) Vs CIT (MP) 135 ITR 591
• Rule 6DD(f) applies only to grower or producer of forest

produce – It will not apply to supplier of agricultural
commodities.
CIT Vs Pehlaj Rai Daryanmal(All) 190 ITR 242
Ideal Tannery Vs CIT (All) 117 ITR 34
• Payment before delivery of goods as advance – Covered by

Sec.40A(3) - If no exceptional circumstances existed, liable to
be disallowed u/s 40A(3)
Vijay Kumar Ajith Kumar Vs CIT (All) 191 ITR 391
• Payment for purchases made 6-7 days after transaction – No

exigency to make cash payment – Addition under sec. 40A(3)
upheld.
Naghi Lal Vs CIT (Raj) 167 ITR 139
• Making payment on bank holidays do not ipso facto permit

BUSINESS INCOME 349
assessee to make cash payments – The circumstances which

compelled the assessee to make payment on bank holidays
have to exist and shown to the assessing authorities
Jai Talkies Vs ITO (ITAT, Del) 57 TTJ 745
• To consider the disallowance u/s 40A(3), total bill amount is to

be taken and not the cost of each individual item mentioned in
the bill
Addl. CIT Vs Shree Shanmuga Gunny Stores (Mad) 146 ITR 600
• Exception under Rule 6DD(l) only to an agent of assessee and

not to the employee of assessee
DCIT Vs Vijaykumar Rameshchand & Co. ( ITAT, Pune ) 108 ITD 626
• In a place where banking facilities are available, exemption

cannot be granted merely because recipient had not opened
bank account – Addition under sec. 40A(3) upheld.
ITO Vs Kenaram Saha & Subhash Saha (ITAT,SB-Kol) 116 ITD 1
• Provisions of sec. 40A(3) will apply to transactions outside the

books of accounts – Where income from an undisclosed
business is brought to tax, provisions of sec. 40A(3) will come
into play.
CIT Vs Hynoup Food and Oil Ind. P. Ltd. (Guj) 290 ITR 702
• Rule 6DD(a) applies only for payments to institutions referred

to therein and not for payment made to any party's account
maintained in such institutions – Payments made in cash to the
account of the suppliers maintained with banks did not qualify
for deduction.
CIT Vs K. Abdu & Co. (Ker) 170 Taxman 297
• Hoshiarpur District Co-operative Milk Producers Union Ltd.

cannot be considered to be a producer of milk as its
constitution does not permit individual producers to be its
members and consequently, payment made by the assessee to
the said union cannot be treated as payment made to producer
of milk in terms of rule 6DD(j)
Chanchal Dogra Vs ITO (HP) 67 DTR 108
BUSINESS INCOME 351
DEDCUTIONS ONLY ON ACTUAL PAYMENTS

[sec. 43 B]
• Deduction otherwise allowable in respect of any sum
payable by way of
• Tax, duty, cess or fee, by whatever name called, under
any law in force
• Contribution to any provident fund, superannuation
fund or gratuity fund or any other fund for the welfare
of the employees
• Bonus or commission payable to employees referred to
in sec. 36(1)(ii)
• Interest on loan / borrowing from any public financial
institution or a State financial corporation or a State
Industrial investment corporation in accordance with
the agreement
• Interest on loan or advances from a scheduled bank in
accordance with the agreement
• In lieu of any leave at the credit of the employee [w.e.f.
01-04-2002] will be allowed in the previous year of
payment
• If payment made before the due date u/s 139(1), deduction

can be allowed in the year of accrual of liability
• If interest is converted as loan or borrowing, it is not

deemed as payment of interest
• In CIT Vs McDowell & Co. Ltd. (314 ITR 167) Supreme

Court held that bottling fee paid for acquiring right of
bottling of IMFL is not tax, duty, cess or fee for the purpose
of sec. 43B
• In CIT Vs Alom Extrustions Ltd. (319 ITR 306) Supreme

Court held that deletion of the second proviso to sec. 43B by
Finance act, 2003 w.e.f. 01-04-2004 is retrospective in
operation
• Interest on arrears of Sales tax is part of tax – Disallowance of

such interest payable u/s 43B upheld
Shree Digvijay Cement Co. Ltd. Vs CIT (Guj) 289 ITR 250
Shree Pipes Vs DCIT (Raj) 289 ITR 154
• Royalty to Government, is a tax – Unpaid liability disallowable

u/s 43B
Gorelal Dubey Vs CIT (SC) 248 ITR 3
• Cess payable for consumption of water in factories under

Water (Prevention and Control of Pollution) Cess Act, 1977
Sec. 43B applicable.
CIT Vs Orient Paper and Industries Limited (Cal) 214 ITR 473
• SEBI turnover charges – Is cess or duty hit by sec. 43B since

SEBI has been given all powers by the Government to regulate
the business and to recover its dues
ITO Vs Sureshchand Jain ( ITAT, Mum ) 100 ITD 435
Kay Holding Co. (P) Ltd. Vs DCIT (ITAT, Del) 32 SOT 586
• Hotel receipts tax collected, but not paid as that Act was
withdrawn – Trading receipt liable for assessment – Deduction
allowable only when assessee pays it into Government a/c or
refund it to customers.
CIT vs. Hotel Srilekha (P) Ltd. (Mad) 250 ITR 573
• Electricity duty is amenable to sec. 43B

CIT Vs Gujarat Urja Vikas Nigam Ltd. (Guj) 3 DTR 129
• Foreign Travel tax collected is equivalent to fees – Sec. 43B

applies
Air India Ltd. Vs DCIT (ITAT, Mum) 118 ITD 401
• Advance excise duty paid – Not deductible u/s 43B – Only a

disallowance can be effected for non-payment of accrued
liability u/s 43B and no deduction can be allowed under that
section simply because payment has been made de hors
liability – Advance payment is akin to loan and cannot be
considered as expenditure for the purpose of deduction u/s 37
DCIT Vs CWC Wines (P) Ltd. (ITAT,SB-Hyd) 89 ITD 1
Maruti Udyog Limited Vs DCIT (ITAT, Del) 92 ITD 119
• Advance Sales Tax paid – Not deductible u/s 43B r.w.s. 29 &
37(1) – Sec. 43B in itself is not a provision providing for
deduction of any item of expenditure which is otherwise not
BUSINESS INCOME 353
allowable under any of the provisions of the Act – Expl. 2 to

sec. 43B relied on by the assessee will not justify the assessee
to claim deduction because under the said provision only
liability incurred by the assessee during the previous year is
allowable on payment basis – Since the assessee has no case
that the remittance was towards sales tax due for the previous
year or payable in that year, the assessee is not entitled to claim
deduction
CIT Vs Kerala Solvent Extractions Ltd. (Ker) 306 ITR 54
• Un-expired Modvat Credit available to an assessee on last day

of previous year would not be eligible for deduction u/s 43B
DCIT Vs Glaxo Smithkline Consumer Healthcare Ltd. (ITAT,SB-Chd) 107
ITD 343
• Import duty & excise duty element in closing stock has to be

deducted from actually paid sum – Only balance is deductible
u/s.43B.
Lakhanpal National Ltd. Vs ITO (Guj) 162 ITR 240
Hindustan Computers Ltd. Vs ITO (ITAT, Del) 29 TTJ 358
Berger Paints India Ltd. Vs CIT (ITAT, Cal) 44 ITD 573
• Sales Tax deferment scheme – State Govt. to pass necessary

amendment to Sales Tax Act – Otherwise not deductible as
amount actually not paid.
CIT Vs Devendra Udhyog (Raj) 264 ITR 701
• Letter to SEBI requesting to adjust the security deposit against

turnover tax – Does not amount to actual payment since there is
no evidence on record to show that any surplus security deposit
was lying with SEBI or any amount of such security deposit
was refundable to assessee on that date – Disallowance under
sec. 43B upheld since such letter does not have any legal
sanctity unlike a cheque
ACIT Vs GMR Holdings (P) Ltd. (ITAT, Hyd) 118 ITD 535
• Disputed amount of excise duty secured by bank guarantee

Not equivalent to actual payment to revenue – Not deductible
Plain meaning of the expression 'actually paid' means that the
sum should have been actually paid to the coffers of the
Revenue ie. really paid and not constructively – By furnishing
bank guarantee assessee has merely created a right in favour of
the Excise Department to enforce the payment of excise duty in

the event of their succeeding in the pending litigation and this
is not even constructive payment
Mugat Dyeing and Printing Mills Vs ACIT (Guj) 290 ITR 282
• Employee's contribution to PF etc. received by the employer is

income in his hands as per sec. 2(24)(x) – Deductible only if
paid within the due date as per the respective Act as specified in
sec. 36(1)(va) – The provisions of sec. 43B which is applicable
in respect of employer's contribution is quite different than the
provisions of sec. 36(1)(va) which is applicable in respect of
employee's contribution
JCIT Vs ITC Ltd. (ITAT,SB-Kol) 112 ITD 57
IMP Power Ltd. Vs ITO (ITAT, Mum) 107 TTJ 522
Vaccum Instruments Co. Ltd. Vs ITO (ITAT, Del) 114 TTJ 930
Accelerated Freeze Drying Co. Ltd. Vs DCIT (ITAT, Cochin) 5 DTR 285
Ashika Stock Broking Ltd. Vs DCIT (ITAT, Kol) 56 DTR 417
The Assam Tribune Vs CIT (Gau) 285 ITR 452
• Production linked Incentive bonus not actually disbursed

Disallowance under section 43B upheld
CIT Vs Kisan Sahkari Chini Mills Ltd. (All) 284 ITR 418
• Interest due to IDBI falls under sec. 43B.

DCIT Vs KSIDC (ITAT, Cochin) 53 TTJ 401
• Interest payable to financial institutions, agreed to convert said

interest amount to loan – Deduction available u/s 43B only if
sum physically paid Mere postponement of liability does not
amount to payment and it is not even constructive discharge of
interest liability
Kalpana Lamps & Components Ltd Vs DCIT (Mad) 255 ITR 491
Vinir Engineering P. Ltd. Vs DCIT (ITAT, Bang) 91 ITD 184
CIT Vs Lotus Roofings Pvt. Ltd. (Mad) T.C.A. No. 392 of 2005 dated 20-06-2011
• Interest payable to financial institutions discharged by way of

issue of shares of the assessee company – Cannot be treated as
payment towards any expenditure – No deduction u/s 43B
SRF Ltd. Vs DCIT (ITAT, Del) 34 SOT 1
• A claim / deduction which is otherwise not allowable can

neither be considered nor allowed u/s 43B
DCIT Vs Bengal Chemicals & Pharmaceuticals Ltd. (ITAT, Kol) 10
BUSINESS INCOME 355
taxmann.com 26
• Sec. 40A(9) overrides sec. 43B – Even if payment was made,

not deductible since it was made to an unapproved fund
CIT Vs Shasun Chemicals & Drugs Ltd. (Mad) 199 Taxman 107
• Payment of excise duty on behalf of a unit already transferred

out by the assessee in an earlier year – Cannot be allowed u/s
43B
Mawana Sugars Ltd. Vs DCIT 2011-TIOL-363-ITAT-DEL
• For substantiating claim u/s 43B, original tax challan to be

produced and not a certificate from Chartered Accountant
Siel Ltd. Vs DCIT 2011-TIOL-363-ITAT-DEL
EXPENDITURE IN RELATION TO EXEMPT

INCOME [sec. 14A]
• No deduction in respect of expenditure incurred in relation
to income which does not form part of total income
• If not satisfied with the correctness of claim made by

assessee, determine the amount of expenditure incurred as
per rule 8D [w.e.f. 01-04-2007]
• Applicable even if assessee claims that no expenditure was

incurred to earn exempted income
• Since dividend income is exempt from tax, expenditure

incurred to invest in shares is not allowable as deduction Even
if assessee is engaged in the business of trading of shares, such
deduction is not permissible in view of sec. 14A which
overrides all other provisions relating to deductions – Even if
company paid taxes u/s 115-O, the position will not alter since
this is not a tax paid on behalf of assessee the shareholder
Godrej & Boyce Mfg. Co. Ltd. Vs DCIT (Bom) 328 ITR 81
CIT Vs Dhanalakshmy Bank Ltd. (Ker) 200 Taxman (Mag) 29
Dhanuka & Sons Vs CIT (Cal) 339 ITR 319
• Since dividend received is exempt, no expenses relating to it, is

allowable. Eventhough the company paid Tax on distributed
profits, still it is exempt income in the hands of assessee
recipient and hence expenses relating to it are not deductible in
the hands of assessee
Harish Krishnakanth Bhatt Vs ITO ( ITAT, Ahd ) 91 ITD 311
Everplus Securities & Finance Ltd. Vs DCIT (ITAT, Del) 101 ITD 151
Mohanlal M. Shah Vs DCIT (ITAT, Mum) 105 ITD 669
• Money borrowed for investment in shares – Interest on such

borrowals to be deducted from dividend income before
exempting the same from total income
DCIT Vs Jindal Equipment Leasing & Consultancy Ltd. 2007 TIOL-396-
ITAT-DEL
Kankhal Investments & Trading Co. P. Ltd. Vs ACIT (ITAT, Mum) 116 ITD 492
• Borrowed capital utilized to buy agricultural land – Interest not

BUSINESS INCOME 357
deductible
Punjab Auto Industries P. Ltd. Vs CIT (All) 306 ITR 149
• Borrowed funds utilized to acquire controlling interest in a

subsidiary company – Interest on such borrowals not eligible
for deduction.
Lloyds Steel Industries Ltd. Vs ACIT (ITAT, Mum) 20 SOT 40
CIT Vs Leena Ramachandran (Ker) 339 ITR 296
• Expenditure in relation to exempted income to be disallowed

u/s 14A even when no exempted income is earned during the
year
Cheminvest Ltd. Vs ITO (ITAT,SB-Del) 121 ITD 318
Pradeep Kar Vs ACIT (Kar) 319 ITR 416
• Correlation exists between borrowed funds and investments

yielding exempted income – Disallowance on ad-hoc basis not
justified
CIT Vs Sushma Kapoor (Del) 319 ITR 299
• Sec. 14A is applicable even in respect of incomes which are

excluded from total income by virtue of Chapter VI-A
Punjab State Co-op. Milk Producer Federation Ltd. Vs ITO (ITAT, Chd) 104
ITD 408
• Since income being not taxable, loss incurred in such activity

could not be set off against income from other heads
CIT Vs S.S. Thiagarajan (Mad) 129 ITR 115
• There is nothing in Indian Law to warrant the assumption that a

shareholder who buys shares in a company buys any interest in
the property of the company which is a juristic person entirely
different from the shareholder – The true position of a
shareholder is that on buying shares an investor becomes
entitled to participate in the profits of the company in which he
holds the shares
Bacha F. Guzdar Vs CIT (SC) 27 ITR 1
• Unless and until nexus is established between the borrowed

funds and income of the assessee, deduction of interest paid on
borrowed funds would not be allowed against income
Assessee borrowed funds to make investments in firm as his
capital – As per partnership deed, he was not entitled to any

interest on his capital balance and whatever remuneration was
earned by him, was on account of services rendered by him for
firm – Interest on loan not allowable
D.J. Mehta Vs ITO (ITAT, Mum) 104 ITD 527
CIT Vs Popular Vehicles & Services Ltd. (Ker) 325 ITR 523
• Assessee became partner in a firm by contributing a building

and cash as capital – It got interest on capital contributed as
cash – Against interest income so received, assessee claimed
insurance premium paid and depreciation relating to the
building – Not allowable as such building was contributed as
capital for which assessee got share of profit from firm which
is exempt u/s 10(2A)
Karan Raghav Export (P) Ltd. Vs CIT (Del) 196 Taxman 504
• CIT(A) and ITAT can invoke sec. 14A in relation to A.Y.

2001-02 and earlier years if issue arising before it requires
adjudication by reference to section 14A.
Aquarius Travels (P) Ltd. Vs ITO (ITAT, Del-SB) 111 ITD 53
ISG Traders Ltd. Vs CIT 2011-TIOL-621-HC-KOL-IT
• Disallowance u/s 14A can be made for A.Y. prior to A.Y.

2001-02 if such assessment is remanded to Assessing Officer
by appellate authorities – Proviso to sec. 14A not applicable in
such circumstances
Catholic Syrian Bank Ltd. Vs CIT (Ker) 330 ITR 556
• Bar stated in proviso to sec. 14A does not operate in a case of

first assessment – In a case where the return processed was u/s
143(1) and lateron notice u/s 148 was issued for assessing
some income which escaped assessment – While completing
the assessment, Assessing Officer applied sec. 14A also since it
was his duty to apply all the applicable provisions while
completing the assessment – Upheld since disallowance u/s
14A was made in the first assessment and the re-assessment
was not made for making disallowance u/s 14A against which
only the proviso applies
ACIT Vs Tube Investments of India Ltd. (ITAT, Chennai-TM) 133 ITD 79
• Controlling interest is not a distinct capital asset and is an

incidence of shareholding – A subsidiary and its parent are
BUSINESS INCOME 359
totally distinct taxpayers and entities subject to Income tax and

are taxed on profits derived by them on stand alone basis
irrespective of their actual degree of economic independence
and regardless of whether profits are reserved / distributed to
shareholders / participants
Vodafone International Holdings B.V. Vs Union of India & Anr. (SC) 341 ITR 1
METHOD OF ACCOUNTING [sec. 145]

• Cash or mercantile system
• Regularly employed
• Accounting standards notified by Cen. Govt. to be

adhered to
• When not satisfied about correctness and completeness of

accounts or method of accounting or accounting standards
not regularly followed, make best judgement assessment
General
• Accountancy practice cannot override Sec. 56 or any

provisions of I.T. Act The income-tax law does not march step
by step in the footprints of the accountancy profession – When
the question is whether a receipt of money is taxable or not or
whether certain deductions from that receipt are permissible in
law or not, the question has to be decided according to the
principles of law and not in accordance with accountancy
practice.
M/s. Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT (SC) 227 ITR 172
• The matter of taxability cannot be decided on the basis of the

entries which the assessee may choose to make in his accounts,
but has to be decided in accordance with the provisions of law.
Sutlej Cotton Mills Ltd. Vs CIT (SC) 116 ITR 1
• Principles of commercial accounting should be applied in

ascertaining Profits & Gains.
CIT Vs U.P. State Industrial Development Corporation (SC) 225 ITR 703
• It is not only the right, but the duty of the to consider whether
or not the books disclose the true state of accounts and the
correct income can be deduced therefrom – Even if method of
accounting is regularly followed, ITO can reject it since there
is no estoppel on these matters – Each year being a self-
contained unit, taxes of a particular year is payable with
BUSINESS INCOME 361
reference to the income of that year as computed in terms of the

Act.
CIT Vs British Paints India Ltd. (SC) 188 ITR 44
• Mere fact that assessment order for this year / earlier years
showed the system of accounting as 'cash' or 'mercantile' is not
the deciding factor – ITO has to determine the method of
accounting based on entries in books of accounts.
Walliawarum Plantations Vs Agrl. IT & STO (Ker) 237 ITR 325
• The Income Tax Act is an independent code in itself. Total

income or loss to be computed has to be in accordance with the
provisions of the I.T. Act. The norms and various procedures
prescribed by the Reserve bank of India is in order to regulate
effectively conduct the business and to control the mandatory
aspect of the company – IT Act and RBI directions operate in
different fields – RBI directions do not override the provisions
of IT Act
Southern Technologies Ltd. Vs JCIT (SC) 320 ITR 577
• The term “accrual” of income used in the companies Act, as

explained in the various Accounting Standards and as
understood for the purposes of taxation laws in certain
circumstances may have different meanings depending on the
purpose of legislation, the context in which such expression
has been used and on the interpretation of the terms of relevant
contracts. For tax purposes, the accrual or receipt of income in
the relevant previous year will have to be determined in
consonance with the ambit of taxable income as per sec. 5 of
the I.T. Act
DCIT Vs Nagarjuna Investment Trust Ltd. (ITAT, Hyd-SB) 65 ITD 17
• Mercantile system of accounting – Liability pertains to earlier

years when assessee was a tax-free entity – Not deductible in a
later year
• Hybrid system of accounting not possible after 1.4.1997 Non-

Banking Finance Company – Interest accrues on assets
classified as Non-Performing Assets and is assessable – RBI
Guidelines not applicable for computation of income under
I.T. Act.
• Hire purchase transaction – Sum of Digits method is applicable

for computation of income
JCIT Vs India Equipment Leasing Ltd. (ITAT,Chennai) 111 ITD 37
• Guidelines issued by the institute of chartered Accountants of

India cannot override the provisions of I.T. Act
Alagendran Finance Ltd. Vs ACIT 2007-TIOL-164-ITAT-MAD
• Where an assessee is following Project Completion Method of

accounting, interest identifiable with a project should be
allowed only in the year when project is completed and income
from that project is offered for taxation
Wall Street Construction Ltd. Vs JCIT (ITAT, Mum-SB) 101 ITD 156
• Even in case of Joint Development Agreements, a builder has

to be assessed to tax on the basis of percentage completion
method as significant risks and rewards are transferred to the
ultimate buyers the moment assessee enters into contract with
such ultimate buyers – For all practical purposes and for the
recognition of revenue, all the conditions specified in paras. 10
and 11 of AS-9 have been fulfilled – Assessee's contention that
it can transfer all significant risks and rewards of ownership to
the prospective buyer only at the completion of the project
under JDA was not tenable
Prestige Estate Projects Ltd. Vs DCIT (ITAT, Bang) 129 ITD 342
• In case of property transactions entire unaccounted on-money

received by seller over and above apparent value of transaction
represents unaccounted income – No question of adding profit
element alone.
Healthy Holdings (P) Ltd. Vs ACIT (ITAT, Asr) 112 ITD 51
• Discounting of bills – Income accrues on the date of discount

Transaction of discount is complete at the moment the
customer is given 90% of the value of the bill – Discount is
equivalent to the interest and accrual of this is certain and
arises on the date of discount itself – Income cannot be
postponed or spread over the period of discount
TVS Finance and Services Ltd. Vs JCIT (Mad) 318 ITR 435
BUSINESS INCOME 363
• Bank gives guarantee for period extending after close of the

accounting year and there is no obligation to refund the amount
in case such guarantee is revoked prior to the prescribed period
- Entire guarantee commission accrues at the time of giving
guarantee and no part of such receipt can be deferred to next
year
DDIT (Int.Tax) Vs Chohung Bank (ITAT, Mum) 133 TTJ 331
• Race club is not agents of punters – Gross receipts to be shown

as income and winning payments, taxes and other expenditure
to be deducted – Every A.Y. is separate and principles of res
judicata have no application in I.T. proceedings
Hyderabad Race Club Vs JCIT (ITAT, Hyd) 25 DTR 209
• Provision for leave encashment of employees – Change in

method of accounting from cash to mercantile – Liability for
earlier years cannot be allowed in the current year
DCIT Vs Bayer (India) Ltd. (ITAT, Mum) 7 ITR (Trib) 381
• Passbook maintained by bank are not books of accounts of

assessee
L.N. Poddar Vs ITAT (Patna) 322 ITR 513
ITO Vs Sanyeshi Majhi (ITAT, Calcutta) 13 ITD 61.
• Diaries are not books of accounts – The term 'books of account'

means those which have been maintained for determining any
source of income and whose main object is to provide credible
data and information to file tax returns – It does not refer to
diaries which are maintained merely as a private record to
record secret, unaccounted clandestine transactions not meant
for the purpose of the IT Act
Sheraton Apparels Vs ACIT (Bom) 256 ITR 20
BUSINESS INCOME 365
Rejection of Books and Estimation of Income

• While a method of accounting can be rejected u/s 145, the
account books can be rejected in exercise of the power u/s
143(3), for the power to reject the accounts is inherent in the
power to call for evidence in support of the return and
investigate the same
Sree Shanmugar Mills Ltd. Vs CIT (Mad) 96 ITR 411
• Rejection of Books – Absence of vouchers /quantitative tally of

stock considered with other circumstances – Profit can be
estimated by ITO – Keeping of stock register is of great
importance because that is a means of verifying the assessee's
accounts by having a 'quantitative tally”
S.N. Namasivayam Chettiar Vs CIT (SC) 38 ITR 579
Awadhesh Pratap Singh Abdul Rahman & Bros Vs CIT (All) 210 ITR 406
Dhondiram Dalichand Vs CIT (Bom) 81 ITR 609
Punjab Trading Co. Ltd. Vs CIT (Punj) 53 ITR 335
Ram Chandra Singh Ramnik Lal Vs CIT (Pat) 42 ITR 780
Bhai Sunder Das Sardar Singh (P) Ltd Vs CIT (Del) 84 ITR 106
Royal Medical Hall Vs CIT (AP) 46 ITR 748
• Excessive Wastage claimed by assessee – Addition on estimate

basis upheld.
Vijayakumar Mills Ltd Vs CIT (Mad) 194 ITR 197.
• No day to day stock account – No details of purchase or sales –

Rejection of accounts justified
CIT Vs Pareck Brothers (Patna) 167 ITR 344
Ratanlal Omprakash Vs CIT (Ori) 132 ITR 640
Chhabildas Tribhuvandas Shah & Others Vs CIT (SC) 59 ITR 733
• Transport business – Income returned lower than preceding

year – Receipts shown in account books not verifiable –
Counterfoils of tickets not available – Though accounts are
audited, there is no evidence to indicate that at the time of
auditing, counterfoils were available and auditors inspected
them – Rejection of account and estimation of income on the
basis of mileage justified.
Sohanlal G. Sanghi Vs CIT (MP) 114 ITR 272
• Income estimated – All deductions deemed to have been taken

into account while making estimate.

Surinder Pal Nayyar Vs CIT (P&H) 177 Taxman 207
Indwell Constructions Vs CIT (AP) 232 ITR 776
Vs Pooja Construction Co. (ITAT, Amritsar) 69 ITD 147
• Finding that books of accounts were not reliable – Estimate of

income based on a slip of paper justified.
Vazhakala Estate Vs CIT (Ker) 210 ITR 451.
• Profit estimated based on another person's business of similar

kind in same area in an earlier year upheld
Lal Chand Walaiti Ram Vs CIT ( P&H) 111 ITR 224
Bharat Milk Products Vs CIT (All) 128 ITR 682
CIT Vs K.Y. Pilliah & Sons (SC) 63 ITR 411
Salem Steel Co. Vs CIT (Mad) 322 ITR 349
• Detection of unaccounted sales for 19 days – Can form basis

for estimating escaped turnover for whole year.
Commissioner of Sales Tax Vs H.M. Esufali H.M. Abdulali (SC) 90 ITR 271
• Estimate on the basis of income disclosed by assessee to bank

for succeeding year – Valid.
CIT Vs Bhadra Enterprises (Ker) 228 ITR 717.
• Books of accounts were correct and complete in preceding

years is not a conclusive proof for they are correct and
complete in subsequent years also. Assessee's claim that it was
its prerogative to maintain books of accounts in a manner that it
liked, cannot be accepted. Corroborative and
contemporaneous evidences destroyed – Rejected books
Sharp decline in GP from 11.7% to 5.99% - Made flat addition
of 5% to sales - Upheld
DCIT Vs Samir Diamonds Exports (P) Ltd. (ITAT, Mum) 71 ITD 75
• Investigation conducted in one year disclosed manipulation of

accounts - Sales in a restaurant – Same ratio of suppression
can be extended to earlier years also.
Overseas Chinese Cuisine (India) Pvt. Ltd. Vs ACIT (ITAT, Bom – TM) 56 ITD 67
• Assessee failed to prove genuineness of purchase by producing

the suppliers – Purchases and transportation charges
disallowed – GP addition justified.
Vijay Proteins Ltd Vs ACIT (ITAT, Ahd), 58 ITD 428
BUSINESS INCOME 367
• Construction work – Profit estimated at 25% to be spread in all

assessment years under consideration – 'On money' assessed
on the basis of admissions by employees and a Director.
Param Anand Builders (P) Ltd. Vs ITO (ITAT, Mum) 59 ITD 29
• Assessment on the basis of figure of circulation given by audit

bureau of circulation – Valid.
Thanthi Trust Vs CIT (Mad) 242 ITR 250.
• Amount discovered during search was surrendered as un-

accounted sales – Rejection of accounts and estimate of
income upheld.
Action Electricals Vs DCIT (Del) 258 ITR 188
• Omission of a part of transaction in the books, is a serious

defect – Books lose their sanctity – While rejecting books of
accounts, no need to specifically invoke 145(2) in the order.
Wall Stree Construction Ltd. Vs DCIT (ITAT, Mum-TM) 87 ITD 47
• Contractors – Rejection of books of accounts upheld

Ram Chandra Singh Ramnik Lal Vs CIT (Pat) 42 ITR 780
Bhai Sunder Dass Sardar Singh (P) Ltd. Vs CIT (Del) 84 ITR 106
Dwarka Prasad Bajaj Vs CIT (Cal) 181 ITR 277
Arihant Builders, Developers & Investors (P.) Ltd. Vs ACIT (ITAT,SB-Ind) 106
ITD 10
• Shortage of stock found during search – No evidence for such

shortage – It can be treated as sales made outside the books
• No mistake was found by excise authorities, is not a sufficient
ground to argue that there was no suppression of sales
• Retraction of sworn statement after 6 months without any
material, is not relevant – Defect in stock taking should have
been mentioned at the time of taking stock
CIT Vs H. Dasappa & Sons (Kar) 49 DTR 119 ; 237 CTR 324
BUSINESS INCOME 369
Closing stock valuation

• Only when closing stock is brought into trading account,
profits can be correctly ascertained – The true purpose of
crediting the value of unsold stock is to balance the cost of
those goods entered on the other side of the account at the time
of their purchase, so that the cancelling out of the entries
relating to the same stock from both sides of the account would
leave only the transactions on which there have been actual
sales in the course of the year showing the profit or loss
actually realised on the year's trading
Chainrup Sampatram Vs CIT (SC) 24 ITR 481
• Stock at beginning of year, valued at cost price – Same method

to be followed subsequently.
Chouthmal Golapchand, IN RE (Cal) 6 ITR 733
• Assessee cannot change its method of valuing closing stock,

which was followed for many years.
Harinagar Sugar Mills Ltd. Vs CIT (Bom) 207 ITR 901.
CIT Vs Hindustan Zinc Ltd. (SC) 291 ITR 391
• Assessee changed method of valuation of closing stock – No

adjustment in opening stock (which is closing stock of
preceding year) is possible.
Melmould Corpn. Vs CIT (Bom) 202 ITR 789
CIT Vs Corporation Bank Limited (Kar) 174 ITR 616
CIT Vs Mopeds India Ltd (AP) 173 ITR 347
CIT Vs George Oakes Ltd. (Mad) 303 ITR 357
• Assessee valuing stock only at actual cost of raw materials and

not taking into account overhead charges – Not correct mode
of valuation – entitled to add overhead charges – If method of
accounting, even though consistently followed, does not
disclose true and proper income, is entitled to adopt
appropriate computation to determine true income.
CIT Vs British Paints India Limited (SC) 188 ITR 44
• Liability incurred for payment of excise duty can be added to

value of closing stock if such liability was deducted for
computing profit.
CIT Vs English Electric Co. of India Ltd. (Mad) 243 ITR 512.
• Discrepancy in stock statement given to bank and that declared

in accounts Addition on the basis of stock statement given to
bank upheld
Recon Machine Tools P. Ltd. Vs CIT (Kar) 286 ITR 637
B.T. Steels Ltd. Vs CIT (P&H) 328 ITR 471
• No item-wise tally of sales to purchase – Closing stock to value

at average of value of opening stock and purchases during the
year.
ACIT Vs Gopaldas Vallabhdas (ITAT, Ind) 59 TTJ 768
• Dissolution of firm – Valuation of stock to be made at market

value.
A.L.A. Firm Vs CIT (SC) 189 ITR 285
• While valuing closing stock, market value need not be reduced

by notional brokerage payable at the time of future sale
DCIT Vs Gujarat State Investments Ltd. (Guj) 14 DTR 71
• Closing stock valuation on the basis of Accounting Standards

issued by the institute of Chartered Accountants, upheld
Collector of Central Excise Vs Dai Ichi Karkaria Ltd. (SC) 156 CTR 172
• As per AS-10, asset has to be written off over it useful life

Since assessee had earlier considered useful life to be 3 years, it
cannot change such method to write off fully in 1 year
National Fertilizers Ltd. Vs DCIT (ITAT, Del) 120 ITD 259
• Closing stock of one year to be adopted as opening stock of the

succeeding year
V.K.J. Builders & Contractors (P) Ltd Vs CIT (SC) 318 ITR 204
BUSINESS INCOME 371
ASSESSMENT OF CERTAIN SPECIFIED

BUSINESS
Insurance business
• Profits and gains to be computed in accordance with the rules
contained in First schedule [sec. 44]
• Profits and gains from life insurance business chargeable @ 12

½ % [sec. 115B]
• In CIT Vs Oriental Fire & General Insurance Co. Ltd.

(291 ITR 370) Supreme Court held that insurance
companies are to be assessed u/s 44 r.w. First Schedule
• Insurance business - Profits and gains to be computed as per

rule in I Schedule – Sec.28 to 43B are not applicable – Not
eligible for deduction u/s 35B
CIT Vs Hero Cycles P. Ltd. (SC) 228 ITR 463
• Sec. 44 r.w. Rule 5 of First schedule makes figure of profit

disclosed by P & L a/c drawn as per Insurance Act as absolute
and binding and it is amenable for adjustments expressly
sanctioned by mandate of clauses (a) and (c) of Rule 5 for
computing total income – Items of income which have been
included by the assessee in its P & L a/c of the current year as
per the provisions of Insurance Act could not be excluded from
its total income on the ground that these amounts were offered
for taxation in the earlier year Amounts paid by the assessee to
the pension fund and gratuity fund are deductible only to the
extent these amounts are debited to the P & L a/c as cl. (a) of
Rule 5 of sch. I talks of 'additions' to be made in respect of
disallowances u/s 30 to 43B and does not provide for granting
any deduction -
New India Assurance Co. Ltd. Vs Addl. CIT (ITAT, Mum) 63 DTR 123
• Profits of mutual Life insurance company taxable

Appreciation in value of securities shown in Balance Sheet to
be included in surplus – Income Tax paid by Company on
behalf of shareholders – Not deductible.
Bombay Mutual Life Assurance Society Ltd. Vs CIT (Bom) 20 ITR 189
BUSINESS INCOME 373
Trade, professional or similar association [sec. 44A]

• Income derived by a trade, professional or similar
association from specific services performed for its
members is income [sec. 28(iii)]
• Other receipts such as subscription etc. from members if

less than expenditure incurred during the year for the
purpose of protection or advancement of the common
interests of its members – deficiency will be allowed as
deduction
• Capital expenditure or expenditure allowable under
other provisions of the Act – not eligible
• Deduction can be allowed only upto 50% of total income
• Applies to only institutions whose income is not
distributed to its members (grants to affiliated
institutions/ associations permissible)
• Deduction u/s 44A(3) – No evidence to show that assessee club

had incurred expenditure for purpose of protection and
advancement of common interests of its members – Claim
denied
DCIT Vs Gymkhana Club (ITAT, Del) 129 ITR 54
• Association whose object is to secure equitable service

condition for IAS officers – Expenditure incurred on
defending some members in proceedings for contempt of
Court – Not an expenditure incurred to promote objects of the
association – Not deductible while computing income of the
society
CIT Vs IAS officers Association (Kar) 325 ITR 254
• Floor charges collected from non-members on the basis of

transaction in purchase and sale of shares by them – Floor
charges is remuneration paid by the members for the specific
services received fro assessee and hence income u/s 28(iii) -
Surplus of the assessee club is not distributable to its members
but on dissolution would go to the Govt. or another society - No
mutuality exists – Taxable.
Investors Club Vs ITO (ITAT, Coch) 84 ITD 273
Film production
• Expenditure on production of film is allowable only as per R.

9A and cannot be claimed u/s 37(1) or by reducing from the
value of closing stock – Since assessee had neither exhibited
feature film on commercial basis nor sold rights of exhibits or
transferred rights of exhibits, claim of deduction is hit by R.
9A(5) and cannot be allowed u/R 9A(4)
Sagar Sardhadi Vs ITO (ITAT, Mum) 135 ITD 153
• When feature film is not released for exhibition for atleast 180
days in the year of production, cost of production can be
reduced only to the extent of amount realized during
commercial exhibition and balance is allowable in next year –
Not a case of business loss
CIT Vs Joseph Valakuzhy (SC) 302 ITR 190
CAPITAL GAINS 375
CAPITAL GAINS
• Profits or gains arising from the transfer of a capital asset

deemed to be income of the previous year in which transfer
took place (sec. 45)
• Profit and gains from money or other assets received under

an insurance on account of damage or destruction of a
capital asset - deemed as capital gains in the year of receipt
value of money or fair market value of asset received on the
date of transfer will be deemed as full value of
consideration [sec. 45(1A)]
• Profit on transfer of Securities kept with Depositories

Beneficial owner will be charged to tax – For ascertaining
cost of acquisition and period of holding, FIFO method will
be adopted [sec. 45(2A)]
• Difference between repurchase price of units referred to in

sec. 80CCB(2) and amount invested by assessee – Capital
gains arises in the year of repurchase of units / termination
of plan [sec. 45(6)]
• If company purchases its own shares or other specified

assets – Transferor will be assessed on the difference
between cost of acquisition and full value of consideration
in the year of purchase by the company [sec. 46A]
• Some specified transactions not regarded as transfer for

the purpose of charging capital gains [sec. 47]
• Transfer of capital asset between holding company and

subsidiary company will not be treated as transfer [sec.
47(iv) & (v) ] – But if within a period of 8 years
• such capital asset converted by the transferee company
into stock-in-trade or treated it as stock-in-trade
• Holding company ceases to hold the whole of the share
capital of the subsidiary company
Capital gains not charged earlier will be treated as capital gains
in the previous year of such transfer [sec. 47A] – Necessary order

can be passed u/s 155 - Limitation of four year period will start
from the F.Y. in which such asset was converted or treated as
stock-in-trade or the holding company ceased to hold whole of the
share capital (sec. 155)
• Transactions for corporatisation not regarded as transfer

u/s 47(xiii), (xiiib) or (xiv) – If requirements are not
complied with, treated as capital gains of the successor
company [sec. 47A]
• Registered deed of conveyance is the only mode of legal

transfer of an immovable property. GPA sales / sale
agreement are not valid mode of transfer of immovable
property – However, genuine GPA sales and joint
development agreement are given exemption from this rule
Suraj Lamp & Industries Pvt. Ltd. Vs State of Haryana
(SC) 340 ITR 1
CAPITAL GAINS 377
WHETHER CAPITAL GAINS ARISE ?

Transfer as per sec. 2(47)
• Definition of transfer in sec. 2(47) is an inclusive definition and
does not exclude the contextual or ordinary meaning of the
word 'transfer'
Sunil Siddharthbhai Vs CIT (SC) 156 ITR 509
CIT Vs Narang Dairy Products (SC) 219 ITR 478
• It is not necessary that the entire asset should be transferred to

attract tax Definition of 'Transfer' can apply even to part of an
asset
National Products Vs CIT (Kar) 163 ITR 632
Claim of Transfer of Agricultural land

• Capital asset defined in sec. 2(14) wherein agricultural land
is excluded
• Sale proceeds of agricultural land - Liable to capital gains tax

if it is in a Municipality.
G.M. Omer Khan Vs Addl. CIT (SC) 196 ITR 269
Union of India & Ors. Vs S. Muthyam Reddy (SC) 240 ITR 341
CIT Vs Gemini Pictures Circuit P. Ltd. (SC) 220 ITR 43
• Agricultural lands within municipal limits – For claiming

exemption u/s 2(14)(iii), population of entire municipality to
be considered and not that of any area / village
CIT Vs Pyare Lal (Del) 231 ITR 785
S.Hidhayathullah Sahib Vs CIT (Mad) 158 ITR 20
• Capital gains arising from transfer of agricultural land in a

village in Delhi situated within the jurisdiction of a
municipality is chargeable to tax
CIT Vs Laxman (Del) 178 CTR 118
• Faridabad Administration Complex is a municipality within

the meaning of sec. 2(14)(iii)(a) and agricultural land within
such area is a capital asset
Deoki Nandan & Sons Vs CIT (Del) 115 Taxman 513
• Land not agricultural though entered in the revenue record as

agricultural.
Sarifabibi Mohammed Ibrahim and others Vs CIT (SC) 204 ITR 631
Chemmancherry Estates Co. Vs ITO (ITAT, Chennai) 118 TTJ 691; 13 DTR 478
• Agricultural land –Burden of proof is on assessee to show that

it was agricultural land – Forest lands acquired with the
intention of extending plantation – No agricultural operation
carried out – Transfer of land lead to capital gains.
Kalpetta Estates Limited Vs CIT (Ker) 185 ITR 318
• Evidence showing that no agricultural operations were carried

out on land Land not agricultural – Liable to capital gains.
Fazalbhoy Investment Co.Ltd. Vs CIT (Bom) 176 ITR 523
• Sale of trees of spontaneous growth with roots and soil – Liable

CAPITAL GAINS 379
to capital gains
Prasad Mathew Vs DCIT (ITAT, Cochin) 51 DTR 188 ; 136 TTJ 612
• The fact that the land is sold or transferred to a non-agriculturist

for a non-agricultural purpose or that is likely to be used for
non-agricultural purpose soon after its transfer is also a
relevant factor germane to the determination of the issue
Gopal C. Sharma Vs CIT (Bom) 209 ITR 946
• Trees attachéd to agricultural land do not belong to land and

cannot said to be 'agricultural land in India' – Such trees are
capital assets and profit on sale of shade trees is assessable as
capital gains.
Emerald Valley Estates Ltd. Vs CIT (Kar) 222 ITR 799
Travancore Tea Estates Co.Ltd. Vs CIT (Ker) 93 ITR 314
C. Hanumantha Rao (Decd.) & Anr. Vs CIT (Mad) 25 DTR 108
• Profit on sale of cooly lines (erected for housing of agricultural

workers) situated in agricultural land – Capital Gains arises – It
is impossible to contend that what is attachéd to the land
belongs to the land
Clen Leven Estates Ltd. Vs CIT (Ker) 91 ITR 391
• When assessee entered into an agreement to sell land to a

developer for developing as house sites and applied for
approval of lay-outs – Land is no longer agricultural land.
Davendra Pal Singh Vs CIT (All) 243 ITR 127
Transfer by way of Lease and sub-lease and

termination thereof
• Land developed into building plots –Lease of plot for 99 years
Parted with an asset of enduring nature - Salami or Premium
received for lease – Capital Gains tax leviable.
R.K. Palshikar (HUF) Vs CIT (SC) 172 ITR 311
• Leasehold interest is an interest in land – Assessee acquired

leasehold right by virtue of an agreement with the lessor and
paid consideration – Such valuable right was surrendered and
compensation received for such premature termination of
lease – Capital gains arise.
CIT Vs Pramia Engg. Pvt. Ltd,. (Cal) 202 ITR 298
Anand Bala Bhushan Vs CIT (All) 217 ITR 144
• When the assessee transfers his leasehold rights in land in his

occupation by way of a sub-lease to another person, it amounts
to extinguishing his rights in the property and there is a transfer
as the leasehold rights create an interest in land falling within
the definition of 'capital asset' – Where the owner himself
transfers the property by way of lease or lessee transfers the
same by way of sub-lease, there is extinguishment of rights in
either case – It is not possible to read definition of 'capital asset'
appearing in sec. 2(14) in a restrictive manner to mean that the
property which the assessee owned by himself alone would
come within the meaning of 'capital asset' as any kind of
property held by him will fall under this definition
Consideration received is assessable as Capital Gains
CIT Vs Sujatha Jewellers (Mad) 290 ITR 631
CAPITAL GAINS 381
Transfer of tenancy / occupancy rights

• Transfer of the right to use premises for a period of 10 years
Compensation received is exigible for capital gains as the
receipt is compensation for dispossession of use of the
premises by the assessee for a fairly long period and it is not for
giving up any source of income
ACIT Vs United Motors (I) Ltd. (ITAT, Mum) 34 DTR 399; 1 ITR (Trib) 578
• Compensation received on transfer and relinquishment of

tenancy right is liable to Capital Gains - Capital Gains arises
from AY 95-96 onwards
CIT Vs D.P. Sandu Bros. Chembur (P) Ltd. (SC) 273 ITR 1
• Ancestors of assessee were allotted lands by Portuguese

administration Occupancy rights allotted to assessee under
1971 regulation is equivalent to ownership rights – Sale of
such occupancy rights – Capital gains arises
Vijaysinh R. Rathod Vs ITO (ITAT,SB-Ahd) 106 ITD 153
• Assessee's brothers had allowed assessee to use and occupy a

property in an unrestricted manner during her lifetime
However, subsequently her brothers wanted to sell this
property and assessee received certain amount as
compensation – Capital gains arises on this receipt
Nargis A. Irani Vs ITO (ITAT, Pune) 102 ITD 297
Transfer of Right to get Shares allotted

• Assessee advanced money to a company and got right to
convert such advances to shares on a future date – Such right is
an asset contemplated in sec. 2(14) – Lateron such right to get
the shares allotted was surrendered in lieu of receipt of
compensation – Such compensation received is income under
the head “Capital Gains”
DCIT Vs Natco Pharma Ltd. 2012-TIOL-146-ITAT-HYD
Transfer of Right to Specific performance

• Right to obtain conveyance of immovable property is a “capital
asset” Assignment of such right is “transfer” – Gains arising is
capital gains Right, title and interest acquired under an
agreement of sale clearly fall within the definition of capital
asset u/s 2(14)
CIT Vs Tata Services Ltd. (Bom) 122 ITR 594
K.R. Srinath Vs ACIT (Mad) 268 ITR 436
CIT Vs Laxmidevi Ratani (MP) 296 ITR 363
J.K. Kashyap Vs ACIT (Del) 302 ITR 255
CIT & Anr. Vs H. Anil Kumar (Kar) 56 DTR 384
• Payments made to builders for booking 2 flats – lateron the

agreement was cancelled and assessee surrendered his rights in
those flats – Received excess money – Capital Gain arises
Jagdish Chander Malhotra Vs ITO (ITAT Del) 64 ITD 251
Transfer of an undertaking
• The term 'capital asset' has an all embracing connotation and
includes every kind of property as generally understood except
those that are expressly excluded from the definition –
Undertaking of the assessee is a capital asset
Syndicate Bank Ltd. Vs Addl. CIT (Kar) 155 ITR 681
Indian Bank Ltd. Vs CIT (Mad) 153 ITR 282
Transfer of Goodwill
• Transfer of Kerosene dealership for a consideration – Assessee
not to carry any business in the old name – It amounts to
transfer of certain benefits and advantages attached to the
name of the transferor firm in the name of purchaser – Transfer
of goodwill – Capital gains arise
ITO Vs Prabhatkumar Agarwal (ITAT, Ind) 69 ITD 224
• Assessee firm transferring its business to a company as going

concern Partners of transferor-firm are the promoter-directors
CAPITAL GAINS 383
of transferee-company – In addition to the value of net assets,

assessee receiving amount towards transfer of technical know-
how and non-compete fee Treated as transfer of Goodwill and
Long-term Capital gains assessed.
Indo Tech Electric Co. Vs DCIT (ITAT, Chennai) 99 ITD 325 confirmed in (Mad)
49 DTR 218 ; 237 CTR 227 ; 196 Taxman 514
Transfer of Stock Exchange membership card

• Transfer of membership of stock exchange – The card is a
valuable property which entitles the members to deal in
transactions on the floor of the stock exchange – It is a capital
asset - Net consideration received is Capital Gains
Satya Narain Modani Vs ITO & Anr.(Raj) 272 ITR138
R.M. Valliappan Vs ACIT (ITAT,SB-Chennai) 103 ITD 63
P.J. Mathew Vs ITO (Ker) 323 ITR 592
[In Techno Shares & Stocks Ltd. & Ors. Vs CIT (327 ITR 323)
Supreme court held that stock exchange membership card is a
business or commercial right similar to licence or franchise and is
an intangible asset ]
Transfer of bus route permits

• Gains attributable to transfer of bus route permits are taxable.
A.N. Transports Vs CIT (Ker) 185 ITR 134
S. Vaidyanathaswami Vs CIT (Mad) 119 ITR 369
Addl. CIT Vs Ganapathi Raju Jegi, Sanyasi Raju (AP) 119 ITR 715
Transfer of patents
• Registered patent of technical know-how is capital asset
Transfer of this will lead to capital gains.
Albright & Wilson Ltd. Vs (ITAT, Bombay) 8 ITD 57
Redemption of Shares / Bonds

• Redemption of preference shares – Transfer – Difference
between purchase price paid by assessee and price at which
redeemed by company is Capital Gains – By redeeming its
preference shares, the companies buys them back resulting in
sale of shares by the shareholder to the company and there is
relinquishment of the asset – This view is supported by
provisions of section 77(1) r.w.s. 80(5) of the companies
Act,1956
Anarkali Sarabhai Vs CIT (SC) 224 ITR 422
• Redemption of capital investment bonds after maturity, is

transfer Capital Gains arises
Perviz Wang Chuk Basi Vs JCIT (ITAT, Mum) 102 ITD 123
Conversion of investments to stock-in-trade

• Capital gains on conversion / treatment of a capital asset
into stock-in-trade chargeable to tax when such stock-in-
trade is sold or transferred Fair market value on the date
of such conversion shall be deemed as full value of
consideration [sec. 45(2)
• Assessee converted investments into stock-in-trade by a

journal entry Sec. 45(2) applies and difference is Capital gains
/ Loss and not Business profit / loss
ACIT Vs Claridges Investments & Finances (P.) Ltd. (ITAT, Mum) 18 SOT 390
CAPITAL GAINS 385
Transfer between Firm & partners

• Profit on transfer of capital asset by a person to a firm or
AOP or BOI in which such person becomes partner or
member – chargeable in the hands of such person in the
year of transfer – amount recorded in the books of the firm
or AOP or BOI will be deemed as full value of consideration
[sec. 45(3)]
• Profit on transfer of capital asset by distribution of capital
asset on dissolution of a firm or AOP or BOI, or otherwise
chargeable in the hands of firm or AOP or BOI in the year
of transfer – fair market value of asset on the date of
transfer will be deemed as full value of consideration [sec.
45(4)]
• A firm cannot in law deny its liability to tax in respect of capital

gains on the ground that being a firm, it is not a legal entity
capable of owning a capital asset
Pearl Woollen Mills Vs CIT (P&H) 123 ITR 658
K.I. Viswambharan & Bros. Vs CIT (Ker-FB) 91 ITR 588
• Transfer of immovable property by firm to partners – No

written documents and no registration – Transfer not valid
CIT Vs S. Rajamani & Thangarajan Industries (Mad) 241 ITR 668
• No particular mode or form is provided for bringing in a

separate property of the partner into the stock of the firm and no
deed whatsoever, registered or otherwise, is required to be
executed by the partner for doing so
Addl.CIT Vs Manjit Engineering Industries (Del) 154 ITR 509
CIT Vs A.V. Bhanoji Rao (AP) 142 ITR 706
• Transfer of immovable proper by partner to firm – Registration

necessary.
CIT Vs TMB Mohd. Abdul Khader (Mad) 166 ITR 207
• Firm is not an independent entity – Partners are real owners of

assets of firm. Transfer of assets by firm to partners on
dissolution of firm - No registration required.
N. Khadervali Saheb & Anr. v. N.Gudu Sahib (Decd) & Ors. (SC) 261 ITR 1
• Assets of HUF were taken over by partnership formed by

members of HUF Amounts to transfer of assets

CIT Vs P.K. Ramaswamy Raja (Mad) 223 ITR 324
• Assessee converted certain shares into stock-in-trade at market

value Then contributed this to a firm as initial capital
Subsequently, within 3-4 years withdrew a substantial amount
from that firm – Colourable device to convert asset into money
Capital Gains arises
Rahul Kumar Bajaj Vs ITO (ITAT,SB-Nag) 64 ITD 73
• Assessee entering into partnership with a company in which

her husband was a Director –Bringing in land as her capital
Retiring from firm and get shares of company – No genuine
firm existed – Sham transaction Device to avoid capital gains
Sec. 45 attracted.
Nayantara G. Agarwal Vs CIT (Bom) 207 ITR 639
Jamnalal Sons Vs IAC (ITAT, Bom) 29 ITD 164
• Conversion of proprietary business to business of firm

Revaluation of assets of erstwhile sole proprietor – Provision
for withdrawal of such funds and actual withdrawal in a short
period – Transaction aimed at evading Capital Gains – Taxable
S.V. Kumaragurupasamy Vs CIT (Mad) 260 ITR 127
• Assessee transferred her shares in firm and received cash and

share in a property from other partners – Liable to Capital
Gains in respect of consideration received including share in
value of property after deducting original cost of shares
Kusumben Kantital Shah Vs ITO (ITAT Ahd) 56 ITD 476
• Partner contributed his building and land to the firm Exclusive

interest of partner in personal asset get reduced to shared
interest – There is transfer of assets
CIT Vs A.C. Mahesh (Mad) 239 ITR 616
• Sale of immovable property by partner to firm – Sale

consideration credited to capital account of partner – Capital
Gains arises
CIT Vs R. Rangaswamy Naidu (Mad) 224 ITR 113
• Land held by assessee company as stock-in-trade was

contributed as capital in a partnership firm after revaluing the
same – Surplus assessable as Capital gains u/s 45(3)
CAPITAL GAINS 387
DLF Universal Ltd. Vs DCIT (ITAT,SB-Del) 123 ITD 1; 34 DTR 105
• Through an instrument executed by two partners of the

assessee firm, one of them released and relinquished his rights
and interests in a land and building owned by the firm in favour
of the other for a consideration – It is a case of sale by the firm
in favour of the partner resulting in transfer of capital assets
and thus attracting the provisions of sec. 45 – Sec. 47(iii) will
apply only to gifts simpliciter ie. a transfer without
consideration and not transactions treated as deemed gift
CIT Vs Bharani Pictures (Mad) 129 ITR 244
• On dissolution of assessee-firm, Assessing Officer by applying

sec. 45(4) adopted market value of house property and after
allowing deduction for cost of building and deduction u/s 48,
determined the Long Term Capital Gains – Assessee's case was
that since partners continued to hold the building as joint
owners, there was no transfer and 45(4) not applicable Capital
Gains arises to firm u/s 45(4)
Swamy Studio Vs ITO (ITAT, Mad) 66 ITD 276
Gandamal & Sons Vs ACIT ( ITAT, Pune ) 101 ITD 368
Suvardhan Vs CIT (Kar) 287 ITR 404
• Division of business of firm to two groups of partners – Though

deed is titled as “Re-constitution deed” the surrounding facts
such as drawing of M.O.U., valuation of assets, bifurcation of
business etc. prove that it was really dissolution of firm Long-
term Capital gains arises u/s 45(4) Closing stock also to be
valued at market value
ACIT Vs G.H. Reddy & Associates (ITAT, Chennai) 123 ITD 126; 308 ITR
(AT) 25
• All except one partner retired from the firm through a

'retirement deed' This amounts to dissolution of firm as there
cannot be a partnership firm with one partner alone Difference
between Fair Market value of work-in-progress and the value
as per books is assessable as Capital gains u/s 45(4)
ITO Vs Om Namah Shivay Builders & Developers (ITAT, Mum) 43 SOT 397
• Dissolution of firm consisting of two partners – One partner

taking over land and factory and continuing business Amounts
to transfer u/s 2(47)(vi) – Capital Gains arises u/s 45(4)
CIT Vs Southern Tubes (Ker) 306 ITR 216
• Auction of property of firm on dissolution pursuant to court

compromise decree – Distribution of sale proceeds – Capital
Gain arises
CIT Vs Saraswathi Talkies (AP) 234 ITR 756
• Transfer of assets by firm to partners as well as partner to firm

Capital Gains arises – Even if subsisting partners of a firm
transfer assets to a retiring partner, capital gains arises
CIT Vs A.N. Naik Associates (Bom) 265 ITR 346
• Capital asset of a firm distributed to its partners otherwise than

on dissolution of firm – Capital gains arises – If a transaction
falls within the ambit of the definition of transfer u/s 2(47),
then irrespective of the fact as to whether the said transaction is
a transfer under the Transfer of Property Act or not, income
accrued on such transaction and is chargeable to tax u/s 45(4)
New Gujarat Tin Printing Works Vs ITO (ITAT, Ahd) 128 ITD 182
• Transfer of certain assets to partners during the subsistence of

the firm is exigible to Capital Gains u/s 45(4)
ITO Vs International Rubbers & Plastics (ITAT, Chennai) 127 ITD 347 ; 136
TTJ 482
• On re-constitution of firm, two new partners were admitted and

on second re-constitution, all the four old partners retired Thus
the two newly introduced partners continued the business of
the firm – In effect, there was transfer of the assets from group
of old 4 partners to group of new 2 partners – Sec. 45(4) applies
CIT Vs Gurunath Talkies (Kar) 328 ITR 59; 26 DTR 314
• Assets taken over by one partner on dissolution of firm – Sec.

45(4) is applicable – Expression 'otherwise' used in sec. 45(4)
is not to be read 'ejusdem generis' with dissolution of firm or
AOP or BOI, instead it has to be read with the words 'transfer of
capital asset' by way of distribution of capital assets on the
dissolution
ACIT Vs D.D. International (Global) (ITAT, Asr) 28 DTR 146 ; 125 TTJ 112
• Continuing partners agree to pay a lump sum to retiring partner

for assigning / relinquishing his share / right in partnership and
its assets Transaction is transfer within the meaning of sec.
2(47) – Sum received by retiring partner over and above his
CAPITAL GAINS 389
capital a/c balance would be Capital Gains chargeable to tax

Sudhakar M. Shetty Vs ACIT (ITAT, Mum) 130 ITD 197 , 58 DTR 289
• Capital gains on distribution of assets in connection with

retirement of partners from firm – Decision of Supreme Court
in Tribuvan Das G. Patel Vs CIT (236 ITR 515) not relevant in
view of subsequent introduction of sec. 45(4) in the I.T. Act
CIT Vs Associated Electrical Agencies 2011-TIOL-843-HC-MAD-IT
• Land and building brought to firm as capital contribution by

partners Depreciation on such assets allowed to firm for many
years – Dissolution of firm and assets distributed among
partners – Sec. 45(4) arises – Capital gains taxable
CIT Vs Kumbazha Tourist Home (Ker) 328 ITR 600
Transfer between company and shareholders

• Lease of land and building for 99 years by firm to a company in
which the partners are shareholders in consideration of
allotment of shares Transfer within the meaning of sec.
2(47)(vi) and consideration received by the partners by way of
fully paid up shares of the lessee company was assessable as
Capital Gains
CIT Vs International Housing Complex (Ker) 56 DTR 255
• Assessee obtaining dealership of petrol – Transferred it to a

company Capital gains arises – Consideration is market value
of shares received.
A.S. Bhargava Vs CIT (Del) 88 ITR 14
• Sole proprietary business of assessee was taken over by a

newly floated company of which the assessee was the
managing director and the consideration was paid in the form
of shares in the company - Transaction between and individual
and a company which is a juristically legal personality Excess
of the value of shares over the book value of the assts taken
over is liable to be assessed as capital gains
Jagdev Singh Mumick Vs CIT (Del) 81 ITR 500
• Amalgamation of companies – Consideration received must be

shares only – Composite consideration received on
amalgamation of companies Sec. 47(vii) exemption not
available.
CIT Vs Gautam Sarabhai Trust (Guj) 173 ITR 216
• Amount received from amalgamated Company in lieu of

shares held in amalgamating company → Extinguishment of
rights in amalgamating company →Capital Gain arises
Shishir Kumar R. Mehta Vs CIT (Mad) 154 CTR 70
• Reduction of share capital of company – Distribution of assets

which can be correlated with accumulated profits, is dividend
in the hands of shareholders – Distribution over and above
accumulated profits, is capital receipts in the hands of
shareholders and if it is in excess of cost of acquisition of such
shares, capital gains arises in the hands of shareholders
CAPITAL GAINS 391
CIT Vs G. Narasimhan (SC) 236 ITR 327
• Assessee obtained an immovable property from a company on

reduction of latter's share capital – He sold that property – Cost
of property for Capital Gain computation is equivalent capital
reduced by company in lieu of said property given to assessee.
S. Rangarajan Vs CIT(Mad) 241 ITR 593
• Reduction of share capital resulting in release of assets attract

capital gains in the hands of share holders – Surplus resulting
from surrender of shares in a company – Capital Gains arises
Eventhough the assessee continues to remains as a
shareholder, his right as a holder of those shares stands reduced
with the reduction in the share capital – There need not be a sale
for the purpose of transfer and extinguishment of any right in
the asset can be a transfer in view of sec. 2(47)
CIT Vs G. Narasimhan (SC) 236 ITR 327
Kartikeya V. Sarabhai Vs CIT (SC) 228 ITR 163
• Reduction in share capital of a company and assessee did not

receive any consideration – Reduction has no effect on the
intrinsic right of the shareholder as the percentage of
shareholding did not change – Notional loss cannot be treated
as capital loss u/s 45
Bennett Coleman & Co. Ltd. Vs Addl. CIT (ITAT, SB-Mum) 133 ITD 1
• Acquisition by assessee of irredeemable preference shares of a

company in exchange of equity shares consequent to capital
restructuring of the company – Transfer – Capital Gain arise
CIT Vs Santosh L. Chowgule (Bom) 234 ITR 787
• Assessee, father and son converting their shares into stock-in-

trade – Forming new company completely owned and
controlled by them and transferring these shares to that
company – Difference between the cost of acquisition of the
shares in the hands of the assessee and the price at which the
shares were sold to the company is liable to be taxed as capital
gains
R. Krishnaswamy Vs CIT (Mad) 261 ITR 623
CAPITAL GAINS 393
Transfer of certain rights on which no Capital Gains

/ loss arises
• Assessee transferred shares which were already pledged in part
performance of its liabilities – What assessee transferred was
the residuary rights in such shares, cost of which was not
ascertainable – No capital loss arises.
DCIT Vs Bijal Investment Co. (P) Ltd. (ITAT, Ahd ) 108 ITD 432
• The moment assessee lost the rights attached to warrants for

exercising option of subscription to equity shares, there was an
extinguishment of rights in warrants which amounted to
transfer u/s 2(47) - No value could be assigned to consideration
received on transfer of warrants – Capital loss could not be
computed u/s 48.
Ajay C. Mehta Vs DCIT (ITAT, Ahd) 114 ITD 628
Write off of some assets on which no Capital loss

arises
• “Loss of capital” and “Capital loss” different – Money
deposited was written off lateron being irrecoverable – Such
loss is 'Loss of Capital' Capital loss will arise only if there is a
transfer of a capital asset - This cannot be set off against
capital gains
J.P. Srivatsava & Sons Vs CIT (All) 86 ITR 730
CIT Vs Chidambaranatha Mudaliar (Mad) 240 ITR 552
Grindwell Norton Ltd. Vs DCIT ( ITAT, Mumbai-TM) 91 ITD 412
• Capital loss – Must arise out of transactions mentioned in

Sec.2(47) Machinery blown of storm and lying unused –
Loss not allowable u/s 45
Darjeeling Consolidated Tea Co. Ltd. Vs CIT (Cal) 183 ITR 493
• Assessee entering into contract for purchase of machinery

Cancellation of contract – Cancellation charges paid is loss of
capital In order to claim capital loss, the essential requirement
is that there should be a transfer of a capital asset during the
previous year – Till the point of time the assessee cancelled the
contract, it did not have any right which could be termed to be

property so as to fall within the definition of “capital asset” u/s
2(14) – Concluded contract between the assessee and the
supplier was not a capital asset in the hands of the assessee and
there was no transfer whatsoever within the meaning of sec.
2(47) when the assessee cancelled the contract
Patel Brass Works Vs CIT (Guj) 286 ITR 598
• Agreement for sale of property – Payment of earnest money by

assessee – Forfeiture of earnest money on default by purchaser
Forfeiture does not arise from relinquishment of capital asset
and it arose by reason of default or failure of the purchaser - Is
loss of capital and not capital loss.
CIT Vs Sterling Investment Corporation Limited (Bom) 123 ITR 441
• Write-off of debts due from erstwhile partners – Not revenue

loss No capital loss also since there is no transfer
JCIT Vs Rasi Silks ( ITAT, Chennai ) 97 ITD 58
• Loss on account of revaluation in value of investments in

shares – No transfer of capital assets – No capital gains / loss
arises
Industrial Finance Corporation of India Ltd. Vs JCIT (ITAT, Del) 99 ITD 639
Chettinad Company P. Ltd, Vs CIT (Mad) 147 ITR 724
• Assessee having shares of ACIL – Liabilities of ACIL far

exceeded its assets – Company not dissolved and still continue
to exist, only certain undertaking was taken over by
Government – Assessee wrote off value of shares and claimed
capital loss – Not correct since there was no transfer of shares
Bharat Hari Singhania (HUF) Vs ACIT (ITAT, Cal) 58 ITD 189
Kerala Small Industries Dev. Corpn. Ltd Vs CIT (Ker) 270 ITR 452
• Deposit made by assessee as share application money – Shares

not allotted Requested to consider it as loan – Writing off as
bad debt lateron – Not allowable Loss of capital
DCIT Vs Kanchanjungha Advertising P. Ltd. 2008-TIOL-159-ITAT-DEL
• Amount advanced for purchase of land – Irrecoverable – Loss

of capital
Tulip Star Hotels Ltd. Vs Addl.CIT (ITAT, Del) 114 ITD 202 ••
CAPITAL GAINS 395
WHEN CAPITAL GAIN ARISES ?

• Capital gain tax is attracted the moment the assessee has
acquired the right to receive the profits and it is not necessary
that the assessee should have actually received the profits – If
subsequently the money is not actually received, that would be
a capital loss arising in the year when the money became
irrecoverable
T.V. Sundaram Iyengar & Sons Ltd. Vs CIT (Mad) 37 ITR 26
• Sale during the year – Capital Gains taxable during that year
eventhough dispute on sale price is still pending.
CIT Vs Rohtak Textile Mills Ltd, (Del) 138 ITR 195
• Agreement of sale executed on 1.5.62 and possession delivered

to vendor on same date – Document registered on 8.6.79
Registration of document relates back to date on which
agreement of sale was executed.
M. Syamala Rao Vs CIT (AP) 234 ITR 140
• Possession of property given and consideration received

Transfer complete – Registration of sale deed not necessary
CIT Vs Rajasthan Mirror Mfg. Co.(Raj) 260 ITR 503
D. Kasturi Vs CIT (Mad) 251 ITR 532 affirmed in 323 ITR 40
• Goodwill arising on transfer of business is assessable under the

head “Capital gains” and method of accounting followed by
assessee is irrelevant to decide the year of taxability of this
item.
DCIT Vs Samta Marine Kakinada (ITAT, Mum) 18 SOT 335
• Date of contract of sale of shares as declared by parties is date

of transfer, provided it is followed up by actual delivery of
shares and transfer deeds.
Max Telecom Ventures Ltd. Vs ACIT (ITAT, Asr) 114 ITD 46
• Mortgage by conditional sale takes effect in the year of

foreclosure – Only if an when the conditions embodied in the
agreement is not complied with by the mortgagor that the
mortgagee can claim to the ownership of the property
ostensibly sold under that document
CIT Vs Chandulal Kamdar (Mad) 252 ITR 350
CAPITAL GAINS 397
• Assessee firm dissolved on 06.04.89 – In AY 91-92 there was

distribution of capital assets among partners – Capital Gains
assessable u/s 45(4) in AY 91-92 in the status of AOP
Kothari Vora Associates Vs ACIT (ITAT, Pune) 57 ITD 171
• Capital gains invested in bank and claimed exemption u/s 54F

Not utilized within the 3 year period – Chargeable u/s 45 as
income of the previous year in which the 3 year period expires
Ranjit Narang Vs CIT (All) 317 ITR 332
Joint Development Agreement

• Joint Development agreement – Deemed transfer under section
53A of the Transfer of property Act – Section 2(24) applies
There is a written agreement – When limited / irrevocable
Power of Attorney is given to developer, transfer takes place
Chaturbhuj Dwarakadas Kapadia Vs CIT (Bom) 260 ITR 491
Jasbir Singh Sarkaria IN RE (AAR) 294 ITR 196
Rubab M. Kazerani Vs JCIT (ITAT, Mum-TM) 91 ITD 429
• Joint development agreement – Relevant date for attracting

Capital gains is date on which possession was handed over to
the developer and not the date of completion of the project
CIT Vs T.K. Dayalu (Kar) 60 DTR 403
• Owner of land – entered into Joint Development agreement

Possession handed over in 1992-93 – Irrevocable Power of
Attorney issued to builder on 10-09-03 to sell his portion of
land – Property stood converted into stock-in-trade on signing
the Joint development agreement and this amounts to transfer
u/s 2(47)(iv) – Date on which irrevocable power of attorney
executed is the date of sale of stock-in-trade – Both Capital
gains and Business Profits assessable in A.Y. 2004-05
Tej Pratap Singh Vs ACIT (ITAT, Del) 127 ITD 303
• Agreement of sale of land made on 05-09-02 and sale

consideration was paid prior to that – Power of attorney
executed on 05-09-02 and registered on 21-11-02 – Once a
document is registered, it is effective from the date when it was
executed – Possession deemed to have given on 05-09-02 –
Transfer took place on 05-09-02
V. Rama Chandra Construction (P) Ltd. (ITAT, Agra-TM) 131 ITD 71
• Owner of land enters into an agreement to sell all development

rights to a developer – Neither entire plot was transferred nor
consideration estimated in agreement was obtained – Transfer
had taken place in stages – Capital Gains to be worked out on
basis of sale consideration actually received during the year in
respect of portion of land transferred in that year only.
Shivram Co-operative Housing Society Ltd. Vs DCIT (ITAT, Mum) 70 ITD 8
CIT Vs K. Jeelani Basha (Mad) 256 ITR 282
CAPITAL GAINS 399
WHETHER SHORT-TERM / LONG TERM ?

• Long-term capital asset, long-term capital gains, short-
term capital asset and short-term capital gains defined in
sec. 2(29A), (29B), (42A) and (42B). For computing the
period of holding, specified conditions prescribed for
certain assets. In general, period is 36 months from the date
of transfer.
• Exception :- For shares, security listed in stock
exchange, units of UTI or mutual fund specified u/s
10(23D) or Zero Coupon Bond – 12 months from the
date of transfer
• Transfer of capital asset – Whether Long Term or Short Term ?

Depends on law as on the date of transfer since taxable event
occurs on the date of transfer of the asset – Computation has to
be made on the basis of law appearing on the first day of the
A.Y.
CIT Vs Nirmal Textiles (Guj) 224 ITR 378
• Allotment of land to assessee under lease-cum-sale agreement

in 1972 – Sale deed executed in favour of assessee in 1982 The
same brought about a merger of lesser interest held by him in
the bigger estate acquired by him under the sale deed upon
acquiring the title - Assessee cannot keep the two capacities,
one of leasehold rights and the other of ownership, separately -
Transfer of property in 1983 – What the assessee transferred
was the right held by him from the date of sale deed in his
favour and not what he held earlier to that –Short Term Capital
Gains arises
CIT Vs V.V. Mody (Kar) 218 ITR 1
CIT Vs D.A. Irani (Bom) 234 ITR 850
• Sale of land and building – Land held for more than 3 years and
building less than 3 years – Bifurcate gains into Short Term &
Long Term
CIT Vs Lakshmi B. Menon (Ker) 264 ITR 76
CIT Vs Citi Bank (Bom) 261 ITR 570
CIT Vs Dr. D.I. Ramachandra Rao (Mad) 236 ITR 51
• Building obtained on lease for 99 years – Sub-lease of building

CAPITAL GAINS 401
within 3 years – Excess received over cost of acquisition

assessable is short term capital gains
G. Seetha Kamrajj Vs CIT (AP) 284 ITR 54
• Assessee enters into purchase agreement, pays entire sum and

take possession of property and get Power of Attorney from
vendor – Transfer the property within one year – Short Term
Capital Gains
Assam Vegetable & Oil Products Ltd. Vs CIT & Anr (Gau) 264 ITR
47
• Assessee entered into an agreement for purchase of 3 shops on

1-11-1990 - On 15-12-1995, assessee agreed to sell these
shops under construction to IDBI – Finally sale deed was
executed on 12-05-1998 whereby possession was directly
given by owner to IDBI – It is deemed that assessee obtained
possession of this property on 12-05-1998 and transferred the
same to IDBI on the same day – Short term capital gains arises
in A.Y. 1999-00
Mangala Dilip Sable Vs JCIT (ITAT, Pune) 104 ITD 204
• Property taken over by partner on dissolution of firm – Since

firm was dissolved after 01-04-1987, benefit of sec. 2(42A)
r.w.s 49(1)(iii)(b) not available – Period of holding to be
reckoned from the date of dissolution of the firm
P.P. Menon Vs CIT (Ker) 325 ITR 122 ; 227 CTR 573 ; 31 DTR 159
• Property transferred by firm to partner- Partner sold the said

property within 2 years – Short term Capital gains – Fact that
the property was registered in the name of the partner even
when firm was holding it, is irrelevant – As per the books of
account of the firm, the purchase was made by the firm initially
and lateron transferred to the partner
Shantilal J. Jain & Anr. Vs Addl. CIT (ITAT, Mum) 32 DTR 91 ; 31
SOT 457
• Held shares in a company by virtue of which right of

occupancy in a flat was obtained – Sold these shares after 25
months – The real asset involved in this transaction was the flat
and not the shares - Short Term Capital Gains
ITO Vs Nayana K. Shah (ITAT, Mum) 74 ITD 419.

Bhoruka Engineering Industries Ltd. Vs DCIT (ITAT, Bang) 9 ITR(Trib) 75
• Conversion of debentures into shares – Sale within 12 months

of such conversion – Short Term Capital Gains
A. Ghosh Vs CIT (Cal) 141 ITR 45
• Equity shares of a company converted into new set of four

different shares including irredeemable preference shares
Equity shares held earlier and preference shares acquired in
exchange thereof were not the same since the rights and
obligations attached to them were different as per the
Companies Act – Hence period of holding of equity shares
cannot be considered for determining the period of holding of
the transferred asset
CIT Vs Santosh L. Chowgule (Bom) 234 ITR 787
• Assessee becomes owner of shares only when share

certificates are issued by the company specifying the
distinctive numbers and not when the share application money
was paid by assessee - Period of holding of shares to be
computed from such issue / allotment date since assessee got
legal title to the shares only form that date
Zubin George Vs CIT (Ker) 265 ITR 683
Moral Trading & Investment Ltd. Vs DCIT (ITAT, Del) 7 ITR (Trib) 548 ; 127
ITD 127
• Right to subscribe shares / debentures comes into existence

only when company decides to come out with offer and not
earlier – Prior to that, such right, though embedded in the
shareholding, remains inchoate - Capital gains on renunciation
of right – Crucial dates are date on which right comes into
existence and date of renunciation of such right
Navin Jindal Vs ACIT (SC) 320 ITR 708
• Date from which bonus shares are held – From date of issue
only and not earlier to it – Bonus shares sold within 1 year of
allotment – Short Term Capital Gains
CIT Vs Chunital Khushaldas (Guj) 93 ITR 369
Manecklal Premchand Vs CIT (Bom) 186 ITR 554
• Employee Stock Option Scheme – Period of holding of shares

CAPITAL GAINS 403
to be reckoned from date of allotment only and not from the

date the right to purchase vested with assessee
Giridhar Krishna Vs ACIT (ITAT, Bang) 118 ITD 177; 307 ITR (AT) 68
DCIT Vs Vijay Gopal Jindal (ITAT, Del) 120 ITD 589
ACIT Vs Pramod H. Lele (ITAT, Mum) 47 SOT 363
• Stock-in-trade converted to investment and sale thereafter

Period for which asset was held as stock-in-trade will not be
considered to decide whether it is a long-term or short-term
capital asset.
Splendor Constructions (P) Ltd. Vs ITO (ITAT, Del) 27 SOT 39
TRANSFER BY WAY OF COMPULSORY

ACQUISITION
• Transfer by way of compulsory acquisition or
consideration determined / approved by Cen. Govt. or RBI
- Compensation or consideration received
• At first instance – Taxable in the year of receipt
• Enhancement of amount – Taxable in the year of receipt
• Subsequent reduction – Re-compute capital gains in
respective year
On death of transferor enhanced compensation or consideration
is received by any other person- taxable in the hands of such
person [sec. 45(5) ]
• Compulsory acquisition of land – Solatium awarded in

addition to compensation – Solatium to be taken into account
in calculating capital gains.
CIT Vs K.C. Mahajan (P&H) 234 ITR 235
CIT vs M. Subaida Beevi (Ker) 160 ITR 557
Vadilal Soda Ice factory Vs CIT (Guj) 80 ITR 711
• The amount awarded u/s 23(1) of the Land Acquisition Act on

account of the damage sustained by the person interested or his
other property or earnings at the time of taking possession of
the land, also represents compensation for land acquisition
P. Mahalakshmi Vs CIT (SC) 255 ITR 647
• Sec. 45(5) – Enhancement of compensation taxable as Capital

gains irrespective of the fact that the original land transferred
was agricultural land or not
Sajjansinh N. Chauhan Vs ITO 2010-TIOL-508-HC-AHM-IT
• Payment made by assessee to tenant in regard to surrender of

Tenancy right Is not expenditure incurred in connection with
compulsory acquisition.
CIT Vs R. Ranga Setty (Kar) 159 ITR 797
CAPITAL GAINS 405
Year of taxability
• Compulsory acquisition of land – Gains chargeable in the year
of acquisition – Enhanced compensation chargeable in the year
of receipt irrespective of appeal pending in Court – Interest u/s
28 of Land Acquisition Act, 1894 unlike interest u/s 34, is an
accretion to the value and hence, it is a part of enhanced
compensation u/s 45(5)(b) – Since the enhanced compensation
/ consideration, including interest, becomes payable at
different stages, the receipt of enhanced compensation /
consideration is to be taxed in the year of receipt, subject to
adjustment, if any, u/s 155(16) lateron – Even in cases where
pending appeal, the Court / Tribunal / authority permits the
claimant to withdraw the disputed enhanced compensation
against security or otherwise, the same is liable to be taxed u/s
45(5)(b) in the year of receipt which is only reinforced by
insertion of cl. (c) accrues in the year in which matters reach
finality
CIT Vs Ghanshyam (HUF) (SC) 315 ITR 1
• Even if compensation is enhanced by interim order, it will be

taxable on receipt basis
C.P. Jacob Vs ACIT (Ker) 174 Taxman 154
• Date of transfer is date of notification in acquisition cases.

G.M. Omer Khan Vs Addl. CIT (SC) 196 ITR 269
• Transfer of property on compulsory acquisition takes place on

delivery of possession by the land owner – Capital Gains
taxable in the year of handing over delivery of possession –
Relevant acquisition Act to be considered
CIT Vs Sodhi Harbhajan Singh (P&H) 43 DTR 31 ; 233 CTR 588
CIT Vs Sheggy Abdulla (Ker) 243 ITR 792
J. Raghothama Reddy Vs CIT (AP) 195 ITR 895
Addl. CIT Vs New Jehangir Vakil Mills Co. Ltd. (Guj) 117 ITR 849
Syed Abdulla Basir Vs CIT (Raj) 170 ITR 566
Harish Chandra Vs CIT (Del) 154 ITR 478
Buddaiah Vs CIT (Kar) 155 ITR 277
CIT Vs Subodh Kumar Jain (MP) 221 ITR 802
B.C. Gupta and Sons Ltd. Vs CIT (Gau) 221 ITR 53
Dollar Company Vs CIT (Mad) 107 ITR 280
DISTRIBUTION OF ASSETS BY COMPANY ON

LIQUIDATION (sec.46A)
• When assets of company distributed to shareholders on
liquidation, it is not treated as transfer – But shareholders
will be assessed to Capital gains - Moneys or market value
of other assets on the date of distribution as reduced by
deemed dividend will be the full value of consideration
• Sec. 46(2) is an independent charging section – Sec. 46(2) does

not make any reference to capital assets and the ambit of sec.
46(2) cannot be whittled down by excluding assets which are
excluded from the definition of capital assets – By using the
word 'assets' in sec. 46 was to bring assets of all kinds within
the scope of the charge - Agricultural lands received on
liquidation of company by shareholders is assessable u/s 46(2)
Expenditure incurred in connection with the transfer not
deductible while computing capital gains u/s 46(2)
N. Bhagavathy Ammal Vs CIT & Anr.(SC) 259 ITR 678
• Sec. 46(2) is a charging provision independent of sec. 45 and

applicability of that section cannot be excluded because the
general section like sec. 45 does not apply
CIT vs M.A. Chidambaram (Mad) 147 ITR 180
CAPITAL GAINS 407
TRANSFER OF DEPRECIABLE ASSETS

(sec. 50 & 50A)
• Applicable when assets forming part of block of assets on
which depreciation was allowed, is transferred
• If full value of consideration exceeds

• Expenditure incurred wholly and exclusively in
connection with such transfer,
• WDV of the block at the beginning of the year, and
• Cost of assets falling within such block purchased during
the year Such excess is Short term Capital gains
• If assessee has attributed specific price / cost to each asset, it is

not a case of slump sale – Agreement, valuation reports,
treatment of transfer by vendor and vendee in their books of
accounts, correspondence with financial institutions and other
related circumstances will reveal the intention as to whether
the transfer was slump sale or itemized sale - Capital gains to
be assessed u/s 50
Essar Steel Ltd. Vs DCIT (ITAT, Ahd-TM) 97 ITD 125
CIT Vs Artex Manufacturing Co. (SC)227 ITR 260
Anand Electric Co. Ltd. Vs CIT (Bom) 237 ITR 587
L.H. Sugar Factories Ltd. Vs ACIT (ITAT, Luck) 86 TTJ 1012
Mahindra Sintered Products Ltd. Vs DCIT (ITAT, Mum) 95 ITD 380
Kishorchand K. Bansal Vs DCIT (ITAT, Ahd) 80 ITD 585
• Where itemized sale of assets and liabilities of an undertaking

takes place, the nomenclature of 'slump sale' cannot be
assigned thereto and in such a case Short term capital gains
arises u/s 50
Harvey Heart Hospitals Ltd. Vs ACIT (ITAT, Chennai) 36 DTR 201, 130 TTJ 700
• Sec. 50 apply where profit accrues to assessee on transfer of

any depreciable asset whereas sec. 32(1)(iii) apply where
assessee suffers a loss on sale of such assets.
Mukund Global Finance Ltd. Vs DCIT (ITAT, Mum) 117 ITD 20
• Though balance WDV of a block of asset is NIL, still the Block

exists and sale of such assets will result in Short Term Capital
Gain
Ulka Advertising (P) Ltd. Vs DCIT (ITAT, Mum) 94 ITD 282
• Asset used in business and claimed depreciation

Discontinuance of business and assets let out – Subsequently
sold assets – Sec. 50 applies
Chhabria Trust Vs ACIT (ITAT, SB-Mum) 87 ITD 181
• Profit on sale of asset on which depreciation claimed

Assessable as Short term Capital gains u/ 50 – The fact that it
was shown as investment in Balance sheet is not r elevant
CIT Vs Sakthi Metal Depot (Ker) 37 DTR 153; 333 ITR 492
• Assets acquired prior to 01-04-1988 – No depreciation claimed

thereafter Transfer of such assets – Sec. 50 is attracted and
surplus over WDV taxable as Short Term Capital gains
Shree Changdeo Sugar Mills Ltd. Vs JCIT (ITAT, Mum) 58 DTR 340
• Capital assets in respect of which depreciation has been

obtained – Option of substituting fair market value as on
prescribed date is not available to such an asset – Sec. 50(1)
applicable – There is no mention of “fair market value” in sec.
50(1) and the adjustments stated therein are with reference to
the WDV only having nothing to do with fair market value
Neither there is any conflict between the provisions of sections
and 50 and 55(2) nor has the former any dependence over the
latter
Commonwealth Trust Limited Vs CIT (SC) 228 ITR 1
• Benefit of indexation not available while computing capital

gains u/s 50 – For applying sec. 50 asset need not continue to
suffer depreciation during the A.Y. – An asset on which 100%
depreciation allowed in preceding years u/s 32(1) proviso, is
also subject to sec. 50 when it is sold
M. Raghaan Vs ACIT (Mad) 266 ITR 145
• When capital gains arising from transfer of a depreciable asset

is computed u/s 50, provisions of sec. 50C can be applied so as
to adopt the value assessed for the purpose of payment of
stamp duty
ITO Vs United Marine Academy (ITAT, SB-Mum) 54 DTR 177 ; 9 ITR(Trib) 639 ;
130 ITD 113
CAPITAL GAINS 409
CAPITAL GAINS IN CASE OF SLUMP SALE

(Sec. 50B)
• Cost of acquisition is net worth of the transferred
undertaking.
• Networth is aggregate of the value of total assets as reduced

by value of liabilities of that undertaking
• Change in valuation of assets on account of revaluation to

be ignored
• Total value of assets = WDV (in case of depreciable assets) +

NIL (in case of assets on which deduction claimed u/s 35AD
+ book value (other assets)
• Slump sale defined in sec. 2(42C)
• Assessee transferred its undertaking by way of slump sale

While computing Networth for the purpose of sec. 50B,
depreciation has to be allowed on the assets sold in slump sale
upto the date of transfer and allowable depreciation has to be
computed for all the years after 1st April, 1988 for computing
value of assets to be reduced from block of assets irrespective
of the fact whether assessee had charged depreciation in its
books or not
DCIT Vs Warner Lambert (India) (P) Ltd. (ITAT, Mum) 56 DTR 121
• When assessee sold one of its industrial unit as a whole and as a

continuing business concern with assets and liabilities for a
consolidated sum, it is slump sale as per sec. 2(42C) assessable
under sec. 50B
CIT Vs Accelerated Freeze Drying Co. Ltd. (Ker) 198 Taxman 18 ; 337 ITR 440
• Networth of a going concern can be negative when value of

liabilities exceed the aggregate value of all assets – If the
amount of networth is negative, it should be added to the full
value of consideration for computation of Capital Gains u/s
50B
In case the book value of all the liabilities is more than the book
CAPITAL GAINS 411
value / WDV of all the assets, it is quite natural that the capital
gains on the transfer of the undertaking will be more than the
full value of consideration because of the reason that the value
of liabilities undertaken by the transferee stands embedded in
and has the effect of reducing the full value of consideration
accordingly.
DCIT Vs Summit Securities Ltd. (ITAT, SB-Mum) 68 DTR 201
• Scheme of arrangement sanctioned by High Court u/s 391 to

394 of the companies Act, 1956 through which assessee
transferred certain business undertakings to its subsidiaries – It
is a slump sale taxable u/s 50B – Any type of transfer which is
in the nature of slump sale ie. when lump sum consideration is
paid without values being assigned to individual assets and
liabilities are covered by the definition of cl. 2(42C) and then
by sec. 50B – It is not correct to construe and regard the word
'slump sale' to mean that it applies to sale in a narrow sense
SREI Infrastructure Finance Ltd. Vs ITSC 2012-TIOL-277-HC-DEL-IT
PROVISIONS TO AVOID SUPPRESSION OF

CONSIDERATION ON TRASNFER (sec. 50C)
• If consideration received or accruing on transfer of land or
building or both is less than the value adopted / assessed /
assessable (w.e.f 01-10-2009) by stamp valuation authority,
value so adopted will be deemed as full value of
consideration
• If assessee objects to such value before the assessing Officer

and has not filed any appeal or revision before any
authority or Court, then Assessing officer to refer matter to
Valuation Officer who will determine market value –
However such value cannot exceed the value fixed by
stamp valuation authorities
• In Navneet Kumar Thakkar Vs ITO (110 ITD 525)

Jodhpur Bench of ITAT held that if a transaction in
immovable property does not require registration
(transactions such as entering into joint development
agreement etc.), section 50C would have no applicability.
Subsequently the word “assessable” was inserted in sec.
50C by Finance (No.2) Act, 2009 w.e.f. 01-10-2009 to take
care of such situations
• When capital gains arising from transfer of a depreciable asset

is computed u/s 50, provisions of sec. 50C can be applied so as
to adopt the value assessed for the purpose of payment of
stamp duty
ITO Vs United Marine Academy (ITAT, SB-Mum) 54 DTR 177 ; 9 ITR(Trib) 639 ;
130 ITD 113
• For invoking provisions of sec. 50C, Assessing Officer need

not record a finding that assessee received more consideration
than what has been shown in the sale deed – When assessee did
not claim before the Assessing Officer that value adopted by
stamp valuation authority was more than the fair market value
of the said property, there is no need for Assessing Officer to
make reference to DVO
Sharad Dinesh Photographer Vs ITO (ITAT, Mum) 43 SOT 452
Ambattur Clothing Co. Ltd. Vs ACIT (Mad) 326 ITR 245
CAPITAL GAINS 413
COMPUTATION OF CAPITAL GAINS

• Deductions allowable [sec. 48] :
• Expenditure incurred wholly and exclusively in
connection with transfer, and
• Indexed cost of acquisition and indexed cost of
improvement
• If a non-resident transfers shares and debentures of an

Indian company, compute capital gains in the same foreign
currency in which purchase was made and then re-convert
it into Indian currency Indexation benefit not available
[sec. 48]
• Indexation benefit not available for transfer of long term

capital assets being bonds or debentures other than Capital
indexed bonds issued by Govt. [sec. 48]
• Securities Transaction Tax paid is not allowable as

deduction [sec. 48]
• Indexed cost of acquisition, Indexed cost of improvement

and Cost inflation index defined. [sec. 48]
• Cost with reference to certain modes of acquisition

prescribed [sec. 49]
• Advances received on earlier negotiation for transfer &

retained by assessee to be reduced from cost of acquisition /
WDV [sec. 51]
• Cost of acquisition and cost of improvement defined

[sec.55]
• Power to make reference to Valuation Officer for

ascertaining fair market value of an asset [sec. 55A]
• Short-term capital gains on sale of equity shares in a

company or unit of an equity oriented fund on which
Securities Transaction Tax (STT) paid – chargeable @
15% [10% till 01-04-2009] – Deductions under chapter VI-

A will not be available on such income [sec. 111A]
• Long term capital gains will be charged @ 20%

Deductions under chapter VI-A will not be available on
such income [sec. 112]
• If tax payable on long term capital gains on transfer of

listed securities or units, or zero coupon bond exceeds 10%
of the amount of capital gains before giving indexation
benefits, such excess shall be ignored [sec. 112]
CAPITAL GAINS 415
Full value of Consideration

• Immovable Property of assessee mortgaged to State for kist
payment – Government selling property – Dues realized by
State and balance paid to assessee – Capital Gains to be
computed on the total sale price.
CIT Vs Attili N. Rao (SC) 252 ITR 880
• Money received from prospective buyer for settling a claim of

another party – Part of sale consideration – Not to be excluded
CIT Vs Bradford Trading Co. P. Ltd. (Mad) 261 ITR 222
• Partition of HUF consisting of assessee, wife and 2 sons

Assessee and wife got one property and on sale of such
property, certain amount was paid to son for acquiring his share
of interest – Not deductible from sale proceeds
ITO Vs Lalitaben Hariprasad Shah (ITAT, Ahd) 64 ITD 25
• Conveyance of property for less than market value Difference

between price paid and market value taxed as gift under Gift
Tax Act – Does not debar assessment of capital gains under I.T.
Act.
CIT Vs Shyam Narain Mehrotra (Cal) 122 ITR 313
• Capital Gains can be computed on the basis of sale agreements

seized during search and confirmed by others in the transaction
P. Govindaswamy Vs CIT (ITAT, Mad-TM) 72 ITD 57
• Joint Development agreement entered into with a builder

Assessee, land owner received 35% constructed area in
addition to sum of Rs. 66 lakhs – Total sale consideration is
proportionate cost of 35% constructed area plus Rs. 66 lakhs
Cost of 65% of land area to be deducted to arrive at the capital
gains
Mavany Bros. Vs DCIT (ITAT, Panaji) 112 ITD 68
• Controlling interest in the company is an incidence of

shareholding and has no independent existence – It is by reason
of control over the shares that the shareholder is able to
exercise control over the management – No deduction in sale
price can be made on account of price paid towards acquiring
controlling interest in the company
Venkatesh & Ors. Vs CIT (Mad) 243 ITR 367
• Exchange of shares – Market value of shares received to be

considered to arrive at the Sale consideration
Orient Trading Co. Ltd. Vs CIT (SC) 224 ITR 371
CAPITAL GAINS 417
Cost of acquisition and improvement

• To arrive at the value as on 1-4-1981, taking the market value
on any date after 1-4-1981 and applying cost inflation index in
a reverse manner, is not correct method
Hiralal Lokchandani Vs ITO (ITAT,SB-Kol) 106 ITD 45
• Capital Gains computation – Value as on 1.4.81 – Value

declared for WT purpose can be taken
D.N. Prasanna Kumar Vs ACIT (ITAT, Bang) 60 ITD 109
• DVO has to value even agricultural land –If Assessing Officer

makes reference, DVO cannot decline
Thulsi Rajkumar Vs ACIT 2010-TIOL-515-ITAT-MAD
• Assessee, tenant, vacated premises he was holding on rent and

got right to possess a floor space of 15000 sq.ft. in new
building - As per this agreement, he paid Rs. 1200 pm for 20
months – Conversion of tenancy right to floor space in new
building – No Capital Gain arise – Transfer of floor space in
new building – Capital Gains arises - Cost of this asset is 20 x
1200
ACIT Vs G.D. Thirani (ITAT, Cal) 70 ITD 148
• To invoke provisions of sec. 55A, the only requirement is that

after considering the nature of asset and relevant
circumstances, Assessing Officer should opine that it is
necessary to refer to DVO
DCIT Vs Chaturbhuj Vallabhdas (HUF) (ITAT, Mum) 130 ITD 230
• Cost of acquisition as on 01-04-1981 – Reference to DVO

upheld – Valuation charges incurred by assessee – Not spent in
connection with cost of acquisition or cost of improvement of
asset – Not deductible
Vijaykumar M. Shah Vs DCIT (ITAT, Mum) 124 ITD 93; 2 ITR (Trib) 116
• Value of shares taken over by the assessee company on

amalgamation is to be taken as the proportionate amount of
total purchase consideration vis-à-vis entire assets of the
amalgamating company and not the book value thereof in the
hands of the latter for the purpose of determining the gains or
loss arising on sale of such shares by the assessee at a later

stage
CIT Vs Mahindra & Co. Ltd. (Raj) 326 ITR 465; 21 DTR 211
• Property received on liquidation of company in which assessee

held shares When property was sold, for computing capital
gains assessee took cost of purchase of shares as cost of the
transferred asset – Not sustainable – As capital asset became
property of the assessee on distribution of assets by the
company on liquidation, cost to be taken as the cost to the
previous owner as per sec. 49(1)(iii)©
ACIT Vs T.R. Srinivasan (ITAT, Chennai) 36 SOT 312
• On death of husband, a property owned by him devolved upon

assessee and her children – Children relinquished their share in
favour of assessee for a consideration of Rs. 60,000 – When
this property was sold by assessee, cost of acquisition was
taken at Rs. 60,000 in respect of the shares relinquished by
children – Upheld
M. Suseela Vs ITO (ITAT, Visakh) 125 ITD 253
• Agreement for purchase of a flat entered into on 16-03-1981

But construction of flat was completed only in 1988 and
possession was handed over then only – Flat became property
of assessee only in 1988 and hence assessee cannot take market
value as on 01-04-1981 as cost of the asset
DCIT Vs Kishore Kanungo (ITAT, Mum) 102 ITD 437
• Transfer of property by partners to firm – Subsequent transfer

of such property back by the firm to partners in the current
previous year – Cost shown in books when firm took over the
property is the cost of acquisition of the property in the hands
of firm and not the market value on the date of such takeover.
CIT Vs Haridoss Purushothamdoss (Mad) 234 ITR 711
• Debentures converted to shares & sold within 1 year – Cost of

acquisition of such shares is the price which the debenture
would have fetched in open market on the date of conversion
A. Ghosh Vs CIT (Cal) 141 ITR 45
• Subsequent issue of bonus shares to be taken into account to

CAPITAL GAINS 419
reduce cost of acquisition of original shares

Sumanth Ramanujam & Anr. Vs CIT (SC) 248 ITR 818
M.B. & Co. Ltd. Vs CIT (Mad) 198 Taxman 168
• Assessee obtained warrants by virtue of his holdings of Bonds

in the company– Original cost of shares could not be spread
over for working out the cost of acquisition of warrants – Cost
of acquisition of warrants to be taken at Nil in view of Sec.
55(2)(aa)
Bharat S. Shah Vs JCIT (ITAT, Mum) 101 ITD 200
• Shares in amalgamated company received by share holders of

amalgamating company – Transfer of such shares
subsequently – Cost to be taken as cost of shares in
amalgamating company
CIT Vs Grace Collis (SC) 248 ITR 323
• Assessee purchasing agricultural Land and selling it for non-

agricultural purpose - Actual cost of acquisition to be
considered and not notional cost on conversion to non-
agricultural purpose – Here the property was not a capital asset
on the date of acquisition but subsequently became a capital
asset prior to its sale – Cost of acquisition must be only with
reference to its date of acquisition and not with reference to the
date on which it became a capital asset
Meccane Industries Ltd. Vs CIT (Mad) 254 ITR 175
Ranchhodbhai Bhaijibhai Patel Vs CIT (Guj) 81 ITR 446
CIT Vs M. Ramaiah Reddy (Kar) 158 ITR 611
CIT Vs M. Subaida Beevi (Ker) 160 ITR 557
• Individual throwing property into hotch pot of HUF – Sale of

property by family – Cost of property for the purpose of
computing capital gains in the hands of HUF is, cost to
individual.
CIT Vs S. Krishnamurthy (Mad) 152 ITR 669
CIT vs N.N. Mohan & Sons (Del) 250 ITR 131
• Assessee purchased property and threw it in common stock of

HUF – Thereafter acquired the property on HUF partition –
Cost of acquisition is the cost for which assessee purchased it
earlier
CIT Vs Harbhagwan (P&H) 236 ITR 620
• Advance money received on earlier occasion not refunded

Property not sold also – Reduce it from cost of assets
Smitha N. Shah Vs JCIT (ITAT, Mum) 94 ITD 492
• Purchase of shares at par – Gift of shares to AOP with option to

revoke gift after 74 months and value excluded from net wealth
Revocation of gift and sale thereafter – Assessee's right of
revocation during subsistence of gift having NIL value, cost of
asset is NIL – No cost deductible in computing capital gains
Jayakumar B. Patil Vs DCIT (ITAT, Pune) 290 ITR(AT) 163
• Assessee builder received on-money towards flats to be sold to

customers – Such on money was assessed as income from
Other Sources in earlier years – Subsequently some of the sale
proposals were cancelled and sale of such property was made
to third parties – Assessee claimed that such on-money
received from the original investors are to be refunded once the
property is sold to third parties and hence it has to be deducted
while computing capital gains – Since the on-money was
assessed as income from other sources, it has no relevance for
computation of capital gains – The sale agreement with third
parties do not show any such encumbrance attached to the
property agreed to be sold - Hence not deductible
Vijendra Manjunath Shenai Vs CIT (Bom) 260 ITR 176
• Assessee transferred the right to receive royalty – Before such

transfer assessee did not receive some installments of royalty
due to it from another company – But the interest accruing on
such defaulted payments was charged to tax as assessee was
following mercantile system of accounting On sale of the
rights to receive royalty, interest due from the earlier defaulter
cannot be taken as cost of acquisition or cost of improvement
Fact that the assessee suffered tax on unrecovered interest
cannot entitle the assessee to claim such deduction while
computing capital gains
Industrial Credits and Development Syndicate Vs CIT (Kar) 251 ITR 720
• Gift of property to assessee by her father – Suit by third party

claiming title to property compromised by assessee paying
Rs.7000 – Amount paid is not cost of acquisition or cost of
improvement – Improvement of title to asset is different from
CAPITAL GAINS 421
improvement to asset itself – Amount paid is not deductible

while computing capital gains on sale of property.
CIT Vs V. Indira (Mad) 119 ITR 837
• Urban land tax and Corporation tax paid by vendor – Not

deductible in the Capital Gains computation
CIT Vs Sas Hotel (P) Ltd. (Mad) 246 ITR 729
• Ground rent paid for taking the purchased plot in possession is

in the nature of expenditure on maintaining the capital asset
and not for acquisition thereof – Hence not includible in cost of
acquisition
CIT Vs Mithlesh Kumari (Del) 92 ITR 9
• Estate Duty paid is not part of cost of acquisition of property /

cost of improvement – The accountable person becomes full
owner of property before payment of estate duty – The charge
created under Estate duty Act does not create any interest in the
property and hence the title held by the accountable person is
complete
• Discharge of mortgage created after acquisition of property
not deductible from Capital Gains .
RM. Arunachalam etc. Vs CIT (SC) 227 ITR 222
V.S. M.R. Jagadishchandran (Decd) by LRs Vs CIT (SC) 227 ITR 240
• Assessee sold a property inherited by her which was under

attachment by the I.T. Department towards tax dues – Assessee
paid taxes out of the sale proceeds – Amount so paid was not
taxable since it could not be treated as expenditure incurred for
making any additions or alterations to the asset
K. Sarala Devi Vs CIT (Ker) 222 ITR 211
• Interest paid on provident fund loan / advance taken for

construction of house – The money paid by assessee by way of
interest went to his own account in the provident fund and
remained his own money – Hence not deductible while
computing capital gains as it is not a payment to the
Government
Vashist Bhargava Vs CIT (Del) 99 ITR 148
• Assessee firm purchasing land by utilizing capital contributed

by partners Interest on capital paid to partners does not

increase cost of acquisition of asset – Not deductible while
computing Capital Gains
M.L.G. Enterprises Vs CIT (Kar) 167 ITR 11
• While purchasing shares of a company, certain amount was

paid to promoters of vendor company as non-compete fee Not
deductible as cost of acquisition or cost of improvement of
shares
ICL Securities Ltd. Vs ACIT (ITAT, Chennai-TM) 312 ITR (AT) 197
• Expenditure on general maintenance of property – Tiles laying,

white washing, electrical re-wiring, wood work etc. are not for
improvement of property – Not deductible while computing
capital gains
Kiran Bansal Vs ACIT (ITAT, Del) 10 ITR (Trib) 180
S. Sudha Vs ACIT (ITAT, Chennai) 10 ITR (Trib) 206 ; 131 ITD 575
CAPITAL GAINS 423
Expenditure incurred in connection with transfer
• Permission to sell leasehold rights granted to assessee on

payment of unearned increase to the Govt. – Since there was
delay in making such payment, interest was charged – Such
interest payment was not a part of unearned increase – It was in
the shape of damages for late payment of unearned increase –
Cannot be treated as expenditure incurred wholly and
exclusively in connection with the transfer
Sita Nanda Vs CIT (Del) 251 ITR 575
• Sale of Property – Amount embezzled by person who assisted

in sale – Not deductible - Assessee lost the amount in his
capacity as owner and not in the course of transaction
Naozar Chenoy Vs CIT (AP) 234 ITR 95
G.Y. Chenoy Vs CIT (AP) 234 ITR 89
• Retrenchment compensation paid to ex-employees on sale of

business assets – Not deductible u/s 48(1) as compensation so
paid has no connection with the transaction of sale of land and
building and it is connected only with the closure of the
business
CIT Vs Radio Talkies (Bom) 238 ITR 872
• Assessee got property by will – As per will, sum of Rs. 30,000

was paid to sisters – This is not deductible from Capital Gains
computed since assessee opted for substituting the market
value as on 01-01-1954 u/s 55(2).
Rugmani Varma Vs CIT (Mad) 222 ITR 357
• Assessee allowed his brother to stay with him – When he sold

the flat, certain amount was paid to brother to vacate Flat – Not
deductible while computing capital gains as it is not a family
arrangement .
ITO Vs Narendra S. Kapadia (ITAT, Mumbai) 58 ITD 329
• Payment made to daughter at the time of sale of property

though under consent decree, is not deductible u/s 48 since not
incurred wholly and exclusively in connection with the
transfer.
Krsuhnadas G. Parikh Vs DCIT (ITAT, Ahd) 114 ITD 362
• Obligation on the part of the assessee for making provision for

marriage of his sister and liability was created under the terms
of a partition deed – Assessee sold such property received on
partition – No deduction towards aforesaid liability is
allowable as deduction while computing capital gains as it
cannot be considered as an expenditure incurred wholly and
exclusively in connection with the transfer
CIT Vs A. Venkataraman (Mad) 137 ITR 846
• On retirement of partner from firm, partner received amount

considering the assets and liabilities of firm – Partner claiming
capital losses against such transfer on the ground that he
suffered losses in firm for several years prior to retirement Not
allowable
Siddharth Mehta Holding P. Ltd. Vs CIT (Mad) 260 ITR 286
• Fee paid for Portfolio management services cannot be

considered as cost of acquisition or cost of improvement of
shares – Not inextricably linked with purchase and sale of
shares – Not deductible – Does not amount to diversion by
overriding title
Devendra Motilal Kothari Vs DCIT (ITAT, Mum) 50 DTR 369 ; 132 ITD 173
• Amount paid for obtaining Valuation report was to support its

computation of Capital gains for Income tax purposes – Hence
cannot be considered as expenditure incurred wholly and
exclusively in connection with sale of capital asset
Sarla N. Sakraney Vs ITO (ITAT, Mum) 130 ITD 167
• Legal fees etc. Paid to lawyers for filing petitions u/s 397 & 398
before CLB and for making appearance before CLB prior to
passing of final order giving green signal for transfer of shares
are not admissible for deduction
Compagnie Financiere Hamon, In Re (AAR) 310 ITR 1
• Deduction not admissible towards mental agony and suffering

underwent while transferring the property
B.N. Pinto Vs CIT (Mys) 96 ITR 306
CAPITAL GAINS 425
Rate of tax
• Short term capital gains from equity shares or unit of an
equity oriented fund on which Securities Transaction Tax
paid – 15% (10% upto 01-04-2009)
• Resident individuals and HUF - @ 10% on total income
(including such short term capital gains ) exceeding the
maximum amount not chargeable to tax
• Deduction under Chapter VI-A or sec. 88 not eligible
[sec. 111A]
• Long term capital gains

• Resident individuals and HUF - @ 20% on total income
(including such short term capital gains ) exceeding the
maximum amount not chargeable to tax
• Others - @ 20%
• Deduction under Chapter VI-A or sec. 88 not eligible
[sec. 112]
• If tax payable in respect of long term capital gains on

transfer of listed securities or unit or Zero coupon
bonds exceeds 10% of the amount of capital gains
before giving benefit of indexation, such excess shall be
ignored. [sec. 112]
• Shares not listed in Stock Exchange on the date of sale – No

Securities Transaction Tax (STT) paid on sale of shares Liable
to be taxed at 20%
Uday Punj Vs DCIT (ITAT, Del) 133 ITD 354
• In the case of non-resident transferring shares of an Indian

company, the second proviso to sec. 48 is not applicable and
the benefit of indexation cannot be granted – As per sec. 112,
the tax payable has to be computed and such tax in excess of
10% to be ignored
Chicago Pneumatic Tool Company Vs DDIT (Int.Tax) (ITAT, Mum) 25 DTR 24
• Long-term capital gains – Transfer of equity shares in Indian

company to another non-resident by off-market trade – To be
taxed at 20% and not 10%.
CAPITAL GAINS 427
• Sec. 48 governs the mode of computation of income whereas

sec. 112 determines the tax payable on such income. The
application of the proviso to sec. 112 is as under :
(A) determine the tax payable on L.T.C.G. as per sec. 48
(B) determine 10% of L.T.C.G. without giving effect to
second proviso to sec. 48 ie. 10% of full value of
consideration minus cost of purchase and cost of
improvement
(C) If (A) is greater than (B), ignore the excess
Assets covered by first proviso to sec. 48 are not entitled to the benefit
of 10% tax on L.T.C.G. as per proviso occurring after cl.(d) of sec.
112(1). Non-resident assessee is given protection from inflation by
way of first proviso to sec. 48 and hence they are not eligible for
concessional rate (10%) of tax u/s 112.
Cairn U.K. Holdings Ltd., In Re (AAR) 337 ITR 131
EXEMPTIONS
Sec. 54 – Transfer of property used for residence
• Eligible assessee : Individual & HUF
• Original asset : Long term capital asset - Property used for

residence income from which is chargeable under “House
property income”
• New asset : Residential house
• Period for investment in new asset : Purchase within a period

of 1 year before or 2 years after the date of transfer / construct
within 3 years from the date of transfer – Amount not utilized to
be deposited in Capital Gains Account Scheme with banks
before the due date of filing return u/s 139(1) and can be
withdrawn lateron for the investment in new asset – If not
utilized within 3 year period, Capital gains of the year in which
the 3 year period expires
• Exemption available : Cost of new asst or capital gains,

whichever is less
• Holding period of new asset : 3 years – If transferred within

that period, so much of the capital gains not charged earlier will
be treated as capital gains of the year of such transfer
CAPITAL GAINS 429
Sec. 54B – Transfer of land used for agricultural

purposes
• Eligible assessee : Individual
• Original asset : Land used for agricultural purposes in the 2

years immediately preceding the date of transfer by assessee or
his parents
• New asset : land for agricultural purposes

of 2 years after the date of transfer – Amount not utilized to be
deposited in Capital Gains Account Scheme with banks before
the due date of filing return u/s 139(1) and can be withdrawn
lateron for the investment in new asset – If not utilized within 2
year period, Capital gains of the year in which the 2 year period
expires

whichever is less

Sec. 54D – Compulsory acquisition of land and

building used for industry
• Original asset : Compulsory acquisition of land / building or
any right in land / building forming part of an industrial
undertaking used for business in the immediately 2 years
preceding the date of transfer
• New asset : Land / building or any right in land / building for

shifting or re-establishing the said undertaking or setting up a
new industrial undertaking for agricultural purposes
• Period for investment in new asset : Purchase / construct

within a period of 3 years after the date of transfer – Amount
not utilized to be deposited in Capital Gains Account Scheme
with banks before the due date of filing return u/s 139(1) and
can be withdrawn lateron for the investment in new asset – If
not utilized within 3 year period, Capital gains of the year in
which the 3 year period expires

whichever is less

CAPITAL GAINS 431
Sec. 54EC – Exemption if invested in specified bonds

• Original asset : Long-term capital asset
• New asset : Long term asset specified in this section – after

01-04-2007 maximum investment eligible is Rs. 50 lakhs
• Period for investment in new asset : 6 months after the date of

transfer

whichever is less
• Holding period of new asset : 3 years – If transferred or

converted into money or took loan or advance on the security
of such asset within that period, so much of the capital gains
not charged earlier will be treated as capital gains of the year of
such transfer
• No further deduction under sec. 80C or 88

Sec. 54ED – Transfer of certain listed securities or

units [transfer before 01-04-2006]
• Original asset : Long term capital asset being listed security
[Expl. (a) to sec. 112(1)] or unit [Expl. (b) to sec. 115AB]
• New asset : Equity shares forming part of a public issue made

by a public company registered in India
• Period for investment in new asset : 6 months after the date of

transfer

whichever is less
• Holding period of new asset : 1 year – If transferred within

• No further deduction under sec. 80C or 88

CAPITAL GAINS 433
Sec. 54F – Transfer of assets other than property

used for residence
• Eligible assessee : Individual & HUF
• Original asset : Long term capital asset not being a property

used for residence
• New asset : Residential house

of 1 year before or 2 years after the date of transfer / construct
within 3 years from the date of transfer – Amount not utilized to
be deposited in Capital Gains Account Scheme with banks
before the due date of filing return u/s 139(1) and can be
withdrawn lateron for the investment in new asset – If not
utilized within 3 year period, Capital gains of the year in which
the 3 year period expires
• Exemption available :
• If cost of new asset is equal to or more than net
consideration received whole of capital gains
• If cost of new asset is less than net consideration received –
Capital gains X cost of new asset
Net consideration received
• Other conditions for eligibility :

• Should not own more than one residential house other than
the new asset on the date of transfer
• Should not purchase any residential house other than new
asset within a period of 1 year from the date of transfer of
original asset
• Should not construct any residential house other than new
asset within a period of 3 years from the date of transfer of
original asset

• Other conditions for withdrawing exemption :

• Should not purchase any residential house other than new
original asset
• Should not construct any residential house other than new
original asset
so much of the capital gains not charged earlier will be treated as
capital gains of the year of such purchase / construction
CAPITAL GAINS 435
Sec. 54G – Shifting of industrial undertaking from

urban area
• Original asset : Plant / machinery / land / building / right in
land or building used for the purpose of business of an
industrial undertaking situated in urban area being shifted
from there
• New asset : Cost of Plant / machinery / land / building, shifting

expenses of undertaking and other specified expenses
• Period for investment in new asset : Purchase 1 year before or

3 years after the date of transfer – Amount not utilized to be
deposited in Capital Gains Account Scheme with banks before
the due date of filing return u/s 139(1) and can be withdrawn
lateron for the investment in new asset – If not utilized within 3
year period, Capital gains of the year in which the 3 year period
expires

whichever is less

Sec. 54GA – Shifting of industrial undertaking from

urban area to SEZ
• Provisions similar to sec. 54G
Sec. 54H – Extension of time in case of compulsory

acquisition
• In case of compulsory acquisition, period for investment in
new asset (for the purpose of sec. 54, 54B, 54D, 54EC &
54F) will be reckoned from the date of receipt of
compensation
• If assessee makes such investment, amend the order

modifying the capital gains - Limitation of four year period
will start from the F.Y. in which compensation was received
by the assessee (sec. 155)
• The unutilized amount under the Capital gains Account

Scheme in case of an individual who dies before the
expiry of the stipulated period cannot be taxed in the
hands of the deceased. This amount is not taxable in the
hands of the legal heirs also. [Circular No. 743 dated 06-
05-1996]
• If purchase of plot is followed by construction of

residential house thereon, aggregate cost to be
considered u/s 54 or 54F if it is within the period
specified [Circular No. 667 dated 18-10-1993]
• Exemption u/s 54 – New asset sold within 3 years of purchase

Exemption liable to be withdrawn.
CIT Vs P.K. Raghavan Nair (Ker) 224 ITR 404
• Land owned by assessee was transferred to his wife – Lateron

construction of house on such land by assessee – Compulsory
acquisition of such land & house – Compensation awarded
separately for land & house – Capital gains of wife assessable
CAPITAL GAINS 437
in the hands of husband u/s 64 – Capital gains earned by wife

did not arise from transfer of house property and hence not
T.N. Vasavan Vs CIT (Ker) 197 ITR 163
• Sec. 54 deduction – Occupation of the property must be as

owner – Property occupied for part of two year period as a
leave and license basis and for other part as owner – No
exemption u/s 54.
Hameed Jaffery Vs CIT (Bom) 227 ITR 724
• Building was not worth occupying – Not eligible for

exemption u/s 54
D.P. Mehta Vs CIT (Del) 251 ITR 529
Rajesh Surana Vs CIT (P&H) 306 ITR 368
• Land with building existed – Transfer to developer for

construction of a new building in consequence of joint
development agreement - Demolition of old building
Consideration meant only for land – Gains assessable as Long
Term Capital gains on land alone – [ This principle can be
applied to deny deduction under section 54 as the property
transferred is only land as evident from the intention of parties]
CIT Vs Union Co. (Motors) Ltd. (Mad) 283 ITR 445
• Land transferred after dismantling the old building – Not

Subhash Chand Kapoor Vs ITO (ITAT, Agra) 132 ITD 587
• Property sold and purchased should be residential house – Sale

and purchase of temporary structures – Not eligible for
exemption u/s 54
ITO Vs Rohini Reddy (ITAT, Hyd) 122 ITD 1; 313 ITR (AT) 346
• Exemption u/s 54 denied relying on Panchayat records which

showed that no residential property on the site – Upheld
M.B. Ramesh Vs ITO (Kar) 320 ITR 451
• Entering into leave and license agreement is not equivalent to

purchase of a residential house – Right to occupy a residential
house is not equal to acquisition thereof – No exemption under
sec. 54.
Prafulchandra R. Shah Vs ACIT (ITAT, Mum) 27 SOT 257, 5 ITR (Trib) 598
• To claim exemption u/s 54, the construction of the new house

should be within two years after the transfer of the existing
house and not before the date of transfer
Shantaben P. Gandhi Vs CIT (Guj) 129 ITR 218
• Claimed exemption u/s 54 on purchase of a new property

Subsequently un-divided share of the new property was
transferred by a development agreement and possession of
land was handed over to vendee for construction of flats within
3 years from the date of purchase – Exemption u/s 54F to be
withdrawn
R. Kalanidhi Vs ITO (ITAT, Chennai) 122 ITD 388
• Sale of agricultural land and claimed exemption u/s 54B being

deposit made in specified account – Failure to use said deposit
within the prescribed period for purchase of another
agricultural land – Assessment of capital gains when the
prescribed period for making re-investment expires – No
further computation of capital gains necessary
CIT Vs Thomy P. Chakola (Ker) 338 ITR 8
• Parent for the purpose of sec. 54B does not include uncle
Jarnail Singh Vs ITO (ITAT, Asr) 121 TTJ 101 ; 18 DTR 444
• Sec. 54B will not apply to a HUF

CIT Vs G.K. Devarajulu (Mad) 191 ITR 211
• Deduction u/s 54F to be worked out without imposing sec. 50C

into it as otherwise the intention of introducing sec. 50C would
be defeated – While computing capital gains u/s 48, deeming
provision contained in sec. 50C to be applied – If the term
'capital gain' in sec. 54F is arrived at by imposing sec. 50C,
then the intention for introducing sec. 50C would be defeated,
because whatever may be the capital gain arrived at by
imposing sec. 50C would be exempt, if the net consideration,
however meagre it may be, is invested in the new asset – When
this interpretation is adopted, every provision of the chapter
will fall in line without producing any absurd result and
thereby giving a fruitful purpose for the enactments
Gouli Mahadevappa Vs ITO (ITAT, Bang) 128 ITD 503; 135 TTJ 489
• Exemption u/s 54EC to be granted only after set off of brought

CAPITAL GAINS 439
forward long term capital loss on the remaining amount

The Tata Power Co. Ltd. Vs Addl. CIT 2011-TIOL-368-ITAT-MUM
• Deduction u/s 54EC is available only to the extent of Rs. 50

lakhs invested in specified Bonds as any other interpretation
will defeat the very purpose of fixing the limit for investment –
Investment within 6 months is the investment for the F.Y. in
which transfer has taken place – hence subsequent investment
is to be considered as part of the investment in F.Y. in which
transfer has taken place
ACIT Vs Raj Kumar Jain & Sons (HUF) 2012-TIOL-179-ITAT-JAIPUR
• Mere addition to old building does not amount to construction

of new house – Not eligible for deduction u/s 54F
CIT Vs V. Pradeep Kumar (Mad) 290 ITR 90
Meera Jacob Vs ITO (Ker) 313 ITR 411
• Construction of an additional floor – Not eligible for

exemption u/s 54F as it is only extension of the existing
building and not a new residential house
ACIT Vs T.N. Gopal (ITAT, Chennai-TM) 121 ITD 352; 1 ITR (Trib) 309
• 54F claim – Investment in new asset should be in the name of

assessee – Otherwise not eligible for exemption
ITO Vs Prakash Timaji Dhanjode (ITAT, Nagpur) 81 TTJ 694 (purchase in the
name of adopted son)
Ram Kishan Vs ITO 2007-TIOL-178-ITAT-DEL
Jai Narayan Vs ITO (P&H) 306 ITR 335 (purchase in the name of son and
grandson)
Prakash Vs ITO (Mum) 220 CTR 249; 312 ITR 40 (purchase in the name of
adopted son)
• Old asset was sold by HUF whereas new asset purchased in the
individual name of karta along with his mother – HUF not
eligible for deduction u/s 54F as the new asset was not
purchased by the same assessee who sold the old asset
Vipin Malik (HUF) Vs CIT (Del) 330 ITR 309
• Sec. 54F – Net sale consideration should be deposited in

Capital gains account scheme in bank or utilized for
construction of house before the due date of filing of return
CIT Vs V.R. Desai (Ker) 197 Taxman 52
Thakorlal Harkishandas Intwala Vs ITO (ITAT, Ahd) 43 SOT 347
• Sums paid to tenants to vacate property after purchase of

property – Not purchase consideration – Not eligible for 54F
There is no scope for extending the meaning of the word
“purchase” used in sec. 54F to “cost of acquisition” and “cost
of improvement” used in sec. 48
DCIT Vs Uday S. Kotak (ITAT, Mum) 96 ITD 177
• Exemption u/s 54 / 54F is allowable in respect of one

residential house only
ITO Vs Sushila M. Jhaveri (ITAT,SB-Mum) 107 ITD 321
Pawan Arya Vs CIT 2011-TIOL-01-HC-P&H-IT
• Assessee residing in a flat allotted by State Housing Authority

Assessee can be treated as owner of this property though
formal deed of title was not executed and registered till date
Assessee's case hit by proviso to sec. 54F ie. he owns more than
one residential house on the date of transfer and hence not
entitled for deduction
Shetty G.D. Vs ITO (ITAT, Pune) 112 ITD 103
• Exemption under sec. 54F not available where assessee

purchased new house out of funds borrowed from bank.
Milan Sharad Ruparel Vs ACIT (ITAT, Mum) 27 SOT 61; 5 ITR (Trib) 570
V. Kumar Vs DCIT (ITAT, Hyd) 135 ITD 116
• Property in legatee vests as soon as assent of executor is

granted, which may be express or implied – Mutation not done
by Land Revenue authorities is not relevant – Assessee is
owner of property – 54F claim not allowable since assessee
already owns a property
V.K.S. Bawa Vs ACIT ( ITAT, Del ) 53 ITD 232
• Exemption u/s 54F allowable only if the new property is used

for residential purposes
Sunita Oberoi Vs ITO (ITAT, Agra-TM) 30 DTR 474 ; 126 TTJ 745
CAPITAL GAINS 441
INCOME FROM OTHER SOURCES

• Residual head in which income not falling in other heads are brought
to tax [sec. 56]
• Certain items of receipts specified as income
• Gifts received, with certain exceptions, deemed as income
(from 01-09-2004)
• Properties (movable and immovable) received without
consideration and movable properties received for consideration
less than the fair market value are also included (from 01-10-2009)
• Shares of Pvt. Ltd. co. received by a firm or Pvt. Ltd. co. for no
consideration or under-consideration (from 01-06-2010)
• Interest received on compensation or enhanced compensation
• Eligible deductions specified [sec. 57]
• Personal expenses and interest and salary payable outside India on

which TDS not made, are not deductible [sec. 58]
• Winning from lotteries, crossword puzzles, races including horse

races, card games and other games, gambling or betting – No
deduction allowable [sec. 58]
• Provisions of Sec. 40A, 41(1) and 44D also apply [sec. 58 & 59]
• Winnings from lotteries, crossword puzzles, races including horse

race, card games and other games of any sort or gambling or betting
to be charged @ 30% [sec. 115BB]
• Sec. 56 being the residuary head of income, can be resorted to only if none
of the specified heads is applicable to the income in question; it comes into
operation only after the preceding heads are excluded
S.G. Mercantile Corpn. (P.) Ltd. Vs CIT (SC) 83 ITR 700
Interest Receipts
• Compulsory acquisition of land – Interest on delayed
compensation – Revenue receipt taxable as income from other
sources
Bikram Singh & Ors. Vs Land Acquisition Collector & Ors. (SC) 224 ITR 551
• Compulsory acquisition of land – Interest payable u/s 28 & 34

of the land Acquisition Act on enhanced compensation
awarded by Court accrues year after year from the date of
delivery of possession of the lands till the date of such order
Rama Bai Vs CIT (SC) 181 ITR 400
• Assessee contractor – Arbitrator awards additional sum for

extra work done – Interest on such award upto date of payment
– Revenue receipt.
CIT Vs Malik Construction Co.(All) 238 ITR 450
• Whenever an assessee is in the process of setting up of

business, if any income arises under any of the heads except
“Profits and gains of business or profession”, then such income
has to be charged to tax in such year – Even after rendering the
decision in the case of Bokaro Steel by the Apex court, the
decision of Apex court in the case of Tuticorin Alkali
Chemicals holds good
Whistling Woods International Ltd. Vs ITO 2011-TIOL-683-ITAT-MUM
• Seized pronotes show interest payment – Evidence from payee

also shows interest payment – Interest on pronotes assessed as
CIT Vs Southern Shipping Co.(P) Ltd. (Mad) 241 ITR 464
• Interest earned on REC Bonds not admitted by assessee as

income on the ground that REC Bonds were obtained out of
special fund created out of remittances of interest payable by
assessee to REC – Since Bonds were issued in the name of the
assessee, it is the owner of such assets and interest income was
earned by it and is assessable on such income
Kumbakonam Rural Electric Co-operative Society Ltd. Vs JCIT (ITAT, Chennai)
101 ITD 46
• Share application money received was deposited in bank

Interest earned on this cannot be set off against expenditure
( including interest paid ) relating to the public issue of shares
D.S.J. Communications Ltd. Vs ACIT (ITAT, Mum) 10 SOT 390
• Interest u/s 244A received from Income tax Dept. – Assessable

as Income from other Sources
Maharashtra State Co-operative Bank Ltd. Vs ACIT (ITAT,SB-Mum) 2 ITR
(Trib) 543
• Interest u/s 244A received from income tax Dept – Assessable

in the year of receipt – Pendency of further appeal on quantum
proceedings not relevant
DCIT Vs Seshasayee Paper & Boards Ltd. (ITAT, Chennai) 2 ITR (Trib) 417
Receipt of Gifts from Non-Relatives[sec.56(2)(v),

(vi) & (vii)]
• Gifts received by minor sons of assessee from assessee's
maternal uncle – Not a relative of the donee as per Expl. To sec.
56(2)(v) – Chargeable to tax u/s 56 r.w.s.64
ACIT Vs Lucky Pamnani (ITAT, Mum) 49 DTR 501 ; 129 ITD 489
Deductions [sec. 57]

• Interest earned on short term deposits of share capital cannot be
set off against interest paid on capital borrowed for setting up
industry.
CIT Vs V.P. Gopinathan (SC) 248 ITR 449
• Interest on moneys borrowed can be allowed as deduction u/s

57(iii) only if assessee earned interest from such funds
borrowed
Moral Trading & Investments Ltd. Vs DCIT (ITAT, Del) 127 ITD 127
• Interest paid on amounts borrowed for meeting tax liabilities is

not deductible since the liability to pay IT and WT is a personal
one
Padmavati Jaikrishna Vs Addl.CIT (SC) 166 ITR 176
• Assessee is entitled to deduct only the interest payable on the

principal amount but not the additional interest on the overdue

interest
Jaswasntrai P. Mehta Vs CIT (Guj) 192 ITR 577
• Assessee utilized the borrowals on purchase of shares of a

company in order to acquire controlling interest in that
company – Interest paid on such borrowals not deductible
since the expenditure could not be said to have been incurred
for the purpose of earning dividend income
CIT Vs Amritaben R. Shah (Bom) 238 ITR 777
• Assessee gave one of its buildings as security for a loan taken

by sister concern and received guarantee commission from
that concern for standing security – Municipal taxes paid on
the said building not deductible from guarantee commission
since such taxes were paid by the assessee as the owner of the
building and not as a trader to earn guarantee commission
CIT Vs Nawn Estates (P.) Ltd. (Cal) 70 ITR 784
• Interest paid by assessee on late payment of tax cannot be

deducted from interest earned during the year on IT refund
DCIT Vs Sandvik Asia Ltd. (ITAT, Pune-TM) 133 ITD 126
DEEMED DIVIDEND [sec. 2(22)(e)]

• Dividend defined in sec. 2(22) includes various methods by
which accumulated profits are transferred by the company
to its shareholders
• Withdrawals by the shareholder who had substantial interest by

company in which public were not substantially interested and
which had accumulated profits from the company – Amounted
to loan or advance by the company to share-holder – Notional
dividend u/s 2(22)(e) – The fact that loan or advance was
ultimately adjusted at the end of the year against the credit
balance of another shareholder will not alter the position
Account of another shareholder was not debited on various
dates of withdrawals and hence it cannot be said that the
assessee was paid money out of the funds lying to the credit of
the other shareholder
P. Sarada Vs CIT (SC) 229 ITR 444
• Loan advanced to a shareholder was re-paid within 23 days

Still deemed dividend u/s 2(22)(e) – If the assessee comes
under the letter of law, he has to be taxed, however great the
hardship may appear to the judicial mind to be
Tarulata Shyam & Ors. Vs CIT (SC) 108 ITR 345
• Loan taken from closely held company where assessee is a

shareholder – Commercial profits upto the day of distribution
to be computed to see accumulated profits for working out the
extent of deemed dividend.
Sujatha Venkateswaran Vs ACIT (ITAT, Mad) 61 ITD 485
• Accumulated profit means profits upto the date of payment of

loan – Subsequent repayment of loan not to be considered
Amount credited towards remuneration of shareholder cannot
be set off against the alleged loan considered as deemed
dividend
Rajesh P. Ved Vs ACIT (ITAT, Mum) 1 ITR (Trib) 275
• “Person with substantial interest in the company” – Shares held

on his own behalf as well as guardian of minor children to be
taken into account to determine total number of shares in
Company.
CIT Vs T.P.S.H. Sokkalal (Mad) 236 ITR 981
• Advance to shareholder for building construction which will

be lateron taken on lease by company – As per the agreement,
such advance to be set off against future rent – Still deemed
dividend arises and is taxable
CIT Vs P.K. Abubucker (Mad) 259 ITR 507
• Amount paid by the company to assessee holding more than

10% shareholding was shown as advance commission
payments – Is deemed dividend since on the date of payment
the company did not have any liability to pay commission
Shyama Charan Gupta Vs CIT (All) 337 ITR 511
• “Payment” for the purpose of sec. 2(22)(e) need not be cash

payment. A jural relationship of debtor and creditor between
the shareholder and the company is sufficient.
T. Sundaram Chettiar & Anr. Vs CIT (Mad) 49 ITR 287
• Building materials advanced to shareholder for construction

Advance to be set off against purchase consideration when the
company buys some flats from assessee lateron – Value of
advance in kind is also taxable as deemed dividend
M.D. Jindal vs CIT (Cal) 164 ITR 28
• No evidence to show that amount received by assessee from the

company was towards business of the company – Assessee
deposited the same in her bank account – Assessment of
deemed dividend upheld
Kiran Bansal Vs ACIT (ITAT, Del) 50 DTR 231
• Amount received by the assessee from the company in which

he holds more than 10% shareholding was shown by the
assessee in his Balance sheet as loan and there was no
indication given in the Balance sheet that the said amount was
received as security deposit - Assessment of deemed dividend
upheld
ACIT Vs Ajay Jadeja (ITAT, Del) 5 ITR (Trib) 233
• Company advancing large amount to low-paid employee

Employee advancing loan to assessee, the Managing Director
of the said company Deemed dividend to be assessed in the

hands of assessee
L. Alagusundaram Chettiar Vs CIT (SC) 252 ITR 893
• Firm purchased shares in a company in the name of some of its

partners As per records, some partners are the registered
shareholder whereas firm is the beneficial shareholder
Company advanced loan to the firm Assessable as deemed
dividend in the hands of firm
CIT Vs National Travel Services (Del) 202 Taxman 327
• Assessee claimed that monies were received from companies

against sale of property and hence it is in the course of business
so that it will not come under the purview of deemed dividend
To support the claim, an agreement dated 18-09-2003 was
produced as per which impugned property to be handed over
before 31-12-2008 – It is beyond reasonable belief that when
agreement was executed on 18-09-2003 and payment also
made by that date, possession of property was to be handed
over after more than 5 years and property continued to be
reflected in the balance sheet of the assessee – Claim is an
afterthought by assessee – Addition of deemed dividend
upheld
CIT Vs Sunil Chopra (Del) 201 Taxman 316 ; 58 DTR 305
• Amount received by a shareholder from the liquidator which is

referable to the accumulated profits of the company is deemed
dividend
Gautam Sarabhai Vs CIT (Guj) 52 ITR 921
• A company issued redeemable shares out of accumulated

profits and later has redeemed those shares by paying out of
general funds - The amounts which are returned to the
shareholders on redemption are the amounts paid up on the
preference shares - Since the amounts paid up on the
preference shares are capitalized accumulated profit and it
reached the hands of the shareholders when redemption took
place, there is distribution of capitalized accumulated profits
on redemption – Deemed dividend arises
Shashibala Navnitlal Vs CIT (Guj) 54 ITR 478
CASH CREDITS [sec. 68]

• Sec. 68 provides for addition to income, if
• Any sum found credited in the books of accounts
maintained for any previous year
• Assessee offers no explanation about the nature and
source of such credit, OR
• Explanation offered by assessee is not satisfactory in
the opinion of Assessing Officer
• In CIT Vs Lovely Exports (P) Ltd. (216 CTR 195) Supreme

Court held that if the share application money is received
by the assessee company from alleged bogus shareholders,
whose names are given to the AO, then the department is
free to proceed to reopen their individual assessments in
accordance with law.
• Onus of proving the source of a sum of money found to have

been received by an assessee is on him. When the nature and
source of a receipt, whether it be of money or other property,
cannot be satisfactorily explained by the assessee, it is open to
the revenue to hold that it is the income of the assessee and no
further burden lies on the revenue to show that the income is
from any particular source
Roshan Di Hatti Vs CIT (SC) 107 ITR 938
Kale Khan Mohammad Hanif Vs CIT (SC) 50 ITR 1
• Onus of proving the source of a sum of money found to have

been received by an assessee is on him. When the nature and
source of a receipt, whether it be of money or other property,
cannot be satisfactorily explained by the assessee, it is open to
the revenue to hold that it is the income of the assessee and no
further burden lies on the revenue to show that the income is
from any particular source
Roshan Di Hatti Vs CIT (SC) 107 ITR 938
Kale Khan Mohammad Hanif Vs CIT (SC) 50 ITR 1
• Credits in the name of third parties – Assessee must prove

identity of credits, capacity of creditor to advance money and
genuineness of transaction – Then only burden shifts to the
Department
Shankar Industries Vs CIT (Cal) 114 ITR 689

Hari Chand Virender Paul Vs CIT (P&H) 140 ITR 148
CIT Vs Biju Patnaik (SC) 160 ITR 674
CIT Vs Precision Finance P. Ltd. (Cal) 208 ITR 465
Dhanalakshmi Steel Re-rolling Mills Vs CIT (AP) 228 ITR 780
Sanil K.M.P. Vs CIT (Ker) 177 Taxman 481
• Assessee failed to prove the genuineness of credit – Mere proof

of identity of creditor or that transaction was by cheque, is not
sufficient – Addition u/s 68 upheld
Mangilal Jain Vs ITO (Mad) 315 ITR 105
• Rejection of opening capital on the ground that assessee failed

to prove source and how it got accumulated over the years
Justified
C. Packirisamy Vs ACIT (Mad) 315 ITR 293
• Cash credit in books of account of HUF – Assessable u/s 68 in

the hands of HUF in whose books the credit appears and not in
the hands of members of HUF in whose name the credit stands.
Munshi Ram Vs CIT (P&H) 126 ITR 663
• Firm's books showing cash credit in names of partners – No

satisfactory explanation – Will be deemed to be income of
firm.
CIT Vs Shiv Shakthi Timbers (M.P) 229 ITR 505
Anand Ram Raitani Vs CIT (Gau) 223 ITR 544
Shanta Devi Vs CIT (P&H) 171 ITR 532
CIT Vs Kishorilal Sontishilal (Raj) 216 ITR 9
Hardwarmal Onkarmal Vs CIT (Pat) 102 ITR 779
CIT Vs Deepak Iron and Steel Rolling Mills (P&H) 336 ITR 307
• Cash credit can be assessed even when business income is

estimated – There is nothing in law which prevents ITO in
taxing both unexplained cash credit and business income
estimated after rejecting books being unreliable – It is for the
assessee to prove that even if the cash credit represents income,
it is from a source which has already been taxed
CIT Vs Devi Prasad Viswanath Prasad (SC) 72 ITR 194
Kale Khan Mohammed Hanif Vs CIT (SC) 50 ITR 1
Ratanchand Dipchand Vs CIT (MP) 38 ITR 188
CIT Vs Maduri Rajaiahgari Kistaiah (AP) 120 ITR 294
D.C. Auddy & Bros. Vs CIT (Cal) 28 ITR 713
S. Kumaraswami Reddiar Vs CIT (Ker) 40 ITR 590

Grover Fabrics (India) P. Ltd. Vs CIT (P&H) 332 ITR 312
• Cash credit on first day of accounting year – Can be assessed

u/s 68
Basantipur Tea Co. (P) Ltd. Vs CIT (Cal) 180 ITR 261
• Where any sum is found credited in the books of the assessee

for any previous year it may be charged to Income Tax as the
income of the assessee for that previous year if the explanation
offered by assessee about the nature and source thereof is, in
the opinion of the Assessing Officer, not satisfactory.
Sumati Dayal Vs CIT (SC) 214 ITR 801
Vasantibai N. Shah Vs CIT (Bom) 213 ITR 805
Sreelekha Banerjee & Ors. Vs CIT (SC) 49 ITR 112
• Mere filing of Income Tax file number is not enough to prove

genuineness of cash credit.
CIT Vs Korlay Trading Co.Ltd. (Cal) 232 ITR 820
• Cash credit can be assessed even if transaction is through

cheques.
K.C.N. Chandrasekhar Vs ACIT (ITAT, Bang) 66 TTJ 355
CIT Vs United Commercial & Industrial Co.(P) Ld. (Cal) 187 ITR 596
• Sec. 68 applicable even to share application money – Use of the

words “any sum found credited in the books” indicates that the
section is widely worded and ITO is not precluded from
making enquiry as to the true nature and source thereof even if
the sum is credited as share application money.
CIT Vs Sophia Finance Limited (Del-FB) 205 ITR 98
CIT Vs Nivedan Vanijyya Niyojan Ltd. (Cal) 263 ITR 623
CIT Vs Rathi Finlease Ltd. (MP) 215 CTR 429 ] explained
Dhingra Global Credence P. Ltd. Vs ITO (ITAT, Del) 1 ITR (Trib) 529 ] decision
Agarwal Coal Corporation (P) Ltd. Vs Addl. CIT (ITAT, Indore) 135 ITD 270] of
SC in CIT Vs Lovely Exports P. Ltd. [ 319 ITR (ST) 5 ] and
distinguished
• No evidence on record to show that cash credit was covered by

intangible additions made for earlier year – Addition upheld.
CIT Vs Manick Sons (SC) 74 ITR 1
• Partnership deed executed on 1.3.77 – Business of trading

started on 1.4.77 – Cash credits on 31.3.77 assessable in the
hands of firm eventhough firm has not started doing business.
CIT Vs Bhadra Enterprises (Ker) 228 ITR 645
• Encashment of high denomination notes – Plea of “cash in

hand” rejected – No evidence to show reason for keeping such
high cash – withdrawal of smaller amount of cash from
business contradicts this argument.
Sreelekha Banerjee & Ors Vs CIT (SC) 49 ITR 112
Sovachand Bai Vs CIT (SC) 34 ITR 650
• Assessee must establish nexus between credits and amount

disclosed under VDIS
Radio Instruments Associates (P) Ltd. Vs CIT (AP) 166 ITR 718
CIT Vs Assam Cold Storage Co. (Gau) 204 ITR 540
Jamnaprasad Kanhaiyalal Vs CIT (SC) 130 ITR 244
Radhey Shyam Tibrewal Vs CIT & Ors.(SC) 145 ITR 186
ITO Vs Ratanlal (SC) 145 ITR 183
• Mere furnishing of returns under Amnesty Scheme by creditors

cannot absolve assessee from discharging its burden of
proving genuineness of cash credits and capacity of creditors
u/s 68.
Prabhu Dayal Lallu Ram Vs ITO (ITAT, Del) 63 TTJ 557
• Mere filing of gift deeds, PAN cards, I.T. returns etc. did not by
itself discharge assessee from preliminary burden to establish
genuineness of gifts where donors were not found at the
address given in the returns or PAN card – In such
circumstances, it is the duty of the assessee to produce donors /
creditors before the Assessing Officer as otherwise addition u/s
68 has to be made.
Prakashchandra Singhvi (HUF) Vs ITO (ITAT, Ahd) 134 ITD 283
• Sec. 68 does not confine to cash entries in books – If the

liability shown in the account is found to be bogus and there is
no plausible and reasonable explanation of the assessee, the
amount can certainly be added towards the income of the
assessee
V.I.S.P (P) Ltd. Vs CIT (MP) 265 ITR 202
• Confirmation letters filed in respect of some creditors – None

were produced for examination – Did not ask Assessing

Officer to issue notice u/s 131 – All are cash transaction
Creditors are not Income Tax payers – Confirmation letter
says “out of past savings” – Addition upheld.
S. Punjabi Vs ACIT (ITAT, Mad) 62 TTJ 749
• Addition made u/s 68 - No books maintained by the assessee

Though addition may not be possible u/s 68, Tribunal can
sustain the addition u/s 69
P.V. Ajay Narayan Vs ITO (ITAT, Bang) 57 TTJ 159
• Cash credit in books of accounts seized u/s 132 – Presumption
u/s 132 (4A) does not absolve assessee of explaining source of
cash credit
Daya Chand v. CIT (Del) 250 ITR 327
• Cash receipts entered in note book / rough cash book found

during the course of survey – Sec. 68 applies.
Haji Nazir Hussain & Co. Vs ITO (ITAT, Del-TM) 91 ITD 42
• Since assessee had furnished her statement of affairs, addition

of gifts received during the year can be made under section 68
or 69
Naushaba Rana Vs ACIT (ITAT,Del) 109 ITD 288
• Sec. 68 can be invoked even when the asset declared under

VDIS, is sold.
Manoj Aggarwal Vs DCIT (ITAT,SB-Del) 113 ITD 377
• Mere entries of sale in books of accounts of assessee were not

enough to justify cash credit – Some evidence of sale
generating extra-ordinary income, was required to be placed
by assessee – Sales amount treated as cash introduced from
undisclosed sources.
Addl. CIT Vs Gurshant Rotary Compressors Ltd. (ITAT, Del-TM) 116 ITD 131
• Credits in accounts claimed as advance received towards sale

of shops and affidavit filed from such creditors – But none of
them were produced before the Assessing Officer for
authenticating their signature and explaining the contents of
the affidavit – Possession of shops not handed over or money
was not returned even after lapse of considerable time
Addition under sec. 68 upheld.
Krishan Kumar Jhamb Vs ITO & Anr (P&H) 17 DTR 249
• Credit entry in books as sale proceeds of shares - Solitary

transaction of purchase and sale of shares – Allegedly made
through a broker who is not registered with Stock Exchange
Concerned company and broker denied transaction – Income
from undisclosed sources – Addition u/s 68 upheld
CIT Vs Hakumat Rai (P&H) 49 DTR 266
• Assessing Officer has the power to examine the genuineness of

brought forward creditors – Assessee failed to establish the
unclaimed balance in the name of clients – Letters from
creditors show discrepancy in balance – Addition on account
of discrepancy upheld
Suresh Kumar T. Jain Vs ITO 2010-TIOL-354-ITAT-BANG
• Unexplained credit and debit entries of like amount in the

'Haste Khate' – Explanation offered by assessee was found
untrue – Theory of peak credit could not be applied – Addition
of all credits sustained
Jhamatmal Takhatmal Kiranan Merchants Vs CIT (MP) 152 CTR 311
Receipt of Gifts from Non-residents -Taxability
• Donors not relatives and friends of assessee – No reason for

receiving gifts Unexplained investment of assessee
CIT Vs P. Mohanakala (SC) 291 ITR 278
Harish Kumar Singal Vs ACIT (P & H) 276 ITR 355
D.C. Rastogi (HUF) Vs ACIT (ITAT, Delhi) 57 ITD 295
Renu Gupta Vs DCIT (ITAT, Mum) 72 ITD 306
• Received gift by way of cheque from strangers – No occasion

to make gifts Donor less wealthier – Income from undisclosed
sources even though donors confirmed gifts
ITO Vs Dr. Jagdish J. Kansagara (ITAT, Ahd) 66 ITD 381
• Burden of proof on assessee to establish that donor had means

and gift was genuine, for natural love and affection
Tirath Ram Gupta Vs CIT (P&H) 304 ITR 145
• A mere identification of the donor and showing the movement

of gift amount through banking channels is not sufficient to
prove the genuineness of the gift. Amount received by Swamiji
from his disciples abroad – Taxable – Burden on assessee to
prove that it is exempt
Swami Premanada Vs DCIT (Mad) 221 CTR 667
• Financial affairs of donors show that they made substantially

huge gifts compared to their income – Donors not owning any
immovable property Donors not making any gift to anybody
else – Assessee also neither receiving nor making any gift
except instant gift to acquire a property Genuineness of gifts
and financial capacity of donors not established
ITO Vs Usha Aggarwal (ITAT, Del) 1 ITR (Trib) 593
UNEXPLAINED INVESTMENT /
EXPENDITURE
[sec. 69 to 69D]
• Sec. 69 provides for addition of investments not recorded in
the books of accounts, if
as income of the F.Y. in which such investments were made
• Sec. 69A provides for addition of any money, bullion,

jewellery or other valuable article not recorded in the
books of accounts, if
as income of the F.Y. in which assessee was found to be owner of
such assets
• Sec. 69B provides for addition of investments or any

money, bullion, jewellery or other valuable article not fully
recorded in the books of accounts, if
as income of the F.Y. in which such investments were made /
assessee found to be owner of such assets
• Sec. 69C provides for addition of any expenditure incurred

by the assessee, if
as income of the F.Y. in which such expenditure was incurred.
• Such expenditure shall not be allowed as deduction

under any head of income
• Sec. 69D provides for addition of any amount borrowed or

repaid in hundi otherwise than through an account payee
cheque
• Benami Act has no impact on the provisions of the Income Tax

Act – Once it is proved that a benami transaction has taken
place, the IT authorities would be well within their jurisdiction
to ask the person who has financed such transaction to explain
the source of his funds – If he fails to give any valid
explanation, addition towards unexplained investment can be
made in his hands.
Shan Sunder Aggarwal Vs ACIT (HP) 11 DTR 352
• There is no law that the deeming provisions of sec. 68 or sec.

69A would not apply in a case where there has been an
estimation of income consequent to the rejection of the
assessee's accounts – Assessing Officer disallowed 3% of the
expenditure claimed as the assessee failed to justify its claim
This does not amount to rejection of books of account
Addition u/s 68 upheld
Sai Construction Vs ITO (ITAT, Cuttack) 31 DTR 33
• For making addition towards unexplained investment, FIR is a

contemporaneous evidence and the contents of the same
cannot be ignored in the light of self-serving documents
Human conduct and human probabilities are to be given
weightage over the self generated evidences
DCIT Vs Sanjeev R. Kanwar 2011-TIOL-384-ITAT-MUM
• Finding that secret business had been conducted and assessee

had invested an amount in it – Assessable u/s 69.
Himmatram Laxminarain Vs CIT (P&H) 161 ITR 7
• Partner making deposit in firm on first day of existence - No

explanation for source offered by him - To be assessed in the
hands of partner as unexplained investment.
Surendra Mohan Seth Vs CIT (All) 221 ITR 239
• Intangible addition made in the form of enhanced business

profit estimated by rejecting books of account cannot be

treated as source of unexplained investment.
Vijay Gupta Vs ACIT (ITAT, Gauhati) 58 TTJ 542
• Unaccounted purchases detected – Assessing officer

estimating extent of unexplained investment for making such
purchases – Assessee's claim that goods were received on
credit and hence no unexplained investment made by him, is
not acceptable – 2% of total value of unrecorded purchases
treated as investment keeping in view the time taken for
settling accounts with creditors.
Ram Piyare Satish Kumar & Ors. Vs ITO (ITAT, Del) 59 TTJ 352
• Difference in value of closing stock in seized loose papers as

against books of accounts – Unexplained Asset.
Harishchand & Brothers Vs ITO (ITAT, Jp) 64 ITD 331
• For determination of investment in land, value adopted by

stamping authorities is no evidence.
Mustaq Ahmed & Ors. Vs ACIT (ITAT, Jp) 66 TTJ 305
• Cash deposit in bank should be explained by assessee,

otherwise it is unexplained income under sec. 69 or 69B
Manoj Aggarwal Vs DCIT (ITAT,SB-Del) 113 ITD 377
CIT Vs K. Chinnathamban (SC) 292 ITR 682
• Where the assessee has not maintained books of accounts and

the additions are made towards unexplained investments, the
addition is sustainable u/s 69 and not u/s 69B
Prakash Tiwari Vs CIT (MP) 148 ITR 474
• Addition on account of difference between value of stocks

declared to the bank and the value recorded in the assessee's
books can validly be brought to tax, if the information
furnished by the bank contained no only the items of stock but
also their quantity and the assessee did not discharge the
burden cast on him to prove that the apparent was not real
Kaila Sweet Supplier Vs CIT (All) 100 Taxman 59
• Unexplained gold seized from assessee's premises – Unless

cogent evidence is adduced by assessee, it would have to be
presumed that the articles recovered from his premises
belonged to him and they were acquired in the year in question

and they represented the concealed income of the year in
question itself justifying an addition u/s 69A.
CIT Vs K.I. Pavunny (Ker) 232 ITR 837
Udaichand Megaji Vs CIT (Kar) 150 ITR 39,
Garibdas Chandrika Prasad Vs CIT (MP) 230 ITR 771
ITO Vs B.N. Mathur (ITAT, Del) 30 ITD 9
CIT Vs K.T.M.S. Mahamood (Mad) 228 ITR 113
Jewellerie House Vs ACIT (ITAT, Bom) 57 ITD 544
Ramakant Umashankar Khetan Vs ACIT (ITAT, Nag) 66 TTJ 378
• Articles found in possession and control of person

Presumption that such articles belong to person
Nandita Acharjee Vs Union of India (Gau) 302 ITR 75
• Burden of proof to show that articles found in possession of

person did not belong to him, is on that person
CIT Vs Jayalakshmi Devarajan (Ker) 286 ITR 412
• Cash found in the possession of assessee – Burden on assessee

to prove that he is not the owner of cash
Sukh Ram Vs ACIT (Del) 285 ITR 256
• Cash seized from assessee's business premises – Argument that

it represented private transactions of some employees, not
proved – Addition upheld
Associated Stone Industries (Kotah) Ltd. Vs DCIT (ITAT, Jp) 68 ITD 312
• Unexplained money found during search – Part explained as

belonging to widowed daughter → rejected because her source
of income is meagre – Part claimed to be of friend, rejected
because this fact was not mentioned in 132(5), was a claim
after 2 years, friend had two bank accounts and no necessity for
keeping the cash with assessee was established.
Govindram M. Oberoi Vs ITO (ITAT, Pune-TM) 57 TTJ 1
• Registration not necessary for changing ownership of motor

vehicle
Panna Lal vs. Chand Lal AIR 1980 SC 871
M. Swaminathan vs. C.K. Jayalakshmi Amma (1989) 66 Comp. Cases 503
DCIT Vs Mahadeo R. Mahadik (ITAT, Pune) 66 ITD 558
• Difference between amount shown in sale deed and that in

agreement for sale – No evidence to show reduction in

consideration paid – Addition of difference justified
Bela Juneja Vs CIT (Del) 339 ITR 144
• Unexplained expenses on daughter's marriage – Claim that

assessee's mother met the same was not proved – Addition
upheld.
Babu Ram Vs ACIT (ITAT, Del) 59 TTJ 105
• No proper explanation regarding source for purchases

Addition to income justified – Reduction cannot be claimed for
purchase of stock-in-trade in view of sec. 69C.
ITO Vs Sundari Chemicals (ITAT, Chennai) 309 ITR (AT) 278; 124 ITD 460
Reference for Valuation of Cost of construction

[sec. 142A]
• In Sargam Cinema Vs CIT (328 ITR 513) Supreme Court
held that before referring the matter of valuation of
property to DVO, Assessing Officer has to reject the books
of account
• The Supreme Court in Smt. Amiya Bala Paul Vs CIT (263

ITR 407) held that Assessing Officer does not have the
power to refer the matter of determination of cost of
cosntruciton to DVO. In order to overcome the said
decision, sec. 142A was inserted by Finance (No.2) Act,
2004 w.r.e.f. 15-11-1972 so as to give power to an Assessing
Officer to require the Valuation Officer to give an estimate
of the value of any money, bullion, jewellery or other
valuable article or any investment. The valuation officer
shall have all powers that are vested in him u/s.38A of the
Wealth Tax Act on the making of such reference by the
assessing officer. This section also provides that if the
assessment has been made before 30.09.2004 and such
assessment has become final or conclusive before that date,
the provisions of this section shall not apply except in a case
where a re-assessment is required in accordance with
section 153A of the Act.
• Reference to valuation Officer made u/s 131 is valid in view of

Sec. 142A
DCIT Vs Shubham Industries (ITAT, Luck-TM) 104 ITD 126
• Validity of reference under sec. 142A – Assessee having

admitted that her books of accounts were incomplete and Rs. 5
lakhs more than shown in the books could have been spent in
construction, Assessing Officer rightly made the reference
under sec. 142A to DVO – Rejection of books stood implied.
Kiran Lata Vs ITAT (Uttarakahnd) 318 ITR 44
• Assessing Officer issued commission u/s 131(1)(d) to DVO in

1996 to determine the cost of construction of the building for
the purpose of making an estimate of the investments u/s 69 –
In substance the reference was made in terms of sec. 142A

Though assessment in this case was made before 30-09-2004,
the same cannot be said to have become final and conclusive as
the very issue of estimation of investment is pending in appeal
before the High Court – Thus reference to DVO is valid
reference u/s 142A
CIT Vs Omprakash Bagria (HUF) (MP) 287 ITR 523
CIT Vs Rohtas Projects Ltd. (All) 204 CTR 139
• Assessing Officer entitled to refer valuation of a property after

completion of assessment
CIT Vs Achamma Chacko (Ker) 326 ITR 258
• Difference in cost of construction assessed as unaccounted

investment - Possibility of earning income in that Financial
Year is not relevant.
Chetna Enterprises Vs ITO (ITAT, Pat-TM) 63 ITD 257
• Valuation certificate produced by assessee before LIC

authorities can be used for making addition to cost of
construction – Payment to labourers outstanding for a long
time, cannot be accepted.
G. Amirudhan Vs ACIT (ITAT, Cochin) 60 TTJ 49
Chapter 4
LOSS / DEPRECIATION –
Set-off And Carry
Forward
LOSS / DEPRECIATION – Set-off And Carry Forward 469
General
• Sec. 70 to 80 deal with set off of losses and its carry forward.
• Carry forward and set off of unabsorbed depreciation and

losses – Specific and clear finding in the assessment years in
which such loss or unabsorbed depreciation arose, is
necessary.
Sri Rajarathinam Transports P. Ltd. Vs CIT (Mad) 199 ITR 203
• No appeal filed in the year in which loss occurred for which

return filed late and Assessing Officer did not allow carry
forward of loss – Appeal in subsequent year in which profit
was earned to get such loss set off – Not maintainable.
CIT Vs Dalmia Cement (Bharat) Ltd. (SC) 216 ITR 79
S.K.V. Selvaraj Vs CIT (Mad) 240 ITR 217
Poddar Tyres Limited Vs DCIT (ITAT, Mum) 59 ITD 548
• Share of loss from Trust – No need to adjust this against

individual income of beneficiaries as done in partner's cases.
M. Manoj Shenoy Vs ITO (ITAT, Bang) 35 TTJ 333
• Loss of AOP can be set off only against its own profits and not
against profits of its members.
CIT Vs Lalita M. Bhat (Bom) 234 ITR 319
• Where an assessee claims to set off a particular amount of loss,

he must establish that he has incurred such loss
Jamna Dass Rameshwar Das Vs CIT (Punj) 21 ITR 109
Set off of loss in the same A.Y.

• Sec. 70 permits set off of loss arising in respect of any source
of income against income from any other source under the
same head of income. However, long term capital loss can
be set off only against long term capital gains.
• Sec. 71 permits set off of loss arising under any head of

income in one A.Y. against income assessable under any
other heads.
Exceptions : (i) Loss arising under the head “Capital gains”
cannot be set off against income under any other heads.
(ii) Loss arising under the head “Profits & gains of business
/ profession cannot be set off against Salary income
(w.e.f. 01-04-2005 )
• Since income from a certain activity is not taxable, loss

incurred in such activity cannot be set off against income from
other heads
CIT Vs S.S. Thiagarajan (Mad) 129 ITR 115
• Losses in respect of a banned business cannot be set off against

profit of a legal business carried on in the previous year
CIT Vs Kurji Jinabhai Kotecha (SC) 107 ITR 101
• Assessee never admitted the Trust as his benami – ITO rejected

set off of loss in the case of Trust against income of assessee
Upheld in spite of the fact that income from said Trust was
included in the hands of assessee in earlier years.
ITO Vs B.N. Mathur (ITAT, Del) 30 ITD 9
• Claim of loss from share transaction – Some brokers not

identifiable – some brokers could not file details – No details of
distinctive number of share scrips purchased / sold, given Loss
not proved and cannot be set off against income under other
heads
ACIT Vs Rameshchandra R. Patel (ITAT, Ahd-TM) 89 ITD 203
• Cost of prints cannot be included in cost of acquisition of

exhibition right in film. This can only be carried forward as per
Rule 9B
ITO Vs Honey Enterprises (ITAT, Del) 89 ITD 301
Carry forward and set off of loss / unabsorbed

Depreciation
• Sec. 71B deals with carry forward and set off of loss under
the head “Income from House Property”. Loss under this
head which was not set off during the A.Y. as per sec. 71 can
be carried forward upto eight assessment years and set off
against income from house property assessable in such A.Y.
• Sec. 72 deals with carry forward and set off of loss under
the head “Profits & gains of business or profession”. Loss
under this head which was not set off during the A.Y. as per
sec. 71 can be carried forward upto eight assessment years
and set off against income under the same head assessable
in such A.Y.
• Priority should be given to set off of losses under this
head compared to set off of brought forward
unabsorbed depreciation u/s 32(2) and capital
expenditure on scientific research u/s 35(4).
• These provisions are not applicable to loss sustained in
speculation business.
• On reassessment if there is difference in carry forward of

loss or depreciation, assessment of the subsequent year in
which such loss or depreciation was set off can be modified
- Limitation of four year period will start from the F.Y. in
which the reassessment order was passed (sec. 155)
• If depreciation cannot be allowed in an A.Y. due to lack of

business income, the unabsorbed depreciation will be
added to the eligible depreciation for the following year
and so on. This is subject to sec. 72(2) and 73(3) [sec. 32(2)]
• For the period 01-04-1988 to 01-04-2002, such brought

forward unabsorbed depreciation
• can be set off only against business income
• can be carried forward for only succeeding 8 A.Y.
• Transport business - Not maintaining books - Income

computed u/s 44AE - Assessee not entitled to set off
unabsorbed depreciation.
DCIT Vs Sunil M. Kankariya (ITAT, Pune) 298 ITR (AT) 205
• Business loss including unabsorbed depreciation under the

head “Profits and gains of business or profession” cannot be set
off against salary income in view of sec. 71(2A)
Chandrakumar Vs ACIT (ITAT, Chennai) 5 ITR (Trib) 540
• Machinery and Plant sold – No manufacturing activity carried

on Receiving interest income on outstanding dues on sale of
plant & machinery – No actual sale of stocks – No continuation
of business Interest income not from business – Brought
forward business loss cannot be set off against interest
income.
Good Earth Engines (P) Ltd. Vs ACIT (ITAT, Del) 62 TTJ 740
• Brought forward business loss cannot be set off against short

term capital gains on sale of plant and machinery assessed u/s
50
Vashti Management Services Pvt. Ltd. Vs ITO (ITAT, Del) 129 ITD 1
• The fact that capital gains are connected with the capital assets
of a business will not make them profits of the business
CIT Vs Express Newspapers Ltd. (SC) 53 ITR 250
• Set off of brought forward business loss u/s 72 is permissible

only if assessee carried on business during the year
Assessment of profit from the said business u/s 41(2) is not
sufficient
Karnataka Instrade Corporation Ltd. Vs ACIT (ITAT, Bang) 127 ITD 74
• Set off of brought forward business loss u/s 72 is permissible

only if assessee carried on business during the year
Assessment of rental income from let out factory assessed
under the head “Income from House Property” – Only because
such factory building was once a business asset will not allow
set off of b/f business loss
ACIT Vs T & R Welding Products (India) Ltd. (ITAT, Chennai) 8 ITR (Trib) 181
CIT Vs Bengal Jute Mills Co. Ltd (Cal) 165 ITR 631
• In A.Y. 1999-00 brought forward depreciation pertaining to

A.Y. 1998-99 cannot be set off against capital gains
Southern Travels Vs ACIT (ITAT, Chennai-SB) 103 ITD 198
• Unabsorbed depreciation relating to A.Y. 1997-98 to 1999-00

cannot be set off against income from other Sources even after
2001-01 onwards
DCIT Vs Times Guaranty Ltd. (ITAT,SB-Mum) 4 ITR (Trib) 210
• Provisions of section 71(2) and 72(1) to be read in harmony

Word 'may' used in section 71(2) is only to give flexibility to
the assessee which may choose to adjust the losses against
other income including capital gains.
Ashok Leyland Ltd. Vs ACIT 2008-TIOL-15-ITAT-MAD
• Brought forward unabsorbed business loss can be set off only

against business income and not against capital gains
Nandi steels Ltd. Vs ACIT (ITAT, SB-Bang) 134 ITD 73
Carry forward of loss and set off in case of

amalgamation, merger etc.
• Sec. 72A, 72AA & 72AB deals with provisions relating to
carry forward and set off of accumulated loss and
unabsorbed depreciation in amalgamation, merger,
business re-organisation etc.
• Demerger of company – Unabsorbed portion of capital

expenditure on scientific research in the hands of demerged
company cannot form part of “accumulated loss” under sec.
72A(4) and hence the resulting company ie. assessee cannot
claim the benefit of sec. 72A(4) in respect of such expenditure.
ITO Vs Mahyco Vegetable seeds Ltd. (ITAT, Mum) 119 TTJ 64
• Brought forward unabsorbed depreciation of one

amalgamating firm cannot be set off against profit of
amalgamated firm.
Anand & Co. Vs ACIT (ITAT, Kol) 89 ITD 125
• Merger of Co-operative Societies and formation of a new

co-operative society – Carry forward losses of merged
co-operative society cannot be set off against profits of new
co-operative society.
Rajasthan Rajya Sahakari Spinning & Ginning Mills Fed. Ltd. Vs ITAT & Anr.
(Raj) 260 ITR 167
Loss from Speculation Business

• Speculative transaction is defined in sec. 43(5).
• As per sec. 73, losses in speculation business can be set off

only against profits and gains of another speculation
business. Loss under this head which was not set off during
the A.Y. can be carried forward upto four (w.e.f.
01-04-2006) assessment years and set off against income
under the same head assessable in such A.Y.
• Priority should be given to set off of losses under this
head compared to set off of brought forward
unabsorbed depreciation u/s 32(2) and capital
expenditure on scientific research u/s 35(4).
• Where any part of the business of a company consists of
purchase and sale of shares, income from such activity
will be deemed as speculation business for the purpose of
this section.
• Exception : This condition is applicable only if the gross
total income mainly consists of business income except
for companies engaged in banking or granting of loans
and advances.
• Speculative transaction – if actual delivery of share scrips does

not take place both for purchases as well as sales, Sec.43(5)
applies – When delivery is recalled by brokers, there is no
actual delivery and hence it is speculative transaction. – Loss
in such transaction cannot be set off against business income.
ACIT Vs Claytone Commercial Co. Ltd. (ITAT, Delhi) 67 ITD 118
• Shares purchased from broker on principal to principal basis

and resold without taking physical delivery of shares – Loss by
paying difference between purchase and sale value of shares
Speculation loss
Bhikamchand Betala and Sons Vs ITO (Gau) 294 ITR 10
Ram Lal & Sons Vs ITO (ITAT, Asr) 71 ITD 256
• Transaction of purchase and sale of units & Government

securities by Banking Company through Banker's Receipt
without actual delivery – Speculative transaction
ANZ Grindlays Bank Vs DCIT ( ITAT, Del) 88 ITD 53
• Applicability of Sec. 73 - Set off of Speculation Loss - No need

to prove tax avoidance
DCIT Vs Front Line Capital Services Ltd. ( ITAT, Del ) 96 TTJ 201 overruled
SMC
decision in Aman Portfolio (P) Ltd. Vs DCIT
• Sec. 73 and 43(5) operate in different fields - Sec. 73 applies

even to shares transferred with delivery – Sec. 73 deals with
nature of business whereas sec. 43(5) deals with nature of
transaction
Rohini Capital Services Ltd. Vs DCIT ( ITAT, Del ) 92 ITD 317
Paharpur Cooling Towers Ltd. Vs DCIT ( ITAT, Kol ) 85 ITD 745 approved in
(Cal) 338 ITR 295
AMP Spg. & Wvg. Mills (P) Ltd. Vs ITO (ITAT,SB-Ahd) 100 ITD 142
RPG Industries Ltd. Vs CIT (Cal) 338 ITR 313
• Provisions of sec. 73 explained in detail

Melville Finvest Ltd. Vs JCIT ( ITAT, Hyd ) 89 ITD 528
DCIT Vs Aakrosh Investment & Leasing (P) Ltd. ( ITAT, Mum ) 90 ITD 287
Yucca Finvest (P) Ltd Vs DCIT ( ITAT, Mum ) 101 ITD 403
• Investment companies are not exempted under sec. 73

JCIT Vs Haldia Investment Co. Ltd. ( ITAT, Kol ) 85 ITD 212
RPG Industries Ltd. Vs ACIT ( ITAT, Kol – TM ) 85 ITD 105
• Forward transaction – Raw materials in which transaction

made must have a direct connection with goods manufactured
or items sold – Otherwise it is speculative transaction
Delhi Flour Mills Co. Ltd,. Vs CIT (Del) 95 ITR 151
• Explanation to section 73 – Physical delivery of shares not

relevant – Gross Total income does not consist mainly of
income chargeable under the heads “Interest on securities”,
“Income from House property”, “Capital gains” and “Income
from other Sources” OR assessee's principle business is not
banking or granting loans and advances – Exemptions will not
apply
CIT Vs Intermetal Trade Ltd. (MP) 285 ITR 536
• Assessee was a shareholder having brokerage income and was

also trading in shares. A.O. did not allow share trading loss to
set off against brokerage income holding it as speculative
business and applying sec. 73 – Upheld
Priyasha Maven Finance Ltd. Vs ITO (ITAT, Mum) 119 ITD 163
• Business loss being negative profit cannot be ignored in

determining the applicability of exception clauses of Expl. to
sec. 73
Mafatlal Securities Ltd. Vs JCIT (ITAT, Mum) 119 ITD 444
• Loss in transaction of derivatives for period prior to

amendment – Speculative loss
Shree Capital Services Ltd. Vs ACIT (ITAT,SB-Kol) 121 ITD 498; 318 ITR (AT) 1
CIT Vs Bharat R. Ruia (HUF) (Bom) 54 DTR 153 ; 199 Taxman 87 ; 337 ITR 452
• Even if loss was on account of fall in value of stock, it was still

in the nature of loss incurred from business of purchase and
sale of shares – Sec. 73 applies – It is deemed to be speculative
loss and cannot be set off against other income
ITO Vs Big Apple Clothing P. Ltd. (ITAT, Del) 5 ITR (Trib) 44
Prudential Construction Co. Ltd. Vs ACIT (ITAT, Hyd) 75 ITD 338
Carry forward and set off of loss under the head

“Capital gains”
• As per Sec. 74, Loss under the head Capital gains” which
was not set off during the A.Y. can be carried forward upto
eight assessment years and set off against income under the
same head assessable in such A.Y.
Exception : Brought forward long term capital loss can be set
off only against Long term capital gains.
• Brought forward long term capital loss pertaining to A.Y.

2000-01 cannot be set off against short term capital gains from
A.Y. 2003-04 onwards – Once the loss has been carried
forward to a particular year, it becomes loss of that year and its
set off and carry forward would be governed by the provision
applicable for that year
Komaf Financial Services Ltd. Vs ITO (ITAT, Mum) 42 DTR 402; 132 TTJ 359
Carry forward and set off of loss in case of change in

shareholding
• Sec. 78 & 79 deal with carry forward and set off of losses in
case of change in shareholding of firm and company.
• Dissolution of firm – Business taken over by HUF – No

succession by inheritance – HUF not entitled to set-off the loss
of firm against income of HUF
Pratap H. Desai (HUF) Vs ACIT (ITAT, Patna) 307 ITR (AT) 311
• Company taking over business of proprietary concern Seeking

to set-off loss incurred by proprietary concern on account of
dacoity – Cannot be allowed to set-off

Balaji Enterprises P. Ltd. Vs DCIT (ITAT, Del) 308 ITR (AT) 356
• Assessee society was created by bifurcation of an old society –

As per sec. 78(2) where a person carrying on business or
profession has been succeeded in such capacity by another
person otherwise than by inheritance, said another person will
not have right to carry forward unabsorbed business loss of
first person and set off same against its income in a subsequent
year – Since creation of assessee society on splitting up of
parent society could not be treated as inheritance, claim of set
off of brought forward loss of parent company has to be
rejected
Ballabgarh Co-op. Milk Producers' Union Ltd. Vs ITO (ITAT, Del) 134 ITD 455
• Individual took over running business of a partnership firm in

which he was a partner – Assessee claimed set off of loss
suffered by erstwhile firm against his individual income. Since
firm and individual are two separate taxable entities / persons
under the I.T. Act, such loss could not be set off as it is not a
case of succession by inheritance
Pramod Mittal Vs CIT (Del) 205 Taxman 444
Need to file return within the period specified

u/s 139(1)
• According to sec. 80 for getting the benefit of carry forward
of loss pertaining to business or profession, speculation
business, capital gains and activity of owning and
maintaining race horses, return of income to be filed within
the time allowed u/s 139(1).
• Loss return filed after due date disclosing 115 J income – Since
return of income was filed late, carry forward of loss to
subsequent year is not permissible.
ACIT Vs Dynavision Ltd (ITAT, Chennai) 88 ITD 213
• Return of loss filed in response to notice u/s 148 much after

expiry of due date specified u/s 139(1) – No carry forward and
set off of loss permissible.
Koppind Pvt. Ltd. Vs CIT ( Cal) 207 ITR 228
DIVIDEND STRIPPING – Loss not allowed

to set off
• Sec. 94(7) deals with the issue of dividend stripping wherein
the amount of loss on purchase and sale of securities or
units to the extent of dividend or income received /
receivable on such securities / units is ignored while
computing the taxable income. This provision is w.e.f.
01-04-2002. Conditions applicable are :
• Such units / securities are acquired within a period of 3
months prior to the record date
• Such securities are transferred within a period of 3
months after the record date
• Such units are transferred within a period of 9 months
after the record date (w.e.f 01-04-2005)
• Dividend or income received / receivable on such
securities / units is exempt
• Sub-sec. 94(8) was introduced w.e.f. 01-04-2005 to include

bonus units also under the purview of sec. 94(7).
• In CIT Vs Walfort Share & Stock Brokers (P) Ltd. (326

ITR 1) Supreem Court held that sec. 94(7) is applicable
from 01-04-2002 only and not retrospective
• Transaction in securities – Purchase “within a period of 3

months prior to the record date” includes purchase on record
date also – Redemption of units comes under “transfer” for the
purpose of sec. 94(7)
Tube Investments of India Ltd. Vs JCIT (ITAT, Chennai) 2 ITR (Trib) 612
• Under sec. 94(7), there is no condition that purchase of shares

and earning of tax free dividend income should be in the very
same year of sale of such shares
• Redemption of units by mutual funds constitute transfer for the
purpose of sec. 94(7)
Administrator of Estate of Late E.F. Dinshaw Vs ITO (ITAT, Mum) 128 ITD 365 ;
52 DTR 14 ; 8 ITR (Trib) 771
• Amendment made to sec. 94(7) w.e.f. 01-04-2005 apply for

F.Y. 2004-05 relevant to A.Y. 2005-06 – Purchase of units of

mutual fund in F.Y. 2003-04 shortly before the record date and
earned dividend in F.Y. 2003-04 – Said units were sold in F.Y.
2004-05 falling within 9 months period from record date – Sec.
94(7) comes into operation only in the event of sale of
securities / units – Loss declared on sales during F.Y. 2004-05
to be disallowed to the extent of dividend received on such
units
Ashok Kumar Damani Vs Addl. CIT (ITAT, Mum) 130 ITD 287
Chapter 5
DEDUCTIONS AND
EXEMPTIONS
DEDUCTIONS AND EXEMPTIONS 485
DEDUCTIONS UNDER CHAPTER VI
General aspects
• Aggregate amount of deduction under Chapter VI should
not exceed gross total income [sec. 80A]
• If any deduction is allowed to an AOP/BOI, no deduction

under the same section be allowed to its members in respect
of their share of income in AOP/BOI [sec. 80A]
• If deduction on profits and gains allowed under any

provisions of Chapter VI-C or sec. 10A, 10AA, 10B or 10BA
for any A.Y., deduction in respect of and to the extent of
such profits and gains shall not be allowed under any other
provisions in such A.Y. [sec. 80A – inserted by Finance
(No.2) Act, 2009 w.r.e.f. 01-04-2003]
• If assessee fails to make claim for deduction in its return, no

deduction shall be allowed [sec. 80A]
• In case inter-unit transfer is not at market value, compute

profits and gains at market value before computing eligible
deduction under any provisions of Chapter VI-C or sec.
10A, 10AA, 10B or 10BA [sec. 80A w.e.f. 01-04-2009]
• If deduction under Chapter VI-C claimed and allowed in

respect of profits of any specified business referred to in
sec. 35AD(8)© for any A.Y., no deduction u/s 35AD will be
allowed for the same or any other A.Y. [sec. 80A]
• Deduction under Chapter VI-C to be computed with

reference to the extent of such income included in the gross
total income [sec. 80AB].
• Gross total income defined [sec. 80B(5)]
• Deductions u/s 80IA, 80IAB, 80IB, 80IC, 80ID and 80IE to

be allowed only if return filed on or before the due date
specified u/s 139(1) [sec. 80AC w.e.f. 01-04-2006]
• To claim exemption, duty of assessee to substantiate it with

records and evidences
CIT Vs Calcutta Agency Limited (SC) 19 ITR 191
CIT Vs R. Venkataswamy Naidu (SC) 29 ITR 529
Gopi Ram Lila Vs CIT (Raj) 225 ITR 320
• Audit Report filed after assessment – Deduction not available

CIT Vs Mahalakshmi Rice Factory (P&H) 294 ITR 631
Only Net Income Eligible
• Deduction can be allowed only on the gross total income

mentioned in sec. 80B(5) – Gross Total Income to be computed
after setting off unabsorbed losses, depreciation and
development rebate of earlier years – Only income included in
the gross total income is eligible for deduction and such
deduction is to be made from the gross total income as is clear
from sec. 80A – Sec. 80AB further reiterates this position
CIT Vs Kotagiri Industrial Co-operative Tea Factory Ltd. (SC) 224 ITR 604
H.H. Sri Rama Varma Vs CIT (SC) 205 ITR 433,
Cambay Electric Supply Industrial Co. Ltd. Vs CIT (SC) 113 ITR 84
Motilal Pesticides (I) (P) Ltd. Vs CIT (SC) 243 ITR 26
Synco Industries Ltd. Vs Assessing Officer (SC) 299 ITR 444
• Chapter VI deduction cannot exceed Gross Total Income –

Contention that deduction must first be allowed and then the
gross total income to be computed, is not well founded – Since
gross total income was NIL, assessee is not eligible for
deduction under Chapter VI
Orient paper Mills Ltd. Vs CIT (Cal) 158 ITR 695
Synco Industries Ltd. Vs DCIT (ITAT, Mum) 73 ITD 339
Murugappa & Sons Vs CIT (Mad) 178 ITR 410
CIT Vs S. Zoroster & Co. (Raj) 179 ITR 416
• Losses in two units / business & profit in another unit / business

Set off loss against profits before computing deduction under
Chapter VI
CIT Vs Sundaravel Match Industries (P) Ltd. (Mad) 245 ITR 605
CIT Vs Macmillan Co. of India Ltd. (Mad) 243 ITR 403
CIT Vs RPG Telecom Ltd. (Kar) 292 ITR 355
• Deduction u/s 80M to be calculated on net dividend income

only, not on gross - What is included in the gross total income
is a particular quantum of income belonging to the specified
category
Distributors (Baroda) Pvt. Ltd. Vs Union of India & ors.(SC) 155 ITR 120
• Deduction u/s 80P to be allowed only after excluding

expenditure attributable to earning of eligible income
Punjab State Co-operative Milk Producers' Federation Ltd. Vs CIT (P&H) 201
Taxman (Mag) 138 ; 64 DTR 52
• The condition precedent for deduction is that the gross total

income of the assessee must include profits and gains derived
from the eligible undertaking – “Gross total income” as
defined in sec. 80B(5) means “total income computed in
accordance with the provisions of the Act” – Sec. 29 deals with
the manner of computation of income from profits and gains of
business or profession which says that such income shall be
computed in accordance with the provisions contained in sec.
30 to 43A and hence deductions provided in all these sections
have to be allowed before computing the profits and gains of
eligible business.
CIT Vs Rajasthan Co-operative Spg. Mills Ltd. (Raj) 225 ITR 574
CIT Vs Albright Morarji & Pandit Ltd.(Bom) 236 ITR 914
DCIT Vs Sangrur Vanaspati Mills Ltd. (ITAT, Chd) 56 ITD 168
CIT Vs Synthetic Stones (Raj) 157 CTR 594
• Apportion administrative expenses also to find out

proportionate income earned by newly established industrial
undertaking – Deduction under Chapter-VI can be computed
only on such net income
Food Specialities Ltd Vs ACIT (ITAT, Del) 54 ITD 352
• Deduction under Chapter VI-C to be computed on net profit as

per computation in Income Tax assessment and not on
commercial profits
HMT Limited Vs DCIT (ITAT, Bang) 58 ITD 73
DEDUCTION IN RESPECT OF CERTAIN

PAYMENTS – CH. VI-B
• Deduction in respect of payments towards life insurance
premia, deferred annuity, contributions to provident fund,
subscription to certain equity shares or debentures etc.
[Sec. 80C]
• Only Individual and HUF are eligible
• Maximum limit – Rs. 1 lakh
• Sums paid or deposited which are eligible for deduction

listed out in sec. 80C(2)
• Conditions for eligibility specified in sec. 80C(3) & (4)
• Withdrawal of deduction already granted in case of

violation mentioned u/s 80C(5), (6) & (6A)
• Sec. 80C re-introduced w.e.f. 01-04-2006 instead of sec.

88 with almost similar provisions
• Relevant rules : R. 20 & 20A
• Repayment of loan taken subsequent to the purchase of

property and its occupation by assessee, for the purpose of
addition and alteration in building – Not eligible for rebate u/s
88(2)(xv) [similar to sec. 80C(2)(xviii)]
Ashok Kumar Saxena Vs ACIT (ITAT, Del) 96 Taxman (Mag) 103
• To claim rebate u/s 88(2)(xv) [ similar to sec. 80C(2)(xviii)]

assessee should be either shareholder of company / member of
Co-operative Society, as the case may be, providing the house
to the assessee – Assessee deposited money with a private
company for the purpose of allotment of a house property and
hence he can at best be treated as a customer of the company
and not its shareholder
Sandeep S. Shah Vs ITO (ITAT, Mad) 73 ITD 313
Deduction in respect of contributions to certain

pension funds [Sec. 80CCC]
• Only Individual is eligible
• Maximum limit – Rs. 1 lakh
• Deduction with reference to such payments not allowed u/s

80C or 88
Deduction in respect of contributions to pension

scheme notified by Cen. Govt. [Sec. 80CCD]
• Maximum limit – 10% of salary or 10% of gross total

income [contribution by employee and employer
considered ]
• Deduction with reference to such payments not allowed u/s

80C or 88
• When principal and income accrued thereon is received

back, assessed in the year of receipt. Exempt, if it is used for
purchase of annuity.
Limit on deductions u/s 80C, 80CCC and 80CCD

[Sec. 80CCE]
• Aggregate deduction under all these sections is Rs. 1 lakh
Deduction in respect of subscription to long-term

infrastructure bonds [Sec. 80CCF]
• Only Individual & HUF are eligible
• Maximum limit – Rs. 20,000
• Applicable for A.Y. 2011-12 and 2012-13
Deduction in respect of payment of health insurance

premia [Sec. 80D]
• Only Individual & HUF are eligible
• Maximum limit – Rs. 15,000 for assessee & his family and
another Rs. 15,000 for his parents [in case of HUF only Rs.
15,000] – If insured person is a senior citizen (age 65 years
or more), limit is Rs. 20,000
• Cash payment snot eligible
Deduction in respect of maintenance including

medical treatment of a dependent who is a person
with disability [Sec. 80DD]
• Only resident Individual & HUF are eligible
• Maximum limit – Rs. 50,000 [If dependent is a person with

severe disability, Rs. 1 lakh from 01-04-2010 and Rs. 75,000
prior to that]
Deduction in respect of medical treatment [Sec.

80DDB]
• Only resident Individual & HUF are eligible
• Maximum limit – Rs. 40,000 or amount actually paid,

whichever is less [If insured person is a senior citizen (age
65 years or more), limit is Rs. 60,000
• Relevant rules : R. 11A & 11DD
Deduction in respect of interest on loan taken for

higher studies [Sec. 80E]
• Interest paid on loan taken for higher studies of assessee or

his relative allowable for a period of 8 A.Y. or till interest is
fully paid, whichever is earlier
Deduction in respect of donations to certain funds,

charitable institutions etc. [Sec. 80G]
• Eligible deductions listed out in sec. 80G(2)
• Some donations eligible for 100% deduction and other

@ 50% - further restrictions placed in sec. 80G(4)
• Sums for which deduction allowed in this section will

not qualify for any other deduction in the same or
different A.Y.
• If the donations are paid out of another year's income or

out of income which was not includible in the assessment of
the current year, deduction u/s 80G would still be available
to the assessee [ Letter F.No. 45/313/66-ITJ(61) dated 01-
12-1966]
• Relevant rules : R. 11AA, 18AAA, 18AAAA & 18AAAAA
• Donation in kind do not qualify for deduction u/s 80G since the
wordings used in sec. 80G(2) is “any sum paid” – Donations in
kind, though convertible in terms of money, is not eligible
H.H. Sri Rama Verma Vs CIT (SC) 187 ITR 308
• Ceiling limit specified in sec. 80G(4) applies to aggregate of

sum in respect of which deduction is claimed, and not to
amount of deduction allowed u/s 80G(1)

CIT Vs Mafatlal Fine Spg. & Mfg. Co. Ltd. (Bom) 263 ITR 140
• By the very nature of calculation required to be made u/s

80G(4), it is necessary that all other deductions under Chapter
VI-A be first ascertained and deducted before granting
deduction u/s 80G – The submission that deduction u/s 80G
should be first granted before allowing deduction under any
other provisions in Chapter VI-A could not be accepted
Scindia Steam Navigation Co. Ltd. Vs CIT (Bom) 211 ITR 747
Deduction in respect of rents paid [Sec. 80GG]

• Persons in receipt of HRA not eligible
• Rent paid in excess of 10% of income – Limited to Rs. 2,000

p.m. or 25% of total income, whichever is less
• Relevant rules : R. 11B
Deduction in respect of certain donations for

scientific research or rural development [Sec.
80GGA]
• Assessees having income from profits and gains of business

not eligible
• Sums for which deduction allowed in this section will not

qualify for any other deduction in the same or different
A.Y.
Deduction in respect of contribution given to

political parties [Sec. 80GGB & 80GGC]
• Local authority and artificial juridical person wholly or

partly funded by Govt. – not eligible
• Contribution to electoral trusts also eligible w.e.f.

01-04-2010
DEDUCTIONS IN RESEPCT OF CERTAIN

INCOMES [CH. VI-C]
“DERIVED FROM” - MEANING OF
[relevant for sec. 80HHB, 80HHBA, 80HHC, 80HHD,
80HHE, 80HHF, 80IA, 80IAB, 80IB, 80IC, 80ID, 80IE, 80JJA,
80JJAA, 80QQB & 80 RR]
• The phrase “derived from” is different from “Attributable to”

– It is no doubt true that the words 'attributable to' have a wider
meaning than the words 'derived from' – But at the same time it
cannot be ignored that normally the word 'attributable' implies
that 'for a result to be attributable to anything' it must be wholly,
or in material part, caused by that thing – In order that income
can be said to be attributable to manufacture or processing of
goods, the earning of the income must be directly connected
with manufacture or processing of goods. It is also necessary
that material part of the said income should have been earned
by that activity.
India Leather Corporation P. Ltd. Vs CIT (SC) 227 ITR 552
• Interest on deposits with Electricity Board made out of

statutory compulsion – Interest not profit “derived from”
industrial undertaking – The words 'derived from' must be
understood as something which has direct or immediate nexus
with the industrial undertaking – Where the words are
unequivocal, there is no scope for importing any rule of
interpretation
Pandian Chemicals Ltd. Vs CIT (SC) 262 ITR 278
• Interest on amount deposited with bank as guarantee fund for

opening the letters of credit for the purpose of import of
material cannot be said to be income 'derived from' industrial
undertaking – The direct and proximate link is with the deposit
in the bank and not with the industrial undertaking
CIT Vs N.S.C. Shoes (Mad) 258 ITR 749
• Interest from trade debtors not derived from the industrial

undertaking – The sale proceeds has a direct or immediate
nexus with the industrial undertaking; but the interest paid by

the buyer for not paying the sale proceeds within the credit
period allowed is not arising out of the manufacturing activity
The immediate and effective source of interest is the sale
proceeds which remained unpaid for a stipulated credit period
and not the industrial undertaking
Nirma Industries Ltd. Vs ACIT (ITAT,SB-Ahd) 95 ITD 199
• Company engaged in distribution of electricity for which

Electricity Supply Act is applicable - Contingency Reserve
Fund deposited in securities as per such Act - Interest earned
not derived from the industrial undertaking – Not eligible for
deduction u/s 80I
Addl. CIT Vs Vellore Electric Corporation Ltd. (Mad) 119 ITR 523
• Profit from sale of import entitlement, export house premium,

duty drawback & cash assistance – Not derived from industrial
undertaking – Source of import entitlement cannot be said to
be the industrial undertaking and it is the export promotion
scheme of the Central Govt. whereunder the export
entitlements became available. There must be, for the
application of the words “derived from”, a direct nexus
between the profits and gains and the industrial undertaking. In
the instant case the nexus is not direct but incidental
CIT Vs Sterling Foods (SC) 237 ITR 579
Fenner (India) Ltd. Vs CIT (Mad) 239 ITR 480
CIT Vs Viswanathan & Co. (Mad) 261 ITR 737
CIT Vs J.B. Exports Ltd. (Del) 286 ITR 603
A.M. Moosa, Bharat Sea Foods Vs CIT (Ker) 224 ITR 735
• By using the expression 'derived from', Parliament intended to

cover sources not beyond the first degree. – DEPB/Duty
drawback are incentives which flow from the schemes framed
by Central Govt. or Customs Act and hence they belong to the
category of ancillary profits of such undertakings – Not
derived from the industrial undertaking – Further, they cannot
be reduced from the cost of purchase or manufacture of goods
and they should be treated as separate items of revenue or
income and accounted accordingly
Liberty India Vs CIT (SC) 317 ITR 218
• Service charges for erection and commissioning of plant and

machinery – Not derived from the industrial undertaking

Kirloskar Electrodyne Ltd. Vs DCIT (ITAT,SB-Pune) 87 ITD 264
ACIT Vs Intelligent Microsystems (P) Ltd. 2008-TIOL-25-ITAT-MAD
Friends Castings (P) Ltd. Vs CIT (P&H) 50 DTR 61; 238 CTR 377
• Repairs and maintenance charges received - Not eligible for

deduction u/s 80IA / 80IB as it is not derived from the
industrial undertaking
DCIT Vs Rajesh Kumar Drolia (ITAT, SB-Kol) 132 ITD 23
Wipro Ltd. Vs DCIT (ITAT, Bang) 34 DTR 493
• Profit on sale of assets not income from industrial undertaking

Not eligible for deduction
North East Gases (P) Ltd. Vs CIT (Gau) 139 CTR 501
• Income from sale of scrap and Insurance money received – Not

derived from the industrial undertaking.
Pandian Chemicals Limited Vs CIT (Mad) 270 ITR 448
• Transport subsidy received from Government is not an

operational profit – Not profit from industrial undertaking
since the immediate source of income is transport subsidy
scheme of the Govt. – Any aid or assistance by the Govt. to a
particular type of industry cannot be treated as profit derived
from the industrial undertaking
CIT Vs Andaman Timber Industries Ltd. (Cal) 242 ITR 204
JCIT Vs Sidheshwari Paper Udyog Ltd. (ITAT, Del –TM) 94 ITD 187
CIT Vs Kiran Enterprises (HP) 327 ITR 520
Virender Kumar Walia Vs ACIT 2010-TIOL-98-HC-HP-IT
• Weighment charges, Commission received, interest on

temporary deposit, interest on chit deposit, interest on adv-tax
Income not derived from priority industries.
CIT Vs Rane (Madras) Ltd. (Mad) 238 ITR 377
CIT Vs Paras Oil Extraction Ltd. (MP) 230 ITR 266
• Lease of entire undertaking to another at annual rent – Lease

amount not profits “derived” from industrial undertaking – For
getting the relief, industrial undertaking itself be source of
profit and gain and it is not sufficient if a commercial
connection is established between the profits and gains earned
and the industrial undertaking.
CIT Vs Cement Distributors Limited (Del) 208 ITR 355
• Income from lorry hire, weighment charges etc. are not derived
from the industrial undertaking.
CIT Vs Siddaganga Oil Extractions Pvt. Ltd,. (Kar) 201 ITR 968
• Compensation on account of breach committed by supplier and

purchaser in performance of contract – Liquidated damages
thus received cannot be equated with actual profits earned by
sale of finished goods - Not derived from the industrial
undertaking.
CIT Vs Alpine Solvex Ltd. (MP) 276 ITR 92
• Profit derived from business of trading of products of other

concerns – Not entitled to deduction u/s 80 IA since such profit
not derived from industrial undertaking.
Liberty Shoes Ltd. Vs CIT (P&H) 293 ITR 478
Sharavathy Steel Products (P.) Ltd. Vs ITO (Kar) 203 Taxman 232
• Profit from sale of imported gensets and spare parts – Though it

is incidental to the business activity, it is not derived from the
industrial undertaking.
Honda Siel Power products Ltd. (Del) 318 ITR 309
• Compensation received for termination of technical know-how

agreement – Not derived from industrial undertaking
S. Kumars Tyre Manufacturing Company Ltd. Vs CIT (MP) 30 DTR 233 ; 227
CTR 204
• Assessee supplying feed material for manufacture of heavy

water for which assessee receives payment – Assessee was
paid service charges for employing its staff for carrying gout
the operation and management of heavy water plant – Assessee
was not concerned with the profit or loss of heavy water plant
It only received management fee / service charges based on the
production of heavy water as per the agreement entered into
with the owner of heavy water plant – Assessee had no control
over the final product – No ownership on plant and machinery,
land and building etc. - Service charges are not profits and
gains derived from the industrial undertaking owned by the
assessee
Krishak Bharati Co-operative Ltd. Vs DCIT (ITAT, Del) 38 DTR 233 ; 130
TTJ 171
• Reimbursement of expenses received by a captive unit as idle

period charges – Since it has no nexus with the goods
manufactured or produced, not derived from the industrial
undertaking – This is ancillary profits which at best can be
treated as attributable to the business of industrial undertaking
Pine Packaging Pvt. Ltd. Vs ITO (ITAT, Del) 57 DTR 321
• Surrender of additional stock found during survey – Assessee

failed to show that the amount invested in such excess stock
was derived from industrial undertaking – not eligible for
deduction u/s 80IB
Home Tex Vs CIT (P&H) 59 DTR 165
• Employees' contribution of PF which was not deposited within

the due date was disallowed while completing the assessment
Such amount is not eligible for deduction u/s 80IB since it is
not derived from the industrial undertaking – This is neither an
item of profit and gain of eligible business or an item of P&L
a/c or manufacturing a/c – this is not a disallowance of
expenditure pertaining to assessee's eligible business
ITO Vs Millennium Writing Products P. Ltd. (ITAT, Kol) 47 SOT 238
• Insurance claim received towards value of materials damaged,

excise duty, survey fee, handling charges, job work charges
etc. are not derived from the business of manufacturing
activity of the assessee – Not eligible for deduction u/s 80IB
ACIT Vs Packaging India Ltd. 2011-TIOL-805-ITAT-MAD
• Advances received from customers forfeited on account of

breach of contract – Sum not derived from any goods produced
/ services rendered by assessee – not entitled to deduction u/s
80IA
CIT Vs Jackson Engineers Ltd. (Del) 341 ITR 518
• Assessee being engaged in manufacturing and sale of cotton

hosiery goods, dry cleaning charges received do not constitute
income derived from the industrial undertaking
Nahar Spinning Mills Ltd. Vs CIT (P&H) 66 DTR 257
• Deduction u/s 80IB is not available in respect of service

income, interest on deposits with banks, interest received from
loan given to employees, commission received, compensation

received from sundry debtors for delayed payments and profit
from sale of imported materials as such income is not derived
from the eligible undertaking
Indian additives Ltd. Vs DCIT (Mad) 67 DTR 389
WHETHER MANUFACTURE / INDUSTRIAL

UNDERTAKING
[relevant for sec. 80IB, 80IC, 80IE, 80JJAA & 10A]
• Manufacturing defined in sec. 2(29BA) w.e.f. 01-04-2009

which mandates change in a non-living physical object or
article or thing
• Resulting in transformation into a new and distinct
object or article or thing having a different name,
character and use or
• Bringing into existence of a new and distinct object or
article or thing with a different chemical composition or
integral structure
• In India Cine Agencies Vs CIT (308 ITR 98) Supreme

Court held that ship breaking activity give rise to
production of a distinct and different article.
• In Vijay ship Breaking Corpn. & Ors. Vs CIT (314 ITR

309) Supreme Court held that conversion of jumbo rolls of
photographic films into small flats and rolls in desired sizes
amounts to manufacture or production of an article or
thing.
• In ITO Vs Arihant Tiles & Marbles (P) Ltd. (320 ITR 79)
Supreme Court held that conversion of marble blocks into
polished slabs and tiles amount to manufacture or
production.
• In CIT Vs Oracle Software India Ltd. (320 ITR 546)

Supreme court held that process of transforming blank
compact disc (CD) into software loaded disc amounts to
manufacture.
• In CIT Vs Emptee Poly-Yarn (P) Ltd. (320 ITR 665)

Supreme court held that twisting and texturising of
partially oriented yarn by thermo-mechanical process
which converts it into a texturised yarn amounts to
manufacture.
• A.Y. involved in these decisions are prior to 01-04-2009

from which date onwards the definition was brought in
statute
• Construction of dam / building / bridge etc. does not amount to

manufacture of article or thing – Manufacture of intermediary
articles for construction of dam does not make any difference
because deduction is claimed not on the value of such
intermediary articles but on the total value of dam as such
Builders Association of India Vs Union of India & ors. (SC) 209 ITR 877.
CIT Vs N.C. Budharaja & Co. (SC) 204 ITR 412
• Assessee engaged in construction of Building / Flat etc. – Not

an industrial company.
CIT Vs Sunidhi Properties (Cal) 230 ITR 157
Continental Constructions Ltd. Vs CIT (Del) 185 ITR 178
Ahuja Kashyap (P) Ltd. Vs CIT (Del) 99 Taxman 99
• Construction and fabrication of mechanized houses – Does not

amount to manufacture or production of an article or thing and
is not an industrial undertaking
CIT Vs Punjab Chemi. Plants Ltd. (P&H) 43 DTR 322 ; 235 CTR 204
• Construction of canal – Not manufacturing / production of

article, the work involved being civil contract work
CIT Vs G. Harishchandra Reddy & Co. (Mad) 239 ITR 737
• Pressure piling for construction – Not amounting to

manufacturing and assessee not an industrial undertaking
CIT Vs M.S.J. Construction P. Ltd. (MP) 245 ITR 475
• Assessee quarrying stones which were lateron used in

constructions business of assessee – Not industrial
undertaking producing any article or thing.
Bhagat Construction Co. Pvt. Ltd. Vs CIT (Del) 232 ITR 722
• Firm engaged in construction of overhead tanks – Not an

industrial undertaking
CIT Vs Agarwal Borthers (MP) 228 ITR 144
• Activity of erecting a boiler at a site by assembling the parts

manufactured and supplied by another company – Not
manufacturing of an article or thing
CIT Vs Babcock & Wilcox of India Ltd. (Cal) 241 ITR 583
• Assessee engaged in business consultancy & data processing

through computers – Not an industrial undertaking
Preparation of statements on the basis of the data processed by
the assessee cannot amount to manufacture or production of an
article or thing
CIT Vs R. Shroff Consultants P. Ltd. (Bom) 238 ITR 1018
• Sorting out different varieties of cotton, pressing cotton into

bales, covering it with hessian cloth and tightening it by iron
hoops – Not manufacturing since different commercial
product is not produced
Gattu Malliah Sons Vs ITO (ITAT, Hyd) 60 ITD 131
Sattu Mallaiah Sons Vs ITO (ITAT, Hyd) 57 TTJ 312
• Heating raw bitumen to obtain solid bitumen – No

manufacturing activity since no new product emerged from the
process – What was bitumen continues to be bitumen, but with
lesser quantity of oil and moisture
CIT Vs Sri Meenakshi Asphalts (Mad) 266 ITR 626
• Shoes got manufactured from cobblers on piece rate basis

They are not employees of assessee – No manufacturing
activity by assessee and hence not an industrial undertaking.
Liberty Group Marketing Division Vs ACIT (ITAT, Del) 61 TTJ 566
• Firm not owning any manufacturing activity – It purchases silk

yarn, get silk cloth manufactured through weavers and sells the
cloth on its own account – Weavers are not employed by the
firm – Activity of manufacturing is not done by the firm
CIT Vs A.R. Balaraman (Mad) 242 ITR 470
• Job work undertaken to make case-sets for watches by welding

of glass and case – While doing the job work, assessee carried
out the process of welding glass and case with ultrasonic
welding machine so that the case-set becomes water-proof
There was no change in the composition of glass and it was
merely fixed to the case – No new article came into existence -
No manufacturing activity involved
P.A. Time Industries Vs DCIT ( ITAT, Chd ) 101 ITD 132
• Making Photostat copies with Xerox machine – Does not

amount to manufacturing activity since only a copy of the
original is obtained at the end of the process
CIT Vs B.N.B. Enterprises (Mad) 242 ITR 439
CIT Vs Electronics Consortium (P) Ltd. (Del) 169 Taxman 61
• Conversion of spirit into IMFL – Assessee processing raw

alcohol (potable spirit) and selling the same as whisky, brandy
and rum with different brand names – It purchases potable
spirit from distilleries which is already manufactured and does
not require any further manufacturing – Only some processing
is required to produce brandy, whisky, rum etc. by adding some
water, colour, essence etc. – There is only degree of reduction
of alcohol content and there is no essential difference between
the potable spirit and the bottled IMFL – Activity does not
amount to manufacturing.
Shaw Scott Distilleries (P) Ltd. Vs ACIT (ITAT,SB-Cal) 76 ITD 89
• Retreading of tyres – No manufacturing activity involved since

it only makes a worn-out tyre re-usable
CIT Vs Vijaya Retreaders (Ker) 253 ITR 53
CIT Vs Sundaram Industries Limited (Mad) 253 ITR 396
• Cutting and polishing of uncut raw diamonds – Does not

amount to manufacturing as polished diamond is not a new
article or thing
CIT Vs Gem India Mfg. Co (SC) 249 ITR 307
• Conversion of large mass of quartz into smaller dimensions

No manufacturing activity involved as nothing is consumed in
the process
ACIT Vs G.T.C. Enterprises (ITAT, Chennai) 87 ITD 188
• Mining of limestone and marble blocks and cutting and sizing

them – No manufacturing involved
Lucky Minmat Pvt. Ltd. Vs CIT (SC) 245 ITR 830
• Excavating and breaking boulder stones from stone quarries

and supplying same for construction work – The word
“excavation” means to make hollow by removing the inside to
take out leaving hollow – Activity of digging and removing
earth for excavation of boulder in order to facilitate collection
and transportation of boulder cannot be termed as

manufacturing activity because no new commodity has been
formed which has a different identity since boulder remains
boulder – Excavation of gypsum is also not manufacturing
activity.
ACIT Vs Saket India (P) Ltd. (ITAT, Del) 68 ITD 270
• Breaking of big boulders into small stones or bajri – No

manufacturing activity involved since no new and distinct
commodity came into existence
ITO Vs Jitendra Stone Crushing Co. (ITAT, Chd) 105 ITD 52
• Improving marketability of article does not constitute

manufacture / production. Sizing and Washing of ore does not
constitute manufacture / production – The ore fed into the plant
and processed by it remains commercially the same
commodity and does not change into any new commodity
Fact that ore so processed becomes a saleable commodity with
added value is not relevant – The test is not better marketability
or higher market price of the article processed but it is whether
what is subjected to particular process can be said to be
commercially different from the end product.
V.M. Salgaocar Bros (P) Ltd Vs CIT (Kar) 217 ITR 849
• Grinding soap-stones and minerals – Not Manufacturing.

CIT Vs Premier General Traders P. Ltd. (Bom) 242 ITR 654
• Chopping, cutting, polishing and sizing granite – Not

manufacture / processing
Hind Nippon Rural Industries P. Ltd Vs CIT (Kar) 201 ITR 588
CIT Vs Vijay Granite P. Ltd (Mad) 267 ITR 606
• Assessee purchasing granite blocks made to specifications

stated by the assessee – Granite blocks manufactured by
employing a contractor – No quarrying done by assessee
Processing done by seller – Works effected by assessee is
marginal – Main business of assessee was export of stones No
manufacturing or processing of goods.
Hind Nippon Rural Industries P. Ltd. Vs CIT (Kar) 201 ITR 581
• Electricity is not article or thing

Tamil Nadu Chlorates Vs JCIT (ITAT, Chennai) 98 ITD 1
• Flight Kitchen preparing food packets – In case of preparing

food packages or selling the same or preparing food stuffs for
serving in the hotel, there is no question of manufacturing or
production. The raw material is at the most processed to make
it eatable – The food stuff prepared by cooking or by any other
process from raw materials such as cereals, pulses, vegetables,
meat or the like cannot be regarded as commercially distinct
commodity and it cannot be held that such food stuff is
manufactured or produced – Since the word “industrial
undertaking” was not given any meaning under the Act, it has
to be understood as per common parlance language – Business
of hotel is a trading activity and not an industrial undertaking
India Hotels Co.Ltd. & Ors. Vs ITO & Ors. (SC) 245 ITR 538
• Blending different kinds of tea – Not manufacture or

production of an article or thing since the resultant product
cannot be regarded as a commercially different commodity
Manufacture or production brings into existence a new
commodity either by altering the face of raw material or by
bringing into existence a new product
D.D. Shah & Bros Vs Union of India & Anr. (Raj) 283 ITR 486
• Preparation of biscuits & sweet meats – Not manufacturing

Conversion of raw materials ie. flour, sugar etc. into foodstuffs
is only a process in trading and the production or preparation of
food stuffs is only incidental to trading
CWT Vs P. Devasahayam (Mad) 236 ITR 885
• Cold storage – No processing / production / manufacturing

activity involved as the article or goods preserved in a cold
storage plant remains the same as they were prior to such
preservation
Mittal Ice & Cold Storage Vs CIT (MP) 159 ITR 18
Delhi Cold Storage (P) Ltd. Vs CIT (SC) 191 ITR 656
State of Rajasthan Vs Rajasthan Ice & Cold Storage (SC) 264 ITR 158
CIT Vs Pawansut Cold Storage (P) Ltd. (Patna) 225 ITR 51
CIT Vs Kissan Friends Ice Factory & Cold Storage (P&H) 234 ITR 400
Patti Durga Cold Storage Vs ITO (ITAT,SB-Cal) 18 ITD 132
• Production of Mineral water – Though water is rendered free of

impurities, minerals and micro-organisms and thus made more
hygienic and suitable for human consumptions, it remains only

as drinking water ie. what it was at the raw material stage – Its
name, character and use is only of drinking water and is
regarded as such by the buyers as well as those who deal in it
Thus no new product comes into existence so as to qualify it as
manufacturing process.
Acqua Minerals (P) Ltd. Vs DCIT (ITAT, Ahd) 96 ITD 417
• Assessee engaged in transportation of goods by trucks – Not

industrial undertaking.
Agro Cargo Transport Ltd. Vs CIT (Mad) 236 ITR 1000
• Activity of tapping and vending toddy does not involve

manufacture or production of an article or thing.
Sri Ranganatha Enterprises Vs CIT (Kar) 232 ITR 568
• Diagnostic Centre is engaged in diagnosis of ailments of

human body – Scanner is used for obtaining information about
status of various parts of human body for making diagnosis of
body ailments for which films undergo processing – Films are
not subjected to any treatment or process with a view to
development or preparation for the market but is used merely
as a tool for diagnosis - Does not amount to production of any
goods
J.M.D. Medicare Ltd. & Anr. Vs Union of India (Cal) 232 ITR 467
Insight Diagnostic & Onchological Research Institute P. Ltd Vs DCIT (Bom) 262
ITR 41
• Peeling & Freezing of Shrimps / processing of fish – No

manufacturing activity involved since there is no essential
difference between raw shrimps and prawns and processed or
frozen shrimps and prawns.
CIT Vs Relish Foods (SC) 237 ITR 59
Golden Hind Shipping (India) P. Ltd. Vs CIT (Del) 240 ITR 324
CIT Vs Poyilakada Fisheries P. Ltd. (Ker) 240 ITR 445
CIT Vs Sterling Foods (Bom) 213 ITR 851
CIT Vs George Maijo (Mad) 250 ITR 440
• Conversion of raw fish into tinned fish – No manufacturing

activity involved – Deduction claimed by the assessee was
allowed in earlier years is not a bar to make disallowance
during the year as each A.Y. is different and the claim made by
the assessee is legally not tenable, revenue can make

disallowance
CIT Vs Gitwako Farma (I) Pvt. Ltd. (Del) 332 ITR 471
Bhatsons Acquatic Products Vs CIT (Ker) 329 ITR 67
• Roasting and grinding of chicory roots into chicory powder

No manufacturing activity involved
Sacs Eagles Chicory Vs CIT (SC) 255 ITR 178
• Chilly & Chilly products are essentially same commodity – No

manufacturing activity involved
Nampudhiris Pickle Industries (Ker) 1993 KLJ (Tax cases ) 198
• Tendu leaves – Activities to make it soft does not amount to

processing since it is only preservation of marketable
commodity and no new thing comes into existence
Sagarmal Agarwal Vs Union of India & Ors. (Ori) 238 ITR 989
North Koel Kendu Leaves and Mahulam leaves Vs Union of India & Ors. (Patna)
228 ITR 630
Abdul Sattar Vs Union of India & Ors. (MP) 230 ITR 163
• Poultry farming – Hatchery is not industrial undertaking – No

manufacturing activity involved since it is only a natural and
biological process and assessee only helped this by application
of mechanical methods
CIT Vs Venkateswara Hatcheries (P) Ltd. (SC) 237 ITR 174
• Process of treating livestock would not be treated as

manufacturing activity or production of an article – By
applying mechanical process the mortality rate of such
livestock is diminished or the biological process is
smoothened, but that would not mean that some different
article or thing have been produced - Development of chicks
into broilers not treated as manufacturing activity - Process of
dressing, rearing, defeathering, deboning etc. undertaken by
assessee to produce boneless chickens, drumsticks, wings etc.
does not amount to manufacture or production of an article or
thing
CIT Vs J.D. Farms (Del) 31 DTR 342 ; 187 Taxman 151 ; 227 CTR 500
• Electroplating – Not manufacture / production of article or

thing since the original commodity still remains the same with
the word “coated” added to it – It is only done to prevent it from

rusting and no new goods were produced
CIT Vs Hindustan Metal Refining Works (P) Ltd. (Cal) 128 ITR 472
Titanor Components Ltd Vs DCIT (ITAT, Del) 72 ITD 514
• Dyeing, scouring, singering or otherwise finishing or

processing of fabrics does not amount to manufacture or
production of textiles – Cloth purchased by the assessee was
already manufactured and even after being embroidered or
dyed it is not transformed into any other different or distinct
commercial article or product
CIT Vs Veena Textiles P. Ltd. (Mad) 155 ITR 794
CIT Vs S.S.M. Furnishing Centre (Mad) 155 ITR 791
CIT Vs Anjani Kumar & Co. P. Ltd.(Raj) 227 ITR 786
ACIT Vs Varma Mukherji (P) Ltd.(ITAT, Mum) 61 ITD 462
• Printing of manufacturer's name on pharmaceutical capsules

does not amount to processing of goods since it does not alter
the nature of goods
CIT Vs Western India Pharmaceutical Services P. Ltd. (Bom) 230 ITR 96
• Pasteurisation and standardization of milk – No manufacturing

activity involved as milk remains milk though a little more
clean and more fit for consumption – An article is said to be
commercially different if it has “distinct character, name and
use after the process to which it is subjected”.
B.G. Chitale Vs DCIT (ITAT,SB-Pune) 115 ITD 97
• Filling of mushroom powder in gelatine capsules to make it fit

for marketing – No manufacturing or production of any
commercially distinct commodity
DXN Herbal Mfg. (India) (P.) Ltd. Vs ITO (ITAT, Chennai) 110 ITD 99
• Hospital or clinic is not an industrial undertaking – Expression

'industrial undertaking' has to be interpreted in the context in
which it was used in the IT Act and not in the context in which it
was used in other laws such as the Industrial Disputes Act
CIT Vs Yogender Sharma (Del) 311 ITR 372
• Purchased seeds from agriculturists and sold them after

processing – No manufacturing activity involved
ITO Vs Daftri Agro (ITAT, Hyd) 135 TTJ 729 ; 130 ITD 496
WHETHER NEW INDUSTRIAL UNDERTAKING

[relevant for sec. 80IA, 80IB, 80IC, 80ID & 80IE]
• Assessee is publisher of books – In earlier years, printing was

done in other places – New press installed in this year – This is
a case of re-construction of an already existing business – Not
eligible for deduction.
CIT Vs Naya Sahitya (Del) 84 ITR 567
• Undertaking established must be a newly established industrial

undertaking and not that the undertaking is a new undertaking
to the person acquiring the same from another.
Khoday Industries P. Ltd. Vs CIT (Kar) 163 ITR 646
• Assessee purchased certain old and new machinery and started

production of an item in 1988 – In subsequent year, some more
Plant & Machinery purchased and started production of some
other items also - Industrial undertaking came into existence in
1988 itself and in that year cost of old plant exceeded 20% of
total Plant & Machinery and hence not eligible for deduction as
it is not a newly established undertaking .
JCIT Vs Nalco Chemicals (I) Ltd. (ITAT, Kol) 97 ITD 348
• Investment made for new Plant & Machinery, buildings,

furniture etc. – Common pipeline, common boiler house,
common purchase of raw materials and sale of finished
products by old and new units – One license and one electricity
bill for both units – Deployment of workers common.
Common catering facility and common workshop – New unit
not a new industrial undertaking.
Periyar Chemicals Ltd. Vs CIT (Ker) 226 ITR 467
• Improvement brought out in an existing system cannot be

construed as setting up of a new undertaking – Assessee
commissioned two telecommunication earth stations during
the year – This is only improvement in existing system and for
up-grading its services – Not setting up of new industrial
undertaking.
Videsh Sanchar Nigam Ltd. Vs CIT ( ITAT,SB-Mum) 111 ITD 190
• Expansion of production capacity of the existing unit by

changing some equipments did not constitute setting up of new
industrial undertaking – New plant and machinery were
installed in the existing building on the same process line up
and infrastructure and the new equipments were connected to
the old machinery – Old and the new plant were integrated in
such a manner that it is difficult to identify whether the final
product has been produced through the so-called expanded
plant and machinery or through the old plant and machinery
Not entitled for deduction
JCIT Vs Thirani Chemicals Ltd. (ITAT,SB-Del) 3 ITR (Trib) 586 ; 130 TTJ 1
• Old unit converted to new unit by adding plant and machinery

costing meagre amount – Existing employees transferred to
new unit – Case of splitting up / reconstruction of existing
business
Chenab Information Technologies (P) Ltd. Vs ITO (ITAT, Mum) 25 SOT 432 ; 24
DTR 595
• To decide whether it is a new undertaking or not, initial year of

manufacture is relevant – Assessee acquired a defunct unit in
1996 and value of old plant and machinery on the date of
commencement of manufacturing was more than 20% -
Subsequent acquisition of new machinery will not make the
assessee eligible for deduction
Sami Labs Ltd. Vs ACIT (Kar) 52 DTR 257 ; 334 ITR 157
Ghodavat Pan Masala ( India ) (P.) Ltd. Vs JCIT ( ITAT, Pune ) 108 ITD 603
CIT Vs Tata Communications Internet Services Ltd. (Del) 204 Taxman 606
• The words 'previously used for any purpose' are wide enough
to cover all old and used machinery, no matter who used such
machinery previously and from which source it was acquired.
There is no justification for reading the words 'by the assessee
himself' after the last word 'purpose'
Kanhiyalal Rameshwar Das Vs CIT (Raj) 156 ITR 463
Phagoo Mal Sant Ram Vs CIT (P&H) 74 ITR 734
Deductions in respect of profits and gains from

projects outside India [sec. 80HHB]
• Indian company and Residents in India are eligible
• No deduction after 01-04-2005
• Consideration received to be brought to India in

convertible foreign exchange within the specified period
• Amount equal to the deduction claimed to be credited to

Reserve a/c for utilization in the next 5 years for the
purpose of business and not for distribution of profits
• In case of violation, pass order u/s 154 within 4 years from

the end of previous year in which such violation occurred
so as to re-compute deduction eligible and withdraw the
excess claim
• No deduction under any other section in respect of

consideration or income referred to in this section
• Assessee to maintain separate accounts for this business,

get it audited and furnish audit report as well as a
certificate from C.A. in the prescribed form along with the
return
• Relevant rules : R. 17D & 18BBA

housing projects aided by World bank and awarded
by global tender [sec. 80HHBA]

Reserve a/c for utilization in the next 5 years for the
purpose of business and not for distribution of profits
• In case of violation, pass order u/s 154 within 4 years from

the end of previous year in which such violation occurred
so as to re-compute deduction eligible and withdraw the
excess claim

• Assessee to maintain separate accounts for this business,
get it audited and furnish audit report in the prescribed
form along with the return

export of goods and merchandise [sec. 80HHC]

• Supporting manufacturer also eligible if he gets disclaimer

certificate from Export House / Trading House – On the
turnover mentioned in such disclaimer certificate Export
House / Trading House is not eligible for deduction u/s
80HHC
• No deduction if export is of mineral oil, minerals or ores

(other than processed minerals and ores specified in 12th
Schedule)
• Computation
(a) If export is of manufactured goods

Profit of business X Export turnover
Total turnover
(b) If export is of trading goods Export turnover – Direct and
indirect costs attributable to it
(c ) If export is of trading and manufactured goods
Adjusted Profit of business X Adjusted Export turnover
Adjusted Total turnover
and
Export turnover of trading goods – Direct and indirect
costs attributable to it
* Adjusted profit, export turnover and total turnover are
arrived at by reducing the profit, export turnover and total
turnover relating to trading goods from the total profits,
export turnover and total turnover, respectively
Add 90% of sums referred to in sec. 28(iiia), (iiib) and (iiic)

X Export turnover
Total turnover
*profit on sale of license acquired from other persons not

eligible
If total turnover during the year is Rs. 10 crores or less,

further add 90% of sums referred to in sec. 28(iiid) and
(iiie) X Export turnove
Total turnover
If total turnover during the year exceeds Rs. 10 crores,

further add 90% of sums referred to in sec. 28(iiid)
X Export turnover
Total turnover
if the assessee proves that he had an option to choose either
duty drawback or DEPB scheme or Duty Remission
scheme and the rate of duty draw back credit was higher
than the rate of credit available under DEPB scheme or
Duty Remission scheme
If total turnover during the year exceeds Rs. 10 crores,

further add 90% of sums referred to in sec. 28(iiie)
X Export turnover
Total turnover if the assessee proves that he had an
option to choose either duty drawback or DEPB scheme or
Duty Remission scheme and the rate of duty draw back
credit was higher than the rate of credit available under
DEPB scheme or Duty Remission scheme
If items (a) (b) or (c) mentioned above is loss, such loss shall
be set off against other deductions allowable under the
section
Profit of the business to be reduced by 90% of any sum

referred to in sec. 28(iiia), (iiib), (iiic), (iiid) and (iiie) or any
receipts by way of brokerage, commission, interest, rent,
charges or any other receipt of similar nature included in
such profits. Also exclude profits of any branch, office,
warehouse or any other establishment of the assessee
situated outside India and any income not chargeable to
tax in India
Total turnover shall not include freight or insurance

attributable to the transport of goods or merchandise
beyond the customs station and sums referred to in sec.
28(iiia), (iiib), (iiic), (iiid) and (iiie)
Export turnover shall not include freight or insurance

attributable to the transport of goods or merchandise
beyond the customs station
• Assessee to file certificate from C.A. in the prescribed form

along with the return
• Relevant rules : R. 18BBA
• In CIT Vs B. Suresh (313 ITR 149) Supreme Court held

that profit on transfer of right of exploitation of films
outside India by way of lease and earning of foreign
exchange is eligible for deduction u/s 80HHC
• In CIT Vs Williamson Financial Services & Ors. (297 ITR
17) Supreme Court held that deduction u/s 80HHC is to be
given after apportionment of income from cultivation and
manufacture of tea u/R 8(1)
• In CIT Vs Lakshmi Machine Works (290 ITR 667)

Supreme Court held that sales tax and excise duty are to be
reduced from 'total turnover' while computing the
deduction u/s 80HHC
• In Topman Exports Vs CIT (67 DTR 185) Supreme Court

held that DEPB is chargeable to tax as income u/s 28(iiib) in
the year in which application for DEPB credit is made
against the exports – It was also held that profit on transfer
of DEPB is chargeable as income u/s 28(iiid) in the year in
which assessee makes transfer of such license
• In ACG associated Capsules (P) Ltd. Vs CIT (67 DTR 205)

Supreme Court held that sale value less face value of DEPB
represents profits on transfer of DEPB license. It was also
held that 90% of net interest or net rent is to be deducted
under cl. (baa) of Expl. to sec. 80HHC and not 90% of gross
interest or rent.
Eligibility
• Assessee, manufacturer made export through Export House as
revealed from various statutory forms submitted during the
course of export – Manufacturer is not the exporter.
Minerals and Metal Trading Corporation Vs R.C. Mishra & Ors.(SC) 201 ITR 851
• No export contract between the assessee and the foreign buyer

As per the contract between the export house and assessee,
foreign exchange was credited to assessee's account - No
disclaimer certificate produced from Export House – Not
eligible for deduction u/s 80HHC
CIT Vs Sea Pearl Industries (Ker) 238 ITR 551
ITO Vs Rifox Engg. India (P) Ltd, (ITAT, Pune) 57 ITD 466
• Supporting manufacturer is entitled to deduction u/s 80HHC

only if the exporter had earned profits
Bhatsons Acquatic Products Vs CIT (Ker) 329 ITR 67
• Goods not crossed Indian Border and were used for aid
programmes organized by UNICEF in India – No 80HHC
deduction allowable eventhough sale proceeds were received
in convertible foreign exchange
Indian Delco (P) Ltd. Vs DCIT (Del) 68 DTR 225
• Articles supplied from Germany to Poland – No “export out of

India” – Not eligible for deduction u/s 80HHC – If the goods
were not within Indian territory prior to the export and have not
left Indian territory, such transaction cannot be considered as
“export out of India”
Dhall Enterprises and Engineers P. Ltd. (Guj) 295 ITR 481
DCIT Vs PCI Ltd. (ITAT, Del) 15 DTR 215
• Counter sales to foreign tourists in convertible foreign

exchange do not qualify for deduction under sec. 80 HHC
unless clearance of such goods from any Customs Station in
India is proved.
Tribhovandas Bhimji Zaveri (Delhi) (P) Ltd. Vs CIT (ITAT, Mum) 123 ITD 31
• Exported goods got destroyed before it reached the customer –

Since delivery of goods and sale did not take place, assessee is
not eligible for deduction u/s 80 HHC – Three ingredient are

essential for allowance of deduction u/s 80HHC : (i) there shall
be an export of goods and merchandise to which the section
applies out of India (ii) there shall be a sale of the exported
goods so that profit on its sale can be worked out and (iii) the
sale proceeds of such goods or merchandise exported out of
India shall be received by the assessee in convertible foreign
exchange – If any of the condition is not fulfilled assessee shall
not be eligible for deduction u/s 80HHC
Vijay C. Kamdar Vs ITO (ITAT, Mum) 118 ITD 577
• Deduction u/s 80 HHC not available to non-residents

Mustaq Ahmed Vs ACIT (ITAT, Chennai) 124 ITD 312
• Income surrendered during survey operations as stock

difference / unaccounted investments – Not eligible for
deduction u/s 80 HHC
Sarla Handicrafts P. Ltd. Vs Addl. CIT (P&H) 296 ITR 94
• CIT declined to grant further extension of time for bringing

sale proceeds to India - Upheld.
D.B. Exports (India) Vs CIT (P&H) 231 ITR 836
• Cleaning and grading of cardamom do not amount to

processing – Not entitled fro deduction u/s 80HHC
CIT Vs Midland Rubber & Produce Co. Ltd. (Ker) 339 ITR 436
• Income from manufacture and export of tea – Deduction u/s

80HHC to be computed and allowed after applying rule 8
Goodricke Group Ltd. Vs CIT (Cal) 58 DTR 273
Computation
• Brought forward unabsorbed depreciation of earlier years to be
deducted from profits of the year before calculating deduction
u/s 80 HHC
CIT Vs Shirke Construction Equipment Ltd. (SC) 291 ITR 380
• Sec. 80HHC (a),(b)&(c) – If one figure is negative, set off the

same against positive figures.
• Deduction u/s 80HHC to be granted before computing net

income and apportionment made between agricultural & non-
agricultural income.
Warren Tea Limited & Anr Vs Union of India & Ors. (Cal) 236 ITR 492
CIT Vs C.W.S. (India) Ltd. (Ker) 246 ITR 278
• Assessee having total turnover exceeding Rs. 10 crores but

having no receipts from duty drawback – Option under third
proviso to sec. 80HHC of choosing duty drawback or DEPB
was not available to assessee making it disentitled to deduction
u/s 80HHC in respect of receipts from sale of DEPB licences –
The two condition mentioned in third proviso to sec. 80HHC
are mandatory
Shivnath Rai Harnarain (India) Ltd. Vs DCIT (ITAT, Del) 304 ITR(AT) 271; 117
ITD 74
• 80HHC - fifth proviso – Word 'or ' has been intentionally used
between clauses (a) and (b). This cannot be substituted with the
word ' and '.
Mehta Mfrs. Vs ITO (ITAT, Mum) 110 ITD 1
• While computing deduction u/s 80HHC, non-export loss of the

amalgamating company to be reduced from the 'profits of the
business' of the amalgamated company since sec. 72A
provides that the unabsorbed business loss or unabsorbed
depreciation of the amalgamating company will be regarded as
unabsorbed business loss or unabsorbed depreciation of the
amalgamated company and available for carry forward and set
off in the hands of the amalgamated company – deduction u/s
80HHC to be restricted u/s 80AB r.w.s. 80B(5)
Cosmo Films Ltd. Vs CIT 2012-TIOL-03-HC-DEL-IT
Export turnover – Expl. (b)

• Journal published & sold abroad – Advertisement charged
received abroad in foreign currency is not part of export
turnover
Diamond World Vs CIT (Raja) 267 ITR 466
• Export turnover of an export oriented unit whose income is

exempt under section 10B /10A cannot be included in export
turnover for 80 HHC calculation – Non-mentioning of sec.
80HHC in sec. 10B(6)(iii) which disallows deduction u/s
80HH, 80HHA, 80IA or 80IB does not entitle the assessee to
claim deduction u/s 80HHC for the reasons that deduction u/s
80HHC is even otherwise not available to the units claiming
exemption u/s 10B because the profits of such units are not to
be included in the profits eligible for deduction u/s 80HHC
ACIT Vs Mahavir Spg. Mills Ltd. (ITAT, Chd) 110 ITD 211
Samtex Fashions Limited Vs ACIT (ITAT, Del) 92 ITD 535
• Cash assistance received is not part of export turnover for 80

HHC purpose
Khan International Exports P. Ltd. Vs CIT (All) 280 ITR 165
Total turnover – Expl. (ba)

• For computation of deduction u/s 80HHC, profit of 10B units
would not for part of 'profits and gains of business or
profession' whereas turnover of 10B units is to be included in
the total turnover
TATA BP Solar India Ltd. Vs Addl. CIT (ITAT, Mum) 130 ITD 386
• Turnover disclaimed in favour of supporting manufacturer

cannot be reduced from the total turnover
• Assessee having exports as well as local sales of commodity

exported as well as other commodities – Profit and turnover of
other commodities (non-export) also to be considered while
computing deduction u/s 80HHC
CIT Vs ATC Ltd. 2011-TIOL-688-HC-MAD-IT
• Assessee having export & domestic trade - Books of account

kept separately – Total turnover includes turnover from all
such business
G.J. Fernandez Vs ACIT (Kar) 52 DTR 345
Duncans Industries Ltd. Vs CIT (Cal) 205 Taxman (Mag) 14
• Processing charges received to be included in total turnover

CIT Vs K. Ravindranathan Nair (SC) 295 ITR 228
• Scrap sales to be included in total turnover while computing

deduction u/s 80 HHC
CIT Vs Motor Industries Co. Ltd. (Kar) 326 ITR 358
CIT Vs Bicycle Wheels (India) (P&H) 61 DTR 243
• Interest on FDRs to be included in total turnover

CIT Vs Shriram Pistons & Rings Ltd. (Del) 325 ITR 46
• 80HHC – Where profit element of domestic turnover is

included, turnover element of such items also needs to be
included in total turnover.
JCIT Vs Virudhunagar Textile Mills Ltd. (ITAT, Chennai) 97 ITD 306
• Unrealized sale proceeds cannot be excluded from total

turnover for computation of deduction u/s 80HHC – Items not
mentioned in Expl. (ba) to sec. 80HHC cannot be excluded

ACIT Vs Ishar International (ITAT, All) 111 ITD 232
• If gains arising from fluctuation of foreign exchange form part

of profit of the business for the purpose of computation of
deduction u/s 80 HHC, the same will definitely form part of
total turnover for that computation
B S & B Safety Systems India Ltd. Vs DCIT 2008-TIOL-55-ITAT-MAD
CIT Vs Amber Exports (India) (Bom) 326 ITR 455
Profits of the business – Expl. (baa)

• Short term Capital Gains on sale of depreciable assets assessed
u/s 50 is to be excluded for the purpose of computing deduction
u/s 80 HHC since it is not part of the profits and gains of the
business as computed u/s 28 to 43D
• Amount surrendered by assessee after survey operations and

disclosed as excess stock – Burden on assessee to prove
amount represented export profit – No deduction u/s 80 HHC
on such income unless that burden is discharged
National Legguard Works Vs CIT(Appeals) (P&H) 288 ITR 18
• Receipts from cancellation of forward contracts in foreign

exchange – Not eligible for deduction u/s 80 HHC since profit
is not derived from the activity of export of goods.
DCIT Vs Intergold (I) Ltd. (ITAT, Mum) 27 SOT 239; 1 ITR (Trib) 257
• Processing charges received to be excluded from profits under

cl. (baa)
CIT Vs K. Ravindranathan Nair (SC) 295 ITR 228
CIT Vs Dresser Rand India P. Ltd. (Bom) 323 ITR 429 – Decisions in Bangalore
Clothing, Ravindranathan Nair and Baby Marine Export explained
• Interest on FD even if deposits are made as pre-condition of the

bank for sanctioning credit limits, not to be included in profits
for computation of deduction u/s 80HHC
Dollar Apparels Vs ITO (Mad) 294 ITR 484
Urban Stanislaus Co. Vs CIT (Ker) 263 ITR 10
CIT Vs Cosmos International (Del) 177 Taxman 363
• Foreign Exchange fluctuation on EEFC a/c and interest on

EEFC a/c – Not eligible for deduction u/s 80 HHC – Exclude
from profits under cl. (baa) to sub-sec. (4) – Assessee exporter
is not under an obligation of law to maintain the export
proceeds in the EEFC a/c – Exchange fluctuation in the EEFC
a/c arises after the completion of the export activity and does
not bear a proximate and direct nexus with the export
transaction
CIT Vs Shah Originals (Bom) 327 ITR 19
• Profit from sale of scrap and waste materials to be excluded

from profits of the business under cl. (baa) to sec. 80 HHC
CIT Vs Shiva Distilleries (Mad) 293 ITR 108
• Profit of business for the purpose of sec. 80HHC Expl. (baa)

does not include dividend income since it is not part of the
profits of the business
Sudarshan Chemical Industries Ltd. Vs DCIT (ITAT, Pune) 60 ITD 629
• 90% of Receipts from Machinery hire charge & building rent to

be excluded for computing profits of the business as per cl.
(baa) to Expl. below sec. 80HHC(4)
Liberty Footwear Co. (P&H) 283 ITR 398
• If rent, interest, charges etc. are assessed as “Income from

Other Sources”, exclude it fully while computing business
profits u/s 80HHC Expl. (baa)
K.S. Subbiah Pillai & Co.(India) P. Ltd. Vs CIT (Mad) 260 ITR 304
Deductions in respect of earnings in convertible

foreign exchange by an approved hotel or tour
operator or travel agent [sec. 80HHD]
• Consideration for services rendered to foreign tourists

received to be brought to India in convertible foreign
exchange within the specified period – Receipts in Indian
currency obtained by conversion of foreign exchange
brought to India on behalf of foreign tourist is also eligible,
if certificate to that extent is produced
• Computation : Profit of the business

X Foreign exchange received
Total receipts

Reserve a/c for utilization in the next 5 years for purposes
specified in sub-sec. (4)
• In case of violation as provided in sub-sec. (5) or (5A),

deemed as income of the year of violation


• Relevant rules : R. 18BBA
• Tour operators – Amount paid to hotels in foreign exchange for

which disclaimer certificate was also issued, to be excluded
from gross receipts in foreign exchange as well as total
business receipts
DCIT Vs Lotus Trans Travels (P) Ltd. (ITAT, Delhi) 98 ITD 115
• Tour operators – Advance received from foreign tourists

deposited in bank and earned interest thereon – Not eligible for
deduction u/s 80HHD since such income is not derived from
service provided to foreign tourists.
Lotus Trans Travels (P) Ltd. Vs CIT (Del) 53 DTR 267 ; 198 Taxman 151
• Profit of all approved hotels to be calculated together for the

purpose of computing deduction u/s 80HHD and not
individual hotel-wise.
JCIT Vs ITC Ltd. (ITAT,SB-Kol) 112 ITD 57
• Purchase of new cars / new coaches should be for the purpose

of operating the tours – No deduction u/s 80HHD on the cars
purchased for use of directors, staff and consultants
ACIT Vs Kuoni Travel (India) Pvt. Ltd. 2011-TIOL-193-ITAT-MUM
• Shopping commission received from Indian shop owners in

Indian currency on purchases made by tourists from Indian
shops – Not eligible for deduction u/s 80HHD as it is not
received from foreign tourists as well as not in foreign
exchange
CIT Vs Le Passage to India Tour and Travels P. Ltd. (Del) 335 ITR 69
Deductions in respect of profits from export of

computer software and providing technical services
outside India in connection with development or
production of computer software [sec. 80HHE]

• Computation : Profit of the business X Export turnover

Total turnover
Profit of the business to be reduced by 90% of any receipts by way

of brokerage, commission, interest, rent, charges or any other
receipt of similar nature included in such profits. Also exclude
profits of any branch, office, warehouse or any other
establishment of the assessee situated outside India.
Total turnover shall not include freight, telecommunication

charges or insurance attributable to the delivery of such
software outside India, expenses if any incurred in foreign
exchange in providing the technical services outside India and
sums referred to in sec. 28(iiia), (iiib) and (iiic)
Export turnover shall not include freight, telecommunication

software outside India and expenses if any incurred in foreign
exchange in providing the technical services outside India


• Consultancy charges received from local customers – What is

specifically provided in cl. (d) of Expl. to sec. 80HHE is that
90% of the items of income which have no relation to the
export business have to be excluded – This clause specifically
makes it clear that the income by way of consultancy charges
received for consultancy services rendered in India, which has
no connection with the export of software, is an item of income
similar to other items like brokerage, commission and rent
which are not attributable to export business
IVL India (P) Ltd. Vs CIT (Ker) 53 DTR 315

export or transfer of copyright of a cinematographic
film, television software, music software, television
news software including telecast rights [sec. 80HHF]

• Computation : Profit of the business X Export turnover

Total turnover
Profit of the business to be reduced by 90% of any receipts by

way of brokerage, commission, interest, rent, charges or any
other receipt of similar nature included in such profits. Also
exclude profits of any branch, office, warehouse or any other
establishment of the assessee situated outside India.
Total turnover shall not include freight, telecommunication

software outside India, expenses if any incurred in foreign
exchange in providing the technical services outside India and
sums referred to in sec. 28(iiia), (iiib) and (iiic)
Export turnover shall not include freight, telecommunication

software outside India and expenses if any incurred in foreign
exchange in providing the technical services outside India


• No deduction allowable if such business is prohibited by

any law
• Assessee organizing shooting of film or commercials in India

on behalf of foreign clients – Activity involving conversion of
raw films into final film negatives in the form of tapes or
software – Software or tapes handed over to representative of
foreign clients in India – Proceeds received in convertible
foreign exchange in India – Activity not involving export or
transfer of film software outside India – Assessee receiving
only service charges and not having proprietary rights in the
product – Not entitled to deduction u/s 80HHF
DCIT Vs Kas Movie Makers P. Ltd. (ITAT, Del) 315 ITR (AT) 25 approved in 323
ITR 373 (Del)
• Assessee is engaged only in one business ie. purchasing or

producing television software which are exploited in the
Indian and foreign markets. It is one composite business and it
cannot be split into two on the basis of market covered.
Business is identified with the nature of product dealt in and
not the sphere of activity. Total turnover for computation of
deduction u/s Sec. 80HHF includes turnover of domestic and
foreign sales
ACIT Vs Star India (P) Ltd. 2008-TIOL-195-ITAT-MUM
Sri Adhikari Brothers Television Networks Ltd. Vs ACIT 2010-TIOL-643-ITAT-
MUM

specified industrial undertakings or enterprises
engaged in infrastructure development [sec. 80IA]
• Eligible business
Developing or operating and maintaining or developing,

operating and maintaining infrastructure facility
• owned by a Indian company or consortium of such
companies or an authority or board or corporation or any
other body established or constituted under any Central or
State Act
• entered into agreement with Govt. or local authority or any

other statutory body for developing or operating and
maintaining or developing, operating and maintaining
infrastructure facility
• Starts operating and maintaining infrastructure facility on

or after 01-04-1995
• Transfer of enterprise after 01-04-1999 in accordance with

the agreement with Govt. or local authority or statutory
body – transferee will be eligible for deduction for the
unexpired period
• Infrastructure facility defined
• Developing or operating and maintaining or developing,

operating and maintaining road, bridge, rail system,
highway project including housing which is an integral
part of such project, water supply project, water treatment
system, irrigation project, sanitation and sewerage system,
or solid waste management system – 100 % profit eligible
for deduction in 10 out of 20 consecutive A.Y. beginning
from the year of operation of eligible business
• Developing or operating and maintaining or developing,

operating and maintaining port, airport, inland waterway,
inland port or navigational channel in the sea – 100 %

profit eligible for deduction in 10 out of 15 consecutive A.Y.
beginning from the year of operation of eligible business
• Where housing is an integral part of highway project,

transfer profit to a special reserve and use the same for
highway project excluding housing within 3 years from the
year of transfer to reserve a/c – unutilized amount will be
taxed in the year of transfer to the reserve a/c
Providing telecommunication services whether basic or cellular

including radio paging, domestic satellite service, network of
trunking, broadband network and internet services started on or
after 01-04-1995 but before 31-03-2005
• 100% profit in the first 5 years and 30% profit in the next 5
years eligible
• Not formed by splitting up or reconstruction of a business

already in existence and not formed by transfer of plant
and machinery previously used for any purpose in India by
anybody and outside India by assessee and no depreciation
was allowed in earlier years under this Act. Total value of
plant and machinery transferred to the new business
should not exceed 20% of the total value of plant and
machinery of the business
Develops or develops and operates or maintains and operate an

industrial park or SEZ notified by Cen. Govt. for the period
beginning on 01-04-1997 to 31-03-2011
• Develops industrial park on or after 01-04-1999 or SEZ on

or after 01-04-2001 and transfer operation and
maintenance – transferee will be eligible for deduction for
the unexpired period
• 100 % profit eligible for deduction in 10 out of 15

consecutive A.Y. beginning from the year of operation of
eligible business
Set up of an undertaking in India for generation or generation

and distribution of power during 01-04-1993 to 31-03-2011, starts
transmission or distribution by laying a network of new
transmission or distribution lines during 01-04-1999 to 31-03-
2011, undertakes substantial renovation and modernization of
the existing network of transmission or distribution lines during
01-04-2004 to 31-03-2011

eligible business

Reconstruction or revival of a power generating plant by an

Indian company formed before 30-11-2005 with majority equity
participation by public sector companies and notified before 31-
12-2005 which begins to generate or transmit or distribute power
before 31-03-2011

eligible business
• Compute deduction as if the eligible business is the only

business of assessee from initial year onwards
• Assessee to get accounts audited and furnish audit report as

well as a certificate from C.A. in the prescribed form along
with the return
• Inter-unit transfer and collusive transactions otherwise

than at market value – Re-compute profits of the eligible

business
• No deduction under any other section in respect of profits

referred to in this section
• In case of amalgamation or demerger, amalgamating or

demerged company not entitled for deduction in the year of
amalgamation or demerger and the amalgamated or
resultant company will be entitled for the un-expired
period [not applicable for amalgamation or demerger after
01-04-2007]
• No deduction eligible if nature of business is works contract

awarded by any person and executed by the undertaking
or enterprise [inserted by Finance (No.2 Act 2009 w.r.e.f.
01-04-2000]
• From A.Y. 2002-03 onwards structures at the port for

storage, loading, unloading etc. will be included in the
definition of “port” if the concerned port authority has
issued certificate to that effect [Circular No. 10/2005 dated
16-12-2005]
• Effluent treatment and conveyance system treated as

infrastructure facility for the purpose of sec. 80IA
[Circular No. 1/2006 dated 12-01-2006]

development of SEZ notified after 01-04-2005 [sec.
80IAB]
• 100% of profits derived from development of SEZ for 10
out of 15 consecutive A.Y. beginning from the year of
notification
• In case of transfer, transferee will be eligible for the un-

expired period


with the return

business


01-04-2007]
• Relevant rules : R. 18AAB, 18BBB, 18BBE & 18C

specified industrial undertakings [sec. 80IB]
• Eligible business
Small scale industrial undertaking which begins to manufacture

or produce article or things or to operate cold storage plant
during 01-04-1995 to 31-03-2002, and
Any undertaking which begins to manufacture or produce article

or thing (not mentioned in Sch. XI) or to operate cold storage
plants during 01-04-1991 to 31-03-1995
• 25% of profits derived from such industrial undertaking

(30% in case of company) – for 10 consecutive A.Y. (12
years for a co-operative society) beginning with the initial
A.Y.

• Undertaking employs 10 or more workers in a

manufacturing process carried on with the aid of power or
employs 20 or more workers in a manufacturing process
carried on without the aid of power
Industrial undertaking in an industrially backward State

specified in VIII Sch.
• Begins to manufacture or produce article or things or to

operate cold storage plant during 01-04-1993 to 31-03-2004
[31-03-2012 in case of industrial undertakings in J&K
State]
• 100% of profits derived from such industrial undertaking

for 5 consecutive A.Y. beginning with the initial A.Y. and
thereafter 25% (30% in case of company) for next 5 years
(7 years for co-operative society)
• For notified industries in North Eastern region – 100%

deduction for 10 A.Y.
• No deduction allowable for undertakings referred to in sec.

80IC(2)
• No deduction for industrial undertakings in J&K State
which is engaged in the manufacture or production of an
article or thing specified in Sch. XIII – Part C


• The word “State” in sec. 80IB(4) includes the Union

Territories specified in the VIII Sch. [Circular No. 788
dated 11-04-2000]
Industrial undertaking located in notified industrially backward

districts
• Begins to manufacture or produce articles or things (not

mentioned in Sch. XI) or operate cold storage plant during
01-10-1994 to 31-03-2004
• Industrial undertaking in Category A backward district –

100%of profits derived from such industrial undertaking

• Industrial undertaking in Category B backward district –

100%of profits derived from such industrial undertaking


• Districts notified as industrially backward for the purpose

of sec. 80IB(5) [Notification No. SO 440(E) dated
15-06-1999]
Business of ship
• Owned by Indian company and wholly used for its business
• Not prior to the date of acquisition owned or used in Indian

territorial waters by a resident in India
• Brought into use during 01-04-1991 to 31-03-1995
• 30% of profits derived from ship for 10 consecutive A.Y.

beginning with the initial A.Y.
Hotel
• 50% of profits derived from hotel for 10 consecutive A.Y.
beginning with the initial A.Y. in case located in hilly area
or rural area, place of pilgrimage or any notified area and
starts functioning during 01-04-1990 to 31-03-1994 and 01-
04-1997 to 31-03-2001 – Not applicable for hotel located
within the municipal jurisdiction of Calcutta, Chennai,
Delhi or Mumbai which started functioning during 01-04-
1997 to 31-03-2001
• 30% of profits derived from hotel for 10 consecutive A.Y.

beginning with the initial A.Y. in case located in any other
place and starts functioning during 01-04-1991 to 31-03-
1995 and 01-04-1997 to 31-03-2001 – Not applicable for
hotel located within the municipal jurisdiction of Calcutta,
Chennai, Delhi or Mumbai which started functioning
during 01-04-1997 to 31-03-2001

already in existence or transfer of a building previously
used as hotel or transfer of any plant and machinery
previously used for any purpose
• Owned and business carried on by a company registered in

India with paid up capital of Rs. 5 lakhs or more
• Hotel approved by prescribed authority
Multiplex theatre
• 50% of profits derived from building, owning and
operating a multiplex theatre for 5 consecutive A.Y.
beginning with the initial A.Y. - constructed during 01-04-
2002 to 31-03-2005 – Not applicable for hotel located within
the municipal jurisdiction of Calcutta, Chennai, Delhi or
Mumbai
already in existence or transfer of a building or any plant
and machinery previously used for any purpose

Convention centre
• 50% of profits derived from building, owning and
operating a convention centre for 5 consecutive A.Y.
beginning with the initial A.Y. - constructed during 01-04-
2002 to 31-03-2005 – Not applicable for hotel located within
the municipal jurisdiction of Calcutta, Chennai, Delhi or
Mumbai

already in existence or transfer of a building or any plant
and machinery previously used for any purpose

Company carrying on scientific research and

development
• 100% of profits for 5 consecutive A.Y. beginning with the

initial A.Y.
• company registered in India with the main object of

scientific and industrial research and development and
approved before 01-04-1999
• If approved during 01-04-2000 to 01-04-2007 – deduction

eligible for 10 consecutive A.Y. beginning with the initial
A.Y.
Undertaking engaged in oil exploration etc.

• 100% of profits for 7 consecutive A.Y. beginning with the
initial A.Y.
• located in North Eastern region and begun commercial

production of mineral oil before 01-04-1997
• in other locations which begun production of mineral oil

after 01-04-1997 also eligible. But does not apply to blocks
licensed under a contract awarded after 31-03-2011 [w.e.f
01-04-2012]
• Refining of mineral oil which begun during 01-10-1998 to

31-03-2012
• Engaged in commercial production of natural gas in
blocks licensed under NELP-VIII or IV round of bidding
and begins commercial production on or after 01-04-2009
Developing and building housing projects approved

before 31-03-2008 by a local authority
• Commences development and construction after 01-10-

1998
• Completes construction before 31-03-2008 in case approval

granted before 01-04-2004
Completes construction before 31-03-2009 in case approval
granted during F.Y. 2004-05
Completes construction within 5 years from the end of the
F.Y. in which approval was granted in case approval
granted after 01-04-2005
• Plot size – minimum 1 acre
• Residential unit has maximum built-up area of 1000 sq. ft.

(in Delhi and Mumbai) or 1500 sq. ft. in other places
• Shops and commercial establishment should not occupy

more than 3% (5% upto 01-04-2010) or 5000 sq. ft. (2000
sq. ft. upto 01-04-2010) whichever is higher.
• More than 1 residential unit should be allotted to non-

0individuals (w.e.f. 01-04-2010)
• In case 1 residential unit is allotted to an individual, no

other residential unit in the same housing project to be
allotted to the individual / spouse / minor children / HUF of
which he is the karta or any representatives of the above
mentioned persons
• Undertakings which executes housing project as a works

contract awarded by any person – not eligible [ inserted by
Finance (No.2) Act, 2009 w.r.e.f. 01-04-2001]
• Deduction u/s 80IB(10) can be granted on year to year basis

when assessee is showing profit from partial completion of
the project. Deduction so allowed can be lateron
withdrawn if assessee fails to compete the project within
the stipulated period [Instruction No. 4/2009 dated 30-06-
2009]
Setting up and operation of cold chain facility for agricultural

produce
• Begin to operate during 01-04-1999 to 01-04-2009
• 100% of profits derived from such activity for 5

consecutive A.Y. beginning with the initial A.Y. and 25%
(30% in case of company) for the next 5 A.Y. (7 years for a
co-operative society).
Processing, preservation and packaging of fruits and vegetables,

meat and meat products, poultry, dairy and marine products,
integrated business of handling, storage and transportation of
food grains
• Begin to operate after 01-04-2001 during 01-04-1999 to 01-

04-2009 ( in case of meat and meat products, poultry, dairy
and marine products begins to operate after 01-04-2009)

consecutive A.Y. beginning with the initial A.Y. and 25%
(30% in case of company) for the next 5 A.Y.
Operating and maintaining a hospital in a rural area
• Constructed during 01-10-2004 to 31-03-2008
• 100 beds for patients

consecutive A.Y. beginning with the initial A.Y.

Operating and maintaining a hospital anywhere in India other

than excluded area
• Constructed during 01-10-2008 to 31-03-2013
• 100 beds for patients

consecutive A.Y. beginning with the initial A.Y.


with the return

business



01-04-2007]
• Relevant rules : R. 11EA, 18BBB, 18DA, 18DB, 18DC,

18DD & 18DDA
Eligibility of deduction u/s 80IA & 80IB

[80IA and 80IB were substituted for sec. 80IA w.e.f. 01-04-2000;
hence decisions are grouped together as have common relevance]
• Condition regarding employment of required number of

workers - Workers employed through contractor are not to be
treated as employees of assessee since no employer-employee
relationship – Not an eligible industrial undertaking
Venus Auto Pvt. Ltd. Vs CIT (All) 321 ITR 504
• Sharing the cost of employees with sister concerns not

amounting to engaging required number of employees
Tamil Nadu Chlorates Vs JCIT (ITAT, Chennai) 98 ITD 1
• Commencement of trial production does not amount to

commercial production – Period of exemption starts from the
year of commencement of commercial production
CIT Vs Nestor Pharmaceuticals Ltd. (Del) 322 ITR 631
• Assessee's establishment did not exist in backward area but

some work was done at site of customers in backward area –
Not eligible for deduction available to undertakings
established in backward areas.
Indocan Engg. Systems (P) Ltd. Vs DCIT (ITAT, Pune) 60 ITD 649
• Assessee to maintain separate books of accounts, P&L a/c. and

Balance sheet for each unit.
Bongaigaon Refinery & Petro Chemical Ltd. Vs DCIT (ITAT, Gau) 68 ITD 531
CIT Vs Essar Bulk Carriers Ltd. (Mad) 238 ITR 186
• When assessee has many units but does not maintain separate
accounts for all expenses, principle of apportionment of such
expenses on the basis of turnover is an accepted method
CIT Vs TTK Pharma Ltd. 2011-TIOL-620-HC-MAD-IT
Control & Switchgear Co. Ltd. Vs CIT (Del) 66 DTR 161
• Deduction u/s 80IA(4)(iii) can be granted only if a scheme is

framed and notified
Regency Soraj Infrastructures Vs Union of India & ors. 2012-TIOL-106-HC-
DEL-IT
• Gutka containing tobacco is “ tobacco preparation ” within the

meaning of Item No. 2 of XI Schedule – Not eligible fore
deduction u/s 80 IA – Classification of goods under the Acts
relating to central excise and sales tax is not relevant for the
purpose of interpreting the expressions 'tobacco', 'tobacco
preparations' and 'chewing tobacco' used in Sch. XI and their
meaning has to be seen in the contextual setting
Dhariwal Industries Ltd. Vs ACIT (ITAT,SB-Pune) 111 ITD 379
• Assessee was not providing telecommunication facilities

directly to end user but was providing services of international
communication to other providers of basic telecommunication
services – Assessee cannot be considered as provider of basic
telecommunication services – Not eligible for deduction under
section 80IA(4C)
Videsh Sanchar Nigam Ltd. Vs ACIT (ITAT, Mum-SB) 111 ITD 190
• Assessee a private telephone exchange operating as agent of

BSNL – Purely commercial venture not involving
development of infrastructure – Not entitled to special
deduction u/s 80IA(4)
ITO Vs A. Jayalakshmi (ITAT, Chennai) 12 ITR (Trib) 371
• Assessee operates and maintains a power plant set up by

another company Assessee only a service contractor –
Activity falls under “works contract” Not eligible for
deduction u/s 80 IA(4)
Covanta Samalpatti Operating P. Ltd. Vs ACIT 2008-TIOL-289-ITAT-MAD
• Assessee was engaged in business of generation and sale of

electricity – Fly as was generated as by-product while
generating electricity and using fly ash, assessee made fly ash
bricks – Profit from sale of fly ash was not derived from the
activity of generation and distribution of power and does not
constitute 'operating profit' of power generating unit and hence
not eligible for deduction
ACIT Vs Godavari Power & Ispat Ltd. (ITAT, Bilaspur) 133 ITD 502
• Works contractor – Not eligible for deduction u/s 80 IA

ACIT Vs Indwell Lianings Ltd. (ITAT, Chennai) 313 ITR (AT) 118
B.T. Patil & Sons Vs ACIT (ITAT,SB-Mum) 1 ITR (Trib) 703
• Assessee engaged in business of supplying, installing, testing,

commissioning and maintaining cranes at Port and not in
business of developing, maintaining and operating a port – Not
eligible for 80 IB deduction.
DCIT Vs ABG Heavy Industries Ltd. (ITAT, Mum) 107 ITD 287
• Manufacturers of tyre – Not eligible for deduction u/s 80IA

since tyre is a rubber fitting as mentioned in Eleventh Schedule
MRF Ltd. Vs DCIT 2011-TIOL-250-ITAT-MAD
• Solid waste management system – An activity can be

considered as a solid waste management activity in a case
where an organization involves itself in a comprehensive
activity of not only collection, transport and treatment of waste
but also participates in the policy making such as steps taken
for prohibition of littering, making public awareness etc.
Collection of waste is only a spec of the whole spectrum of the
sold waste management system – Legislature has consciously
not extended the benefit to agencies who are merely handling a
part of the activity such as collection and storage at the
stipulated place - The activity of the assessee ie. cleaning the
beaches without being involved in control of generation,
disposal and policy making cannot be considered as solid
waste management activity – Not entitled to deduction u/s
80IA
Antony Motors (P) Ltd. Vs ACIT (ITAT, Mum) 64 DTR 470
• 80IB(10) – Size of plot of land on which housing project is built

should have a minimum area of 1 acre on actual basis and not
on notional basis – Though another person had agreed to allow
part of its land to be used as open space by assessee, such an
arrangement cannot satisfy the condition laid down in the
section
Om Engineers & Builders Vs ITO (ITAT,Pune) 109 ITD 235
• 80IB(10) – Eligibility conditions applicable to the entire

project – If some residential units exceeded prescribed limit,
benefit cannot be given to the entire project
ACIT Vs Viswas Promoters (P) Ltd. (ITAT, Chennai) 126 ITD 263; 5 ITR
(Trib) 449
• On enquiry it was found that individual residential unit

measuring less than 1500 sq. ft. built up area on paper was
never meant to be sold as such but was always to be sold
together the adjoining unit, the built up area of the two units
exceeding 1500 sq. ft. – There was only one electricity meter
for two adjoining flats – Both the flats were one single unit and
planning was right from the beginning to have one unit – This
is further corroborated by the fact that all 104 units have been
sold in adjoining pairs to 52 families and the buyers have been
shown either same person or husband and wife – In the
brochure only one entry was shown for two flats Deduction
claimed u/s 80IB(10) rejected
Thistle Properties (P) Ltd. Vs ACIT (ITAT, Mum) 134 ITD 6
Computation
• Excess cash found during survey offered for tax – Assessee
could not prove that the said cash represents unaccounted
income derived from the eligible business – Such income to be
assessed under the head 'Other Sources' and claim for
deduction u/s 80 IA on such income to be disallowed since
nexus not proved.
Sushil Kumar Jalani Vs ACIT ( ITAT, Jodh ) 108 ITD 613
• First compute the eligible deduction u/s 80 IA and deduct the

same from profits and gains before computing deduction u/s 80
HHC – Restriction contained u/s 80IA(9) is not only that the
total deduction should not exceed profits and gains, there is a
further restriction that deduction allowed u/s 80IA/IB will be a
bar to claim deduction under any other provisions of Chapter
VI-C – The word “and” is disjunctive which would mean that
the other provision is independent and thus there is no conflict
within the two provisions of sec. 80AB and sec. 80IA(9)
ACIT Vs Rogini Garments (ITAT,SB-Chennai) 108 ITD 49
ACIT Vs Hindustan Mint & Agro Products (P) Ltd. (ITAT,SB-Del) 119 ITD 107
Friends Castings (P) Ltd. Vs CIT (P&H) 340 ITR 305
General Optics (Asia) Ltd. Vs DCIT (Mad) 315 ITR 400
Great Eastern Exports Vs CIT (Del) 332 ITR 14
Olam Exports (India) Ltd. Vs CIT (Ker) 332 ITR 40
• Profit of new undertaking to be computed as if it is the only

business right from its inception and set off earlier year's loss
and depreciation against current year's income of such eligible
unit eventhough they have been allowed set off against other
income in earlier years - This is a legal fiction created by the
statute and to be strictly followed in view of specific restriction
placed in sec. 80-IA(7)/(5)
ACIT Vs Goldmine Shares & Finance P. Ltd. 2008 (ITAT,SB-Ahd) 113 ITD 209
CIT Vs Indian Farmers Fertilizers Co-operative Ltd. (Del) 197 Taxman 204
• Allow depreciation first (whether it was claimed by assessee or

not) before computing the eligible profits for deduction under
sec. 80 IA / 80 IB – It cannot be privilege of assessee to claim
more deduction than what he is entitled to
Vahid Paper Converters & Ors. Vs ITO & Ors. (ITAT, Ahd-SB) 98 ITD 165
Scoop Industries P. Ltd. Vs ITO (Bom) 289 ITR 195
Dabur India Ltd. Vs CIT (Del) 219 CTR 152

Plastiblends India Ltd. Vs Addl. CIT (Bom) 318 ITR 352

specified undertakings or enterprises in Sikkim,
Himachal Pradesh, Uttaranchal and North-Eastern
States [sec. 80IC]
• Manufacture or produce any article or thing (except
specified in Sch. XIII)
• Undertakes substantial expansion in any notified Export

processing Zone or Integrated Infrastructure
Development Centre or Industrial Growth Centre or
Industrial Estate or Industrial Park or software
Technology Park or Industrial Area or Theme Park
• Such expansion to be made during 23-12-2002 to 01-04-

2007 in Sikkim, during 07-01-2003 to 31-03-2012 in
Himachal Pradesh and Uttaranchal and 24-12-2002 to 01-
04-2007 in North-Eastern States
• Manufacture or produce any article or thing specified in

Sch. XIV and undertakes substantial expansion during 23-
12-2002 to 01-04-2007 in Sikkim, during 07-01-2003 to 31-
03-2012 in Himachal Pradesh and Uttaranchal and 24-12-
2002 to 01-04-2007 in North-Eastern States
• Substantial expansion means increase in investment in

plant and machinery by atleast 50% of the book value of
plant and machinery (without considering depreciation in
any year) on the first day of p.y. in which such expansion is
undertaken
• 100% deduction of profits and gains derived from such

undertaking situated in Sikkim and North-Eastern States
for 10 A.Y. starting with the initial A.Y.

undertaking situated in Himachal Pradesh and
Uttaranchal States for 5 A.Y. starting with the initial A.Y.
and thereafter @ 25% (30% in case of company)



with the return

business


01-04-2007]
• Total period of deduction u/s 80IB(4), 80IC and 10C should

not exceed 10 A.Y. for an undertaking
• Industries in North-eastern region notified for the purpose

of sec. 80IB(4) [Notification No. SO 627(E) dated 04-08-
1999]
• Relevant rules : R. 18BBB

Deductions in respect of profits and gains from hotels

and convention centres in specified area [sec. 80ID]
• Constructed and starts functioning during 01-04-02007 to
31-07-2010 hotels located in districts having world
heritage site, during 01-04-2008 to 31-03-2013
business 5 A.Y. starting with the initial A.Y.
already in existence and not formed by transfer of building
previously used as hotel or convention centre or plant and
machinery previously used for any purpose in India by
with the return
business
01-04-2007]
• Relevant rules : R. 18DE

certain undertakings in North-Eastern states [sec.
80IE]
• Begins to manufacture or produce any article or thing or
undertake substantial expansion for the same or to carry
on any eligible business during 01-04-2007 to 01-04-2017
• Substantial expansion means increase in investment in

plant and machinery by atleast 25% of the book value of
plant and machinery (without considering depreciation in
any year) on the first day of p.y. in which such expansion is
undertaken
• Eligible business specified in sec. 80IE(7)(v)

business 10 consecutive A.Y. starting with the initial A.Y.



with the return

business


01-04-2007]
• Total period of deduction u/s 80IB(4), 80IC, 80IE and 10C

should not exceed 10 A.Y. for an undertaking

business of collecting and processing or treating of
bio-degradable waste [sec. 80JJA]
• For generating power, or producing bio-fertilizers, bio-
pesticides or other biological agents or producing biogas or
making pellets or briquettes for fuel or organic manure
business for 5 consecutive A.Y. starting with the initial A.Y.
Deductions in respect of employment of new

workmen [sec. 80JJAA]
• Indian company eligible
• Industrial undertaking engaged in manufacture or
production of an article or thing
• Not formed by splitting up of reconstruction of an existing
undertaking or amalgamation with another undertaking
• 30% of additional wages paid to the new regular workmen
employed in the previous year for 3 A.Y. including the A.Y.
in which such employment is provided
• Additional wages means wages paid to the new regular
workmen in excess of 100 workmen employed during the
year – No deduction if the increase in number of regular
workmen employed during the year is less than 10% of
existing number of workmen as on the last day of the
preceding year
• Regular workmen does not include casual workman,
workman employed through contract labour or any other
workman employed for a period of less than 300 days
during the previous year.
• Assessee to furnish certificate from C.A. in the prescribed
• Relevant rules : R. 19AB
Deductions in respect of certain incomes of Offshore

Banking units and International Financial Services
Centre [sec. 80LA]
• Scheduled bank or any bank incorporated by or under the
laws of a country outside India and having an offshore
banking unit in a SEZ or unit of an International Financial
Service Centre eligible
• Income of the unit in SEZ as well as business referred to in

sec. 6(1) of Banking Regulation Act with an undertaking
located in SEZ or with any undertaking which develops,
operates and maintain SEZ are eligible
• 100% of income of the eligible unit / business for the first 5
A.Y. beginning from the year in which permission of RBI
or SEBI was obtained and 50% for the next 5 A.Y.

• Relevant rules : R. 19AE
Deductions in respect of royalties etc. from certain

foreign enterprise [sec. 80-O]
• Indian company and residents are eligible
• Received from Govt. in a foreign state or foreign enterprise
• Consideration for the use outside India of any patent,

invention, design or registered trade mark
• Received in convertible foreign exchange in India or

brought to India within the specified period

• Deduction u/s 80-O only on net amount after deducting

expenses (both direct and indirect) since only the profits and
gains of the eligible activity included in gross total income is
eligible for deduction – Only income computed under the
specific head would be eligible for deduction
CIT Vs Asian Cable Corpn Ltd. (Bom) 262 ITR 537
Petroleum India International Vs DCIT (ITAT, Mum-SB) 71 ITD 31
CIT Vs M.N. Dastur & Co. (P) Ltd. (Cal) 159 CTR 417, 243 ITR 10
CIT Vs M.K. Raju Consultants (P) Ltd. (Mad) 239 ITR 232
ACIT Vs Abcon Engineering & Systems P. Ltd. (Kar) 287 ITR 201
• Deduction u/s 80-O to be given only to the extent of income

actually received in India in convertible foreign exchange.
CIT Vs Indus Services Limited (Cal) 230 ITR 328
• Supply of market information to an overseas company does not

amount to use outside India of any patent, invention, design or
trademark – Not eligible for deduction u/s 80-O
ITO Vs Vivek Prabhakar Kunte (ITAT, Bang) 92 ITD 71
• Packing & Moving services are not professional or technical

service – Not eligible for deduction u/s 80-O
ACIT Vs P.N. Writer & Co. (Mum) 94 ITD 446
• Services by way of sourcing, negotiating, quality controlling

and shipping logistics in the capacity as buying agent of
foreign enterprise – Not eligible for deduction u/s 80-O
V. Elangovan Vs DCIT (ITAT, Chennai) 97 ITD 187
• To be eligible for deduction u/s80-O, services must be rendered

outside India – Assessee offered services in India to foreign
clients and receives payments in foreign exchange – Fact that
the client who eventually benefits from such services is
stationed outside India is not the sole criterion for deciding the
allowability of deduction
Anand & Anand Vs CIT (Del) 286 ITR 432
Searle (India) Ltd. Vs CBDT & Anr. (Bom) 145 ITR 673
Kamkap (India) Vs DCIT (ITAT, Pat) 67 ITD 237
• No material to show that what was passed on to the foreign

enterprise was information concerning commercial or
technical or scientific aid – Deduction under sec. 80 O cannot
be granted merely on the basis of an agreement between
assessee and foreign enterprise.
CIT Vs Khursheed Anwar (Mad) 311 ITR 468
• Fee received by a firm of Advocates from foreign countries in

convertible foreign exchange for rendering consultation /
advice regarding any patent, invention, design & trademark –
Not eligible for deduction under sec. 80 O – The income must
have a direct nexus with the actual use outside India of
intangible assets specified in the section and by no stretch of
imagination benefit can be extended to the income by way of
fees relatable to the advise regarding intangible assets
belonging to foreign parties
Jehangir Gullabhai Vs JCIT (ITAT, Mum) 21 SOT 603
• Services rendered in connection with export activity - Not

eligible for deduction u/s 80 O
ACIT Vs Peerless Fabrikkerne International 2010-TIOL-543-ITAT-MUM
• Providing Medical services to foreigners in India – Giving

information regarding such services to foreign insurance
companies – Preparing report about patients – Commission
received - Not technical / professional service – Not eligible
for deduction u/s 80 O
East West Rescue (Pvt) Ltd Vs DCIT (ITAT, Del) 89 ITD 259
• Assessee developed educational material in C.D. and books

and exporting to students abroad – Not eligible for deduction
u/s 80 O since all what the assessee does is to convert the
extensive educational materials in concise form for easy
understanding by the students and no new invention or design
is made by the assessee
P.C. Thomas Vs ACIT (Ker) 326 ITR 388
• TDS made in the foreign country is not an amount brought to

India – No deduction u/s 80 O on such part of the income
Vikram Tannan Vs ITO (ITAT, Mum) 128 TTJ 509
Deductions in respect of income of co-operative

societies [sec. 80P]
• Eligible activities
• Business of banking or providing credit facilities to its

members
• Cottage industry
• Marketing of agricultural produce grown by its members
• Purchase of agricultural implements, seeds, livestock or
other articles intended for agriculture for supplying to
members
• Processing without the aid of power of agricultural
produce of its members
• Collective disposal of labour of its members – voting rights
restricted to individuals who contribute their labour, co-
operative credit societies which provide financial
assistance to such society and State Govt.
• Fishing or allied activities or purchase of materials and
equipments in connection therewith for supply to members
voting rights restricted to individuals who carry on fishing
or allied activities, co-operative credit societies which
provide financial assistance to such society and State Govt.
• Primary society supplying milk, oil seeds, fruits or
vegetables grown by its members to a federal society
engaged in supplying milk, oil seeds, fruits or vegetables or
Govt. or local authority or Govt. company or Govt.
corporation engaged in supplying milk, oil seeds, fruits or
vegetables to the public
• 100% profit attributable to any one or more of such

activities / business
• Other activities - Rs. 1 lakh fro a Consumer's co-operative

society and Rs. 50,000 for other co-operative societies
• Interest or dividends derived from investments with other

co-operative society – 100% exemption
• Income from letting of godowns or warehouses for storage,

processing or facilitating the marketing of commodities

100% exemption
• Societies other than housing society, urban consumers'

society, society carrying on transport business, societies
doing manufacturing operations with the aid of power and
gross total income does not exceed Rs. 20,000 – income by
way of interest on securities and income from house
property are exempt
• If assessee is also eligible for other deductions under

Chapter VI-C, deduction under this section is eligible only
for the balance amount
• No deduction allowable for any co-operative bank other
than primary agricultural credit society or primary co-
operative agricultural and rural development bank
• Regional Rural Banks are not eligible for deduction u/s 80P
w.e.f. A.Y. 2007-08 [Circular No. 6 of 2010 dated 20-09-
2010]
• In CIT Vs Nawanshahar Central Co-operative Bank Ltd.

(289 ITR 6) Supreme Court held that when a co-operative
bank carrying on the business of banking is statutorily
required to place a part of its funds in approved securities,
the income arising from such investments is attributable to
the business of banking and is eligible for deduction u/s
80P(2)(a)(i)
• Deduction u/s 80P(2)(a)(i) is not available to an apex society

extending credit facility to a member of member society -
Meaning of the expression “members” cannot be extended to
include members of a primary co-operative society which is a
member of the federated co-operative society seeking
exemption
U.P. Co-operative Cane Union Federation Ltd. Vs CIT (SC) 237 ITR 574
• Co-operative Society purchasing auto-rickshaws & selling

them to members under Hire Purchase agreement – Cannot be
treated as providing credit facilities – No deduction u/s
80P(2)(a)(i) available
Madras Auto Rickshaw Drivers Co-op. Society Vs CIT (SC) 249 ITR
330.affirming (Mad) 143 ITR 981
• Sales on credit to other co-operative Societies – Interest earned

is not entitled to special deduction u/s 80P(2)(a)(i)
CIT Vs Kerala State Co-op Marketing Fed. Ltd. (Ker) 234 ITR 301
• Selling of goods on credit to members – Does not amount to

provision of credit facilities – No deduction u/s 80P(2)(a)(i)
Kerala Co-operative Consumers Federation ltd. Vs CIT (Ker) 170 ITR 455
CIT Vs Co-operative Supply & Commission Shop Ltd. (Raj) 204 ITR 713
Rodier Mill Employees' Co-operative Stores Ltd. Vs CIT (Mad) 135 ITR 355
• Categorization of Society as per Co-operative Societies Act is

relevant – Assessee is not a credit society as per Co-operative
Societies Act – Interest received from providing credit
facilities to its members not eligible for deduction u/s
80P(2)(a)(i)
ITO Vs Modern Engineers Construction Co-operative Society (ITAT, Chennai) 11
ITR (Trib) 393
• Co-operative society carrying on business of processing cloth

Activity of providing credit facility to person who bring for
processing their grey cloth and hypothecate the same with
assessee, is only an ancillary activity – Not entitled for
deduction u/s 80P(2)(a)(i)
Yashwant Co-op. Processors Ltd. Vs ITO (ITAT, Pune) 57 ITD 393
• Interest received on PF deposits and rental income from house

property not eligible for deduction u/s 80P(2)(a)(i)
Bihar Rajya Sahkari Bhoomi Vikas Co-operative Bank Ltd. Vs CIT (Patna) 313
ITR 247
• House rent and locker rent received – Not eligible for

deduction u/s 80P(2)(a)(i)
CIT Vs Jila Sahakari Kendriya Bank Maryadit (MP) 225 ITR 421
DCIT Vs Gujarat State Co-operative Bank Limited (ITAT, Ahd) 66 ITD 386
• Compensation received by Co-operative Bank for use of guest

house – Not eligible for deduction u/s 80P(2)(a)(i) since it is
not a part of banking business
Jalgaon District Central Co-operative Bank Ltd. Vs ITO (ITAT, Pune) 70 ITD 290
• Dividend earned on shares – Not a part of banking activities

eventhough such purchase was made after taking permission
from State Govt. – Not entitled for deduction u/s 80P(2)(a)(i)
JME Employees Co-operative Credit & Thrift Society Ltd. Vs ITO (ITAT,Jp) 73
ITD 296
• Service charges received from members for arranging loans in

banks – Not eligible for deduction u/s 80P(2)(a)(i)
CIT Vs Anakapalli Co-op Marketing Society Limited (AP) 245 ITR 616
• Interest on loans extended to employees who are not members

of the Society – Not income earned through banking activities
– Not eligible for deduction u/s 80P(2)(a)(i)
CIT Vs Sirohi S.B.V. Bank Ltd. (Raj) 321 ITR 533
• Surplus funds invested in bank deposits and govt. securities

Interest earned is 'Income from Other Sources' to be assessed
u/s 56 – Not eligible for deduction u/s 80P(2)(a)(i) as it is not
related to the business of providing credit facility to its
members or marketing of agricultural produce of its members
The Totgars Co-operative Sales Society Ltd. Vs ITO (SC) 322 ITR 283 ; 35
DTR 25
• Apex Co-operative Society – Member Societies engaged in

marketing milk and milk produce – Credit facilities provided
by assessee for working capital of members – Interest earned is
not eligible for deduction u/s 80P(2)(a)(i)
Punjab State Co-operative Milk Producers Federation Ltd. Vs CIT (P&H) 336
ITR 501
• Apex Society for Coir Marketing which is purchasing and

selling - Not entitled to special deduction u/s 80P(2)(a)(ii)
applicable for cottage industry
CIT Vs Quilon Central Coir Marketing Co-operative Society Ltd. (Ker) 229
ITR 348
• Assessee a federation of co-operative societies derived income

from marketing of agricultural produce received from member
societies Deduction not eligible u/s 80P(2)(a)(iii) as well as
80P(2)(e)
CIT Vs Haryana State Co-op. Supply & Marketing Federation Ltd. (P&H) 201
Taxman 169
• As per sec. 80P(2)(a)(iii), income from marketing of

agricultural produce grown by its members is only eligible for
deduction – Since item marketed by the assessee being lint
which was obtained in the process of manufacture and not
grown by its members, assessee not entitled for deduction
CIT Vs Virudhunagar Co-operative Marketing Society Limited (Mad) 255
ITR 558
• Income of Co-operative society from manufacturing sugar out

of sugarcane purchased from its members, non-members and
another co-operative Society – No deduction u/s 80P(2)(a)(iii)
since what is sold ie. sugar is not an agricultural produce and
deduction is allowable only if the end product which reaches
the consumer is an agricultural produce
Karnal Co-op. Sugar Mills Ltd. Vs CIT (P&H) 253 ITR 659
• Income of Co-operative society from selling rice – No

deduction u/s 80P(2)(a)(iii) since what is sold ie. rice is not an
agricultural produce and deduction is allowable only if the end
product which reaches the consumer is an agricultural produce
– Rice does not retain the same character as paddy after hulling
and hulling is not a necessary process for marketability of the
produce
South Arcot District Co-op. Supply & Marketing Society Ltd. Vs CIT (Mad) 97
ITR 500
• Labour contract co-operative society – Major contribution of

labour is from non-members – Bye-laws of the society laying
down the rules for membership and voting rights are in
violation of sec. 80P(2)(a)(vi) - Not eligible for deduction u/s
80P(2)(a)(vi)
Assessing Officer Vs Ganesh Co-op (L&C) Society Ltd. (ITAT, Asr) 67 ITD 436
Drill Well Associates Co-op. Society Ltd .Vs ITO (ITAT, Ahd) 73 ITD 240
Nilagiri Engg. Co-op. Society Ltd. Vs CIT (Ori) 208 ITR 326
• Assessee collecting milk from primary societies and supplying

it to federal societies after processing – Not eligible for
deduction u/s 80P(2)(b) since only a primary society is entitled
for this deduction
ACIT Vs Salem District Co-op. Milk Producers Union Ltd. (ITAT, Chennai) 120
ITD 410; 313 ITR (AT) 43
• Assessee is a Co-operative Society – Not a consumer Co-

operative Society since members not consuming articles such
as coal & diesel supplied by assessee – No deduction u/s
80P(2)©(i) available
Tamil Nadu Brick & Tile Manufacturing Ind. .Service Co-op. Society Vs CIT &
Ors. (Mad) 265 ITR 332
• Co-operative Society for running Sugar Mill – Production not

started – Not eligible for deduction u/s 80P(2)©
Karnal Co-op. Sugar Mills Ltd. Vs CIT (P&H) 233 ITR 531
• Interest on security deposit with agent – Not eligible for

deduction u/s 80P(2)(d) since such security deposit cannot be
treated as investment by the assessee
CIT Vs U.P. Co-operative Federation Ltd. (SC) 176 ITR 435
• Consumer co-operative society purchasing supplies from FCI

to be sold at fixed price – Commission earned not entitled to
deduction u/s 80P(2)(e) since it is not income from letting of
godowns
CIT Vs Udaipur Shahkari Upbhokta Thok Bhandar Ltd. (Raj) 295 ITR 164
affirmed in 315 ITR 21 (SC)
• Computation of deduction u/s 80P – When composite account

maintained for expenses incurred for earning the taxable as
well as exempt income, bifurcate expenses to find out net
income earned from each activity.
CIT Vs Rajasthan Rajya Sahkari Upbhokta Sangh Ltd. (Raja) 215 ITR 448
Lahaul Potato Growers Co-op. Marketing Society Ltd. Vs CIT (HP) 232 ITR 718
• Income arising to assessee subsequent to cancellation of

banking license cannot be considered as income from business
of banking since assessee no longer remained as State Co-
operative Bank – Such income not eligible for deduction u/s
80P(2)(a)(I)
Apex Urban Co-operative Bank of Maharashtra & Goa Ltd. Vs ITO (ITAT, Mum)
134 ITD 118
Deductions in respect of royalties etc. of authors of

certain books other than text-books [sec. 80QQB]
• Resident individual is eligible
• Lump sum consideration for the assignment or grant of his

interest in the copyright of any book being a work of
literary, artistic or scientific nature or of royalty or
copyright fees in respect of such book
• 100 % income of Rs. 3 lakhs, whichever is less
• If receipt is not lump sum in lieu of all rights of the assessee

in the book, income (before allowing expenses) in excess of
15% of value of books sold during the year, to be ignored
while computing deduction
• If any income earned outside India, such income to be

• Assessee to furnish certificate from person responsible for

making payment / prescribed authority in the prescribed
• No deduction eligible under any other sections of the act
• Relevant rules : R. 19AC
Deductions in respect of remuneration from certain

foreign sources by professors, teachers etc. [sec. 80R]
• Indian citizen is eligible
• Received outside India for services rendered during his

stay outside India in capacity as professor, teacher or
research worker


Deductions in respect of professional income from

foreign sources [sec. 80RR]
• Resident individual being author, playwright, artist,

musician, actor, or sportsman is eligible


• Conducting radio programme and cricket commentary on TV

is not eligible for deduction u/s 80 RR - Assessee cannot be
treated as an artist since he was not projecting his activity
outside India with a view to contributing to grater
understanding of India and its culture abroad
Harsha Bhogle Vs Assessing Officer (ITAT, Mumbai) 86 ITD 714
• Legal consultation to foreign clients not amounting to

“profession of author” – Income earned by exercise of
profession as chartered Accountant – Not eligible for
deduction u/s 80 RR
Dilip K. Sheth Vs ITO (ITAT, Mum) 5 ITR (Trib) 581
Deductions in respect of remuneration received for

services rendered outside India [sec. 80RRA]
• Indian citizen is eligible
• Received in foreign currency for services rendered outside

India in capacity as professor, teacher or research worker


• Deduction allowable only if service was sponsored by Cen.

Govt (for persons who were Govt. employees) or approved
by Cen. Govt or prescribed authority (for others)
• Relevant rules : R. 11C
• To claim deduction u/s 80 RRA, person has to be physically

present outside India while rendering service
K.R. Pradeep Vs CBDT (Del) 282 ITR 526
Sec. CBDT & Anr. Vs B.K. Sinha (Kar) 2008-TIOL-700-HC-KAR-IT
Deductions in respect of royalty on patents [sec.

80RRB]
• Resident individual who is a patentee is eligible
• Received income by way of royalty in respect of a patent

registered after 01-04-2003 under the Patents Act
• 100 % income of Rs. 3 lakhs, whichever is less – where a

compulsory license is granted in respect of any patent,
amount fixed by the controller is the income for the
purpose of computation of deduction
• outside India for services rendered during his stay outside

India in capacity as professor, teacher or research worker

• No deduction under any other provisions of the Act

• Relevant rules : R. 19AD
Deductions in case of a person with disability [sec.

80U]
• Resident individual who is certified by medical authority to
be a person with disability is eligible
• Rs. 50,000 (Rs. 75,000 in case of a person with severe

disability upto A.Y. 2009-10 and Rs. 1 lakh thereafter)
• Assessee to furnish certificate from medical authority in

the prescribed form along with the return
• Relevant rules : R. 11A

OTHER DEDUCTIONS / EXEMPTIONS

AGRICULTURAL INCOME [Sec. 10(1)]
Whether Agricultural income [defined in sec. 2(1A)] ?
• Oil extracted from eucalyptus leaves is not an agricultural

produce – Eucalyptus leaves have a market – Sale proceeds of
eucalyptus oil extracted by assessee from leaves of trees grown
by it, is not agricultural income
CIT Vs Stanes Amalgamated Estates Limited (Mad) 232 ITR 443
• Activity of tapping and vending toddy does not constitute

agricultural operation – Income derived therefrom is not
Sri Ranganatha Enterprises Vs CIT (Kar) 232 ITR 568
• Income from coconut thope is non-agricultural in nature

S. Arunachala Nadar Vs CIT (Mad) 252 ITR 734
• Income from sale of assets, excess liability written off and

miscellaneous receipts – Connection with tea business not
established – 100% taxable and benefit of Rule 8 not available
CIT Vs Bansidhar Sewbhagovan and Co. (Gau) 233 ITR 651
• Registration fees collected by the assessee from persons to

whom it gave permission to participate in auctions was not
directly linked to agricultural operation and did not constitute
agricultural income
CIT Vs Tamil Nadu Forest Plantation Corpn (Mad) 248 ITR 331
• Only income from basic operations of cultivating land and

requiring the expenditure of human skill and labour on land is
agricultural income
CIT Vs Raja Benoy Kumar Sahar Roy (SC) 32 ITR 466
CIT Vs Maddi Venkatasubbayya & another (Mad) 20 ITR 151
Papaya Farms Pvt. Ltd. Vs DCIT (Mad) 325 ITR 60
• Income from sale of forest trees of spontaneous growth is not

agricultural income even if assessee had incurred expenditure
on its maintenance
Ramakrishna Deo Vs CIT (SC) 35 ITR 312
• Dealer in timber – Not engaged in agricultural operations –

Purchased rubber trees for felling – Sale of latex till felling of
trees – Not agricultural income
Bharat Timber Trading Co. Vs CIT (Kar) 296 ITR 676
• Income from sale of jaggery is not agricultural income since it

is different from item cultivated or processed – Assessee
cultivated sugarcane and there is no nexus between jaggery
and agricultural operations Conversion of sugarcane into
jaggery is not a necessary process performed by the cultivator
to render sugarcane fit for being taken to the market
E. Palaniappan Vs ITO (ITAT, Chennai) 119 ITD 385
• Conversion of sugar into gur is not an agricultural process

Seth Banarsi Das Gupta Vs CIT (All) 106 ITR 804
• Lac cultivation cannot be treated as agricultural operation and

income from such cultivation is not agricultural income
Beohar Singh Raghubir Singh Vs CIT (Nag) 16 ITR 433
• Processes which are necessary to make tobacco fit for export,

cannot be said to be the processes necessary to make the
tobacco marketable The income attributable to such
operations cannot be treated as agricultural income
Boggavarapu Peda Ammaiah Vs CIT (AP) 54 ITR 578
• Part of profit arising from purchase and sale of plants is not

agricultural income eventhough such plants are maintained in
nursery for some time.
Sudisha Farm Nursery Vs ITO (ITAT, Del) 88 ITD 638
H,H, Maharaja Vibhuti Narain Singh Vs State of U.P. (All) 65 ITR 364
• Process of developing certain types of hybrid seeds of desired

traits or enhancing various traits and concentrating them in a
few germplasms by harvesting certain number of crops year
after year using the germs obtained in one crop as seed for next
crop until the desired result is obtained cannot be said to be in
the nature of “agricultural operations” u/s 2(1A) and cannot be
treated as agricultural income
Pioneer Overseas Corporation Vs DDIT (Int. Tax) (ITAT, Del) 34 DTR 10
• Every amount accrued to a person in whose hands agricultural

produce passes through cannot become agricultural income

and it is only when owner, landlord or farmer or persons having
derivative interests in such land receives income from land by
performance of agricultural operations on it can be termed as
agricultural income – Farmers agreed to demarcate a particular
acreage of land earmarked for purpose of cultivation of
particular seeds during fixed period and to carry on cultivation
of open-hybrid seeds in land so earmarked under guidance,
specification and supervision of assessee – Except supplying
of foundation seeds and giving scientific advice from time to
time, none of normal activities of agriculture were undertaken
by the assesee – Income arising to assessee by sale of hybrid
seeds cannot be treated as agricultural income of assessee
CIT Vs Namdhari seeds (P) Ltd. (Kar) 341 ITR 342
• Income from crop of fruits from land situated within municipal

limits and not assessed to land revenue or local rate is not
Anand Bala Bhushan Vs CIT (All) 217 ITR 144
• Assessee sold rubber estate – Extension of time for payment of

sale consideration was granted to vendee on condition of
vendee paying certain amount towards loss of agricultural
income – Sum so received is not agricultural income.
Malabar Industrial Co. Ltd. Vs CIT (SC) 243 ITR 83
• Interest on arrears of rent payable in respect of land used for

agricultural purposes is not agricultural income
CIT Vs Raja Bahadur Kamakhya Narayan Singh (SC) 16 ITR 325
• Assesssee owning a garden in which agricultural produce were

grown was let out on hire for shooting of films – Hire charges
received will not constitute agricultural income since the
shooting of films was an activity having absolutely no nexus
with the agricultural operations or the land
B. Nagi Reddi Vs CIT (Mad) 258 ITR 719
• Assessee received dividend income from a company of which

60% income is agricultural income.- Dividend is not
agricultural income since shareholder has no direct
relationship with the agricultural land
Bacha F. Guzdar Vs CIT (SC) 27 ITR 1
• Remuneration paid to partner of a firm owning agricultural

estate for managing the estate is not agricultural income in the
hands of the partner – Such remuneration is to be taxed as
salary income and the fact that ultimate source is agricultural
property will not make it as agricultural income
E.C. Danby Vs CIT (Pat) 12 ITR 351
S.A. Ramaraj Vs CAIT (Ker) 71 ITR 108
CIT Vs Kodanad Tea Estates Co. (Mad) 243 ITR 199
• Sale of milk from cows who were not purely pasture-fed and
done on a commercial line is not agricultural income.
CIT Vs R. Venkataswamy Naidu (SC) 29 ITR 529
• Income from fishing over land covered by water - Not

agricultural income since it does not amount to use of land for
agricultural purposes
Karra Jayabhyarathi Vs ITO (ITAT, Hyd) 96 ITD 414
CIT Vs V.T.S. Sevuga Pandia Thevar ( Mad ) 1 ITR 78
• Sale of an item or a commodity which is different from what is

cultivated and processed is not exempt – Assessee growing
mulberry leaves and feeding them to silk worms and selling the
cocoons – Cocoons cannot be treated as agricultural produce
raised by the cultivator – Income arising is not agricultural
income.
K. Lakshmanan & Co. & Anr. Vs CIT (SC) 239 ITR 597.
• Finding that agricultural income had been inflated – No proof

regarding source of income – Income assessable as income
from Other Sources – When assessee claims exemption as
agricultural income, it is the duty of assessee to substantiate it
and the unsubstantiated portion can be treated as income from
other sources
Ridhkarandas Poonamchand Bhura Vs CIT (MP) 231 ITR 604
• Agricultural income of minor son of the assessee to be clubbed

with the income of assessee for determining the rate of tax
payable
Suresh Chand Talera Vs Union of India (MP) 282 ITR 341
EXEMPTION UNDER OTHER PROVISIONS IN

SEC . 10
Income by way of leave encashment [sec. 10(10AA)]
• Leave encashment while in service is not exempt – The words

'or otherwise' in sec. 10(10AA) must draw the restricted
meaning qua the immediately preceding word
'superannuation' which signifies an employee's severance of
relationship with his employer in terms of the contract of
employment – Therefore, the words 'or otherwise' will not
cover cases where the assessee continues to be under the
employment of the same employer and receives leave
encashment receipt
CIT Vs Ashok Kumar Dixit (All) 273 ITR 126
Income of a local authority [sec. 10(20)]
• State Road Transport Corporation not a local authority – Its

powers and functions bear no relation to the powers and
functions of a municipal committee, district board etc. and it is
more in the nature of a trading organization – Merely because it
provides public services or has a fund is not sufficient to term it
a 'local authority' - Not eligible for exemption u/s 10(20)
U.P. State Road Transport Corporation Vs CIT (All) 286 ITR 350
Calcutta State Transport Corporation Vs CIT (SC) 219 ITR 515
• Agricultural produce Marketing Committee – Not a local

authority since sec. 10(20) is an exhaustive and not inclusive
definition – Therefore, functional test and the test of
incorporation are no more applicable - Not eligible for
exemption u/s 10(20)
Agricultural Produce Market Committee, Narula Vs CIT (SC) 305 ITR 1
• Marketing Board exercising superintendence and control over

market committees – Not a local authority u/s 10(20) or under
General clauses Act – Not eligible for exemption
CIT Vs H.P. Marketing Board 2011-TIOL-422-HC-HP-IT
• Authority for planned development of industrial areas and

promotion of industries and matters relating to – Not a local
authority – Not eligible for exemption u/s 10(20) – Exemption

under Article 289(1) of the Constitution is available only in
respect of property and income of a State and not to an
authority constituted under an Act of the legislature of the State
having a distinct legal personality, being a body corporate
distinct from the State
Adityapur Industrial Area Development Authority Vs Union of India & Ors. (SC)
283 ITR 97
• State Forest Corporation is not a local authority – Members of

assessee corporation are not elected by inhabitants of the area,
but are nominated by State govt. – It does not have the
functions and duties which are usually entrusted to the
municipal bodies such as providing civic amenities to local
inhabitants – It does not have the power to raise funds by
levying taxes, rates, charges or fees – Not entitled to exemption
u/s 10(20)
CIT Vs U.P. Forest Corporation (SC) 230 ITR 945
• H.P. Marketing Board is not a local authority within the

meaning of sec. 10(20)
CIT Vs H.P. Marketing Board (HP) 203 Taxman 159
Income of an Authority constituted under law [sec.

10(21) omitted w.e.f. 01-04-2003]
• Assessee, a company registered under Companies Act – Not an
authority constituted under any law – Not entitled for
exemption u/s 10(20A)
Sharda Sahayak Samadesh Kshettra Vikas Nigam Ltd. Vs CIT (All) 244 ITR 364
CIT Vs State Industrial Promotion Corporation of Tamil Nadu Ltd. (Mad) 311 ITR
197
Dividend, interest etc. of infrastructure capital fund

[sec. 10(23G) omitted w.e.f. 01-04-2007]
• Sec. 10(23G) – Debt Syndication fee and Debenture Trust fee

are not interest accrued on loans and advances – No exemption
available on such income
Infrastructure Development Finance Co. Ltd. Vs ACIT 2007-TIOL-188-ITAT-
MAD
Income of trade union [sec. 10(24)]
• Income chargeable under the heads “Income from house

property” and “Income from Other Sources” eligible
• Registered union within the meaning of Trade Unions Act

eligible, formed for the purpose of regulating the relations
between workmen and employers or between workmen
and workmen or an association or registered unions is
eligible
• Exemption u/s 10(24) is available only in respect of income of

a registered trade union and not to income earned from
business activities by a union formed for the purpose of
protecting interests of truck owners operating in a particular
area
Sumerpur Truck Operators Union Vs ITO (ITAT, Jodh) 89 ITD 89
• Association registered under Trade Unions Act - Did not spent

any part of its income towards its objective of regulation of
relationship between its members and employers – Not
entitled to exemption
Indian Jute Mills Association Vs CIT (Cal) 194 ITR 60
Income of Corporation or body, institution or

association established for promoting interests of SC
or ST or backward classes [sec. 10(26B)]
• Income relatable to items other than promoting housing

schemes to SC/ST are not exempt u/s 10(26B) – Also income
from housing schemes for other categories not exempt from
tax u/s 10(26B)
Harijan Evam Nirbal Varg Avas Nigam Ltd. Vs CIT (All) 229 ITR 776
Income of authority from letting of godowns or

warehouses for storage, processing or facilitating the
marketing of commodities [sec. 10(29) omitted w.e.f
01-04-2003]
• Income from property, Interest on loans and advances to staff,

interest on belated refund, Bank interest are not eligible for
exemption u/s 10(29).
DCIT Vs Tamil Nadu Warehousing Corporation (ITAT, Mad) 84 ITD 51
• Income from procurement of grains for FCI / State

Government, Miscellaneous income, interest on Fixed
Deposits – Not eligible for exemption u/s 10(29)
Orissa State Warehousing Corporation Vs CIT (SC) 237 ITR 589
• Only the amount received for services rendered in respect of

goods stored in assessee's godown exempt u/s 10(29) and no
other receipts
CIT Vs Karnataka State Warehousing Corporation Ltd. (Kar) 185 ITR 25
• Income from trading of wheat is not incidental to warehousing

activity Not entitled for exemption u/s 10(29)
Haryana Warehousing Corpn. Vs DCIT (ITAT, Del) 61 ITD 420
Dividends on which tax paid u/s 115-O [sec. 10(34)]

• Deemed dividend is not exempt u/s 10(34) since dividend
distribution tax is not paid on such sum
ITO Vs Kalyan Gupta 2007-TIOL-248-ITAT-MUM
• Assessee advanced interest free loan to a party to purchase

certain shares with a condition that 50% of dividend received
to be transferred to assessee – Assessee is not owner of shares
and amount received by him is not dividend so as to get
exemption in view of tax paid u/s 115 O
Rasoi Trading & Agencies (P.) Ltd. Vs ITO ( ITAT, Mum ) 101 ITD 399
Deductions in respect of profits and gains derived by

newly established undertakings in free trade zone
etc. [sec. 10A]
computer software in any free trade zone (after
01-04-1981) or electronic hardware technology park or
software technology park (after 01-04-1994) or SEZ(after
01-04-2001)
• Not formed by splitting up or the reconstruction of a

business already in excess
• Not formed by the transfer to a new business of machinery

or plant previously used for any purpose in India by
• Profits derived from export =

Profits of the business of undertaking X Export turnover
Total turnover
• 100% profits derived by an undertaking from the export of

articles or things or computer software is eligible for
deduction
• If the undertaking begins to manufacture or produce
after 01-04-2003 in any SEZ, 100% deduction for the
first 5 consecutive A.Y. and thereafter 50% for 2
consecutive A.Y. and thereafter upto 50% which is
credited to a special reserve a/c for the next 3 years –
purpose for which such reserve to be utilized and
treatment in case of failure specified in sub-sec. (1B) &
(1C)
• Eligible period : 10 consecutive A.Y. beginning with the

A.Y. in which undertaking begins to manufacture or
produce such article or things or computer software
• 10 year period will include A.Y. for which assessee

claimed exemption under this section prior to 01-04-
2001 also
• If an undertaking initially located in any free trade zone
or export processing zone is subsequently located in a
SEZ by reason of conversion of such free trade zone or
export processing zone into SEZ, period of 10 years will
be reckoned from the A.Y. in which it started
manufacture or production in the free trade zone or
export processing zone
• For A.Y. 2003-04, only 90% deduction will be allowed
• No deduction from 01-04-2012 onwards
• Deduction allowed only if return furnished before the due

date specified u/s 139(1)
• Sale proceeds brought to India in convertible foreign

exchange within the prescribed period
• Assessee to file certificate from C.A. along with the return
• In the A.Y. in which assessee comes out of the eligibility

period, all the deductions mentioned in sec. 32, 32A, 33, 35
and 36(1)(ix) and loss mentioned in sec. 72(1), 74(1) or 74(3)
pertaining to A.Y. prior to 01-04-2001 will be treated as
fully given effect to and no further carry forward will be
allowable
• No deduction shall be allowed u/s 80HH, 80HHA, 80I, 80IA

or 80IB in relation to the profits of the undertaking
• WDV of any asset used for the purpose of business to be

computed as if it was claimed and allowed

business


period [w.e.f 01-04-2004]
• No deduction to a Unit referred to in Sec. 2(zc) of SEZ Act,

2005 which begins to manufacture or produce after 01-04-
2005
• Assessee can opt for non-application of this section by

furnishing a declaration before the due date of filing return
u/s 139(1)
• Computer software, export turnover etc. defined
• On site development of computer software including

services for development of software outside India will be
deemed as export of computer software outside India
• Manufacture or produce also include cutting and polishing

of precious and semi-precious stones

newly established units in SEZ [sec. 10AA w.e.f.
01-04-2006]
• An entrepreneur referred to in sec. 2(j) of SEZ Act, 2005 -
eligible

provide services after 01-04-2005



Total turnover
• 100% profits derived by the unit for the first 5 consecutive

A.Y. and thereafter 50% for next 5 A.Y. and thereafter upto
50% which is credited to a special reserve a/c for the next 5
years – purpose for which such reserve to be utilized and
treatment in case of failure specified in sub-sec. (1B) & (1C)
• If deduction allowed earlier u/s 10A to this unit, it will be
eligible for deduction u/s 10AA for the unexpired period
• If the deduction was fully availed u/s 10A prior to A.Y.
2006-07, no further deduction u/s 10AA available
• If an undertaking initially located in any free trade zone
or export processing zone is subsequently located in a
SEZ by reason of conversion of such free trade zone or
export processing zone into SEZ, period of 10 years will
be reckoned from the A.Y. in which it started
manufacture or production in the free trade zone or
export processing zone. If deduction was fully availed by

such unit u/s 10A prior to A.Y. 2006-07, no further
deduction u/s 10AA available

allowable


• Loss referred to in sec. 72(1), 74(1) or 74(3) will be allowed

to be carried forward and set off

business

period [w.e.f 01-04-2004]
• Export, export turnover etc. defined


newly established 100% export oriented
undertakings [sec. 10B]
• Manufacture or produce any article or thing or computer
software



Total turnover
• 100% profits derived by an undertaking from the export of

articles or things or computer software is eligible for
deduction for 10 consecutive A.Y. beginning with the year
of manufacture or production
• If deduction availed prior to A.Y. 2001-02, only the un-
expired period is eligible
• For A.Y. 2003-04, only 90% deduction will be allowed
• No deduction from 01-04-2012 onwards
• Deduction allowed only if return furnished before the due

date specified u/s 139(1)



allowable


business

period [w.e.f 01-04-2004]
• Assessee can opt for non-application of this section by

furnishing a declaration before the due date of filing return
u/s 139(1)
• Computer software, export turnover etc. defined

• Manufacture or produce also include cutting and polishing

of precious and semi-precious stones
Deductions in respect of profits and gains in respect

of export of certain article or things [sec. 10BA]
• Manufacture or produce hand-made articles of things

which are of artistic value with wood as the main raw
material
• Without the use of imported raw material
• Employs 20 or more workers in the process of manufacture

or production
• 90% or more of sales is by way of export of eligible article or

things



Total turnover
• 100% profits derived from export out of India of eligible

article or things during A.Y. 2004-05 to 2009-10

• No other deduction shall be allowed in relation to the

export profits

business
• Not eligible if deduction u/s 10A or 10B claimed in earlier

A.Y.
Eligibility u/s 10A / 10B

• Deduction u/s 10A can be allowed only in accordance with the
provisions of Income Tax Act – Foreign Trade (Development
& Regulation) Act, 1952 does not override the provisions of
I.T. Act
DCIT Vs IBS Software services (P) Ltd. (ITAT, Cochin) 129 ITD 21
• Exemption u/s 10A cannot be granted to local sales made by

units in SEZ whether as part of domestic tariff area sales or as
inter-unit sales within the zone or units in other zones
CIT Vs Electronic Controls & Discharge Systems (P) Ltd. (Ker) 202 Taxman 33 ;
64 DTR 40
• Domestic sale of finished goods and raw material to holding

company who in turn makes exports – Amounts to sales made
to the exporter and not export as such – Not to be treated as
export for the purpose of sec. 10A
T. Two International Pvt. Ltd. Vs ITO (ITAT, Mum) 122 ITD 255 ; 3 ITR (Trib)
353
• Assessee transfers goods meant for export to a party within

India on direction of the foreign buyer – Not eligible for
deduction u/s 10B – Movement of goods from one bonded
warehouse to another cannot be taken to mean that there was an
'Export' – To claim deduction u/s 10B, assessee to prove that
such sale transaction must involve clearance at any Customs
station
Swayam Consultancy (P) Ltd. Vs ITO (AP) 336 ITR 189
• In order to qualify as “onsite development” of software, the

foreign office of the assessee should be only a liaison office
acting as an intermediary between the principal enterprise and
the customers and not working as a separate branch carrying on
full fledged marketing operations
CIT Vs Interra Software India (P) Ltd. (Del) 50 DTR 83
• 10B deduction eligible only when the 100% Export oriented

unit manufactures / produces any article or thing or computer
software. Unpolished furniture / handicrafts purchased and
then subjected to grinding, surface smoothening, chemical
treatment, drying, heating, polishing etc. – No manufacturing
activity involved since the earlier commodity did not lose its
original identity and emerged as a different article having
distinctive name and character or use from the original
commodity – Definition of word 'manufacture' in EXIM
Policy is of no avail to assessee for purposes of exemption u/s
10B – Expl. 4 to sec. 10B makes the intention of the legislature
abundantly clear that all processing of goods other than the one
mentioned in Expl. 4 have been taken away from the benefit of
exemption u/s 10B - Not eligible for deduction u/s 10B.
Kwal Pro Exports Vs ACIT (ITAT, Jodh) 110 ITD 59
Tonira Pharma Ltd. Vs ACIT (ITAT, Ahd) 39 SOT 28
• Blending different kinds of tea – No manufacture or production

of an article or thing for the purpose of sec. 10A – Provisions of
sec. 10AA which were not applicable for the relevant previous
year could not be availed of by the assessee to interpret the
provisions of sec. 10A – Reliance placed on the meaning of the
term 'manufacture provided in the Exim Policy of the Govt. of
India, SEZ, 2005 and sec. 10AA of the IT Act etc. is not
relevant
• Assessee providing facility of laboratory testing for its parent

company abroad – Not covered under the category of
Information Technology or Information Technology Enabled
services - Not eligible for deduction u/s 10B
Enem Nostrum Remedies (P) Ltd. Vs ACIT (ITAT, Mum) 119 ITD 427
• Assessee acquired a defunct unit in 1996 and value of old plant

and machinery on the date of commencement of
manufacturing was more than 20% – Fulfillment of condition
u/s 10B(2)(iii) to be in the initial year of manufacturing -
Subsequent acquisition of new machinery will not make the
assessee eligible for deduction
Sami Labs Ltd. Vs ACIT (Kar) 334 ITR 157
• Interest is not profit “derived from” industrial undertaking as

there is no direct nexus between the income and the
undertaking – Not eligible for exemption u/s 10A
CIT Vs Menon Impex (P) Ltd. (Mad) 259 ITR 403
India Comnet International Vs ITO (Mad) 304 ITR 322
• Interest income earned on housing loans advanced to

employees – Not eligible for deduction u/s 10A
eFunds International (P) Ltd. Vs DCIT (ITAT, Del) 120 ITD 567
• Interest income not eligible for deduction u/s 10B – Expression

'any profits and gains derived by the assessee from a hundred
percent export-oriented undertaking' used in sec. 10B has a
distinct but narrow meaning – Any indirect or incidental profit
cannot be regarded as profit earned out of main business
activity
Orchid Chemicals & Pharmaceuticals Ltd. Vs JCIT (ITAT, Chennai) 97 ITD 277
ABI Showtech (I) Ltd. 2007-TIOL-203-ITAT-MAD
• Since interest received is not derived from the industrial

undertaking, it is taken out from the profits before computing
the deduction u/s 10A – At that time assessee asked for
deduction of the interest paid by it on borrowings ie. netting –
Not allowed since such interest paid was already allowed as
deduction in the Profit & Loss account.
Procon Systems P. Ltd. Vs CIT (Mad) 296 ITR 636
• Profit derived from forward F.E. contracts not eligible for

deduction u/s 10B – Contract is in respect of foreign exchange
which is not goods manufactured by the assessee or
merchandise sold by it – It is merely speculation business and
hence not business of the eligible undertaking
ACIT Vs K. Mohan & Co. (Exports) (P) Ltd. (ITAT, Bang) 126 ITD 59
• Foreign exchange gain with respect to external commercial

borrowings – Not eligible for deduction u/s 10B since it is not
derived from the undertaking from out of export of article or
things or computer software
Convergys India Securities Pvt. Ltd. Vs DCIT 2011-TIOL-352-ITAT-DEL
• Insurance claim received on goods damaged in transit – In

order to consider a receipt as eligible for deduction u/s 10B, the
primary requisite is that it should be a profit or gain – On
settlement of insurance claims assessee merely receives the
value of goods / property lost and hence such amount does not
fall within the expression 'profits and gains derived by an
assessee from 100% export oriented undertaking' and cannot
be considered for deduction u/s 10B

Srinivasa Cystine Ltd. Vs JCIT (ITAT, Hyd) 92 ITD 460
• Amendment with effect from 01-04-1999 extending benefit of

deduction u/s 10B for 10 years is only to new units established
from that date and not to old units, who already availed the 5
year exemption – In the absence of any express provision for
retrospective operation of the amendment, the assessee which
had already availed the benefit of sec. 10B for 5 consecutive
A.Y. was not entitled to extension of period already allowed
Tata Tea Ltd. Vs JCIT (ITAT, Kol) 87 ITD 351
• For A.Y. 2003-04, assessee is eligible for deduction u/s 10A /

10B only for 90% of profit from the eligible unit and balance
10% is to be taxed
ITO Vs Scientific Atlanta India Technology P. Ltd. (ITAT,SB-Chennai) 2 ITR
(Trib) 66
• No specific claim for exemption under sec. 10A in original

return – Assessee cannot make such claims in re-assessment
proceedings
Sella Synergy (India) Ltd. Vs ACIT (ITAT, Chennai) 117 ITD 264
• As evident from the application form for STP registration,

assessee converted an existing export unit to STP unit with the
same office premises, computers and staff – the bonded
warehouse certificate granted to the assessee by the customs
Department was only for keeping imported capital goods and
not for storing the goods manufactured by the STP unit – Mere
purchase of new equipments / computers and employing more
staff will not prove the contention that a new unit was set up.
Since existing unit was converted to STP unit and no new unit
was set up, comparison of shareholding pattern for the purpose
of Expl. 1 to sec. 10A to be made with reference to setting up of
the original unit and not from the date on which STP status was
granted – since the promoters ceased to hold beneficially 51%
shares, assessee is not eligible for deduction u/s 10A
Infrasoft Technologies Ltd. Vs DCIT (ITAT, Del) 135 ITD 19
Computation of deduction u/s 10A / 10B

• Computation of total turnover – Sale to holding company
without profit – Sale of goods by assessee to its holding
company on cost-to-cost basis without any profits constituted
part of total sales for purpose of computing deduction u/s 10A
– 'Sale' does not lose its character whether it results in profits,
no profit or even loss
T. two International Pvt. Ltd. Vs ITO (ITAT, Mum) 122 ITD 255 ; 3 ITR (Trib) 353
• Export sale proceeds not brought to India in convertible

foreign exchange within 6 months from the end of previous
year or within such further period allowed – Exclude from
export turnover and include in total turnover
ACIT Vs Aftek Infosys Ltd. 2011-TIOL-399-ITAT-MUM
• Set off the brought forward loss and depreciation of the 10B
unit against the income of 10B unit during the year – Only the
balance income, if any, is eligible for 10B exemption
CIT Vs Himatasingike Seide Ltd. (Kar) 286 ITR 255
CIT Vs Patspin India Ltd. (Ker) 62 DTR 364
Siemens Information Systems Ltd. Vs DCIT (ITAT, Mum) 135 ITD 196
• Brought forward losses of the units for which assessee has

positive income are to be set off before computing exemption
u/s 10A
Intellinet Technologies India P. Ltd. Vs ITO (ITAT, Bang) 5 ITR (Trib) 96
Global Vantedge P. Ltd. Vs ACIT (ITAT, Del) 1 ITR (Trib) 326
• Brought forward losses required to be set off against business

profits before computing deduction u/s 10B
Sword Global (I) P. Ltd. Vs ITO (ITAT, Chennai) 306 ITR(AT) 286
• Unabsorbed depreciation to be set off against business profits

before computing deduction u/s 10B
ACIT Vs Jewellery Solutions International (P) Ltd. (ITAT, Mum) 28 SOT 405
• As per the certificate issued by Chartered Accountant,

expenditure was incurred outside India for rendering technical
services outside India – Contention of assessee that it is
engaged in the development of software only and there is no
question of incurring any expenditure in foreign currency

outside India, is erroneous – such expenditure to be deducted
from export turnover while computing deduction u/s 80HHE
[similar to sec. 10A / 10B]
CIT & Anr. Vs Infosys Technolgies Ltd. (Kar) 65 DTR 353
• Assessee having failed to offer any satisfactory explanation for

exceptionally high GP rate in the relevant year and as to why its
purchases from sister concern increased substantially in this
year or as to why the said concern made sales to assessee at a
low rate, excess profit computed u/s 10A(7) r.w.s. 80IA(10) is
proper – Labour charges claimed by assessee being extremely
low in relevant A.Y. compared to preceding year, it is
reasonable to conclude that it used services of employees of
sister concern and adjustment made u/s 10A(7) r.w.s. 80IA(10)
is proper
Sanghvi Jewellery Mfg. Co. (P) Ltd. Vs ITO (ITAT, Mum) 135 ITD 174
Chapter 6
PROCEDURE OF
ASSESSMENT,
APPEAL & REVISION
ASSESSMENT 603
ASSESSMENT
FILING OF RETURNS
• All companies and firm to file I.T. return (sec. 139)
• Other persons liable to file return prescribed. (sec. 139)
• Return to be filed each year on or before the due date in the

prescribed form under verification setting forth
prescribed particulars and due date for filing return by
different classes of assesses prescribed (sec. 139)
• Scheme to file return by salaried persons through their

employers prescribed (sec. 139)
• Scheme to file return through electronic media prescribed

(sec. 139)
• Persons who sustained loss under the head “Profits and

gains of business or profession” or “Capital gains” and
claims carry forward of such loss, to file return within the
time allowed u/s 139(1) (sec. 139)
• Belated return can be filed before expiry of one year from

the end of the A.Y. or before completion of the assessment,
whichever is earlier (sec. 139)
• Revised return can be filed before expiry of one year from

the end of the A.Y. or before completion of the assessment,
whichever is earlier if any omission or wrong statement is
discovered in the original return (sec. 139)
• Various information to be disclosed in the return and

report of Audit to be furnished along with the return
prescribed (sec. 139)
• Defective return and procedure to rectify defects

prescribed – If defect is not rectified, it will be treated as
invalid return (sec. 139)
• PAN to be quoted in the return (sec. 139A)
• Scheme for submission of return through Tax Return

Preparers prescribed (sec. 139B)
• Persons authorized to sign return prescribed (sec. 140)
• Pay self assessment tax before filing of return – This should

include tax and interest – In case of shortage, amount paid
will be first adjusted towards interest payable – If failure,
will be treated as assessee deemed to be in default (sec.
140A)
• Rules 12 to 15 are relevant
• When the last day for filing return is a day on which the
office is closed, assessee can file the return on the next day
on which the office is open and such return will be
considered to have been filed within the specified time limit
[ Circular No. 639 dated 13-11-1992 ]
• An assessee can make electronic payment of taxes from the

account of another person also. However the challan must
indicate PAN of the assessee on whose behalf payment is
made [ Circular No. 5/2008 dated 14-07-2008 ]
ASSESSMENT 605
Obligation to file return

• The expression 'every person whose total income during the
previous year exceeded the maximum amount which is not
chargeable to income tax' includes all person who are liable to
pay tax and non-residents are not exempted from the liability to
submit a return under this section
Pannalal Nandlal Bhandari Vs CIT (SC) 41 ITR 76
• Return filed within the time allowed u/s 139(1) can only be
treated as return filed within the due date and not the one filed
within the period allowed u/s 139(4)
R. Inbavalli Vs ITO 2010-TIOL-689-HC-MAD-IT
Prakash Nath & Ors. Vs CIT (HP) 225 ITR 305
Verification of return
• Return filed without signature and verification of assessee –

Not a valid return – Defect cannot be cured – Sec. 292B will
not apply
Khialdas & Sons Vs CIT (MP) 225 ITR 960
• Return of a company not signed and verified by its Managing

Directors was an invalid return in the absence of any
explanation indicating that he was prevented from signing and
verifying the return for unavoidable reasons
National Insurance Co. Ltd. Vs CIT (Cal) 213 ITR 862
Defective return
• Return of Income not accompanied by proof of payment of
140A – Defect not cured even though sufficient opportunities
given by Assessing Officer Return treated as invalid and non-
est – Subsequently no prayer for condonation of such delay can
be made before CIT since Assessing Officer only has such
power.
Sudhir Sareen Vs CIT & Anr. (Del) 239 ITR 440
• Return filed without enclosing 44AB Audit report – Invalid

H.P. State Forest Corporation Limited Vs DCIT (HP) 231 ITR 556
• Return filed below the taxable limit was to be treated as an

invalid return and proceedings taken on the basis of such return
has to be treated as null & void.
Babu Ram Vs ACIT (ITAT, Del) 59 TTJ 105
Revised return
• Return filed u/s 139(4) – Not entitled to file revised return.
Kumar Jadish Chandra Sinha Vs CIT (SC) 220 ITR 67
• No revised return can be filed subsequent to filing of return u/s

148
CIT Vs Banshidhar Jalan & Ors. (Cal) 207 ITR 488
ACIT Vs Cavinkare P. Ltd. (ITAT, Chennai) 307 ITR (AT) 356
• Revised return can be filed u/s 139(5) only if there is omission

or wrong statement in the original return – After filing of
original return, a resolution was passed to change the method
of valuation of closing stock – Not a reason to file revised
return
Golden Insulation and Engineering Ltd. Vs CIT (Del) 305 ITR 427
• After filing of original return, further deduction was claimed

through a letter – No revised return filed – Assessing Officer
cannot entertain the claim
Goetze (India) Ltd. Vs CIT (SC) 284 ITR 323
• The filing of a revised return after discovery of the omission or

wrong statement is not by itself sufficient to bring the revised
return within the ambit of sec. 139(5) – A further requirement is
that this omission or wrong statement in the original return
must be due to a bona fide inadvertence or mistake on the part
of the assessee
Sunanda Ram Deka Vs CIT (Gau) 210 ITR 988
• Where there was no wrong statement in the original return, the

assessee could not file a revised return to withdraw its claim for
depreciation merely to claim set off of earlier year's loss
CIT Vs Andhra Cotton Mills Ltd. (AP) 219 ITR 404
• The facility of filing a revised return cannot be availed for

ASSESSMENT 607
change of status and change in method of accounting since that

would not amount to an omission or wrong statement
Deepnarain Nagu & Co. (MP) 157 ITR 37
ENQUIRY AND ASSESSMENT

• Person who has not filed return within the time allowed u/s
139(1) or before the end of the relevant A.Y. can be asked to
file return – such notice can be served even after end of the
relevant A.Y. (sec. 142)
• Assessees can be asked to produce or caused to be produced

accounts or documents required by the Assessing Officer
(sec. 142)
• Assessees can be asked to furnish in writing under

verification information (including a statement of assets
and liabilities) required by the Assessing Officer
• For calling for statement of assets and liabilities not
included in accounts, prior approval of JCIT is required
• Accounts can be called for only for upto a period of three
years prior to the previous year (sec. 142)
• Assessing Officer has power to make necessary inquiry

(sec. 142)
• At any stage of the proceedings, Assessing officer can refer

for compulsory audit considering the nature and
complexity of accounts
• Previous approval of CIT/CCIT required
• Accountant will be nominated by CIT/CCIT
• Before making such direction, give reasonable
opportunity of being heard to the assessee
• Such direction can be made even if the accounts are
audited
• Period will be fixed by the Assessing Officer – can be
extended maximum period available is 180 days
• Expenses for such audit will be fixed by CIT/CCIT and
paid by Cen. Govt. (for directions made prior to 01-06-
2007, such payments to be by the assessee) (sec. 142)
• Assessee to be given opportunity of being heard in respect

of material gathered on enquiry or audit, except when
assessment completed u/s 144 (sec. 142)
ASSESSMENT 609
• All the returns filed have to be processed and intimation to

be issued only if there is any adjustment to the income / loss
declared or any demand / refund is due (sec. 143)
• Issue notice in cases selected for scrutiny assessment within

6 months from the end of the F.Y. in which return is
furnished (sec. 143)
• In respect of persons claiming exemption u/s 10(21),

10(22B), 10(23A), 10(23B), 10(23C) or 35(1)(ii) and (iii),
before rejecting claim of exemption u/s 10 inform Cen.
Govt. or prescribed authority about the contravention
made by them and their approval to be withdrawn or
notification rescinded (sec. 143)
• Order of assessment to be made within 21 months from the
end of the A.Y. in which income was first assessable (w.e.f.
01-04-2004)
• If order of TPO not received till 01-06-2007, 33 months
time available
• Provision made for extension of time in certain
exceptional situations (sec. 153)
• JCIT can issue directions in pending assessment and such

directions are binding on the Assessing Officer – Before
giving direction prejudicial to the assessee, give an
opportunity of being heard to the assessee (sec. 144A)
• In case of foreign company and any other assessee where

variation in income or loss returned arises as a
consequence of order of TPO, Assessing officer to forward
draft assessment order to the assessee (w.e.f 01-10-2009)
• On receipt of such draft order, assessee can file his
acceptance to the Assessing Officer or objections to the
Dispute Resolution Panel or Assessing Officer within 30
days of receipt
• If acceptance is received or period for filing objections
expired and assessee did not file any objection, complete
the assessment on the basis of the draft order within one
month from the end of the month in which acceptance
was received or period for filing objections expired
• Pass final order in conformity with the order of DRP

within one month from the end of the month in which
order of DRP was received – No need to give
opportunity of being heard to assessee at this stage
• DRP to pass orders within nine months from the end of
the month in which draft order is forwarded to the
assessee (sec. 144C)
• If the ITO due to any unavoidable circumstance, cannot

adhere to the schedule of hearing, the assessee should be
informed in advance either through a letter or through
telephone, wherever possible [ Instruction No. 1395 dated 15-
05-1981 ]
• Assessment of banks
Checklist for deductions [ Instruction No. 17/2008 dated

26-11-2008 ]
Claim for rural debts to be scrutinized to see whether

the area is actually rural [Instruction No. 10/2008 dated
31-07-2008]
• At the time of completing scrutiny assessment, Assessing

Officer to make necessary verification physically with back
records to ensure that only correct allowance of unabsorbed
depreciation and brought forward losses are allowed to set off
[Circular No. 9 of 2007 dated 11-09-2007]
• Taking opinion of technical experts and bringing on record

technical evidence in cases involving complex issues of
technical nature and substantial revenue – procedure laid
down in view of Supreme Court decision in CIT Vs Bharti
Cellular ltd. (330 ITR 239) [Instruction No. 5/2011 dated
30-03-2011]
ASSESSMENT 611
Notice u/s 143(2)

• Intimation u/s 143(1)(a) cannot be treated to be an order of
assessment
ACIT Vs Rajesh Jhaveri Stock Brokers (P.) Ltd. (SC) 291 ITR 500
• Intimation issued under section 143(1)(a) is not an order of

assessment – Intimation issued u/s 143(1)(a) does not partake
the character of regular assessment on completion of period
prescribed u/s 143(2) when no notice u/s 143(2) was served on
the assessee during such period
CIT Vs Omprakash Bagria (HUF) (MP) 287 ITR 523
• Issue of notice u/s 143(2) – Reasons need not be furnished to

the assessee
Bandi Co-operative Labour & Construction Society Vs CIT (P&H) 300 ITR 107
N.R. Paper and Board Ltd. & Ors. Vs DCIT (Guj) 234 ITR 733
• Issue of intimation u/s 143(1)(a) does not take away the right of
the Assessing Officer to proceed u/s 143(2) – Hence notice u/s
143(2) can be issued after issue of intimation.
Kamal Textiles Vs ITO & Ors. (MP) 189 ITR 339
Arihant Builders Developers & Investors (P.) Ltd. Vs ACIT (ITAT,SB-Ind) 106
ITD 10
• Incentive in Samman Patra Scheme that their cases will not be

subject to scrutiny for 3 years - Not absolute exemption - Issue
of notice u/s 143(2) valid
Malu Khan Mahendra Singh Yasin Khan Vs DCIT (Raj) 298 ITR 16
• Time limit for issue of 143(2) does not apply to return filed in
response to 148
Chandra Bhan Bansal Vs DCIT (ITAT, Agra) 79 ITD 639
• Effect of retrospective amendment to sec. 148 by Finance Act,

2006 – Return filed pursuant to notice under section 148 on
16.07.1998 – Notice under section 143(2) on 16.10.1999 – Not
barred by limitation
CIT Vs C. Malathy (Mad) 294 ITR 532

to consider objection to 148 notice and failure to issue notice
under section 143(2) – Reassessment order not void but

• There is no sequence prescribed as to in what manner notices

u/s 142(1) and 143(2) are to be issued – There is no condition
that notice u/s 142(1) should precede notice u/s 143(2)
Orissa rural Housing Development Corporation Ltd. Vs ACIT (Ori) 66 DTR 73
• The expression 'service' in sec. 143(2) means the date of issue

of notice – To bring certainty and to avoid attempts of the
assessee to evade the process of receipt of notice, the purpose
of statute will be better served if the date of issue of notice is
considered as compliance to the requirement of proviso to sec.
143(2)
VRA Cotton Mills Pvt. Ltd. Vs Union of India & Ors. 2012-TIOL-176-HC-P&H-
IT
Special Audit
• Special audit u/s 142(2A) can be directed even in cases audited

u/s44AB
Pani Devi Vs Union of India & Ors. (Raj) 245 ITR 798
• Assessing Officer has authority to refix the period for

submitting audit report u/s 142(2C) either suo moto or on the
request of auditor or assessee
CIT Vs Popular Automobiles (Ker) 333 ITR 308
• Amendment of proviso to sec. 142(2C) inserting the words

“suo moto” by Finance Act, 2008 is clarificatory – Assessing
Officer has suo moto power to extend the period for
submission of audit report even for earlier period
Ghaziabad Development Authority Vs CIT & Ors. (All) 61 DTR 270
ASSESSMENT 613
• Special Audit u/s 142(2A) can be ordered during the pendency

of block assessment proceedings also
Kumar Films (P.) Ltd. Vs CIT (Pat) 258 ITR 257
• Before ordering special audit u/s 142(2A), satisfaction of

complexity of accounts need not be required to be arrived at by
discussing accounts in meticulous details
U.P. State Industrial Development Corporation Ltd. Vs CCIT (All) 203
Taxman 337
Passing of order and its service

• Remarks in the order sheet such as “no proceedings”, “filed”
could constitute as an order passed to dispose off the
proceedings in assessment
Esthuri Aswathiah Vs ITO (SC) 41 ITR 539
CIT Vs Bidhu Bhusan Sarkar (SC) 63 ITR 278
• Order sheet entry passed by Assessing Officer stating

assessment completed – Order served after few months – Valid
and not time barred
Sewduttroy Rambullay & Sons Vs CIT (Cal) 204 ITR 580
CIT Vs T.O. Abraham & Co. (Ker) 333 ITR 182
• Assessment of income to be completed within the time period

provided in the statute – However the order of assessment need

not be communicated within that period.
RM. P.R. Viswanathan Chettiar Vs CIT (Mad) 25 ITR 79
Ramanand Agarwalla Vs CIT (Gau) 151 ITR 216
Kodidasu Appalaswamy and Suryanarayana Vs CIT (AP) 46 ITR 735
Laxmidas & Co. Vs CIT (Bom) 72 ITR 88
• Assessment order should be issued so as to be beyond control

of the I.T. authority who passed such order before prescribed
period.
Commissioner of Agrl. IT Vs Kappumalai Estate (Ker) 234 ITR 187
CIT Vs Sree Narayana Chandrika Trust (Ker) 212 ITR 456
• If the appellate authority set aside the entire assessment and

directs fresh assessment, Assessing officer has the same power
in making fresh assessment as he had originally – He can do
anything which was omitted in the original assessment
Kundanlal Maru Vs CIT (MP) 135 ITR 84
CIT Vs Highway Construction Co. (P.) Ltd. (Gau) 223 ITR 498
Time limit for passing order

• Assessment of share income of one partner in a firm stayed by
Supreme Court – Consequent delay in assessment of another
partner – Assessment not barred by limitation.
Vijaypat Kailashpat Singhania Vs S.B. Sharma, WTO & Ors.(Bom) 216 ITR 410
• Period during which stay order was in operation to be excluded

ASSESSMENT 615
for computing period of limitation for making order of

assessment / re-assessment
Auto and Metal Engineers & Ors. Vs Union of India & Ors.(SC) 229 ITR 399
Thanthi Trust Vs CIT (Mad) 242 ITR 250
• Where two or more heads as contemplated in Explanation 1 to
sec. 153 were present for exclusion of time spent, all such
period could be separately excluded while computing the
limitation for passing the order
CIT Vs Luxco Electronics (All) 201 Taxman (Mag) 160
CIT Vs Ulike Promoters (P) Ltd. (Del) 205 Taxman 414
• Corrigendum to an order should be passed and communicated

to assessee within period of limitation prescribed for passing of
the main order.
Sanco Trans Ltd. Vs ACIT (ITAT, Mad) 61 ITD 317
• Tribunal remitting the matter to Assessing Officer only on

certain specific points – Assessment not fully set-aside de novo
Two year limitation period specified in sec. 153(2A) not
applicable
Basu Distributors P. Ltd. Vs ITO (Del) 292 ITR 29
• When several additions have been made by AO and the

appellate authority sets aside one or some of the issues to the
file of the Assessing Officer, that situation would not give rise
to a “fresh assessment' and sec. 153(3)(ii) would apply
S.M. Dalvi Vs ACIT (ITAT, Mum) 44 SOT 11
• Limitation under sec. 153(2A) for making fresh assessment in

pursuance of appellate order starts from the date the order is
received by CCIT / CIT and not from the date on which a copy
of such order is filed by assessee before the Assessing Officer.
ACIT Vs Maheshwari Resin & Turpentine Works & Ors. (ITAT, Asr) 16 DTR 313
Protective assessment
• When there is a doubt as to which person amongst the two was

liable to be assessed, parallel proceedings may be taken against
both and alternative assessments may also be framed
CIT Vs Durgawati Singh (All) 234 ITR 249
Banyan & Berry Vs CIT (Guj) 222 ITR 831
• Protective assessment – An income prima facie appearing to be

the income of either of the two parties – IT authorities unsure of
in whose hands it should be assessed – Income might have
been received by either of the two parties or by both together It
is open to the IT authorities to take protective measures by
proceeding against both
Lalji Haridas Vs ITO & Anr. (SC) 43 ITR 387
Assessment on the basis of directions by Range Head

• Assessment u/s 144A –Opportunity to be heard not given to
assessee – Assessment was not void – Assessment could be set-
aside and fresh assessment made.
Bhagwat Prasad Vs CIT (All) 232 ITR 480
• Powers of IAC u/s 144A are wider and he can give a direction
on matters not covered by draft assessment order.
Bhagwat Prasad Vs CIT (All) 232 ITR 480
CIT Vs Rohit Mills (Guj) 236 ITR 436
ASSESSMENT 617
Refund of taxes paid
• Even if assessment is cancelled / annulled or a regular

assessment could not be made in time, no need to refund
advance-tax and self-assessment tax paid to the extent of tax
chargeable on the returned income – Proviso (b) to sec. 240
applies
CIT Vs Shelly Products & Anr.(SC) 261 ITR 367
BEST JUDGEMENT ASSESSMENT

[Sec. 144 provides for making best judgment assessment]
• Can be made when there is

• Failure to file regular, belated or revised return, or
• Fails to comply with all the terms of a notice u/s
142(1) or direction u/s 142(2A), or
• Fails to comply with all the terms of a notice u/s
143(2) though return was filed
• Consider all relevant materials gathered and giving an

opportunity of being heard to the assessee, pass order on
the best of judgment
• No need to give opportunity is notice u/s 142(1) already

issued.
• Best judgement assessment – So long as the estimate made by

Assessing Officer is not arbitrary and has nexus with the facts
discovered, the same cannot be questioned. Assessing Officer
is the best judge of the situation.
CIT Vs Rayala Corporation (P) Ltd. (Mad) 215 ITR 883
• Failure to maintain Stock register – Genuineness of purchase

not proved beyond doubt – There is always some degree of
guess work in best judgement assessment
Kachwala Gems Vs JCIT (SC) 288 ITR 10
• Best judgement assessment made since there was no

compliance to notice u/s 148 & 142(1) – Tribunal should not
have cancelled assessment in such situation
CIT Vs P.P. Khader Haji (Ker) 234 ITR 461
• Failure to get accounts audited u/s 142(2A) – Best judgement

assessment valid.
Swadeshi Polytex Ltd. Vs ITO (All) 127 ITR 287
• Notice u/s 142(1) was given and assessee failed to comply with
the same – No further notice necessary before completing the
assessment u/s 144
Pawan Kumar Pareek Vs ITO 2010-TIOL-718-HC-RAJ-IT
CWT Vs Motor and General Finance Ltd. (Del) 332 ITR 1
ASSESSMENT 619
RE-OPENING OF ASSESSMENT
Conditions for re-opening

• Assessing Officer has reason to believe that income
chargeable to tax has escaped assessment (sec. 147)
• Where assessment u/s 143(3) or 147 made earlier and

reopening is done after expiry of four years from the end of
the relevant A.Y. – reopening possible only if income
chargeable to tax has escaped assessment for such A.Y. by
reason of the failure on the part of the assessee to make a
return u/s 139 or in response to notice issued u/s 142(1) or
148 or to disclose fully and truly all material facts
necessary for his assessment. (sec. 147)
• Production before the Assessing Officer of account books

or other evidence from which material evidence could with
due diligence have been discovered by the Assessing
Officer will not necessarily amount to disclosure (sec. 147)
• Some instances where income chargeable to tax has

deemed to have escaped assessment :
• No return filed eventhough assessee has chargeable
income
• Return filed but no assessment made
• Assessment made but income was underassessed or
assessed at too low a rate or excessive relief given or
excessive loss or depreciation allowance or any other
allowance computed.
Reason to believe
The expression “has reason to believe” is wider than “is satisfied”.
Reasons must have a live link with the formation of belief.
• “Information” for re-opening explained in detail - Information

may come from external sources or even from materials
already on record or may be derived from the discovery of new
and important matter or fresh facts - Word “information”
would also include true and correct state of law derived from
relevant judicial decisions either of the I.T. authorities or
Courts of law – Whether the ground on which the original
assessment is based is held to be erroneous by Supreme Court
in some other case, that will also amount to a fresh information
which comes into existence subsequent to the original
assessment - Taxpayer would not be allowed to take advantage
of an oversight or mistake committed by the taxing authority
Kalyanji Mavji & Co. Vs CIT (SC) 102 ITR 287
Existence of reason Vs Sufficiency of reason

Sufficiency of reason is not open to question in a court of law but the
existence of belief can be challenged. Court can examine whether
the reasons are relevant and have a bearing on the matters with
regard to which he is required to entertain the belief before he can
issue notice.
• Failure to disclose fully and truly material facts – Belief of ITO

that income had escaped assessment – Sufficiency of reasons
for forming the belief is not for the Court to judge.
ITO Vs Lakhmani Mewal Das (SC) 103 ITR 437
Phool Chand Bajrang Lal and Another Vs ITO & Anr. (SC) 203 ITR 456
Raymond Woollen Mills Vs ITO & Anr. (SC) 236 ITR 34
Desh Raj Udyog Vs ITO (All) 318 ITR 6
• To judge the validity of reassessment on the basis of final

outcome of reassessment proceedings on that item will not be
proper – At the time of reopening, assessing officer is not

required to establish escapement of income
Sri Krishna (P) ltd. Vs CIT (SC) 221 ITR 538
Central Provinces Manganese Ore Co. Ltd. Vs ITO (SC) 191 ITR 662
• What is necessary to re-open an assessment is not final verdict

but a prima facie reason – Once such a reason is recorded by
assessing authority he assumes jurisdiction to issue notice u/s
148 – Mere fact that for earlier assessment years issue in
dispute has been decided by CIT(A) in assessee's favour
cannot be a fetter in exercising his jurisdiction u/s 147
ACIT Vs Tube Investments of India Ltd. (ITAT, Chennai-TM) 133 ITD 79
Rajat Export Import India Pvt. Ltd. Vs ITO (Del) 341 ITR 135
Whether re-opening permissible after CIT(A)

passed order against the original assessment -
Doctrine of Merger
• Petitioner challenged 148 notice on the ground that deduction
u/s 80HHC had already been examined by CIT(A) and merged
with this order. – Since notice was issued in an entirely
different context which was not examined earlier by CIT(A),
notice valid.
Venus Industrial Corporation Vs ACIT (P&H) 236 ITR 742
• Granting deduction u/s 80HHB was the issue before CIT(A)

Subsequently Assessing Officer re-opened on genuineness of
the principle amount of contract on which 80HHB deduction
was claimed – No doctrine of merger – Re-opening valid
Som Dutt Builders (P) Ltd. Vs DCIT ( ITAT, Kol ) 98 ITD 78
Whether reopening permissible when appeal for the very

same A.Y. against original assessment order pending before
Tribunal / Courts ?
• Appeal by Department before Tribunal / High Court against
annulment of assessment – Mere pendency of appeal would
not mean pendency of assessment proceedings Reassessment
initiated during pendency of appeal is valid
Ajai Verma (All) 304 ITR 30
• Appeal against assessment order pending – Assessing Officer

seeking to re-open the assessment during pendency of appeal
Permissible when the issue involved in the appeal is different
from the ground on which the assessment is sought to be
re-opened
ACIT Vs Narayandas Sugnomal (ITAT, Mum) 32 SOT 23
Whether re-opening permissible when time to issue

notice u/s 143(2) available ?
• Issue of notice u/s 148 held valid even when time to issue
143(2) was there.
Punjab Tractors Ltd. Vs DCIT (P&H) 254 ITR 242
Sri Krishna Mahal Vs ACIT (Mad) 250 ITR 333
Kailash Auto Finance Ltd. Vs ACIT (ITAT, Lucknow) 32 SOT 80
Whether re-opening permissible when notice u/s

143(2) issued and pending ?
• Even when proceedings u/s 143(2) are pending, notice u/s 148
can be issued.
Deepak Kumar Poddar Vs Union of India & Ors. (Pat) 224 ITR 95
• ITAT set-aside assessment to ITO to decide on one issue When

proceedings are pending, Assessing Officer issued notice u/s
148 on another issue – Valid.
ACIT Vs Sachdeva & Sons (ITAT, Asr) 97 ITD 425.
Whether Block assessment can be re-opened

subsequently ?
• Provisions of sec. 147 will apply to an assessment for a block
period made under Chapter XIV-B – Non obstante clause in
sec. 158BA has to be read in juxtaposition with sec. 158BH – If
so read other provisions of the Act will be applicable to the
scheme under Chapter XIV-B, if no conflict arises upon such
application – In the absence of any separate and specific period
of limitation for reopening of block assessments in Chapter
XIV-B, the provisions contained in Chapter XIV prescribing
the period of limitation for reopening of assessment must be
understood to be applicable to assessments under Chapter
XIV-B
CIT Vs Peerchand Ratanlal Baid (HUF) (Gau) 322 ITR 544
• Block assessment proceedings initiated but dropped lateron –

Subsequently notice u/s 148 issued – Upheld since conditions
for issue of notice u/s 148 were satisfied
Supriya Developers (P) Ltd. Vs DCIT (Patna) 205 Taxman (Mag) 24
Availability of other routes
• Availability of other routes like rectification / revision is not a

bar to issue notice u/s 148 when the conditions for issue of
notice u/s 148 are satisfied
Honda Siel Power Products Ltd. Vs DCIT & Anr. (Del) 52 DTR 353 SLP
dismissed 2011-TIOL-72-SC-IT
CIT Vs First Leasing Co. of India Limited (Mad) 241 ITR 248
Salem Provident Fund Society Ltd. Vs CIT (Mad) 42 ITR 547
CIT Vs India Sea Foods (Ker) 332 ITR 424
• Sections 148 and 153A operate in different fields – Notice

under section 148 for an A.Y. not falling within the six year
period provided under section 153A – Valid
Ramballabh Gupta Vs ACIT (MP) 288 ITR 347
“Change of opinion”
An in-built check to prevent abuse of power by the Assessing Officer
• Change of opinion – Bar to re-assessment only if opinion was

in respect of the A.Y. in question – The facts were already
before the assessing authority for preceding year and view
taken thereon, is irrelevant – Reopening upheld
ACIT Vs Mahindra Holidays & Resorts (India) Ltd. (ITAT,SB-Chennai) 3 ITR
(Trib) 600
• Orders passed u/s 195(2) or 197 are provisional or tentative –

Though Assessing Officer passed an order u/s 195(2) granting
no deduction of tax on payments made to non-resident, yet
proceedings u/s 147 can be initiated on the recipient non-
resident to assess the income in his hands.
CIT Vs Elbee Services (P) Ltd. (Bom) 247 ITR 109
Dodsal (P) Ltd. Vs CIT (Bom) 260 ITR 507
Areva T&D, SA Vs ADIT & Ors. (Del) 55 DTR 177
Whether change of opinion exists when no

assessment made / processed u/s 143(1) ?
• Intimation u/s.143(1)(a) is not an assessment – Failure to issue

notice u/s 143(2) not material – Notice u/s 148 issued - Valid
ACIT Vs Rajesh Jhaveri Stock Brokers P. Ltd. (SC) 291 ITR 500
• Notice u/s 148 can be issued on the basis of information in a

non-est return – Non-est return is not a bar to issue notice u/s
148.
Rajasthan State Handloom Dev. Corpn, Ltd. Vs DCIT (ITAT, Jp) 64 ITD 356
• Return not filed – Non compliance with notices issued u/s

139(2) and 142(1) - Proceedings closed as Nil Assessment and
not communicated to assessee - Again notice u/s 148 issued –
Valid.
CIT Vs Indo Marine Agencies (Kerala) P. Ltd. (Ker) 279 ITR 372
• Return processed u/s 143(1) – The only condition to be

satisfied for re-opening is taxable income has escaped
assessment – Assessee's plea that no fresh material before the
assessing Officer warranting re-opening, is not relevant
Kone Elevator India P. Ltd. Vs ITO (Mad) 340 ITR 454

CIT Vs Ideal Garden Complex P. Ltd. (Mad) 340 ITR 609
ACIT Vs Maersk Global Service Centre (India) (P) Ltd. (ITAT, Mum) 66 DTR 90
Whether change of opinion exists when assessment

made u/s 143(3) / 147 already ?
• When there is no discussion on the issue in the assessment

order and no details were called for by the Assessing Officer or
filed by the assessee on the issue, no finding either positive or
negative was arrived at during the course of the original
assessment proceedings – Hence there is no question of change
of opinion
A.L.A. Firm Vs CIT (Mad) 102 ITR 622
Ess Kay Engineering Co. (P) Ltd. Vs CIT (SC) 247 ITR 818
Revathy C.P. Equipments Ltd. Vs DCIT & Ors. (Mad) 241 ITR 856
EMA India Ltd. Vs ACIT (All) 30 DTR 82
• Change of opinion comes to rescue of assessee only when

Assessing Officer has taken one of permissible views at the
time of original proceedings - A wrong application of law
cannot be held as permissible view and that can always be
changed for appreciating law. – Reopening valid
Som Dutt Builders (P) Ltd. Vs DCIT ( ITAT, Kol ) 98 ITD 78
Whether change of opinion exists when notice u/s 154

on the same issue was dropped and notice u/s 148
issued ?
• Initiation and dropping of proceedings u/s 154 cannot be

equated with passing of an assessment order – No change of
opinion – Re-opening valid
Honda Siel Power Products Ltd. Vs DCIT & Anr. (Del) 52 DTR 353 SLP
dismissed 2011-TIOL-72-SC-IT
CIT Vs India Sea Foods (Ker) 332 ITR 424
Raj Woolen Industries Vs ACIT (ITAT, Del) 7 ITR (Trib) 339

WTO Vs Aditya Narula (ITAT, Cal) 68 ITD 61
Whether change of opinion exists when notice u/s 148

on the same issue was dropped and fresh notice u/s
148 issued ?
• Based on the objection of assessee, Assessing Officer dropped

the proceedings and issued fresh notice u/s 149 – Valid
CIT Vs N. Jayaprakash (Ker) 285 ITR 369
Om Prakash Vs ITO (ITAT, Del) 19 DTR 69 ; 25 SOT 198 ; 121 TTJ 35
Kohinoor Enterprises Vs ITO & Ors. (MP) 226 ITR 88
• There is no bar in issuing a second notice u/s 148 when the

parameters for issue of such notice are fulfilled and is within
statutory time limits – When the second notice u/s 148 was
issued, the time limit for completion of assessment on the basis
of first notice u/s 148 has expired and hence it cannot be treated
as pendency of any proceedings - Fresh notice u/s 148 backed
by reasons, is valid.
Srinivasa Computers Ltd. Vs ACIT (ITAT, Chennai) 107 ITD 357
Basis of re-opening – Source of information
Material already available on records

• When an income liable to tax has escaped assessment in the
original assessment proceedings due to oversight and
inadvertence or a mistake committed by the ITO, he has
jurisdiction to re-open the assessment – Reassessment is
permissible even if the information is obtained after proper
investigation from the materials on record or from any enquiry
or research into facts or law – Information need not be from
external source
CIT & Anr Vs Rinku Chakraborthy (Kar) 56 DTR 227
• Re-opening u/s 148 – 'Tangible material' need not be from

outside the return of income
ACIT Vs Kanga & Co. 2010-TIOL-464-ITAT-MUM
Reopening on the basis of Retrospective amendment

to law
• Retrospective amendment of I.T. Act making certain receipts

taxable as income which was not chargeable to tax earlier – Is
information for the purpose of reopening
CIT Vs Bai Navajbai N. Gamadia (Bom) 35 ITR 793
Information from a revised return filed
• Assessee filed revised return before completion of the original

assessment However it came to the notice of Assessing officer
only after completion of the original assessment – Reopening
on the basis of information contained in such revised return
upheld
Niranjan & Co. (P) Ltd. Vs CIT (SC) 159 ITR 153
Information from proceedings of other years

• Information obtained in assessment proceedings of a
subsequent year – Proceedings initiated u/s 147 valid.
Raymond Woollen Mills Limited Vs ITO & Anr. (SC) 236 ITR 34
Revathy C.P. Equipments Limited Vs DCIT & Ors. (Mad) 241 ITR 856
Claggett Brachi Co. Ltd. Vs CIT (SC) 177 ITR 409
• Notice issued u/s 148 based on assessment of subsequent

assessment year is valid even if appeal is pending from such
assessment
Anusandhan Investments Ltd. Vs M.R. Singh (Bom) 287 ITR 482
Information from Other proceedings

• Re-opening on the basis of findings in Wealth Tax assessment
Valid
Muljimal N. Raghavanshi Vs CIT (Bom) 225 ITR 586
• Declaration made in W.T. return does not amount to disclosure

for I.T. purpose – After completion of original I.T. assessment,
Assessing Officer got information from W.T. return filed by
assessee for the very same A.Y. – There is omission or failure
on the part of the assessee to make full and true disclosure
Reopening upheld
Baldevraj Sitaram Malhotra (HUF) Vs ITO (ITAT,SB-Pune) 58 ITD 35
• Gifts disclosed in W.T. returns but not in I.T. returns – There

was failure to make full and true disclosure by the assessee
Scrutiny made by WTO in W.T. proceedings was no avail to the
assessee in I.T. proceedings since the two proceedings are
separate
Arun Kumar Maheshwari & Ors. Vs ITO & Ors. (All) 284 ITR 642
• Re-opening on the basis of VDIS declaration which was

rendered invalid for non-payment of tax due, was upheld
Sat Narain Vs CIT (P&H) 320 ITR 448
Vasantibai N. Shah Vs CIT (Bom) 213 ITR 805
• Even though VDIS declaration showed jewellery acquired in

earlier years, re-opening can be made for the year of
declaration of VDIS in view of sec. 69 since in that year it was
found that assessee is in possession of such jewellery
CIT Vs Prem Pal (P&H) 330 ITR 499 ; 49 DTR 314 ; 237 CTR 369
• Re-opening WT assessment on the basis of findings in IT

assessment – Valid
J.K. Charitable Trust Vs WTO & Ors. (All) 222 ITR 523
P.K. Kurien Vs ACWT (Ker) 329 ITR 529
• Affidavit by assessee's daughter in a different proceeding

showing that assessee had made a gross understatement of
expenditure incurred in daughter's marriage – Re-opening u/s
147 valid.
Jagan Nath Singhal Vs DCIT & Anr. (P&H) 242 ITR 554
• Multinational company entering into service agreement with

Indian company – Order of Transfer pricing Officer – Notice
under sec. 148 issued on the basis of such order – Held valid.
Coca Cola India Inc. Vs ACIT (P&H) 309 ITR 194
Information from Other offices

• In ACIT Vs Dhariya Constrcution Company (328 ITR 515)
Supreme Court held that opinion of DVO per se is not an
information for the purpose of re-opening the assessment
u/s 147 – Assessing Officer has to apply his mind to the
information, if any, collected and must for a belief thereon
• Assessment on the basis of report of Registered Valuer

Subsequent report of District Valuation Officer estimating cost
of constructions at a higher figure – Constitutes “information”
for reopening u/s 147.
CIT Vs Medical Trust Hospital (Ker) 325 ITR 191
Amrut Talkies Vs ITO (Kar) 150 ITR 386
Shashi Jain Vs ITO & Anr. (All) 228 ITR 682
Karni Singh Ji of Bikaner Vs DCIT & Anr. (Del) 237 ITR 505
• Communication received by Assessing Officer in discharge of

official duties – Is information for issue of 147 notice.
ITO Vs Purushottam Das Bangur & Anr. (SC) 224 ITR 362
ITO Vs Selected Dalurband Coal Co. (P) Ltd. (SC) 217 ITR 597
Elphinstone Picture Palace Vs Union of India & Anr. (Pat) 74 ITR 115
H.A. Nanji & Co. Vs ITO (Cal) 120 ITR 593
Sohan Singh Vs CIT (Del) 158 ITR 174
Rattan Gupta Vs CIT (P&H) 234 ITR 220
• Letter of CIB wing constitute material for reopening

ITO Vs Gurinder Kaur (ITAT, Del) 102 ITD 189
• Information from Enforcement Directorate showing possible

inflation of purchases – Notice issued under sec. 148 valid
Sterlite Industries (India) Ltd. Vs ACIT (Mad) 302 ITR 275
• Information from Investigation Wing – Notice u/s 148 issued

on the basis of such letter
AGR Investments Ltd. Vs Addl.CIT & Anr (Del) 333 ITR 146
Shalimar Buildcon (P) Ltd. Vs ITO (ITAT, Jaipur) 136 TTJ 701
• Letter of CIT with a direction to issue notice for re-assessment

and take proceedings in accordance with law – Only a
reminder of statutory duty – Assessing Officer independently
applying mind to the facts, recording prima facie belief and
reasons therefore before issuing notice – Valid notice
CIT Vs Abdul Khader Ahamed (Ker) 285 ITR 57
Jagjit Pal Singh Anand Vs CIT (Del) 320 ITR 106
• Assessing Officer issued notice u/s 148 on receipt of a letter

from CBDT reflecting change of view based on the opinion of
Law Ministry – CBDT being a higher authority whose
direction was binding on the Assessing officer, their letter,
therefore, constituted information for reopening
New Bank of India Vs ITO (Del) 136 ITR 679
Information from Audit

• Re-opening of assessment on that basis of a factual error
pointed out by the Audit party is valid.
CIT Vs P.V.S. Beedies P. Ltd. (SC) 237 ITR 13
• Audit report brought to the attention of the Assessing Officer

the relevant provision of the law, but has not interpreted the
said provision – Audit report should be regarded as a
communication of law and not interpretation of law involved
Apex court decision in Indian & Eastern Newspaper Society
Vs CIT (119 ITR 996) distinguished - Issue of notice u/s 148
valid.
CIT Vs First Leasing Co. of India Ltd. (Mad) 241 ITR 248
Information from judgements / orders of Courts or

I.T. authorities
• Decision of Supreme Court would constitute information for
re-opening – Fact that decision of Supreme Court was
pronounced after issue of notice would not render notice
invalid.
Kartikeya International Vs CIT (All) 329 ITR 539
Chandi Ram Vs ITO & Anr. (Raj) 225 ITR 611
Beverley Estates Limited Vs CIT (Mad) 117 ITR 302
Maharaj Kumar Kamal Singh Vs CIT (SC) 35 ITR 1
R.K. Malhotra, ITO Vs Kasturbhai Lalbhai (SC) 109 ITR 537
Central Warehousing Corporation Vs ACIT (Del) 51 DTR 198
• Judgements that are relevant but not considered at time of

original assessment would constitute information u/s 147
Even if the judgement was rendered subsequent to the passing
of original assessment order, reopening can be made – It need
not be jurisdictional high court order
CIT Vs Novapan India Limited (AP) 236 ITR 746
• Assessing Officer not considering the jurisdictional High

Court decision though available at the time of original
assessment – Re-opening to consider the same – Valid.
A.L.A. Firm Vs CIT (SC) 189 ITR 285

ITO Vs Saradbhai M. Lakhani & Anr. (SC) 243 ITR 1
Madras Race Club Charitable Trust Vs CIT (Mad) 245 ITR 240
• ITO re-opening assessment in view of opinion of Tribunal in

other cases – Decision of Tribunal constituted information
Issue of notice u/s 148 valid.
CIT Vs Raghunath Poddar (Cal) 96 ITR 316
CIT Vs Makhan Singh (Raj) 154 ITR 121
• Orders of AAC / ITAT constitutes information for re-opening

u/s 147
Manaklal Porwal Vs CIT (Raj) 155 ITR 648
Kumar Engineers Vs CIT (P&H) 223 ITR 18
Scope of reassessment
• Can assess or reassess income, recompute loss or
depreciation allowance or any other allowance (sec. 147)
• Can assess any other income chargeable to tax which has

escaped assessment and which comes to the notice of the
Assessing Officer during the course of reassessment
proceedings even if such issues are not mentioned in the
reasons recorded u/s 148 (sec. 147)
• Earlier some high courts have expressed the view that

reassessment can be made only in respect of issues
mentioned in the reasons recorded for re-opening. To
clear the ambiguity, Expl. 3 was added to sec. 147 by
Finance (No.2) Act, 2009 w.r.e.f. 01-04-1989
• Matters which are subject matter of appeal, revision or

reference for the very same A.Y. cannot be considered in
reassessment proceedings (sec. 147)
Bar on assessee to make fresh claims
• Matters which attained finality in the original assessment

cannot be disputed by the assessee –Assessee cannot make a
fresh claim unrelated to the escaped income
CIT Vs Sun Engineering Works P. Limited (SC) 198 ITR 297
Chettinad Corporation P. Ltd. Vs CIT (SC) 200 ITR 320
• Pursuant to re-assessment proceedings, additions made in

original assessment does not get effaced - Only the previous
under-assessment is set aside and not the original assessment
proceedings
N.M. Vishwanathan Vs CIT (Kar) 286 ITR 487
Re-assessed income cannot go below the returned

income
• After filing return under sec. 148, no revised return under sec.
139(5) can be filed eventhough time was available for filing
revised return u/s 139(5).
ACIT Vs Cavinkare P.Ltd. (ITAT, Chennai) 307 ITR(AT) 356 ; 120 ITD 126
Bring to tax any income which escaped assessment

Note : Since there were conflicting judgements on this issue, Expl.
3 was added to sec. 147 by Finance (No.2) Act, 2009 w.r.e.f.
01-04-1989
• ITO can bring to tax any income which escaped assessment and
not only items which led to issuance of notice u/s 148. Matters
attaining finality in original assessment – Assessee cannot
dispute.
ITO Vs Mewalal Dwarka Prasad (SC) 176 ITR 529
CIT Vs B. Nagi Reddy (Mad) 144 ITR 62
CIT Vs Ram Kishan Leela (Raj) 295 ITR 525
ITO Vs International Rubber & Plastics (ITAT, Chennai) 127 ITD 347 ; 136 TTJ
482
CIT Vs Best Wood Industries & Saw Mills (Ker-FB) 331 ITR 63
Balbir Chand Maini Vs CIT (P&H) 340 ITR 161
• Eventhough loans were accepted in original assessment, after

re-opening onus is again on assessee to prove the same.
K.M. Sadhukhan & Sons (P)Ltd. Vs CIT (Cal) 239 ITR 77
• On ultimate analysis, no addition was made in respect of issues

on which notice u/s 148 was issued – Still re-opening u/s 147
upheld.
Poonam Rani Singh Vs DCIT (ITAT, Del) 97 ITD 390
DCIT Vs Alok Banerjee (ITAT, All) 111 ITD 339
Procedure for reassessment

• Record reasons for reopening (sec. 148)
• Serve notice on the assessee requiring to furnish return

within the period specified (sec. 148)
• Original assessment made u/s 143(3) or 147 and reopening

within 4 years – ITO can issue notice only with the approval
of JCIT (sec. 151)
• Original assessment made u/s 143(3) or 147 and reopening

after 4 years – approval of CIT/CCIT required (sec. 151)
• Original assessment not made u/s 143(3) or 147 and

reopening after 4 years – approval of JCIT required if
reopening done by an officer below his rank (sec. 151)
• Approving authority need not issue the notice himself (sec.

151)
• If return in response to notice u/s 148 was furnished during

01-10-1991 to 30-09-2005 and notice u/s 143(2) or 143(2)(ii)
was served after expiry of 12 months from the end of the
month in which the return was filed but before completion
of assessment or reassessment, such notice will be deemed
to be valid notice (sec. 148)
Recording of reasons
• Initialing a Satisfaction note is sufficient to assume jurisdiction
u/s 147 – Assessing Officer need not record the reasons fully
with own-handwriting
MKR Frozen Food Exports Ltd. Vs ITO (ITAT, Del) 126 ITD 1
Where to record reasons ?
• Reasons for reopening recorded in the report sent by Assessing

Officer to CIT to obtain sanction is the most relevant record.
Equitable Investment Co. (P) Ltd. Vs ITO & Ors. (Cal) 174 ITR 714
Stock Exchange, Ahmedabad Vs ACIT (Guj) 227 ITR 906
• Though the notice does not disclose the satisfaction of the

requirement of sec. 147, but from the record and the averments
in the counter-affidavit it is clear that the Assessing Officer had
applied his mind to the facts and prima facie satisfying himself
of the existence of those two conditions precedent, reached the
conclusion to re-open the assessment. It is settled that in an
administrative action, though the order does not ex facie
disclose the satisfaction by the officer of the necessary facts,
but if the record discloses the same, the notice or the order does
not per se become illegal
ITO Vs Biju Patnaik (SC) 188 ITR 247
Whether recorded reasons to be supplied to

assessee ?
• In GKN Driveshafts (India) Ltd. Vs ITO & Ors. (259 ITR

19) Supreme Court clarified that when a notice u/s 148 is
issued, the proper course of action for the notice is to file
return and if he so desires, to seek reasons for issuing
notice. The AO is bound to furnish reasons within a
reasonable time. On receipt of reasons, the notice is entitled
to file objections to issuance of notice and the AO is bound
to dispose of the same by passing a speaking order.
• Law does not mandate Assessing Officer to suo moto supply

copy of 'reasons to believe' to assessee – During the course of
assessment proceedings, assessee did not ask for the same and
participated in the assessment proceedings – Hence Tribunal
cannot remit the matter back to the Assessing Officer to give
another opportunity to the assessee to raise objections to
'reasons to believe' recorded by Assessing Officer
CIT Vs Safetag International India Pvt. Ltd. 2011-TIOL-345-HC-DEL-IT
• Where assessee was aware of reasons for re-opening, non-

communication of reasons not fatal – Where assessee had
complied with notice u/s 148, reassessment proceedings
cannot be struck down on the basis of assessee's claim that she
did not receive the notice u/s 148
CIT Vs C. Palaniappan (Mad) 55 DTR 81
• The proceedings in re-assessment begins only with the issue of

notice u/s 148. It is only after the service of notice assessee
becomes a party to the proceedings. Consequently assessee is
not entitled to get copy of the same at the stage of issuance of
notice
Vishnu Borewell Vs ITO & Anr (Ori) 257 ITR 512
Change of incumbent after recording reasons but

before issue of notice
• A.O. recorded reasons for re-opening – Change of incumbent –
Successor A.O. recorded agreement with his predecessor and
issued notice u/s 148 – Valid
Ashima Ispat Pvt. Ltd. Vs DCIT 2010-TIOL-70-HC-AHM-IT
Approval to issue notice u/s 148
• Before according sanction by CIT / DCIT for re-opening, no

need to give opportunity of hearing to assessee.
S. Narayanappa & Others Vs CIT (SC) 63 ITR 219
• Where notice issued by ACIT in a case where there was no

assessment earlier u/s 143(3), no need to obtain sanction of
JCIT before issue of notice u/s 148
• Where the ITO has given elaborate reasons for reopening in his
report to the CIT, mere 'yes' endorsement by the CIT would
amount to his satisfaction
P. Munirathnam Chetty and P. Satyanarayana Chetty Vs ITO (AP) 101 ITR 385
Issue of notice u/s 143(2) in re-assessment

proceedings
• I.T. Act does not specifically provide that assessment made u/s
147 should be after issue of notice u/s 143(2) – Assessing
Officer has the basic jurisdiction to assess the income u/s 147
& 148
CIT Vs Madhya Bharat Energy Corpn. Ltd. (Del) 337 ITR 389
• Time limit for issue of 143(2) does not apply to return filed in
response to 148
Chandra Bhan Bansal Vs DCIT (ITAT, Agra) 79 ITD 639
• Effect of retrospective amendment to sec. 148 by Finance Act,

2006 Return filed pursuant to notice under section 148 on
16.07.1998 – Notice under section 143(2) on 16.10.1999 – Not
barred by limitation
CIT Vs C. Malathy (Mad) 294 ITR 532

to consider objection to notice u/s 148 and failure to issue
notice under section 143(2) Reassessment order not void but
Time limit for issue of notice u/s 148

• Income chargeable to tax which has escaped assessment
likely to amount to Rs. 1 lakh or more – 6 years from the
end of the relevant A.Y. (sec. 149)
• Other cases – 4 years from the end of the relevant A.Y. (sec.
149)
• Notice to a person treated as agent of non-resident u/s 163

to assess the non-resident - 2 years from the end of the
relevant A.Y. (sec. 149)
Necessary ingredients of notice u/s 148
• No standard form is prescribed for a notice u/s 148 – Notice u/s

148 served on an AOP and addressed to 8 persons who also
well understood that it was meant for them, is a valid notice.
Sardar Harvinder Singh Sehgal & Ors. Vs ACIT & Ors. (Gau) 227 ITR 512
• Sec. 151 only says “JCIT to be satisfied” on reasons recorded

by A.O. – In such circumstances JCIT need not issue the notice
u/s 148 – For the purpose of sanction to issue notice u/s 148,
JCIT includes Addl. CIT - Sec. 151 applies to cases covered by
sec. 150 also
Maya Rastogi Vs CIT (Del) 331 ITR 116
Service of notice
• Simultaneous notice u/s 147 to AOP & member permissible

Notice served on AOP through member is valid.
R.Dalmia Vs Union of India & Ors. (Del) 84 ITR 616
• Notice u/s 148 served on a person who normally received the

notices on behalf of assessee though not specifically
authorized – Validly served.
A.K.M . Govindaswamy Chettiar & Ors. Vs ITO (Mad) 244 ITR 559
• Notice issued but not served on the assessee due to address

change – Copy of notice given to assessee before passing of the
assessment order – No objection raised by the assessee
regarding service of notice during the re-assessment
proceedings – Assessment cannot be treated as bad in law
CIT Vs Three Dee Exim Pvt. Ltd. (Del) 55 DTR 147
Limitation for service of notice

• 148 notice issued within limitation period – Served subsequent
to expiry date of limitation – Assessment valid.
New Bank of India Limited Vs ITO (Del) 136 ITR 679
R.K. Upadhyaya Vs. Shanabhai P. Patel (SC) 166 ITR 163
ITO Vs Lal Chand Agarwal (ITAT, Agra-TM) 134 ITD 91
Reopening in pursuance of an order on appeal etc. –

Extended time limit
• In consequence or to give effect to any finding or direction
contained in an order passed by any authority in any
proceeding by way of appeal, reference or revision under
I.T. Act or by a Court in any proceeding under any other
law – no time limit for issue of notice (sec. 150)
• I.T. authorities can give such finding or direction for any

A.Y. only if time was available for re-opening assessment
for such A.Y. at the time when the impugned order which is
the subject matter of appeal, reference or revision was
passed (sec. 150)
• Extended period for re-opening available when the re-

assessment made in consequence of and to give effect to
finding or direction contained in appellate order
CIT (Deputy) Vs Spences Hotel P. Ltd. (Kar) 289 ITR 145
ACIT Vs Rajendra Kumar 2008-TIOL-278-ITAT-DEL
• Addition made in Block assessment and similar addition was

not made in regular assessment – ITAT deleted addition in
block assessment but held that Assessing Officer is free to take
recourse in regular assessment – Re-opened regular
assessment – No time limit will apply
Hanemp Properties (P.) Ltd. Vs ACIT ( ITAT, Del ) 101 ITD 19
• Addition made in block assessment of director of assessee

company deleted in appeal with observation that sums to be
considered in the hands of assessee company – Notice of re-
assessment to the company is to give effect to the appellate
order - Validly issued
Maurya Realtors Pvt. Ltd. Vs Union of India (Patna) 315 ITR 393
Healthy Holdings (P) Ltd. Vs ACIT (ITAT, Asr) 112 ITD 51
• Finding by Tribunal that income was earned by co-owners and

could not be assessed as AOP – ITO initiating proceedings u/s
147 based on that observation – Sec. 150 applicable – No bar of
limitation.
CIT Vs Amy Colabawala ( Ker ) 243 ITR 19
• Reassessment to give effect to finding or direction in an order

of Court in Land Acquisition proceedings – Bar of limitation
will not apply.
K.M. Sharma Vs ITO & Ors. (Del) 221 ITR 202
Maya Rastogi Vs CIT (Del) 196 Taxman 283 ; 331 ITR 116
• For the purpose of resorting to the exception provided u/s

153(3)(ii), it is not necessary that there should be any specific
finding or direction contained in the said order with regard to
the assessment of income for another A.Y. in the light of the
deeming provision in Expl. 2 below sec. 153 The very fact that
income has been excluded from the total income of the
assessee for an A.Y. by virtue of an order referred to in sec.
153(3)(ii) would be sufficient for the purpose of making an
assessment of such income in another year and for the purpose
of sec. 150 & 153, the same would be deemed to have been
made in consequence of or to give effect to any finding or
direction contained in such order
Kalyan Ala Barot Vs M.H. Rathod (Guj) 58 DTR 182
Time limit for completion of re-assessment
• Notice u/s 148 served on or after 01-04-2005 – 9 months

(prior to that 1 year) (sec. 153)
• Notice u/s 148 served on or after 01-04-2006 and reference

made to TPO bur report not received from TPO before 01-
06-2007 – 21 months (sec. 153)
• Time limit for completion of assessment under sec. 148 to be

reckoned from the date of service of notice as provided in sec.
153(2) and not from the date of issue of notice.
Prakash Electric Company Vs ITO (ITAT, Bang) 118 TTJ 539
Some instances where re-opening was upheld (within

4 years)
• Charitable Trust – Assessment granting exemption
Subsequent information about violation of sec. 11
Reassessment valid.
Chandrika Educational Trust Vs CIT (Ker) 224 ITR 453
• On survey, it was found that wastage claimed was excessive

Re-opening on that ground is valid.
Chennai Murasu (P) Ltd. Vs CIT (Mad) 239 ITR 269
• Partners introduced capital and there were credits during the

period – Matter required to the examined – Issue of notice u/s
148 valid.
Kohinoor Enterprises Vs ITO & Ors. (MP) 226 ITR 88
• Mother fails to include income of minor in her return – Re-

opening valid
CIT Vs A.S. Rukmani Ammal (Mad) 260 ITR 391
• Depreciation allowed in original assessment – Subsequent

discovery that purchase of machinery might not be genuine
Re-opening valid
Raunaq Finance Ltd Vs JCIT (Raj) 272 ITR 210
Usha Beltron Ltd. Vs JCIT & Ors. (Pat) 162 CTR 232
Gruh Finance Limited Vs JCIT (Guj) 243 ITR 482
• Finding that investments had been made by assessee and it had

highly inflated its income from agriculture – Issue of notice u/s
148 valid.
• In the original assessment order, deduction under section 80

HHC was worked out without considering Expl. (baa)
Reopening to consider the Expl. (baa) held valid since there
was no change of opinion
JCIT Vs S.C. Chemicals (ITAT, Ahd) 99 ITD 41
• Deduction u/s 80 P claimed on gross income instead of on net

income – Reopening valid as income escaped assessment
ACIT Vs Tamil Nadu Silk Producers Federation Ltd. (ITAT, Chennai) 105
ITD 623
• Incorrect determination of investment allowance to be carried

forward to subsequent assessment years – Escapement of
income – Re-opening valid even if income was computed u/s
115 J
JCIT Vs D.C. Polyster (P) Ltd. (ITAT, Mum) 102 ITD 394
• Amalgamation of companies – Benefit of carry forward and set

off of unabsorbed depreciation wrongly allowed – No
discussion about the issue in the original assessment order -
Notice u/s 148 within 4 years – Valid
ACIT Vs Apollo Hospital Enterprises Ltd. (Mad) 300 ITR 167
• Provisions of cl. (iii) of Expl. To Sec. 115JA not correctly

applied by Assessing Officer in the original assessment Notice
issued u/s 148 within 4 years – Upheld
Lakshmi Machine Works Ltd. Vs ACIT (ITAT, Chennai) 126 ITD 343 ; 1 ITR
(Trib) 92
Some instances where re-opening was upheld (after 4

years)
• There is no requirement in law that in the reasons, failure of the
assessee should be expressly stated in view of the proviso to
sec. 147 – If on a reading of the reasons, it is possible to infer or
draw a logical inference that there is failure on the part of the
assessee to disclose fully and truly all material facts, the
requirement of the provision stands satisfied
I.P. Patel & Co. Vs DCIT (Guj) 54 DTR 291
• Assessee cannot take shelter under plea that return did not
require a particular fact to be set out, and therefore, failure to
disclose facts would provide immunity to assessee from any
notice u/s.148.
Indo-Aden Salt Mfg. & trading Co. (P) Ltd. Vs CIT (SC) 159 ITR 624
R.K. Malhotra, ITO Vs Kasturbhai Lalbhai (SC) 109 ITR 537
Revathy C.P. Equipment Ltd Vs DCIT & Ors. (Mad) 241 ITR 856
Precot Mills Ltd. Vs CIT & Anr. (Mad) 273 ITR 347 distinguished Fenner
India decision of Madras High Court
• Re-opening after 4 years – Omission or failure on the part of the

assessee – Subsequent to scrutiny assessment, Contradiction
discovered between tax audit report and return of income
regarding date of acquisition of goodwill – Reopening upheld.
Piaggio Vehicles P. Ltd. Vs DCIT (Bom) 290 ITR 377
• Failure to comply with Rule 1D for valuation of shares

Re assessment valid.
N.J. Mathew Vs CIT (Ker) 231 ITR 37
• Failure to disclose cessation of purchase tax liabilities

Re-opening valid.
Mohammed K.S. Vs CIT (Ker) 228 ITR 591
• Disproportionate increase in net wealth during the year

compared to the income disclosed - Issue of notice u/s 148
valid.
Sukhlal Bhanwarlal (HUF) Vs CIT (MP) 226 ITR 513
• Assessee incorrectly shown unsecured advances though they

had been adjusted against bills – Omission or failure on the part

of the assessee to disclose material facts - Issue of notice u/s
148 valid.
P.K. Haldar & Co. Vs CIT & Ors. (Pat) 237 ITR 317
• Failure to disclose material facts necessary for assessment

Failure to disclose the fact that there was a discrepancy
between the value of stock disclosed to the Bank and the value
shown in the accounts – No satisfactory explanation regarding
discrepancy – Issue of notice u/s 148 valid .
Dhansiram Agarwalla Vs CIT (Gau) 201 ITR 192
• Mere production of account books or other evidence before

ITO is not sufficient – Notice of reassessment on grounds that
there had been undervaluation of closing stock and excessive
allowance of development rebate – Notice valid.
Vardhman Spinning and General Mills Ltd. Vs IAC & Ors. (P&H) 229 ITR 277
• Sales tax liability shown in balance sheet was found to be

wrong – Amounts to omission or failure on the part of the
assessee – reopening after 4 years upheld
Markanda Vanaspathi Mills Ltd. Vs DCIT ( ITAT, Del ) 62 ITD 263
• Assessee did not furnish unit-wise financial results for

computation of deduction eligible u/s 80J – Amounts to
omission or failure on the part of the assessee – Reopening
after 4 years upheld
Bhushan Industrial Co. (P) Ltd. Vs ACIT ( ITAT, Chd ) 68 ITD 195
• Mercantile system – Liability claimed and allowed in original

assessment Failure to disclose that liability pertains to earlier
year – Re-opening after four years upheld
CIT Vs Kerala State Cashew Development Corporation Ltd. (Ker) 286 ITR 553
• Re-opening after 4 years – Omission or failure on the part of the

assessee Subsequent to scrutiny assessment, it was found that
part of the expenses relate to the house used by Dy. Chairman
of the company for personal use Sec. 40A(5) was not applied
earlier – Omission / failure by assessee – Re-opening valid
South India Corporation Agencies P. Ltd. Vs CIT (Mad) 147 CTR 476
• Specification of size of land which is a condition for claiming

deduction under section 80 IB, not mentioned in the return, but

the information was available in the annexure to return – Not
sufficient – Amounts to failure to disclose material facts
necessary for assessment – Re-opening after 4 years upheld
Girilal & Co. Vs S.L. Meena, ITO (Bom) 300 ITR 432
• Assessee not maintaining books of account and did not file

Balance sheet along with the return – Re-opening after 4 years
upheld since there was omission on the part of the assessee to
disclose fully and truly material facts necessary for the
assessment
CIT Vs Mangalam Publications (Ker) 323 ITR 6
• Re-opening after 4 years - Assessing Officer found that

assessee who obtained foreign currency loan for working
capital requirement utilized the same for repayment of existing
loans – Assessee contended that Govt. had amended purpose of
loan and hence re-opening is not valid – Since change in terms
of loan was not disclosed to Assessing Officer, it could not be
said that all material facts necessary for assessment were fully
and truly disclosed – Re-opening upheld
ACIT Vs SPL Polymers Ltd. (ITAT, Chennai) 126 ITD 152
• Deemed dividend – No information before Assesing Officer

regarding shareholding pattern of company or its accumulated
profits – Notice u/s 148 issued after expiry of four years from
the end of the A.Y. upheld
Aswani Enterprises Vs ACIT (ITAT, Chennai) 120 ITD 38 ; 314 ITR (AT) 29
• Assessee claimed deduction u/s 80I which was computed

without setting off of brought forward losses of the same unit
as per sec. 80I(6) – Return did not contain details of loss
suffered by the eligible unit in earlier years - Reopening after 4
years upheld
CIT Vs Indian Farmers Fertilizers Co-op. Ltd. (Del) 50 DTR 33
• Discrepancy in the figure of contract receipts as per TDS

certificate and P& L a/c filed along with the return – No
discussion on the issue in the original assessment proceedings
No reconciliation statement filed – Re-opening after expiry of
4 years upheld
WCI (Madras) (P) Ltd. Vs ACIT (Mad) 324 ITR 181
• Since assessee was taxable in India in respect of its P.E., it was

under an obligation to share all the facts relevant to its P.E.,
whether in respect of its business profits or under any other
head of income – If the assessee does not mention about the
sale of P.E. assets, this is clearly a failure on the part of the
assessee in “disclosing fully and truly all material facts
necessary for his assessment for that particular year” – At the
stage of initiating re-assessment proceedings, what is to be
seen is existence of reasons which have live link to an income
escaping assessment, but not the established fact of
escapement of income – Re-opening after 4 years upheld
Cartier Shipping Co. Ltd. Vs DDIT (Int.Tax) (ITAT, Mum) 40 DTR 459 ; 131
TTJ 129
• Overstated deductions u/s 36(1)(viii) and 36(1)(viia)© not

considered at the time of original assessment – Assessee
unable to point out any piece of evidence or material to
establish that all relevant materials were fully and truly
disclosed in the course of original assessment proceedings –
Reopening upheld
Rural Electrification Corpn. Ltd. Vs Addl. CIT (ITAT, Del) 34 SOT 159
• Term 'failure' on the part of the assessee is not restricted only to

the return or tax audit report but also covers the stage of
assessment proceedings – Omission to disclose material facts
during the course of assessment proceedings confers
jurisdiction on the Assessing Officer to re-open the assessment
- Assessee failed to point out the expenses relatable to tax-
free/exempt income which are claimed as deduction in the
assessment proceedings – There was omission and failure on
the part of the assessee to disclose fully and truly all material
facts – Re-opening after 4 years upheld
Honda Siel Power Products Ltd. Vs DCIT & Anr. (Del) 340 ITR 53 upheld in 340
ITR 64 (SC)
• Re-opening after 4 years held valid in view of subsequent

decision of supreme Court on an issue which was accepted at
the time of original assessment
Simplex Concrete Piles (India)(P) ltd. Vs DCIT & Ors. (Cal) 255 ITR 49
• Substantial difference between seized ledgers and balance

sheet filed along with the return as regards liability towards

sundry creditors – Reopening after 4 years upheld
Aurobindo Sanitary Stores Vs CIT (Ori) 276 ITR 549
• During the course of original assessment proceedings, assessee

was asked to furnish confirmation letter in respect of sundry
creditors – Out of sundry creditors amounting to Rs.
1,66,37,402 assessee filed confirmation in respect of Rs.
1,13,53,344 and Assessing Officer made addition of Rs.
19,86,551 – Notice u/s 148 issued since the balance amount of
Rs. 32,97,057 escaped assessment – Since there was no
discussion in the original assessment order as to why addition
of Rs. 32,97,057 was not made in spite of failure of assessee to
furnish confirmation, it is not a case of change of opinion –
Since assessee was asked to furnish confirmation letter from
creditors and the same was not produced, there could not be
full and true disclosure – Reopening after expiry of four years
upheld
Dalmia (P.) Ltd. Vs CIT (Del) 20
• Finding in a subsequent A.Y. that assessee was doing Hire

Purchase financing which was camouflaged as Hire purchase
transaction – Interest tax assessment re-opened after expiry of
4 years from the end of the A.Y. – Upheld since omission or
failure on the part of the assessee to disclose facts fully and
truly
CIT Vs Standard Chartered Finance Ltd. (Kar) 68 DTR 249
• Assessee claimed exemption u/s 54EC – Dates on which

amounts were invested in specified assets were neither
disclosed in the return of income or during the course of
assessment proceedings – Does not amount to full and true
disclosure of all material facts – Re-opening after expiry of 4
years from the end of the A.Y. upheld eventhough assessee
filed copies of the Bond certificates which bear the date of
allotment - Full and true disclosure cannot be garbled or
hidden in the crevices of the documentary material which was
filed with the Assessing Officer – Assessee must act with
candor and the disclosure must be full and true
Indian Hume Pipe Co. Ltd. Vs ACIT & Ors. (Bom) 65 DTR 26
RECTIFICATION OF ORDERS
• Assessing Officer [sec. 154(1)], authority passing order in
appeal or revision [sec. 154(1A)] and ITAT [254(2)] has
power to pass rectification orders
• Only mistake apparent from record can be rectified

(sec. 154 & 254(2))
• Can be made suo moto or on application by the parties

concerned (sec. 154)
• Give opportunity to assessee is amendment results in

enhancing an assessment or reducing refund or increasing
liability of assessee (sec. 154)
• Time limit – 4 years from the end of the F.Y. in which the
order sought to be amended was passed (sec. 154)
• For rectification by ITAT, time limit is four years from
the date of the order (sec. 254(2))
• Assessing Office to pass order within 6 months from the

end of the month in which the application is received. (sec.
154)
• On assessment or appeal of a firm if it is found that any

remuneration to partner is not deductible u/s 40(b),
partner's assessment can be modified - Limitation of four
year period will start from the F.Y. in which the final order
was passed in the case of the firm (sec. 155)
• On reassessment if there is difference in carry forward of

loss or depreciation, assessment of the subsequent year in
which such loss or depreciation was set off can be modified
which the reassessment order was passed (sec. 155)
• If the capital gains arising from transfer of a capital asset is

not charged u/s 45 by virtue of sec. 47 (iv) or (v) and lateron
such capital asset is converted to / treated as stock-in-trade
by the transferee company or the holding company ceasing

to hold whole of the share capital of the subsidiary
company at any time before expiry of eight years from the
date of such transfer, Assessing Officer to recompute total
income of the transferor company for the relevant previous
year - Limitation of four year period will start from the F.Y.
in which such asset was converted or treated as stock-in-
trade or the holding company ceased to hold whole of the
share capital (sec. 155)
• Capital gains arising on compulsory acquisition – if
assessee acquires new asset or makes investment / deposit
within the extended period available in sec. 54H – amend
order modifying the capital gains - Limitation of four year
period will start from the F.Y. in which compensation was
received by the assessee (sec. 155)
• Deduction u/s 10A, 10B, 10BA, 80HHB, 80HHC, 80HHD,

80HHE, 80O, 80R, 80RR or 80RRA denied since
convertible foreign exchange not received in India or
brought to India – subsequently brought to India –
Recompute deduction - Limitation of four year period will
start from the F.Y. in which such foreign exchange was
brought to India (sec. 155)
• Credit for TDS/TCS not given since such certificate was not
produced – If such certificate is produced before the
Assessing Officer within two years from the end of the A.Y.
in which such income is assessable, order can be modified if
the income from which such TDS/TCS was made, is
disclosed in the return for the relevant A.Y. (sec. 155)
• Capital Gains assessed u/s 50C on the basis of value fixed by

registration authorities and subsequently such value got
modified in appeal/revision, amend the assessment order
accordingly - Limitation of four year period will start from
the F.Y. in which such order revising the value was passed
(sec. 155)
• Transfer by way of compulsory acquisition or transfer in

which consideration determined or approved by Central
Govt. or RBI – subsequently if such compensation is

reduced, amend the assessment order accordingly -
Limitation of four year period will start from the F.Y. in
which such order revising the value was passed (sec. 155)
• Deduction granted u/s 80RRB in respect of any patent and

lateron the patent was revoked or assessee was removed
from list of patentee – withdraw deduction already granted
which such order was passed by Controller of high Court
under Patents Act. (sec. 155)
• ITO can dispose off petition for cancellation of protective

assessments which have become redundant by waiving the
time limit prescribed u/s 154(7) [ Circular No. 71 dated 20-
12-1971 ]
• Wherever valid application u/s 154 filed by assessee within

the statutory time limit, authority can dispose off such
applications on merits and in accordance with law, even
after the expiry of the time limit [ Circular No. 73 dated 07-
01-1972 ]
• In Mepco Industries Ltd. Vs CIT (319 ITR 208) Supreme

Court held that wherever facts are to be examined, order
u/s 154 is not possible
Mistake apparent from record

• Mistake must be obvious and patent – Not something which
can be established by a long drawn process of reasoning on
points on which there may be two opinions – A decision on a
debatable point of law is not a mistake apparent from the
record
T.S. Balaram, ITO Vs Volkart Brothers & Others (SC) 82 ITR 50
• Overlooking mandatory provision of law is a mistake which

can be rectified.
Addl. CIT Vs India Tin Industries (P) Ltd. (Kar) 166 ITR 454
ITO Vs Asok Textiles Limited (SC) 41 ITR 732
CIT Vs Peirce Leslie & Co. Limited (Mad) 227 ITR 759
• Retrospective amendment – Assessing Officer as well as

appellate authorities are entitled to rectify earlier assessment
within period of limitation.
M.K. Venkatachalam, ITO & Anr. Vs Bombay Dyeing & Mfg. Co. Ltd. (SC) 34
ITR 143
IAC of Agricultural Income Tax & Anr. V.M. Ravi Namboodiripad (SC) 96 ITR 73
J.M. Bhatia, Appellate Assistant Commissioner of Wealth tax & Ors. Vs J.M. Shah
(SC) 156 ITR 474
GTC Industries Ltd. Vs DCIT (ITAT, Mum-TM) 104 ITD 86
• Non-consideration of an existing decision of Supreme Court /

Jurisdictional High Court (even if not cited during the course
of hearing), is a mistake apparent from record – Rectification
can be made.
ACIT Vs Saurashtra Kutch Stock Exchange Ltd. (SC) 305 ITR 227
• An order of assessment based upon an interpretation or

application of law which is ultimately found to be wrong in the
light of judicial pronouncements rendered subsequently,
discloses a mistake apparent form the record. When the Court
decides a matter, it does not make the law in any sense, but, all
it does is that it interprets the law and states what the law has
always been and must be understood to have been. When an
order is made by an authority on the basis of a particular
decision, the reversal of such decision in further proceedings
will justify a rectification of the order based on that decision A
subsequent binding decision of the Supreme Court or of the
High court has retrospective operation and overruling is

always retrospective – The decision which is overruled was
never the law - To apply a subsequent decision of Supreme
Court / Jurisdictional High Court, rectification can be made
Kil Kotagiri Tea and Coffee Estates Co. Ltd. Vs ITAT (Ker) 174 ITR 579
Mysore Cements limited Vs Dy. Com. of Commercial Taxes (Kar) 116 CTR 284
CIT Vs Alankar Borewells (Mad) 177 CTR 560
Parshuram Pottery Works Co. Ltd. Vs D.R. Trivedi, WTO (Guj) 100 ITR 651
Walchand Nagar Industries Vs V.S. Gaitonde, ITO (Bom) 44 ITR 260
CIT Vs Arun Luthra (P&H) 252 ITR 76
Bhauram Jawahirmal Vs CIT (All) 121 ITR 487
• View taken by A.O. in the order u/s 154 was later declared as
law by the Supreme Court – In view of the pronouncement of
law by the Apex Court, it is not a debatable issue – Order u/s
154 upheld
CIT Vs Plant Lipids Ltd. 2010-TIOL-663-HC-KERALA-IT
• Wrong quoting of Section can be rectified u/s 154.

VR. C. RM. Adaikkappa Chettiar Vs CIT (Mad) 78 ITR 285
Time limit for passing rectification order
• Four years from the date of order sought to be amended – Order

does not mean original assessment order – Application within
four years of order rectifying the assessment order – Valid
Hind Wire Industries Limited Vs CIT (SC) 212 ITR 639
Waldies Limited Vs CIT (SC) 223 ITR 163
• Mistake in original order passed on 24-11-98 – Appellate order

passed by CIT(A) on 28-06-2004 – Order of rectification
passed on 26-04-2006 – Not barred by limitation – Original
order merges in appellate order
CIT Vs Tony Electronics Ltd. (Del) 320 ITR 378
• Limitation for rectification will start from the date of order in

which the mistake occurred
ACIT Vs Precott Mills Ltd. (ITAT, Chennai) 16 DTR 118
Rectification powers of ITAT

• Application for rectification within time – ITAT not passing
order within 4 years – Application cannot be rejected on the
ground of limitation.
Sree Ayyanar Spinning & Weaving Mills Ltd. Vs CIT (SC) 301 ITR 434
• Application for rectification to be made within 4 years from the

date order sought to be rectified – Limitation Act not
applicable for filing the application – Delay in filing
rectification application under sec. 254(2) cannot be
condoned.
Rahul Jee & Co. P. Ltd. Vs ACIT (ITAT, Del) 310 ITR (AT) 255 ; 120 ITD 481
• Order passed u/s 254(2) cannot be further rectified by another

order u/s 254(2) - When once a Miscellaneous Petition has
been rejected, another Miscellaneous Petition against the same
order containing same matter cannot be entertained.
CIT & Anr. Vs ITAT & Anr. (Ori) 196 ITR 640
S. Panneerselvam Vs ACIT (Mad) 319 ITR 135

Padam Prakash (HUF) Vs ITO (ITAT,SB-Del) 136 TTJ 257 ; 8 ITR (Trib) 135
• Application to recall order rejected by Tribunal – Subsequent

recalling of order is not valid since it amounts to review of
earlier order
CIT Vs Kamal Bhai Ismailji (All) 288 ITR 297
• Even after High Court decided the appeal u/s 260A(1) as not
maintainable, rectification by ITAT u/s 254(2) is possible on
issues not considered by High Court
DCIT Vs Electropack (ITAT, Ahd-TM) 94 ITD 227
• Once High Court has dismissed the appeal, ITAT cannot further
rectify the order u/s 254(2) since its order got merged with that
of High Court
Bhawan Vs Path Nirman (Bohra) & Co. Vs ACIT (ITAT, Jodh-TM) 101 ITD 101
• Once High Court passes order under sec. 260A, order of

Tribunal merges with that of High Court – Further rectification
of Tribunal order not possible
• Application for rectification under section 254(2) signed by

Department Representative and not Assessing Officer – Not
relevant – Duty of Tribunal to rectify mistake
CIT Vs ITAT (Ker) 289 ITR 191
DCIT Vs Maruti Textiles (P) Ltd. (ITAT, Ahd) 66 TTJ 575
P. Kuttikrishna Nair Vs. ITAT & Anr. (Mad) 34 ITR 540
• Conflicting decision by Benches of Tribunal but decision of a

High Court on subject – Question was not debatable.
CWT Vs Labh Kavar Bai (Mad) 236 ITR 872
Manarkattu Bros (P) Ltd. Vs CIT (Ker) 227 ITR 586
• A point on which more than one High Court holds a unanimous

view – Not debatable issue
CIT Vs Peirce Leslie & Co. Ltd. (Mad) 227 ITR 759
• Decision of High Court of different jurisdiction not binding on

Tribunal – No rectification possible.
CIT Vs Vardhman Spinning (P&H) 226 ITR 296
Visvas Promoters (P) Ltd. Vs ITAT (Mad) 323 ITR 114
• Tribunal has inherent power to rectify mistakes in its order

Incorrect recording of facts can be rectified.
CIT Vs Mool Chand Shyam Lal (All) 273 ITR 160
• Order of Tribunal founded on mistaken assumption of facts

Rectification of mistake possible.
Champa Lal Chopra Vs State of Rajasthan (Raj) 257 ITR 74
CIT Vs Electronic Research Ltd. & Anr. (Kar) 262 ITR 361
CIT Vs U.P. Shoe Industries (All) 235 ITR 663
• No party appearing before Tribunal should suffer on account of

mistake committed by Tribunal – Failure to consider decision
of co-ordinate bench cited by assessee – Is a mistake which can
be rectified u/s 254(2).
Honda Siel Power Products Ltd. Vs CIT (SC) 295 ITR 466
• When prejudice is caused to a party by mistake of the Tribunal,

the order can be recalled u/s 254(2)
Lachman Dass Bhatia Hingwala (P) Ltd. Vs ACIT (Del-FB) 330 ITR 243
• Rectification u/s 154 can be done if there is a mistake apparent

from records – Whose mistake is immaterial
Container Corporation of India Ltd. Vs DCIT (ITAT, Del) 92 ITD 333
• Tribunal has to consider with due care all material facts and
evidence in favour of and against the assessee and record its
finding on all the contentions raised. It is the duty of the
Tribunal to reopen / recall an appeal, if it finds that it has
omitted to deal with an important ground or an important
argument urged by the parties.
Modu Timblo Vs ITO (ITAT, Pune-TM) 53 ITD 53
Mohan Meakin Limited Vs ITO (ITAT, Del-TM) 89 ITD 179
Hansa Agencies (P) Ltd. Vs IAC (ITAT, Asr) 71 ITD 359
• Assessee filed Miscellaneous Petition before Tribunal that

each and every paper submitted and case law cited had not
been discussed elaborately – When Tribunal stated that there
has been examination of facts as well as arguments put forth by
rival parties, it is not necessary or imperative on the part of
Tribunal to give additional or separate reasons if Tribunal is in
agreement with reasons given by lower authorities.
V.T. Somasundaram Vs ITO (ITAT, Chennai) 70 ITD 398
• ITAT has no power to review its order – Only mistake apparent

from record can be corrected – Failure of Tribunal to consider
arguments is not an error apparent from record.
CIT Vs Ramesh Electric and Trading Co.(Bom) 203 ITR 497
ITO Vs. ITAT (Patna) 229 ITR 651
Dharamchand Surana Vs ITO (ITAT, Mad-TM) 61 ITD 115
• Pronouncement by Tribunal in open court constitutes its order

Written order contrary to announcement is a mistake - Can be
rectified.
CIT Vs G. Sagar Suri & Sons (Del) 185 ITR 484
• Written order passed by Tribunal not in conformity with the

pronouncement made immediately after hearing both sides
Not a mistake apparent from records.
CIT Vs Jinendra Smelting & Rolling Mills (ITAT, Pune) 119 TTJ 519
• Counsel of assessee not raising particular issue at time of

hearing by oversight – Files Miscellaneous Petition
contending laches of counsel should not make a litigant suffer
Issue deemed to have been decided against assessee or
presumed that same not pressed before Tribunal.
Joseph Kuruvilla Vs CIT (Ker) 234 ITR 55
“Record” for the purpose of rectification

• “Record” for the purpose of rectification does not mean only
the order of assessment but it comprises all proceedings on
which the assessment order is based and while exercising the
power of rectification whole evidence and the law applicable
thereto can be looked into – Argument that Tribunal can refer
only to the actual record before it and cannot refer to the
supplemental or complimentary proceedings, is rejected.
Maharana Mills (Pvt.) Ltd. Vs ITO (SC) 36 ITR 350
Neeta S. Shah & Ors. Vs CIT (Kar) 191 ITR 77
• There is no invariable rule of law that, to constitute an “error

apparent from the record”, the error must be apparent from the
record of the proceedings against the assessee himself.
Devendra Prakash Vs ITO (All) 72 ITR 151
• Record for the purpose of 154(1) is the record available to the

authorities at the time of initiation of 154 proceedings and not
merely the Miscellaneous Record for that year alone.
CIT Vs M.R.M. Plantations (P) Ltd.(Mad) 240 ITR 660
CIT Vs Aruna Luthra (P&H) 252 ITR 76
• The word 'record' appearing in Sec. 154 has to be given a wider

import by including the record that is available with the A.O.
Since the issue raised in the order u/s 154 was not decided
earlier, there is no merger with the order of CIT(A)
CIT Vs Lakshmi Vilas Bank (Mad) 329 ITR 591
• If a document was not considered by Assessing Officer &

CIT(A) and was not produced before ITAT in appeal, it cannot
be said that order of ITAT contains a mistake since it does not
discuss such document.
CIT Vs Suman Tea & Plywood Industries (P) Ltd (Cal) 226 ITR 34
Whether notice mandatory?

• Mistake in computation of WDV can be corrected u/s 154 - No
increase in demand / decrease in refund – Only change is
relating to carried forward depreciation – No need to give
notice to assessee – If assessee knows about the proceeding
and Assessing Officer discussed with assessee, no need to give
separate notice.
Maharana Mills (Pvt) Ltd. Vs CIT (SC) 36 ITR 350
Merger in appeal
• While giving effect to the order of CIT(A), only issues

considered and decided in appeal will merge – Assessing
Officer can pass order u/s 154 on other issues
Maruti Udyog Ltd. Vs JCIT ( ITAT, Del ) 100 ITD 113
Addl. CIT Vs India Tin Industries (P) Ltd. (Kar) 166 ITR 454
• Computation of deduction u/s 80J under appeal – AAC passed

order in favour of assessee – ITO can later on disallow
deduction u/s 80J on some other ground viz., non-furnishing
of audit report u/s 154 proceedings
CIT v. B.L. Murarka (Raj) 250 ITR 714
Some instances where rectification order was upheld
• ITO has power to rectify a mistake in order levying penalty.

Henri Isidore Vs CIT (Mad) 240 ITR 247
• ITNS-50 containing adjustments / calculation of tax is part of

assessment order – Can be rectified u/s 154
Hindustan Lever Ltd. Vs DCIT (ITAT, Mum) 68 ITD 85
• Return of income filed was processed u/s 143(1) – Then

assessee moved 154 claiming higher depreciation on account
of re-fixing WDV of earlier years – Assessing Officer does not
have any power to make adjustments to returned income u/s
143(1) – Hence order u/s 154 on 143(1) is not possible
Choice Aquaculture (P) Ltd. Vs ITO ( ITAT, Ahd ) 100 ITD 143
• Charging of interest u/s 234A is mandatory – Failure to charge

such interest in the case of a belated return is a mistake
apparent from record – Rectifiable u/s 154
ACIT Vs Santosh Kumar Soni (ITAT, All) 57 ITD 220
• Capital gains from depreciable assets – Assessing Officer in his

original assessment order gave the assessee the option for Fair
Market Value as on 1.1.1954 – Later, revised this by invoking
sec. 154 – Held valid since mandatory provision of law was
overlooked.
CIT Vs Pierce Leslie & Co. Ltd. (Mad) 227 ITR 759
• Deduction u/s 80M granted before setting off losses – Mistake

apparent from record.
CIT Vs Mcleod & Co. Ltd. (Cal) 134 ITR 674
• Deduction u/s 80-I worked out without considering current

depreciation, brought forward depreciation and brought
forward investment allowance – After introduction of Sec.
80AB, this is mistake apparent.
Hargovind International Ltd. Vs ACIT (ITAT, Nag) 69 ITD 1
• 80HHC computation – Unabsorbed brought forward

depreciation was omitted to be deducted from profits of
business – Can be done u/s 154
Maruti Udyog Ltd. Vs JCIT ( ITAT, Del ) 100 ITD 113
Fertilizers & Chemicals Travancore Ltd. Vs ACIT (ITAT,Cochin) 109 ITD 56
• In AY 83-84, Assessing Officer came to the finding that

unexplained investment in building, to be spread over for 4
years – ITAT upheld this view – Omitted to make addition in
AY 86-87 – Mistake apparent from record.
Upasana Hospital & Nursing Home Vs ACIT (ITAT, Coch) 60 TTJ 660
• Return of Income filed belatedly – Assessing Officer allowed

carry forward of loss – Can be rectified u/s 154
ACIT Vs Electrical Transformer Co. (ITAT, Ind) 70 ITD 48
• Order of CIT(A) directing Assessing Officer to re-open

assessment under sec. 143(3) or 147 – No appeal filed – This
being a debatable issue, cannot be rectified under sec. 154 by
the CIT(A)
L. Dee's Vs ITO (ITAT, Del) 309 ITR (AT) 104
• While giving effect to the order of ITAT, assessed income fell

below the book profit to be considered u/s 115JB – However
A.O. omitted to consider applicability of sec. 115JB at that
stage – Later on passed order u/s 154 to rectify this mistake
Justified
DCIT Vs Wintac Ltd. (ITAT, Bang) 128 ITD 197
• A.O. completed assessment by allowing assessee's claim of set

off of b/f depreciation from book profits computed u/s 115J
Later on noticed that b/f loss is NIL – Notice u/s 154 issued to
withdraw the deduction granted to book profits to the extent of
b/f depreciation – Valid
CIT Vs Carbon & Chemicals India Ltd. (Ker) 196 Taxman 302
• Failure to treat tax paid by employer on behalf of employees as

salary for computation of value of perquisites – Mistake can be
rectified – Though ITAT already passed order against the
original order, since this issue was not discussed therein, there
is no merger.
Mitsubishi Corporation Vs CIT (Del) 337 ITR 498
REVISION OF ORDERS
Sec. 263 & 264 deal with revisionary powers of CIT.
• CIT can call for and examine all records relating to any
proceedings under I.T. Act available at the time of
examination (sec. 263)
• Any order passed by the Assessing Officer (including the

one passed on the basis of directions u/s 144A) can be
revised (sec. 263)
• Such order should be erroneous in so far as it is prejudicial

to the interests of the revenue (sec. 263)
• Give assessee an opportunity of being heard (sec. 263)
• Make or cause to make any enquiry as he deems necessary

(sec. 263)
• Pass orders enhancing or modifying the assessment or

cancelling the assessment and directing a fresh assessment
(sec. 263)
• Part of the order ie. matters already considered and

decided in appeal cannot be revised by CIT (sec. 263)
• Time limit to pass order – Two years from the end of the
F.Y. in which the order sought to be revised was passed
Time taken to grant opportunity u/s 129 and period of
stay by Court to be excluded (sec. 263)
• Order passed in consequence of or to give effect to any

finding or direction contained in an order of Tribunal,
High Court or supreme Court – No time limit (sec. 263)
• Revision at the instance of assessee – application to be made

within one year from the date on which the order in
question was communicated to him or he came to know
about it, whichever is earlier – CIT has power to condone
delay. Order u/s 264 to be passed within one year from the
end of the F.Y. in which such application was made. Time

taken to grant opportunity u/s 129 and period of stay by
Court to be excluded (sec. 264)
• Revision u/s 264 at the instance of CIT – order to be passed

within one year of the impugned order (sec. 264)
• No order u/s 264 shall be made, if

• It is an appealable order and time for filing appeal has
not expired, or
• the assessee has not waived the right of appeal, or
• Order pending in appeal (sec. 264)
• Order of fresh assessment in pursuance of an order u/s 263

or 264 to be passed within 9 months from the end of the F.Y.
in which order u/s 263 or 264 was passed [for orders passed
passed upto 01-04-2005 time limit available was 1 year].
(sec. 153)
• For order u/s 263 or 264 passed after 01-04-2006, if TPO

report is required to complete the assessment, time limit
available is 21 months. (sec. 153)
• To give effect to a finding or direction contained in the

order u/s 263 or 264, no time limit is prescribed. (sec. 153)
• In Malabar Industrial Co. Ltd. Vs CIT (SC) 243 ITR 83 it

was held that no revision u/s 263 is possible if two views are
available and AO adopted one of the possible views.
• In CIT Vs Max India Ltd. (SC) 295 ITR 282 it was held that
when CIT passed the order u/s 263 two views were possible
and retrospective amendment made subsequent to CIT
passing the order u/s 263 will not save the situation.
• In CIT Vs Alagendran Finance Ltd. (SC) 293 ITR 1 it was

held that in respect of an issue which was not the subject
mater of reassessment, limitation u/s 263(2) will run from
the date of original assessment.
• Once order of remand is passed by CIT u/s 263 holding that the
order is erroneous, no specific finding is required to show that
the same is prejudicial to the interests of the revenue
TTK LIG Ltd. Vs ACIT (Mad) 51 DTR 228
• CIT need not state in express words that order sought to be

revised is erroneous and prejudicial – If it is evident on perusal
of order, CIT's jurisdiction u/s 263 is valid.
Hooghly Mills Ltd. Vs ACIT (ITAT, Cal) 71 ITD 264.
• CIT passed order u/s 263 since Assessing Officer did not make
any enquiry on the issue – Once it is found that invocation of
the provisions of sec. 263 was proper and valid, such an order
passed by CIT could not have been tinkered by the Tribunal by
going to the merits of the issue – Once CIT has remanded the
issue to Assessing Officer it was not proper for Tribunal to
decide on merits converting itself into a Court of first instance
and deciding on some issues on which both Assessing Officer
and CIT have not recorded any finding
CIT Vs Eastern Medikit Ltd. (Del) 58 DTR 265 ; 337 ITR 56
• After filing application u/s 264 before CIT and waiving his
right to file appeal, assessee cannot agitate the issue again in
appeal before ITAT.
M. Narasimha Rao Vs ITO (ITAT, Hyd) 57 ITD 228
• CIT made definite findings in Revision order – Assessing

Officer passed order to give effect to that u/s 143(3) r.w.s. 263
No appeal lies against Assessing Officer's order since he has
only followed definite findings in the order of CIT which
attained finality – Assessee should have filed appeal against
order u/s 263.
Herdillia Chemicals Ltd. Vs CIT (Bom) 221 ITR 194
WTO Vs Jaswant Singh (ITAT, Jp) 64 ITD 339
Erroneous and prejudicial to revenue

• Order would be erroneous if it is based on an incorrect
assumption of facts or an incorrect application of law or non-
application of mind or based on no or insufficient materials
Arvee International Vs Addl. CIT ( ITAT, Mum ) 101 ITD 495
• Assessment without proper enquiry – Unlike the Civil Court

which is neutral to give a decision on the basis of evidence
produced before it, an Assessing Officer is not only an
adjudicator but is also an investigator. He cannot remain
passive on the face of a return which is apparently in order but
calls for further enquiry – It is his duty to ascertain the truth of
the facts stated in the return when the circumstances of the case
are such as to provoke inquiry – If there is failure to make such
enquiry, order is erroneous and prejudicial to revenue – CIT
need not prove that it is erroneous and he can revise it u/s 263.
Rampyari Devi Saraogi Vs CIT (SC) 67 ITR 84
Malabar Industrial Co. Ltd. Vs CIT (SC) 243 ITR 83
Swarup Vegetable Products Industries Ltd Vs CIT (All) 187 ITR 412
Gee Vee Enterprises Vs Addl. CIT & Ors. (Del) 99 ITR 375
Rajalakshmi Mills Ltd. Vs ITO (ITAT,SB-Chennai) 121 ITD 343 ; 313 ITR (AT)
182
SRM Systems & Software Pvt. Ltd. Vs ACIT 2010-TIOL-646-HC-MAD-IT
• The argument about two views possible at the time of passing

the assessment order, will hold good only in respect of
questions of fact – When it comes to questions of law, the law
laid down by the competent constitutional Courts has to be
invariably followed. It is a settled law that when the Supreme
Court or a High court declares the law on a subject, the
declaration go back to the date of enactment of that particular
law so as to state that the law, from the date of its enactment
itself was in the manner decided by the Court subsequently –
Hence when the Assessing Officer was passing the assessment
order, the law on the subject was always the law as explained
by the jurisdictional High court or Supreme Court – Thus by
super-imposition made by the judicial pronouncement, the
assessment order has become erroneous - Revision held valid
Vijay Kiran Hotels (P) Ltd. Vs CIT (P&H) 196 Taxation 336
Simran Farms Ltd. Vs CIT (MP) 300 ITR 270
Intellinet Technologies India P. Ltd. Vs ITO (ITAT, Bang) 5 ITR (Trib) 96
• When the disputed issue is decided by the Apex Court, the

proceedings initiated u/s 263 against the deduction wrongly
claimed by the assessee and allowed by the Assessing Officer
cannot be said to be invalid stating that there were two opinions
available
Jai Mica Supply Co. Pvt. Ltd. Vs CIT 2011-TIOL-524-HC-KOL-IT
• CIT will not be deprived of the powers u/s 263 merely because
a retrospective amendment was made in relation to the issue
concerned – Decision of Apex court in Max India Ltd.
distinguished
Southern Petrochemical Industries Corpn. Ltd. Vs JCIT 2011-TIOL-455-ITAT-
MAD
• Application of wrong provision of law is erroneous order –

Order passed against statutory provision of law and decision of
jurisdictional High Court and Apex court – Revision upheld
Vashti Management Services Pvt. Ltd. Vs ITO 2010-TIOL-642-ITAT-DEL
Jai Bharat Tanners Vs CIT (Mad) 264 ITR 673
• For the purpose of revision u/s 263, the legal position at the
time of passing the impugned order by the Assessing Officer is
to be considered and not the legal position at the time of filing
of return of income - Assessing Officer referred to the
retrospective amendment but did not apply the same in the
computation – Revision upheld
Jewel Enterprises Vs ITO 2010-TIOL-612-ITAT-MUM
• Sec. 263 can be applied to cancel an assessment so as to make

assessment in the hands of another person, who actually earned
income.
Tara Devi Aggarwal Vs CIT (SC) 88 ITR 323
• Conclusions of Assessing Officer not in conformity with his

findings - CIT can revise u/s 263 .
Nirvan Prints Vs ACIT (ITAT, Ahd) 63 TTJ 13
• Jurisdictional High Court decision in favour of assessee –

Appeal pending before Supreme Court – Action u/s 263
possible if AO followed the High Court decision.
Hindustan Tin Works Ltd. Vs DCIT (ITAT, Del) 92 ITD 101
• Appraisal report is essential for making assessment consequent

to search – Non-consideration of appraisal report by A.O.
Revision upheld
CIT vs Daga Entrade P. Ltd. (Gau) 327 ITR 467
• Order passed u/s 263 upheld eventhough the order does not
make it explicit as to the manner in which it is erroneous or
prejudicial since revisionary power can be exercised if the CIT
considers the subject order to be revised – Assessing Officer
performs a quasi-judicial function and the reason for his
conclusions and findings should be forthcoming in the
assessment order – When CIT set-aside the assessment order to
Assessing Officer to decide it afresh, Tribunal should not
interfere since no damage is caused to the assessee
CIT Vs Infosys Technologies Ltd. (Kar) 341 ITR 293
• Error in assessment order arising by ignoring relevant material

or on incorrect assumption of facts or incorrect application of
law – Amenable to revision u/s 263
CIT Vs Jawahar Bhattacharjee (Gau-FB) 341 ITR 434
Question of merger
• CIT has powers to initiate proceedings u/s 263 in respect of

issues not considered and adjudicated by CIT(A) in his
appellate orders.
CIT Vs Jayakumar B. Patil (SC) 236 ITR 469
CIT Vs Shri Arbuda Mills Ltd (SC) (1996) 231 ITR 50
• During pendency of appeal before IAC, CIT can revise order of

ITO – Only after passing of the appellate order, the question of
merger will arise.
CIT Vs Eimco KCP Ltd. (Mad) 147 ITR 603
CIT Vs Subarna Plantation & Trading Co. Ltd. (Cal) 238 ITR 319
Raj Kumar Vs Union of India (J&K) 20 DTR 218 ; 177 Taxman 178 ; 222 CTR 539
• Dismissal of appeal by CIT(A) as not competent – No merger

since there is no decision on merits – Revision can be made
Mansarovar Investments Ltd. Vs CIT (Del) 287 ITR 137
• If appeal filed before CIT(A) on any issue, CIT cannot revise

that order u/s 264, whatever be the issue.
Hindustan Aeronautics Ltd Vs CIT (SC) 243 ITR 808
• Issue before CIT(A) was quantification of 80-I deduction. CIT

can revise u/s 263 on the question of eligibility of deduction u/s
80-I since these are two different issues
Modi Xerox Ltd. Vs DCIT (ITAT, Del) 67 ITD 252
• CIT(A) decided issue on interest u/s 214 – CIT can pass order
u/s 263 on the rate of interest.
Machino Techno Sales (P) Ltd. Vs DCIT (ITAT, Cal) 59 ITD 303
• CIT(A) reversed the disallowance made in the assessment of

earlier year – No change in factual circumstances - Assessing
Officer ought to have made disallowance in subsequent years
also – CIT can revise assessment of subsequent A.Y. u/s 263
since there is no merger with the order of CIT(A) in the
subsequent A.Y.
ITO Vs Vanaz Engineers (P) Ltd (ITAT, Pune) 70 ITD 525
Orders amenable for revision
• Order u/s 263 can be passed on order u/s 143(1)(a)

CIT Vs Shri Mahasastha Pictures (Mad) 263 ITR 304
• Order passed u/s 184 (7) r.w.s. 185(4) can be revised u/s 263.
CIT Vs Nitya Nand Devkinandan (SC) 227 ITR 154
CIT Vs Jagdish Chand Walia & Co. (P&H) 234 ITR 595
• Proceedings u/s 147 initiated – Later on dropped – CIT can

revise this order u/s 263.
P.K. Fabrics Vs ACIT (ITAT, Asr) 67 ITD 326
Exports India Vs CIT (Del) 246 ITR 1
New Jagat Textile Mills P. Ltd. Vs CIT ( Guj ) 282 ITR 399 [139(2) notice issued &
dropped]
• Order u/s 263 valid against order u/s 195(2)

Board of Control for Cricket in India Vs DIT(Exemption) (ITAT, Mum) 96
ITD 263
• Waiver of interest u/s 139(8) / 215 / 217 without explaining

reasons – Can be revised u/s 263.
B.P. Ganapathy Vs ITO (ITAT, Mad) 74 ITD 392
• Failure of ITO to levy interest u/s 215 – CIT justified in passing

order u/s 263.
Sudarsan Trading Co. Ltd. Vs CIT (Mad) 215 ITR 245.
• Non-initiation of penalty proceedings - Revision valid

CIT Vs Surendra Prasad Agarwal (All) 275 ITR 113
• Penalty proceedings dropped by ITO – CIT can again initiate

penalty proceeding u/s 263
CIT Vs Sara Enterprises (Mad) 224 ITR 169
CIT Vs Braj Bhushan Cold Storage (All) 275 ITR 360
Shabbir T. Chass Vs ACIT (ITAT, Hyd) 4 ITR (Trib) 297
R.A. Himmatsingka & Co. Vs CIT (Pat) 340 ITR 253
• CBDT Instruction says that international transactions

exceeding Rs. 5 crores to be referred to Transfer pricing
Officer – Failure by Assessing Officer to make such reference
– CIT can pass order u/s 263
Ranbaxy Laboratories Ltd. Vs Addl. CIT (ITAT, Del) 110 ITD 428
• Assessment order passed pursuant to directions by IAC u/s

144B – CIT can revise such an order.
CIT Vs Sigma Paints Limited (Bom) 238 ITR 705
• CIT(A) remanded the matter to Assessing Officer – Fresh order

passed by Assessing Officer – CIT can revise it u/s 263.
CIT Vs Maqbool Alam & Co. (Pat) 231 ITR 77
• Original order by Assessing Officer – Revision by CIT – Again

order passed by Assessing Officer without making enquiries –
Again CIT can pass order u/s 263.
Gujarat Forgings (P) Ltd. Vs ITO (ITAT, Ahd) 56 ITD 208.
• Once assessment is re-opened u/s 147, Assessing Officer can

assess other items which may come to its notice during the
course of reassessment – If Assessing Officer fails to examine
them, CIT can revise it u/s 263
Gujarat State Financial Corporation Vs CIT 2011-TIOL-614-ITAT-AHM
“Record” means
• Valuation report called for by ITO – Assessment completed

before receipt of valuation report – Assessment is erroneous
Valuation report forms part of assessment record – CIT can
revise assessment order on the basis of valuation report – The
term “record” includes all records available at the time of
examination by CIT
CIT Vs Shree Manjunatheswara Packing Products & Camphor Works (SC) 231
ITR 53
CIT Vs S.M. Oil Extraction P. Ltd. (Cal) 190 ITR 404
• Material collected during the course of survey done after

passing of assessment order can be basis for passing revision
order by CIT
Rajkumar Vs Union of India (J&K) 177 Taxman 178
Availability of alternate routes

• Assessment order passed under section 143(3) - Notice u/s 154
issued by Assessing Officer but dropped – CIT can still pass
order under section 263 if the required conditions are satisfied
since powers under sections 154 and 263 operates in different
fields.
CIT Vs Ralson Industries Ltd. (SC) 288 ITR 322
• CIT can invoke sec. 263 on the basis of a proposal from

Assessing Officer – Even if action u/s 147 is possible, CIT can
invoke sec. 263.
Apollo Tyres Ltd Vs ACIT (ITAT, Del) 65 ITD 263
Some instances where revision by CIT was upheld
• Revision of Gift Tax order on the basis of valuation report

obtained subsequently under Wealth Tax Act – Justified.
CGT Vs O.E. Arumugha Mudaliar (Mad) 237 ITR 789
• Payment to institution for rural development – Approved by

Govt. – Deduction granted u/s 35CCA – Subsequent
withdrawal of approval – Assessment erroneous and
prejudicial to revenue – CIT justified in setting aside the order
u/s 263.
CIT Vs Bankam Investment Ltd. (Cal) 208 ITR 208
• Deduction allowed without considering disallowance in earlier

years – Lack of application of mind and failure to comply with
principle of consistency – No reasons recorded in assessment
order for such deviation – Order u/s 263 upheld
Frick India Ltd. Vs DCIT (ITAT, Del) 6 ITR (Trib) 802
• Return showed profit on sale of depreciable asset as Business

Income - Depreciation claimed on building with land
Asessing Officer accepted these claims without any enquiry
Revision upheld
Vashti Management Services (P) Ltd. Vs ITO (ITAT, Del) 129 ITD 1
Limitation
• Processing of return u/s 143(1) followed by assessment u/s
143(3) – Limitation u/s 263(2) is to be counted from the order
u/s 143(3) and not from the date of intimation u/s 143(1) as
Assessing Officer has no power to make adjustments to
income while passing the order u/s 143(1) and he need not
apply his mind to any issue
Vijay Kumar Gupta Vs CIT (ITAT, Ahd) 63 DTR 426
APPEALS – Law and procedure

[ Sec. 246 to 262 and Rules 45 to 48 deal with the provisions of
appeal before CIT(A), ITAT, High Court and Supreme Court
– In addition, ITAT Rules and Rules framed by various High
Courts and Supreme court are also relevant ]
• Appealable orders before CIT(A) specified (sec. 246A)
• If under an agreement or arrangement, TDS on any income

other than interest u/s 195 is to be borne by the payer, after
paying the TDS to Cen. Govt. can file appeal denying his
liability to deduct tax (sec. 248)
• Appeal filing fee and limitation for filing appeal prescribed

for appeals before CIT(A) (sec. 249) and ITAT (sec. 253)
• Delay in filing appeal can be condoned (sec. 249 & 253)
• Provision to file cross-objection before ITAT and time limit

prescribed (sec. 253)
• No appeal shall be admitted by CIT(A) unless the assessee

paid at the time of filing of appeal
• tax due on he returned income (if return filed), or
• amount equivalent to the advance tax payable (if no
return filed) (sec. 249)
• CIT(A) may make further enquiry or direct Assessing

Officer to make further enquiry and report (sec. 250)
• In an appeal against assessment order, CIT(A) can

confirm, reduce, enhance or annul the assessment (sec.
251)
• In an appeal against penalty order, CIT(A) can confirm,

cancel, reduce or enhance the penalty (sec. 251)
• In an appeal against other orders, CIT(A) can pass such

order as he thinks fit (sec. 251)
• In an appeal against assessment order in respect of which

the proceedings before Settlement Commission got abated
u/s 245HA, CIT(A) can consider all the material and other
information produced by the assessee before the
Commission or the results of inquiry held or evidence
recorded by the Commission (sec. 251)
• Before enhancement, reasonable opportunity to be granted

to the assessee (sec. 251)
• CIT(A) has power to decide any matter arising out of the

proceedings in which the order appealed against was
passed even if such matter was not raised by the appellant
(sec. 251)
• ITAT may pass such orders as it thinks fit (sec. 254)
• ITAT can stay for a period upto 180 days which can be
extended for a period upto 365 days (if the non-disposal of
appeal is not attributable to assessee) and dispose off the
appeal in such period. After expiry of 365 days, stay shall
stand vacated (sec. 254)
• Can amend any order passed to rectify mistake apparent

from the record within four years from the date of the
order (sec. 254)
• President of ITAT can refer any case to Special bench or

majority view, in case of split judgment (sec. 255)
• Appeal before High Court will lie if the High Court is

satisfied that a substantial question of law is involved (sec.
260A)
• Time limit for filing appeal before High Court prescribed

and High Court can condone the delay (sec. 260A)
• Power given to High Court to admit an appeal even after

expiry of 120 days if it is satisfied that there is sufficient
cause for the delay [sec. 260A(2A) by Finance Act, 2010
w.r.e.f. 01-10-1998]
• Appeal before Supreme Court will lie if the High Court

certify it as a fit case for filing appeal (sec. 261)
• If appeal not filed by revenue owing to low tax effect for any
A.Y. on any issue, assessee cannot contend that Income Tax
authority has acquiesced in the decision on the disputed
issue [sec. 268A w.r.e.f. 01-04-1999]
• The Central Board of Direct Taxes have issued instructions

from time to time directing Departmental Officers to not
file an appeal if the tax effect is less than the monetary limit
prescribed by it. The Supreme Court in M/s. Berger Paints
India Ltd. Vs. CIT, (266 ITR 99) and in few other cases has
held that if the revenue has not challenged the correctness
of the law laid down by the High Court and has accepted it
in the case of one assessee, then it is not open to the Revenue
to challenge the correctness in the case of other assessees
without just cause. Department's appeals are being
dismissed by other judicial authorities also on the
consideration that the disputed issue was not agitated in
the case of the same assessee or in the case of any other
assessee. To tide over this situation, sec. 268A was
introduced by Finance Act, 2008 w.r.e.f. 01-04-1999
• Appellate orders issued by CIT(A) should be issued within

15 days of the last hearing [Instruction No. 20/2003 dated
23-12-2003]
• CCIT/DGIT(Inv.) concerned should request the ITAT for

priority hearing of appeals wherever the demand in
dispute is Rs. 10 crores or more for early resolution of the
dispute [Instruction No. 17/2003 dated 23-12-2003]
• Revised monetary limits for filing appeals by Department

before ITAT, High Court and Supreme Court [Instruction
No. 3/2011 dated 09-02-2011]
• Standard Operating Procedure for filing of appeals before

ITAT [Instruction No. 8/2011 dated 11-08-2011]
• Standard Operating Procedure for filing of appeals before

High Court [Instruction No. 7/2011 dated 24-05-2011]
• Standard Operating Procedure for filing of appeals / SLP

before Supreme Court [Instruction No. 4/2011 dated
09-03-2011]
Jurisdiction
Jurisdiction to file appeal
• Assessment and penalty order passed in the name of another
person – Appellant cannot be treated as an assessee within the
meaning of sec. 2(7)
Hirachand Ebha Wadhel Vs ITO (ITAT, Mum) 38 DTR 513
• Cross-objection can be filed only by a respondent in appeal

Vidya Institute Vs CIT (ITAT, Del) 3 ITR (Trib) 491
• Where the appeal filed by assessee was fully allowed by

CIT(A), the assessee could not be said to be a 'person aggrieved
' within the meaning of sec. 253 – Tribunal cannot entertain
appeal of the assessee against such order of CIT(A)
CIT Vs Princess Sarla Kumari (MP) 171 ITR 14
• Where the assessee has succeeded wholly before the CIT(A),

there is no scope for filing an appeal or cross-objection before
the Tribunal
CIT Vs Sundaram Clayton Ltd. (Mad) 136 ITR 315
Jurisdiction to hear appeal

• CIT(A) who has been transferred out could not hear and decide
appeals as he lacks lawful authority
Dr. Vinod Kumar Rai Vs ITAT (All) 302 ITR 148
Law applicable
• If during the pendency of appeal, law is amended

retrospectively, the amended law is to be applied by the
authority deciding the appeal
CIT Vs Straw Products Ltd. (SC) 60 ITR 156
Appealable orders
Appeal not maintainable when statute does not

provide for
• There is no inherent right of appeal – It is to be specifically

conferred by the statute providing for an appeal – If statute has
not provided for appeal against order passed under certain
sections, appeal will not lie against such orders
Caltex Ore Refining (India) Ltd. Vs CIT (Bom) 202 ITR 375.
• The right of appeal is not an inherent right – It is a statutory

right – No appeal lies against order u/s 197(3)
CIT Vs Garware Nylons Limited (Bom) 212 ITR 242
• No appeal lies against determination of interest u/s 244(1A)

CIT Vs H.V. Mirchandani (Kar) 161 ITR 800
• Appeal not maintainable before CIT(A) against order u/s

143(1) passed after 01-06-1999
DCIT Vs Housing Development Finance Corporation Ltd. (ITAT, Mum) 51
DTR 138
• Levy of interest u/s 220(2) – Not appealable

CIT Vs Suresh Gokuldas (Mad) 229 ITR 721
ANZ Grindlays Bank PLC Vs CIT (Cal) 241 ITR 269
• Levy of interest u/s 158BFA – Not appealable when quantum

of addition is not disputed
Kandabai S. Baldawa & Ors. Vs DCIT (ITAT, Pune) 81 TTJ 953
• Order u/s 142(2D) fixing fees payable to auditor – Not an

appealable order before Tribunal

Sony Mony Electronics Ltd. Vs DCIT (ITAT, Mum) 133 TTJ 660 ; 45 DTR 431
• Validity of best judgement assessment cannot be challenged

Only the quantum of income determined therein can be
challenged
Gaurishanker Kedia Vs CIT (Bom) 49 ITR 655
• Chartered Accountant's certificate specifying that tax at a

particular rate is required to be deducted by assessee from a
particular remittance to a non-resident – Not an appealable
order
Mahindra & Mahindra Ltd. Vs Addl. DIT (ITAT, Mum) 106 ITD 521
Appeal not maintainable against territorial

jurisdiction of Assessing Officer
• Objection to the order of transfer of a case cannot be raised in
appeal before CIT(A) / ITAT as transfer of jurisdiction is an
administrative act and not provided in the list of provisions
which are appealable u/s 253
Jaswinder Kaur Koover Vs CIT(A) (P&H) 291 ITR 80
• Territorial jurisdiction of ITO – Objection not raised before

ITO within one month of filing of return / issue of notice –
Appeal not maintainable before ITAT in view of sec. 124(3)
Rai Bahadur Seth Teomal Vs CIT (SC) 36 ITR 9
Grindlays Bank Vs CIT (Cal) 193 ITR 457
Subhash Chander Vs CIT (P&H) 218 CTR 191
Sohan Lal Sewa Ram Joggi (All) 3 DTR 74
Ram Bhaj & Sons (P) Ltd. Vs ITO (ITAT, Amritsar) 102 ITD 93
CIT Vs Sohan Lal Sewa Ram Jaggi (All) 3 DTR 74 ; 222 CTR 412
CIT Vs British India Corporation Ltd. (All) 337 ITR 64
Appeal not maintainable on theory of merger
• Waiver of interest by CCIT – In the consequential order passed

by Assessing Officer, interest u/s 244A not granted – No appeal

lies against such order
ITO Vs A.J. Dhanapal (ITAT, Chennai) 99 ITD 317
• Appeal for revision to CIT and appeal to AAC on same issue

When order was passed in revision by CIT, ITO's order merged
in the order of CIT – Appeal to AAC rendered incompetent.
CIT Vs Eurasia Publishing House (P) Ltd. (Del) 232 ITR 381
Orissa Rural housing Development Corporation Ltd. Vs ACIT (Ori) 66 DTR 73
Appeal to be filed for the year in which loss to be

quantified and not the year in which it is to be set off
• Losses for each year has to be determined separately. If

assessee has any objection against it, he has to make appeal for
the year in which loss occurred. Assessee cannot claim in a
subsequent year (when profit was made), to determine loss for
an earlier year and set off against current year's profit.
CIT Vs Dalmia Cement (Bharat) Ltd.(SC) 216 ITR 79
Appeal to be filed against the order in which the

impugned dispute arose
• Assessment u/s 143(3) attaining finality – It cannot be reversed
in an appeal filed against order u/s 154
R.B.L. Banarsi Das & Co. P. Ltd. Vs CIT (P&H) 316 ITR 212
• Original assessment proceedings do not stand merged in

reassessment proceedings – Appeal filed in Tribunal about
original assessment are not infructious – Even if addition
was made on the same issue in reassessment proceedings,
ITAT should examine it to the extent of addition made in the
original assessment when appeal against original assessment
comes up.
M.R. Raghuram (HUF) Vs ACIT (ITAT, Bang) 62 ITD 94
Metal Import (P) Ltd. Vs CIT (Cal) 72 Taxman 375
Filing of Appeal and its disposal

Admission of appeal
• Tax on admitted income to be paid before filing of appeal
before CIT(A)
S. Alagarswamy Vs ITO (Mad) 296 ITR 43
• CIT(A) dismissed appeal since tax on admitted income was not

paid – Appeal not maintainable before ITAT against such order
of CIT(A)
Sushil Thomas Abraham Vs ACIT (Ker) 308 ITR 346
• Tax on admitted income not paid – Appeal against penalty

order not maintainable
CIT Vs G.A. Samanthakamani (Mad) 259 ITR 215
• Appeal filed on 3.2.92 – For admission of appeal, provisions

amended w.e.f. 01-04-1989 will apply – CIT(A) held appeal
not maintainable u/s 249(4)(a) since tax on undisputed income
not paid - Upheld
Khushmanlal Hiralal Kansara Vs ACIT (ITAT, Ahd ) 57 ITD 531
• ITAT – Appeal filing fee is on the basis of income computed by

Assessing Officer and not on the basis of income subsequent to
CIT(A) passing the order.
Kothari Departmental Stores (P) Ltd. Vs A.O. (ITAT, Jodh-TM) 96 ITD 142
• ITAT – Appeal filing fee for 271(1)(c) penalty - On the basis of

assessed income.
Bidyut Kumar Sett Vs ITO (ITAT, SB-Kol) 92 ITD 148
• Senior Vice-President (Finance) of a company is not

authorized to sign return and appeal forms – Resolution of
Board of directors of assessee company authorizing its Senior
Vice-President (Finance) to do certain acts on behalf of
assessee, cannot prevail over the statutory provisions
mandating compliance by specified persons to initiate valid
proceedings before CIT(A) in terms of Rule 45 read with
section 140(c)
Gold Stone Exports Ltd. Vs ACIT (ITAT, Hyd) 104 ITD 15
• When the appeal memorandum is not signed by the person

authorized to sign in terms of Rule 45 read with section 140(c),
the omission should be got rectified by giving proper
opportunity to the appellant – If the appellant does not remove
the defect, the memorandum of appeal is liable to be dismissed
Addl.CIT Vs K. Padmalochan Sahu (Ori) 95 ITR 113
Monetary limit for filing appeals by Department
• Instruction fixing monetary limit of Rs.1 lakh for filing appeal

before ITAT came into force only from 1.4.2000→ Not
applicable for Assessment Years prior to that.
CIT Vs Kodanand Tea Estates Co. (Mad) 275 ITR 244
• Instruction fixing monetary limit for filing appeals – Does not

apply to appeals filed prior to the date of such Instruction
CIT Vs Nanak Ram Jaisinghania (Del) 317 ITR 302
ITO Vs Sanatan Textrade Ltd. (ITAT, Mum) 4 ITR (Trib) 593
CIT Vs Varindera Construction Co. (P&H-FB) 331 ITR 449
CWT Vs John L. Chackola (Ker) 36 DTR 239
• Common order passed for different A.Y. – Tax effect to be

clubbed while considering the monetary limit for filing appeal
against such order
CIT Vs Eapen Ninan (Mad) 338 ITR 263
• Reduction of loss – Not a case of NIL tax effect – Instruction of

CBDT fixing monetary limit for filing of appeal does not affect
maintainability of appeal in such cases – Notional tax effect to
be considered
CIT Vs B.D. Patel Quarry Works Pvt. Ltd. 2011-TIOL-416-HC-AHM-IT
• If the question of law arising in an appeal is covered by a

decision of Supreme Court or High Court, such appeal will
have to be entertained and decided irrespective of the tax effect
falling below the prescribed minimum fixed by CBDT.
CIT Vs Shivaji Works Ltd. (Bom) 295 ITR 542
CIT Vs S.C. Naregal (Kar) 329 ITR 615
• Where a substantial question of law is involved, regardless of

the monetary limit, Tribunal is bound to decide the question of
law raised
CIT Vs K. Sreekantan Pillai (Ker) 181 Taxman 173
• When the issue has a cascading effect, monetary limit

prescribed by CBDT for filing appeal does not apply
CIT Vs Surya Herbal Ltd. (SC) 60 DTR 165
• The expression 'income tax' used in the Finance Act and the
Income Tax act includes surcharge and additional surcharge
wherever provided in the Act
CIT Vs K. Srinivsan (SC) 83 ITR 346
Condonation of delay
• Delay in filing the appeal – Reason for delay – Whether the
appellant has acted with reasonable diligence in the
prosecuting of his appeal, to be looked into.
Brij Inders Singh Vs Kanshi Ram AIR 1917-PC-156
Baroda Rayon Corpn. Ltd. (Guj) 87 STC 266
M. Krishna Rao D. Phalke Vs Trimbak AIR 1938 Nag. 156
Baldeo Lal Roy Vs State of Bihar (1960) 11 STC 104 (Pat)
M. Loganathan Vs CIT (Mad) 302 ITR 139
• High Court's order against the assessee later on reversed by

Supreme Court – Since High Court judgement was against the
assessee it did not file appeal, but when SC decision came in its
favour, it decided to file appeal – This is a reasonable cause for
condonation of delay. But when assessment order was passed
and limitation to file appeal over, even HC order was not there –
Hence there is no reasonable cause for delay in filing appeal.
State of Andhra Pradesh Vs Venkataramana Chuduva & Muramura Merchant & Anr.
(AP) 159 ITR 59.
CIT Vs Sothia Mining & Mfg. Corporation Ltd. (Cal) 46 Taxman 195
• Condonation of delay – Party has to show reason for delay on

the last day of limitation period and thereafter for each day
thereafter – Condonation is not a matter of right – Court has to
exercise the discretionary jurisdiction.
Rankak & Ors, Vs. Rewa Coalfields Ltd. AIR 1962 SC 361
JCIT Vs Tractors & Farm Equipments Ltd. (ITAT, Chennai-TM) 104 ITD 149
Madhu Dadha Vs ACIT (Mad) 317 ITR 458
• Condonation of delay is not warranted when assessee takes a

conscious decision not to file appeal against the assessment
order
S.S. Builders Vs ITO 2010-TIOL-714-ITAT-MUM
• Medical certificate produced to support petition for

condonation of delay in filing appeal – But records showed that
during such period assessee attended to his tax matters,
appeared before the IT authorities and got his statement
recorded – Application for delay condonation rejected
DCIT Vs K. Prabhakar Rao (ITAT, Bang) 128 ITD 263 ; 136 TTJ 493
• Ignorance of law is not a ground to condone the delay – Every

assessee is duty bound to know the provisions of law – Act
pres-supposes an assessee to know its provisions
CIT Vs India Gospel Fellowship Trust (Mad) 331 ITR 283
• Liberal approach to be taken in respect of appeals by

Department
Collector Land Acquisition Vs Mst. Katiji (SC) 167 ITR 471
State of Haryana Vs Chandra Mani 1996 AIR SC 1623
G. Ramegowda, Major Vs Special Land Acq. Officer 1988 AIR SC 897
• Delay in filing appeal by Department due to failure to obtain

sanction in time – Delay to be condoned
Pay & Accounts Officer Vs ITO (Mad) 316 ITR 197
• Time taken to obtain certified copy of order can be excluded for

computing period of limitation for filing appeal.
ITO Vs Meghalaya Bonded Warehouse (Gau) 60 ITD 219
• Delay in filing application to bring Legal representatives of

deceased on record – No abatement of appeal
CIT & Anr. Vs V. Rukmini by LRs. (Kar) 53 DTR 30
• Looking to the amount of tax involved, High Court ought to

have decided the appeal on merits and ought not to have
dismissed the appeal as belated
CIT Vs West Bengal Infrastructure Development Finance Corporation Ltd. (SC)
334 ITR 269
Admission of Additional evidence

• Order of AAC show that not even an iota of additional evidence
was produced before him in support of the assessee's case that
there was improper service of notice on him – Failure of
assessee to follow requirements of R. 46A – AAC justified in
not considering additional evidence.
C.Unnikrishnan Vs CIT (Ker) 233 ITR 485
• The mere fact that the evidence sought to be produced is vital

and important does not provide a substantial cause to allow its
admission at the appellate stage, especially when the evidence
was available to the party at the initial stage and had not been
produced by him without any sufficient cause.
CIT Vs Jaipur Udyog Ltd. (Raj) 227 ITR 345
Velji Deoraj & Co. Vs CIT (Bom) 68 ITR 708
Jyotsna Suri Vs DCIT (ITAT, Del) 61 ITD 139
A.K. Babu Khan Vs CIT (AP) 102 ITR 757
DCIT Vs Vira Construction Co.(ITAT, Mum TM) 61 ITD 33
Ram Prasad Sharma Vs CIT (All) 119 ITR 867
• Application must be made for admission of additional

evidence, with reasons showing the purpose the additional
evidence would serve and reasons for not producing it earlier
Bimal Kumar Anant Kumar Vs CIT (All) 288 ITR 278
• No reason was adduced for not producing the additional

evidence before the lower authorities – Application for
admission deserves to be rejected. If admitted, the provisions
of Rule 46A to be followed.
N.B. Surti Family Trust Vs CIT (Guj) 288 ITR 523
Ranjit Kumar Choudhury (Gau) 288 ITR 179
• When assessee produces additional evidence before CIT(A),

Assessing Officer to be afforded opportunity to oppose its
admission as well as to test such evidence or counter the effect
thereof or to produce evidence in rebuttal
CIT Vs Valimohmed Ahmedbhai (Guj) 134 ITR 214
• Requirement of Rule 46A(2) is that no evidence shall be

admitted under sub-rule (1) unless the CIT(A) records in
writing the reasons for its admission – Since no order has been
passed by the CIT(A) u/R 46A(2), it has to be taken that the

assessee's application for filing of additional evidence remains
pending before the CIT(A) and that he has disposed off the
appeal on merits without disposing off the said application –
Application of the assessee u/R 46A was required to be
disposed of before hearing and deciding the appeal on merits –
Matter remanded to CIT(A) to dispose of the application u/R
46A and then to decide the appeal
ACIT Vs Mohar Singh (ITAT, Jd) 32 DTR 497
• Assessee produced affidavit of third party before CIT(A)

without filing any application for admission of additional
documents – CIT(A) did not pass any specific order allowing
such prayer and specifying the point on which such additional
evidence should be taken – No prayer made by assessee before
Tribunal and High court for admission of such additional
evidence - Affidavit cannot be considered
Dinesh B. Parikh Vs CIT (Cal) 202 Taxman (Mag) 110
• For admitting additional evidence, Tribunal has to follow

Rules 29, 30 & 31
Roshal Di Hatti Vs CIT (SC) 107 ITR 938
• Rule 29 does not confer any right on the parties to produce

additional evidence – Tribunal has the power to reject it
CIT Vs Kamal C. Mahboobbani (Bom) 214 ITR 15
Admission of Additional / New grounds

• Question of law can be raised afresh before ITAT if the relevant
facts are on record – Appellant to satisfy that the ground raised
was bonafide and the same could not have been raised earlier
for good reasons
National Thermal Power Co. Ltd. Vs CIT (SC) 229 ITR 383
• Claim for exemption not made before ITO – No material on

record supporting such claim – AAC cannot entertain such
claim in appeal proceedings.
Addl. CIT Vs Gurjargravures P. Ltd. (SC)111 ITR 1
• Alternate contention not raised before Assessing Officer &

CIT(A) – ITAT cannot entertain it since Assessing officer has
not conducted any enquiry in this angle and full facts on the
issue not available on record
C.K. Gopinathan Vs CIT (Ker) 260 ITR 213
• Claim for relief not made before ITO – No material on record

supporting such claim – Tribunal cannot direct ITO to examine
claim on merits.
CIT Vs G.S. Rice Mills (All) 136 ITR 761
• Additional ground – Appellant to satisfy Tribunal about

existence of good reason for omission of such ground in
original appeal memo – Failure of assessee to give any reason
Additional ground could not be entertained.
Batliboi & Co. Ltd. Vs DCIT (ITAT, Mum) 67 ITD 397
S. Kumars Tyre Mfg. Co. Ltd. Vs DCIT (ITAT, Indore) 61 ITD 326
• Fresh /new Question of law can be raised afresh before ITAT

even if it was not raised before Assessing Officer and CIT(A).
But fresh ground if permitted to be raised has to be sent back to
CIT(A) for adjudication as ITAT can adjudicate only on the
issues which have been decided by lower authorities
CIT Vs Tollaram Hassomal (MP) 298 ITR 22
Amit Estate organizer Vs ITO (ITAT, Ahd-TM) 113 ITD 255
• Issue not raised before lower authorities cannot be raised

before High Court in appeal u/s 260A
Mukti Properties (P) Ltd. Vs CIT (Cal) 50 DTR 273
• Issue not considered in assessment on consent from assessee,

cannot be taken up in appeal
Southern Foundation P. Ltd. Vs ACIT (Mad) 324 ITR 76
• Assessing Officer passed order rejecting the fresh claim of

assessee since no revised return making such a claim was filed
– Assessing Officer followed decision of Apex Court in Goetz
(India) Ltd. – CIT(A) confirmed the order of Assessing Officer
– Such an order cannot be disturbed / set-aside to provide an
opportunity to assessee to prove its claim
Jay Bharat Co-op. Housing Society Ltd. Vs ITO (ITAT, Mum) 125 ITD 90
• In assessee's appeal, ITAT can allow Department to raise new

contention and remand matter to ITO for enquiry and action on
issues allowed by the Assessing Officer in the assessment
order. However enhancement as such cannot be made by ITAT
Hukumchand Mills Ltd. Vs CIT (SC) 63 ITR 232
• Tribunal can allow Department to raise a new contention

before it for the first time.
CIT Vs Gilbert & Barker Mfg. Co. ( Bom ) 111 ITR 529
N.P. Saraswathi Ammal & ors. Vs CIT ( Mad ) 138 ITR 19
ACIT Vs Amarnath Reddy (ITAT, Chennai-TM) 126 ITD 113
• Tribunal was competent to allow Department to urge that

interest was leviable u/s 215 eventhough interest u/s 217 was
levied in assessment order
Assam Carbon Products Ltd. Vs CIT (Gau) 140 CTR 30
• Tribunal should not treat the additional grounds as additional

appeal and reject it on the ground of delay, more so when the
additional ground did arise from the facts already on record.
National Newsprint & Paper Mills Ltd. Vs CIT (MP) 141 CTR 485
• No time limit or rigid rule for filing additional grounds, if

appeal is in time.
Shilpa Associates Vs ITO (Raj) 263 ITR 317
• No prescribed proforma to raise additional grounds before

Tribunal
Everwin Export Corporation Vs ITO (ITAT, Chennai-TM) 124 ITD 181
• Assessee raised plea of the assessment being barred by

limitation on the ground that notice u/s 143(2) was not served
within the stipulated time – This being a question of fact not
allowed to be raised for the first time before the tribunal as it
will prejudice the other side
Aravali Engineers (P) Ltd. Vs CIT & Anr. (P&H) 335 ITR 508
Rights of respondent in appeal

• Expression “against any part of the order” in sec. 253(4) clearly
suggests that the cross-objection can be filed only in cases
where the appellate authority has decided against the party –
Further under Rule 27 of the ITAT Rules, respondent can
support the order of the CIT(A) in respect of any finding of the
CIT(A) against him – When CIT(A) has not adjudicated upon
an issue, assessee can neither file cross-objection nor seek
relief under Rule 27
ITO Vs Neetee Clothing (P) Ltd. (ITAT, Del) 35 DTR 362 ; 129 TTJ 342
• Respondent before Tribunal, though he may not have appealed,

may support order appealed against on any of grounds decided
against him by first appellate authority.
CIT Vs BPL Systems & Projects Limited (Ker) 227 ITR 779
Travancore Chemical & Mfg. Co. Ltd. Vs CIT (Ker) 226 ITR 429
• Rule 27 is not applicable on an issue which was not taken

before the CIT(A) – Respondent in a case can support the order
appealed against by taking any plea including the plea that the
order is bad in law – If such a plea succeeds, it will not render
the order appealed against as nugatory, but the effect will be
that the order shall stand as it is
ITO Vs Pandit Vijay Kant Sharma 2009-TIOL-554-ITAT-DEL
• Assessing Officer made addition of Rs. 28 lakhs on account of

bad debts claim – CIT(A) confirmed addition of Rs. 15 lakhs
and deleted the balance Rs. 13 lakhs – On appeal by revenue
before Tribunal, respondent assessee can draw support from
Rule 27 of ITAT Rules to support the order of CIT(A) only on
the deletion of Rs. 13 lakhs and assessee cannot contest the
addition of Rs. 15 lakhs confirmed by CIT(A)
CIT Vs Jamnadas Virij Shares and Stock Brokers Pvt. Ltd. 2012-TIOL-265-HC-
MUM-IT
Rights of intervenors in appeal
• Intervention application is only for addressing arguments –

Order cannot be passed in favour of intervenor.
Saraswathi Industrial Syndicate Limited Vs CIT (SC) 237 ITR 1
Orders of Appellate authorities
• Tribunal to consider carefully all the evidence and the

arguments raised by the parties and give a well reasoned order
after considering decisions of High courts and Supreme court
on that issue.
CIT Vs Nirmal Liquors (Ker) 190 ITR 636
Kundanmal Kothari (HUF) Vs CIT (Gau) 93 Taxman 620
CIT Vs Ferro Concrete Construction (I) Pvt. Ltd (MP) 303 ITR 462
Ram Bagh Palace Hotel Pvt. Ltd. Vs CIT (Del) 303 ITR 178
J. Bheemananda Gupta Vs ACIT (Kar) 250 ITR 537
CIT Vs Palwal Co-operative Sugar Mills Ltd. (P&H) 284 ITR 153
Vipul Fashions P. Ltd. Vs ACIT (Guj) 284 ITR 332
• Where ITAT comes across any case law after the hearing is
over and opines that such decision has an impact over the issue
in question, it is the primary and legal duty of ITAT to re-post
the case for hearing and get views of the counsels of both sides
Tribunal need not follow the ratio laid down in its earlier
orders, if certain judicial precedents which were not brought to
its notice earlier or provisions of law or correct interpretation of
law came to its knowledge subsequently.
Sriram Transport Finance Co. Ltd. Vs ACIT (ITAT, Mad) 70 ITD 406
Mafatlal Securities Ltd. Vs JCIT (ITAT, Mum) 119 ITD 444
• Unless order of a Bench is signed by all members constituting it

and it is dated, it is not an order of Tribunal.
ITAT Vs V.K. Agarwal (SC) 235 ITR 175
• Oral pronouncement during the course of hearing is not an

order at all. Even an entry to this effect in the order sheet signed
by the Members of the Bench would not constitute an order
within the meaning of Rule 34 of ITAT Rules. Tribunal can
refix the case under sec. 254(1) for clarification before passing
an order in writing.
Mafatlal Securities Ltd. Vs JCIT (ITAT, Mum) 119 TTJ 501
• Additional ground raised – One member admitted the ground

and adjudicated it on merits – Other member did not admit the
ground – Third member agreed for admission of the ground –
Hence the matter should go back to the Bench for decision on
merits as only one Member earlier adjudicated it
Everwin Export Corporation Vs ITO (ITAT, Chennai-TM) 124 ITD 181
Scope of appeal
Power of Enhancement
• CIT(A) is duty bound to exercise his power of 'enhancement'

either suo moto or on motion by Assessing Officer – If
Assessing officer made such a request and CIT(A) failed to
make enhancement and not even mentioned about such request
in his order, Assessing Officer can file appeal on this issue
before ITAT.
Popular Automobiles Vs CIT (Ker) 187 ITR 86
• CIT(A) can examine all matters covered by the assessment

orders and even can correct the assessment in respect of all
such matters to the prejudice of assessee. Enhancement to
assessed income / wealth can be made after due opportunity to
the Assessee
Indermal Natwarlal Vs CIT (MP) 166 ITR 494
• CIT(A) is entitled to direct additions in respect of items of

income not considered by ITO.
CIT Vs Nirbheram Daluram (SC) 224 ITR 610
CIT Vs K.S. Dattatreya (Kar) 51 DTR 266
Eskayef Ltd Vs DCIT (ITAT, Bang) 71 ITD 419
Ansaldo Energia SPA Vs ADIT (ITAT, Chennai) 305 ITR(AT) 310
• Enhancement by CIT(A) without giving notice to assessee

Procedural irregularity – Tribunal justified in remanding case
of CIT(A).
Pranakrishna Swain Vs CWT (Orissa) 187 ITR 143
• No notice by CIT(A) was necessary to assessee before

enhancement as income computed did not exceed income
determined by Assessing Officer.
CIT Vs T. Namberumal Chetty & Sons ( Mad ) 1 ITR 32
Sukhdev Singh Vs DCIT (ITAT, Chd) 95 Taxman (Mag) 116
• No statutory notice prescribed u/s 251(2) – If assessee is made

aware of proposed action of enhancement of income,
explanation obtained during the course of hearing and
considered, then enhancement is proper.
Honda Siel Cars India Ltd. Vs ACIT (ITAT, Del) 109 ITD 1
• Revenue raising preliminary point that Assessing Officer

committed an error in making the assessment – Tribunal
accepting this point and remanding matter to Assessing Officer
for fresh assessment – Valid, even if fresh assessment result in
enhancement of Total Income.
Bhavana Chemicals Ltd. Vs CIT (SC) 231 ITR 507
CIT Vs Assam Travel Shipping Service (SC) 199 ITR 1
• CIT(A) can make enhancement of assessment on the basis of

information from the assessing officer
Goel Die Cast Ltd. Vs CIT(A) (P&H) 297 ITR 92
Appeal against Agreed Addition

• No appeal lies against agreed additions unless assessee proves
coercion or malafide
Rameshchandra & Co Vs CIT. (Bom) 168 ITR 375
Ramanlal Kamdar Vs CIT (Mad)108 ITR 73
Mahesh B, Shah Vs CIT (Ker) 238 ITR 130
Sterling Machine Tools Vs CIT (All) 123 ITR 181
• Penalty imposed on the basis of agreement between assessee

and Department – No appeal lies against this.
Banta Singh Kartar Singh Vs CIT (P&H) 125 ITR 239
India Sea Foods Vs CIT (Ker) 114 ITR 124
Indira Chemical Agency Vs CIT (Mad) 119 ITR 569
• Authorized Representative having power of attorney making

agreement with Assessing Officer – Binding on assessee.
Jayasree Chit Funds & Services (P) Ltd. Vs CIT (Kar) 127 ITR 740
Turner Morrison & Co. Ltd. Vs Hungerford Investment Trust Ltd. (SC) 85 ITR
607pp.609 – principle laid down
• Assessment completed on the basis of return filed by assessee

Assessee cannot raise any question of limitation.
C.I. Haleema Vs State of Kerala (Ker) 152 CTR 154
• When there is controversy between the parties, the statement

made by the judge should be accepted as final and conclusive.
If the assessee has any objection, he has to immediately file a
review petition before the same authority
Real Food products (P) Ltd. Vs ITAT (AP) 229 ITR 351
Extent of relief that can be granted

• CIT can grant relief only to the extent it was declined by lower
authority.
Punjab Feed Mills Vs ITO (P&H) 228 ITR 386
• Tribunal has no power to reduce penalty to a figure lower than

minimum prescribed by statute.
CIT Vs J Stead and Co. P. Ltd. (Mad) 234 ITR 730
CIT Vs R.B. Jodhamal Kuthiala & Sons (Del) 98 ITR 570
• In the absence of any cross-appeal or cross-objection, Tribunal

cannot give a finding adverse to the appellant which would
make his position worse than what it was under the order
appealed against
Pahulal Ved Prakash Vs CIT (All) 88 CTR 51
• Assessing Officer made addition on account of low gross profit

CIT(A) partly deleted the addition – On appeal by revenue,
Tribunal cannot delete the addition fully, especially when no
appeal / cross-objection filed by assessee.
CIT Vs Sisodia Marbles & Granites (P) Ltd. (Raj) 18 DTR 147
Power restricted to subject matter of appeal
• Power of Tribunal is restricted to the subject matter of appeal

alone – The words “thereon” restricts the jurisdiction
Hukumchand Mills Ltd. Vs CIT (SC) 63 ITR 232
• Jurisdiction of Tribunal is restricted to the subject matter of

appeal which is stated in original Grounds of Appeal and
additional Grounds of Appeal – It is not open to raise any
ground which would work adversely to the appellant and pass
on order which makes his position more worse.
J.K. Bankers Vs CIT (All) 94 ITR 107
Jayakumar B. Patil Vs DCIT ( ITAT, Pune ) 108 ITD 439
• Facts necessary for considering the claim is before Tribunal –

Absence of specific appeal or cross appeal would not prevent
Tribunal from granting relief.
CIT Vs S. Vijayalakshmi (Mad) 242 ITR 46
• While the Tribunal cannot enlarge the scope of 'subject matter

of appeal', it can examine any aspect of the subject-matter of
appeal, whether the same has been examined by the authorities
below or not – Only limitation to this power is that it should not
expand the scope of the appeal in terms of the income sought to
be taxed or disallowance sought to be made – Assessing
Officer's action in not considering it expedient to look into the
taxability of the income from all possible angles cannot
foreclose the examination of the taxability from different
perspective
Linklaters LLP Vs ITO (Int.Tax) (ITAT, Mum) 40 SOT 51 ; 42 DTR 233 ; 132
TTJ 20
Power to decide constitutional validity of provisions
• Tribunal is not competent to determine whether provisions

violate articles of constitution.
Taylor Instrument Co.(India) Limited Vs CIT (Del) 232 ITR 771
Mysore Breweries Ltd. Vs CIT (Kar) 166 ITR 723
CIT Vs Ved Prakash (P&H) 178 ITR 322
Power to annul the assessment
• An assessment order is to be annulled only when the Assessing

Officer had passed the order without jurisdiction
ITO Vs Virendra Singh Memorial Shiksha Samiti (ITAT, Lucknow) 18 DTR 502 ;
121 TTJ 829
Power to conduct further enquiry & record correct

facts
• AAC has all plenary powers which AO is having.

Jute Corporation of India Limited Vs CIT (SC) 187 ITR 688
• Appellate authority has the jurisdiction as well as the duty to

correct all errors in the proceedings under appeal and to issue, if
necessary, appropriate directions to the authority against
whose decision the appeal is preferred to and dispose of the
whole or any part of the matter afresh, unless forbidden from
doing so by the statute - If there is difficulty in recording
correct finding of fact on account of contradictions in factual
position, Tribunal has power to remand matter to lower
authority to state correct facts.
Kapurchand Shrimal Vs CIT (SC) 131 ITR 451
• Power of AAC to make further enquiry and receive additional

evidence – Restrictions are placed on production of additional
evidence by assessee only – Would not affect powers of AAC to
call for production of document or examination of witness to
enable him to dispose off appeal – Power conferred on AAC is
quasi-judicial. – Failure of AAC to exercise discretion
judicially and arbitrary refusal to make enquiry in a case where
circumstances demand – Action of AAC would be open to
correction by higher authority.
Prabhavathi S. Shah Vs CIT (Bom) 231 ITR 1
• CWT (A) can direct Assessing Officer to make revaluation

after referring to valuation officer if Assessing Officer has
made valuation without any such reference.
CWT Vs Prasad Productions (P) Ltd (Mad) 259 ITR 88
• Tribunal's proceedings of remand are wide and inclusive of

issuing direction to lower authority to consider any issue on the
basis of facts collected on enquiry.
Thanthi Trust Vs ACIT (Mad) 238 ITR 117
• Tribunal can set aside a matter to Assessing Officer for further

enquiry so as to make proper assessment by allowing revenue
authorities to raise a contention for the first time before it
ACIT Vs Amar Mining Co. (ITAT, Ahd-TM) 121 ITD 273
• CIT(A) has all powers of Assessing Officer even though

power to set-aside was removed in 2001.
Tolin Rubbers (P) Ltd. Vs CIT (Ker) 264 ITR 439
Power to remand revision order u/s 263
• Tribunal can remand revision order to the files of CIT for

passing fresh order u/s 263
Martin Burn Ltd. Vs CIT (SC) 199 ITR 606
Power to give directions for another A.Y.
• Jurisdiction of AAC is strictly confined to assessment order of

each year under appeal – No power is conferred to make an
order or issue directions in respect of an Assessment Year
which is not subject matter of appeal.
ITO Vs Muralidhar Bhagwan Das (SC) 52 ITR 335 (5 Judges)
CIT Vs Manik Sons (SC) 74 ITR 1
CIT Vs T.P.S.H. Selva Saroja (Mad) 244 ITR 671
R.H. Dave Vs CIT (Cal) 140 ITR 1035
Consolidated Coffee Limited Vs ITO (Kar) 155 ITR 729
CIT Vs Rafiulla Tea and Industries (P) Limited (Gau) 234 ITR 433
Marubeni India P. Ltd. Vs CIT (Del) 328 ITR 306
• CIT(A) can validly issue directions to treat a part of the amount

as income in next year, which is not in appeal before him.
DCIT Vs S. Man Mohan Singh (ITAT, Del) 63 TTJ 491
Power to change the head of income
• ITAT/AAC has power to assess an income under a different

head.
Sneh Lata Vs CIT (All) 61 ITR 139
Steel Containers Limited Vs CIT (Cal) 112 ITR 995
• Tribunal has the power to change the head of income of the

subject matter transaction – There was no case of enhancement
nor the case of taking over a benefit already allowed to the
assessee
DLF Universal Ltd. Vs DCIT (ITAT,SB-Del) 34 DTR 105
Power to consider aspects not considered by

Assessing Officer on the disputed issue
• Denial of deduction by Assessing Officer for failure to satisfy

one condition – Tribunal bound to consider whether all
conditions were satisfied – Department entitled to raise
question on fulfillment of other conditions for deduction
Tata Communications Ltd. Vs JCIT (ITAT,SB-Mum) 317 ITR (AT) 1
CIT Vs Summit Securities Ltd. (ITAT, SB-Mum) 68 DTR 201
Power to direct Assessing Officer to provide further

opportunity
• Tribunal cannot direct Assessing Officer to provide further

opportunity without recording a finding of denial of
opportunity
CIT Vs SAS Educational Society (P&H) 319 ITR 65
Power to reject books of accounts
• CIT(A) has power to reject the books of accounts accepted by

the Assessing Officer – Non-exercise of the power u/s 145(2) is
also a decision which can be reversed by the CIT(A)
CIT Vs Mc Millan & Co. (SC) 33 ITR 182
Power to cancel protective additions / assessments
• Protective assessment permissible but appellate authorities

cannot make protective order
CIT Vs Durgawati Singh (All) 234 ITR 249
Jagannath Bawri & Ors. Vs CIT & Ors. (Gau) 234 ITR 464
• Addition made on protective basis can be deleted only on the

ground that the amount had already been added in the

substantive assessment
ACIT Vs Patira Products 2011-TIOL-186-HC-AHM-IT
Power to allow withdrawal of appeal
• An assessee having once filed an appeal, cannot withdraw it.

Even if the assessee refuses to appear at the hearing, CIT(A)
can proceed with the enquiry and if he finds that there has been
under-assessment, he can enhance the assessment
CIT Vs Rai Bahadur Hardutroy Motilal Chamaria (SC) 66 ITR 443
CIT Vs B.N. Bhattachargee (SC) 118 ITR 461
• Appellate authority can permit assessee or revenue to

withdraw appeal if opposite party is not objecting and if
appellate authority is judicially satisfied
M. Loganathan Vs ITO (ITAT, Chennai ) 99 ITD 246
Power in proceedings remitted back earlier

• ITAT directing CIT(A) to record a finding on one issue
CIT(A)'s power is limited to that issue alone.
Baldev Singh Giani Vs CIT (P&H) 248 ITR 266
• In the proceedings before ITO for making fresh assessment

pursuant to directions in appellate order, only such issues can
be agitated which have not attained finality – Remand by IAC
to verify cash credits, ITO could not decide the issue of validity
of reassessment.
Murlidhar Bhagwandas Vs CIT (Bom) 149 CTR 425/234 ITR 548
Sudarshan Kumar Vs ITO (ITAT, Asr-TM) 62 ITD 243
M.S.P. Senthilkumar Vs CIT (Mad) 241 ITR 502
Jose Cyriac Vs CIT (Ker) 50 DTR 292 ; 238 CTR 207 ; 336 ITR 241
• Order of Tribunal recalled to adjudicate a ground omitted to be

considered – During the course of hearing of such recalled
appeal, assessee cannot raise additional ground
Tokhem Enterprises Vs ITO (ITAT, Mum) 132 ITD 375
Power to hear an appeal on issues admitted by High

Court
• Tribunal can hear an appeal on an issue even though High

Court has admitted an identical question of law in another case
DCIT Vs Summit Securities Ltd. (ITAT, SB-Mum) 132 ITD 1 ; 11 ITR (Trib) 88
Power to initiate contempt proceedings
• ITAT is not a Court – No contempt proceedings lie in Civil

Court if Assessing Officer is not following the directions of
ITAT
Kulwant Kaur Vs Hitesh Dogra 2010-TIOL-577-HC-P&H-IT
Proceedings before Third Member, ITAT

• When there is no unanimity among members of Tribunal in
identifying points of difference to be referred to Third Member,
President shall identify such issues and appoint Third Member.
• Third member of ITAT has no right to go beyond the scope of

reference
Dynavision Ltd. Vs ITAT (Mad) 304 ITR 350
Jan Mohammed Vs CIT (All) 23 ITR 15
• Third member has to agree with one of the dissenting members

He cannot take a different view
Hanutram Chandanmul Vs CIT (Pat) 23 ITR 505
• Third Member's order expressing no opinion on the points of

dispute cannot legally be sustained
ITO Vs Vice President, ITAT (Mad) 155 ITR 310
• Third Member can consider evidence only if it was tendered

before the Original bench
Ichalkaranji Co-op. Spinning Mills Ltd. Vs DCIT (ITAT, Pune-TM) 102 ITD 177
DCIT Vs B.P. Agarwalla & Sons Ltd. (ITAT, Kol-TM) 86 ITD 219
• No power to entertain additional ground before Third Member

after conclusion of hearing by Division Bench.
Rameshwar Soni Vs ACIT (ITAT, Jodhpur) 279 ITR (AT) 60, 97 ITD 127
• Reference to Third member – No intervenor allowed at that

stage
Saipem S.P.A. Vs DCIT (ITAT, Delhi) 86 ITD 572
• Miscellaneous Petition against order of Third Member will lie

only after regular Bench pass order incorporating the same
DCIT Vs Telco Dadajee Dhackjee Ltd. 2011-TIOL-330-ITAT-MUM
Proceedings before Special Bench, ITAT

• President, ITAT can suo moto or on request from any party, can
constitute Special bench
ITAT Vs DCIT (SC) 218 ITR 275
• Once President constituted a Special bench, even if request for

withdrawal of appeal is made subsequently by the party, the
proceedings will continue
Arihant Builders, Developers & Investors (P) ltd. Vs ACIT (ITAT,SB-Ind) 106
ITD 10
Appeal before High Court

• Non-consideration of a ground by ITAT is not a reason for
filing appeal before High Court
CIT Vs Malladi Project Management P. Ltd. (Mad) 324 ITR 87
• Assessee cannot take contradictory stand before Tribunal &

High Court
• High Court having jurisdiction over ITO who made the

assessment can hear a reference arising out of the ITO's orders
CIT Vs Madanlal and Co. (Kar) 202 ITR 360
CIT Vs Parke Davis (India) Ltd. (AP) 239 ITR 820
Suresh Desai & Associates Vs CIT (Del) 230 ITR 912
• The words 'substantial question of law' have not been defined –

Usually five tests are used to determine whether a substantial
question of law is involved. They are as follows :
i. Whether directly or indirectly it affects substantial rights of
parties
ii. The question is of general public importance
iii. Whether the issue has not been settled by Supreme Court
iv. The issue is not free from difficulty
v. It calls for a discussion for alternate view
Chaman Lal vs CIT (Del) 112 Taxman 291
• Issue not raised before Tribunal cannot form subject matter of

appeal before High Court
C & C Construction Pvt. Ltd. Vs CIT 2011-TIOL-789-HC-DEL-IT
• A finding of fact may give rise to a substantial question of law if

the findings are based on no evidence and / or relevant
admissible evidence has not been taken into consideration or
inadmissible evidence has been taken into consideration or
legal principles have not been applied in appreciating the
evidence or when evidence has been misread
Vijay Kumar Talwar Vs CIT (SC) 332 ITR 602
Chapter 7
SEARCHES UNDER I.T. ACT
& CONSEQUENTIAL
ASSESSMENT
SEARCHES UNDER I.T. ACT & CONSEQUENTIAL ASSESSMENT 719
SEARCH & SEIZURE OPERATIONS

• Sec. 132 & 132A of I.T. Act deal with powers of various
authorities to conduct search and seizure operations as well
as requisition of books of accounts / documents or assets
and the mode of conduct of the same.
• Chapter XIV-B of I.T. Act deals with provisions for making

assessments consequent to search during the period 01-07-
1995 to 30-05-2003 whereas Sec. 153A to 153D deals with
provisions for making assessments consequent to search
initiated after 01-06-2003.
Section 132 deals with the powers of various I.T. authorities to

issue warrant, situations in which such warrants can be issued,
who can be authorized to conduct the search and seizure
operations and functions of such Authorized officers. As per these
sections,
• Deemed seizure of valuable article or thing can be done

where it is not possible or practicable to take physical
possession of the same [ second proviso to sec. 132(1) ]
• This section also provides for effecting deemed seizure.
• Authorized officer can requisition the assistance of Police

or other Govt. officers [sec. 132(2) ]
• Prohibitory orders can be issued where it is not practicable

to seize books of accounts / documents or assets, but such
orders will be in force only for a period upto 60 days [ sec.
132(3) and (8A) ]
• Authorized officer can examine any person on oath and

such statements can be used in evidence [Sec. 132(4) ]
• Sec. 132(4A) creates presumption that all the books of

accounts, documents and valuables found during the
course of search belongs to the person found in possession
or control of such items and the contents thereof are true
and are properly stamped.
• This presumption is available for any proceedings under

the act in view of sec. 292C inserted by Finance Act, 2007
w.r.e.f. 01-10-1975. Decision of supreme Court in P. R.
Metrani Vs CIT (287 ITR 209) wherein it was held that the
presumption u/s.132(4A) is available only for the search
proceedings and that the same is rebuttable and cannot be
used for framing a regular assessment, is no longer good
law.
• Period for retention of seized documents and handing over

the same to Assessing Officer [ sec. 132(8), (9A) and (10) ]
• Provisions of Cr. P. C. relating to search and seizure apply.
• Relevant Rules : Rule 112 to 112D
• Relevant forms for issue of warrant / requisition : Form 45,

45A, 45B & 45C
• Sec. 132B deals with application of seized or requisitioned

assets and release after appropriation.
• Assessee merely contended that Director of Investigation has

no valid information on the basis of which he could issue
warrant of search – Assessee not supporting contention with
cogent material – Department cannot be asked to produce
records to show information having been received – Order u/s
132(3) does not amount to seizure – No order u/s 132(3) can be
passed when Assessing Officer is in doubt whether asset is
disclosed or not.
Sriram Jaiswal Vs Union of India & Ors.(All) 176 ITR 261
• “Reason to believe” need not be disclosed when a mere

allegation made by petitioner – Illegality of search does not
vitiate evidence collected during search.
Dr. Pratap Singh & Another Vs Director of Enforcement & Ors.(SC) 155 ITR 166
Genom Biotech (P) Ltd. & Ors. Vs DIT(Inv.) & ors. (Bom) 23 DTR 241; 224
CTR 270
• The fact that the issue on which search was initiated (as evident
from the Satisfaction note) was enquired by TPO and CIT(A)
in the past and allowed in favour of assessee, will not affect the
reasonable belief formed by DIT as neither TPO nor CIT(A)
examined the issue in the angle of genuineness of transaction as
a related party was the ultimate recipient of the remittances
abroad
Genom Biotech (P) Ltd. & Ors. Vs DIT(Inv.) & ors. (Bom) 23 DTR 241; 224 CTR
270
• Authorization issued by competent authority on the basis of

material in its position – Court cannot examine adequacy or
sufficiency of such information under writ jurisdiction.
Doctors X-ray and Pathology Institute P. Ltd. Vs DCIT (All) 318 ITR 125
• Search in Bank and details found – Not a case of collecting

information but a case of search in respect of person named in
the warrant of authorization – Banks also can be searched in the
case of any other person – Common authorization in respect of
more than one person is permissible.
Raghu Raj Pratap Singh Vs ACIT (All) 307 ITR 450
• Any person including a non-resident Indian is amenable to

search and seizure u/s 132
Ram Kumar Dhanuka Vs Union of India (Raj) 252 ITR 205
• Addl. DIT is competent to issue warrant of authorization

Sunil Dua Vs CIT (Del) 330 ITR 413
• Initiation of search – When authorities issue authorization and

not when it is executed
Suraj Prakash Soni Vs ACIT (ITAT, Jodh) 106 ITD 321
• Mere signing of warrant by DIT does not amount to “initiation

of search”. Search was initiated only when physical search
took place.
CIT Vs Wipro Finance Ltd. (Kar) 218 CTR 386
• Material available prima facie shows that a number of persons

are involved in interconnected transactions – Common search
warrant can be issued against them
Anjuga Chit Funds (P) Ltd. Vs DCIT (ITAT, Chennai) 113 ITD 67
• Common warrant specifying name and address of all the

persons to be searched – Valid
Jose Cyriac Vs CIT (Ker) 50 DTR 292; 238 CTR 207
Embassy Classic Pvt. Ltd. Vs ACIT 2010-TIOL-591-ITAT-BANG
Rajat Tradecom India Pvt. Ltd. Vs DCIT (ITAT, Indore) 3 ITR (Trib) 321
• Warrant issued in the name of three companies separated only

by a comma and without the word “and” between the names of
companies – Is a common warrant and not a joint warrant –
Block assessment in the individual names of three companies
is valid
Radan Multimedia Ltd. Vs DCIT (ITAT, Mum) 58 DTR 129
• Search warrant cannot be treated as illegal merely because full

name of assessee is not written on it – Non-recording of
statement does not render search illegal
ACIT Vs Chilka Vyankatesh Sidram (ITAT, Pune) 122 ITD 293
• Warrant of Authorization need not specify the particulars of

books of accounts and documents to be unearthed in search
ITO Vs Seth Bros. (SC) 74 ITR 836
• Notification under Customs Act providing exemption for

bringing gold – Does not affect seizure of gold under I.T. Act
ADIT(Inv.)(AIU) Vs Appaasu Ravi (Mad) 332 ITR 497
• It is not right to say that no search can be conducted upon any

premises unless the person against whom warrant was issued is
not present himself at that premises
• Evidence collected during an illegal search can be used against

the searched party.
Pooran Mal Vs Director of Inspection (Investigation) & Ors. ( SC ) 93 ITR 505
State of Punjab Vs Baldev Singh etc (SC) 157 CTR 3
• Loose papers found during search – Legal presumption that

such documents belong to assessee u/s 132(4A) and 292C
CIT Vs D.R. Bansal (Chattisgarh) 327 ITR 44
• When the search continues over a period, it is not necessary that

the same witness should be present on all occasions.
T.S. Chandrasekhar Vs ACIT (ITAT, Bang) 66 TTJ 360
• Prohibitory order u/s 132(3) is required to be served on owner

or person who is in immediate possession or control of relevant
material / documents – When prohibitory order was issued in
the name of third party who possessed material pertaining to
assessee, it operated against assessee also
Mahaan Foods Ltd. Vs DCIT (ITAT, Del) 123 ITD 590
• Assessing Officer includes ADIT also

Dr. N.S.D. Raju Vs DGIT(Inv.) & Anr. ( Ker ) 282 ITR 154
• When requisition was made u/s 132A, no power vested with

criminal Court to release cash seized by police to any person
claiming ownership
DDIT(Inv) Vs State of Gujarat (Guj) 319 ITR 292
• Tribunal cannot go into validity or otherwise of administrative

decision for conducting search & seizure when hearing an
appeal against the order of assessment.
CIT Vs Para Rice Mills (P&H) 313 ITR 182
• Return of seized money with interest – Shares used as working

capital was seized – It cannot be treated as equivalent to cash –
Interest not payable on value of such shares
Anil Kedia Vs Settlement Commission of IT & WT (Mad) 341 ITR 613
BLOCK ASSESSMENT UNDER CHAPTER XIV-B

• Sec. 158B to 158BI deals with the procedure for block
assessment.
• Applicable to search initiated or requisition made after 30-

06-1995 (sec. 158BA)
• Taxed at 60% plus surcharge applicable in the A.Y. relating

to the previous year in which search was initiated or
requisition made (sec. 113 & 158BA)
• Block assessment orders to be passed by an officer not

below the rank of ACIT (sec. 158BG)
• All other provisions of I.T. Act apply (sec. 158BH)
• Question of legality and validity of search / requisition cannot

be examined by CIT(A) / ITAT – Any appeal before the
Tribunal against the block assessment does not take within its
fold questions touching the validity of search – Whether or not
the conditions precedent for a search u/s 132 are satisfied in a
given case fall beyond the scope of appeal preferred before the
tribunal against the block assessment order
M.B. Lal Vs CIT (Del) 279 ITR 298
Gaya Prasad Pathak Vs ACIT (MP) 290 ITR 128
CIT Vs Paras Rice Mills (P&H) 220 CTR 619 ; 313 ITR 182
Promain Ltd. Vs DCIT (ITAT,SB-DeI) 95 ITD 489
Jageshwar Rosin & Turpentine Factory Vs ACIT (ITAT, Del) 100 ITD 399
• Even if search is held illegal, material seized can be used

against assessee in assessment proceedings
Pooran Mal Vs Director of Inv. & Ors. (SC) 93 ITR 505
• Surcharge leviable on the tax on undisclosed income in block

assessment – Proviso to sec. 113 is clarificatory in nature
CIT Vs Suresh N. Gupta (SC) 297 ITR 322
• Long-term capital gains included in Block assessment – To be

taxed at 60%
Parshuram D. Patil Vs ACIT (ITAT, Mum-TM) 102 ITD 241
Scope of Block assessment

Block period and undisclosed income defined (sec. 158B)
• Block assessment is in addition to the regular assessment

(sec. 158BA)
• Undisclosed income relating to the block period does not

include income assessed in regular assessment and vice
versa (sec. 158BA)
• Undisclosed income to be computed on the basis of

evidence found as a result of search or requisition and such
other material or information available relatable to such
evidence (sec. 158BB)
• Where the previous year has not ended or due date of filing
return u/s 139(1) not expired, if income or transaction is
recorded in the books of accounts or other documents
maintained in the normal course, such income shall not be
included in the block period. (sec. 158BA)
• Block period includes period upto the date of commencement

of search
CIT Vs Don Bosco Card Centre (Ker) 289 ITR 329
• Block assessment and regular assessments are for different

purposes – No double assessment – They both run parallel to
each other
N.R. Paper and Board Ltd & Ors. Vs CIT (Guj) 234 ITR 733
Malayil Bankers Vs ACIT (Ker) 236 ITR 869
DCIT Vs Shaw Wallace & Co. Ltd. (Cal) 248 ITR 81
• Return filed u/s 139(4) after search – Returned income cannot

be treated as “disclosed income” and adjusted while computing
total undisclosed income u/s 158BB
B. Noorsingh Vs Union of India & Ors. (Mad) 249 ITR 378
M.R. Singhal Vs ACIT (P&H) 290 ITR 162
CIT Vs Sivabala Devi (Mad) 330 ITR 510 ; 49 DTR 272 ; 237 CTR 337
CIT Vs AT Invofin India (P) Ltd. (Del) 49 DTR 141 ; 237 CTR 360 ; 335 ITR 370
CIT Vs K.P. Chandradasan (Ker) 331 ITR 443
• Due date of filing return not expired on the date of search

Investments detected during the course of search not recorded
in the books of accounts – Such investments to be treated as
undisclosed income for the Block period
DCIT Vs H.V. Shantharam (Kar) 261 ITR 435
• Assessee did not file return before the date of search – No

books of account maintained – Thus, eventhough time for
filing return has not expired, there was no disclosure by the
assessee in any manner – Income for the period to be treated as
undisclosed income only
Rajesh Syal Vs CIT (P&H) 28 DTR 153 ; 185 Taxman 369 ; 225 CTR 405
CIT Vs Zuhara U.V. (Ker) 46 DTR 14
• Block assessment – Exclusion of income upto the date of

search is permissible only if time for filing return for relevant
A.Y. is not already over and income was accounted for –
Payment of advance tax by itself will not prove that such
income was disclosed / accounted for
P.P. Ummerkutty Vs CIT (Ker) 201 Taxman (Mag) 162
• When loss declared in the regular return stands reduced on

account of search and Block assessment, there is undisclosed
income – Such reduction of loss can be brought to tax u/s 113
Fenoplast Ltd. Vs ACIT (ITAT, Hyd-TM) 82 ITD 178
• Assessment u/s 158BC to be made both on the basis of result of

search as well as such post-search enquiry and other
proceedings that are in nature of a logical consequence of
evidence found as a result of search
Mange Ram Mittal Vs ACIT (ITAT, Del-SB) 103 ITD 389
• During the course of search, certain material or evidence is

found that may lead to a legitimate enquiry into genuineness of
a transaction – Undisclosed income detected thereon – Block
assessment provisions will apply
Napar Drugs (P.) Ltd. Vs DCIT (ITAT, Delhi-TM) 98 ITD 285
• Income detected during survey succeeded by search on the

same day – Survey proceedings lost its identity and merged
with search proceedings – Any undisclosed income revealed in
the course of survey proceedings transposed in search
proceedings will have to be subjected to Block assessment

ACIT Vs Mangaram Chaudhary (HUF) (ITAT, Hyd) 308 ITR (AT) 83 ; 123
ITD 359
• In view of amendment to sec. 158BB(1) w.e.f. 01-07-2002,

whatever materials which are available on date of search
including material collected much prior to search could be
basis for block assessment
Sri Lakshmi Finance Vs DCIT (Mad) 202 Taxman (Mag) 65
• Estimate of income based on statement recorded during search

and documents seized – Valid procedure in Block assessment
Hotel Kumar Palace Vs CIT (P&H) 283 ITR 110
CIT Vs Hotel Meriya (Ker) 332 ITR 537
Surinder Kumar Vs CIT (P&H) 340 ITR 173
• Statement u/s 132(4) can be used for Block Assessment since it

is oral evidence – DDIT(Inv) can refer valuation of properties
to Valuation Cell since sec. 132(2) and 131 provides for it
Prasanchand Surana Vs ACIT (ITAT, Hyd) 76 ITD 423
• Statement u/s 132(4) can be used for Block Assessment since it

is oral evidence – Retraction of statement without establishing
coercion cannot be accepted
Kantilal C. Shah Vs ACIT (ITAT, Ahd) 133 ITD 57
• Sale value of property adopted in block assessment on the basis

of sworn statement of assessee – Random verification of
depositors showed they have received back their deposits
whereas it was still lying as liability in the books of account of
assessee and assessee did not produce any evidence to
substantiate its claim – Additions upheld
CIT Vs M.K. Shanmugam (Mad) 203 Taxman 136
• Assessee made admission during search and during the course

of assessment proceedings, he died – Legal representatives
could not retract admission made by assessee – Addition on the
basis of admission upheld
CIT Vs Late H.R. Basavaraj (Kar) 339 ITR 63
• Entries in diary can be primary evidence for Block Assessment

Rati Ram Gotewala Vs DCIT (ITAT, Del) 89 ITD 14
CIT Vs Ambika Appalam Depot (Mad) 340 ITR 497
• When undisclosed income by itself is discernible from seized

materials, there is no need for Assessing Officer to find out
corresponding assets / expenses. In a case where a regular
pattern of suppression is established, lawful presumption is
that there is suppression for whole of the block period -
Estimation of income possible in Block Assessment.
Rajnik and Co Vs ACIT (AP) 251 ITR 561
S. Surendranath Reddy Vs ACIT (ITAT, Hyd) 72 ITD 205
Khopade Kisanrao Manikrao .Vs ACIT (ITAT, TM - Pune) 74 ITD 25
Rajendra Kumar Lahoty Vs DCIT (Raj) 266 ITR 621
• No evidence regarding agricultural operations carried out,

details of sale bills of agricultural produce, evidence for
agricultural expenses not produced – Estimate of agricultural
income in Block assessment upheld
V.D. Vachhani (HUF) Vs ACIT (ITAT Ahd) 86 ITD 652
• Block assessment – No evidence of incurring expenditure

Disallowance of expenditure on estimate basis is justified
M.R. Singhal Vs ACIT (P&H) 290 ITR 162
Bansal strips (P.) Ltd. & Ors. Vs ACIT (ITAT, Del) 99 ITD 177
• No write-off of debts in the books of account till the date of

search – Assessee cannot claim bad debts since the entries were
not written off during the Block period
Kashmir Trading co. Vs DCIT (Raj) 291 ITR 228
• Cash credits can be assessed in Block Assessment – Mere fact

that credits are shown in the books of accounts does not
prohibit the Assessing Officer to tax that amount in the block
assessment if that amount has not been taxed in the regular
assessment
CIT Vs Ajay Kumar Sharma (Raj) 259 ITR 240
CIT Vs Elegant Homes P. Ltd (Raj) 259 ITR 232
Cas Card Finance Ltd. Vs ACIT (ITAT, TM, Ahd) 84 ITD 1
• Disallowance under section 40A(3) can be made in Block

assessment.
M.G. Pictures (Madras) Ltd. Vs ACIT (Mad) 263 ITR 83
Ganesh Foundry & Casting Ltd. Vs ITAT (Patna) 328 ITR 202
CIT Vs Sai Metal Works (P&H) 54 DTR 327
• Assessee not maintaining stock register – Addition on ground

of undervaluation of stock valid in Block assessment

Rella Ram Sant Ram Vs CIT (Del) 301 ITR 392
• Deemed dividend can be assessed in Block assessment

CIT Vs Mukundray K. Shah (SC) 290 ITR 433
• Cash seized by CBI requisitioned by I.T. Department under

section 132A after the close of Block period – Can be assessed
as Unexplained cash in Block period since cash was found in
the block period though requisition happened later on
Sukh Ram Vs ACIT (ITAT, Del) 99 ITD 417
Block assessment on person not searched

• Where the Assessing officer is satisfied that any undisclosed
income belongs to a person other than the person against
whom search or requisition was made, then the books of
accounts, documents or assets are to be handed over to the
Assessing Officer having jurisdiction over such person so
that block assessment proceedings can be initiated against
him u/s sec. 158BD
• In Manish Maheshwari Vs ACIT & Anr. (289 ITR 341)

Supreme Court held that for taking recourse to block
assessment u/s 158BD, conditions precedent are that
Assessing Officer must record his satisfaction that some
undisclosed income belongs to a person other than the
person with respect to whom search was made u/s 132 and
the books of accounts, other document and the assets seized
/ requisitioned are handed over to the Assessing Officer
having jurisdiction over such other person.
• No time limit for issuing notice u/s 158BD

Khandubbhai Vasanji Desai & ors. Vs DCIT (Guj) 236 ITR 73
Vijay Sehgal (HUF) Vs ACIT (ITAT, Asr) 100 ITD 560
• Sec. 158BD is not a separate & independent proceeding – For

taking action u/s 158BD, Assessing Officer is merely required
to be prima facie satisfied that the books of accounts, other
documents or assets found during search show undisclosed
income of a person other than one against whom search was
conducted – No separate jurisdictional facts need to be
established
Rushil Industries Ltd Vs Harsh Prakash (Guj) 251 ITR 608
Priya Blue Industries P. Ltd. Vs CIT (Guj) 251 ITR 615
• Person searched u/s 132 and person to whom notice u/s 158BD
issued are assessed by the same Assessing Officer – There is no
mandate in sec. 158BD to record satisfaction in writing before
issue of the notice – Decision of Supreme court in Manish
Maheswari Vs ACIT (289 ITR 341) considered and
distinguished as it was a case where Assessing Officer of
searched person and the “other person” were different.
CIT Vs Panchajanyam Management Agencies & Services (Ker) 52 DTR 377; 333
ITR 281
• If satisfaction can be inferred from the order of the Assessing

Officer who passed order u/s 158BC, then it will be sufficient
compliance to assume jurisdiction u/s 158BD
Subhan Javeed Vs ACIT (ITAT, Bang) 122 ITD 307
• Office note appended to the order u/s 158BC passed in the case
of the searched person can constitute recording of satisfaction
to proceed against another person u/s 158BD – No time limit is
prescribed between recording of satisfaction and issue of
notice u/s 158BD and hence notice issued 10 months after
recording of satisfaction is valid – Material found during
search indicating undisclosed income of third party – Further
investigation not necessary
CIT Vs Mukta Metal Works (P&H) 336 ITR 555
• Assessment order in the case of searched person showed that

Assessing Officer was satisfied that the assessee had
undisclosed income which had nexus to the material found
during search – Thus satisfaction was arrived at during the
course of assessment proceedings of the searched person and
delay in issue of notice u/s 158BD to the assessee will not
vitiate the proceedings
CIT Vs Om Parkash & Sons (P&H) 55 DTR 254
• During the course of search in the case of husband, details of

Bank account in the name of wife discovered – Notice u/s
158BD issued to wife during the pendency of assessment in the
hands of Husband, is valid.
T.S. Sujatha Vs Union of India & Anr.(Ker) 239 ITR 488.
• Sec. 158BD – Return filed by assessee could be taken into

account only if it was filed before the date of search as provided
u/s 158BB(b) – If the return had not been filed before the search
but the due date was still available, then entries in the books of
accounts had to be considered
CIT Vs Ashwani Trehan 2010-TIOL-511-HC-P&H-IT
• Search on a name-lender who provided accommodation entries

Sensing damages on account of such search, assessee disclosed
income in its regular return in relation to his transactions with

such name-lender – Since assessee filed regular return
disclosing such income only after the search on the name-
lender, no advance tax was paid in time and such undisclosed
income is not recorded in the books of account before search, it
forms part of undisclosed income to be assessed for the Block
period.
Raghav Bahl Vs DCIT (ITAT, Del) 111 ITD 174
• In the course of search operations of hospital assessee was

found to have received payments from hospital not disclosed
by either of them – Assessee claimed that time for filing return
not expired on the date of search and assessee paid sufficient
advance tax to take care of such receipts also – Assessee did not
maintain any books of account – Materials seized by the
Department were not intended to be passed on to the
Department because the assessee never before disclosed such
income – But for the seizure of the said accounts from the
hospital, neither the assessee nor the hospital would have
disclosed this income – Correctly assessed as undisclosed
income of the block period.
CIT Vs K. Kunhmmed (Ker) 49 DTR 340
• Notice issued u/s 158BC r.w.s. 158BD is procedural – Failure

to mention sec. 158BD in the notice not fatal – Defect curable
u/s 292B – Satisfaction recorded on the basis of statement
recorded during search and appraisal report – Assessing
Officer having jurisdiction over person searched and assessee
– Transfer of case after issue of notice u/s 158BD – Permissible
ACIT Vs Dilip Kumar Balar (ITAT, Bang) 8 ITR (Trib) 229
• Search warrant not in the name of assessee – But assessee's

premises were searched and books / documents were seized
Assessment to be made u/s 158BD
ACIT Vs Vinod Goel (ITAT, Asr) 111 ITD 70
• Warrant not in the name of assessee – However notice u/s

158BC issued to assessee when it actually a case u/s 158BD
Merely because a wrong section is quoted, it will not vitiate the
notice
CIT Vs K.M. Ganesan (Mad) 333 ITR 562
• No prior notice required before invoking sec. 158 BD – Notice

u/s 158BC is sufficient in cases falling u/s 158BD – No need to
mention sec. 158BD in the notice
CIT Vs Indore Constructions P. Ltd (MP) 279 ITR 545
Mahesh Kumar Batra Vs JCIT (ITAT,SB-Asr) 95 ITD 152
• Protective assessment is permissible even in case of

assessment u/s 158BD
CIT Vs Indra Finlease Pvt. Ltd. 2011-TIOL-71-HC-DEL-IT
CIT Vs Mahindra Traders (P) Ltd. (Del) 58 DTR 36
• Once assessment proceeding are initiated u/s 158BD based on

evidence found in course of search, then it would be open to
Assessing Officer to make use of any other information
available with him for making block assessment – Cash flow
statement filed by assessee during the course of block
assessment proceedings were to explain the source of
investment as per the seized balance sheet and other documents
All that the Assessing Officer has done is rejection of cash flow
statement and estimation of income based on investments
made by assessee
CIT Vs K.V. Sudhakaran (Ker) 203 Taxman (Mag) 85
Time limit for passing Block assessment order

• Order u/s 158BC to be passed within 2 years from the end of
the month in which last of the authorizations / requisition
was executed [ prior to 01-01-1997 period available was
1 year ] (sec. 158BE)
• Order u/s 158BD to be passed within 2 years from the end of

the month in which notice under this chapter was issued [
prior to 01-01-1997 period available was 1 year ] (sec.
158BE)
• Authorization will be deemed to have been executed on the

conclusion of search as recorded in the last panchanama
drawn in relation to any person in whose case warrant was
issued and in case of requisition, the date of receipt of
materials by the authorized officer. (sec. 158BE)
• Situations where extended time limit available in case of

stay, compulsory audit, change of incumbent, application
before settlement commission etc. (sec. 158BE)
• Period of limitation for completion of block assessment starts

from the end of month in which search was completed
T.O. Abraham & Co. & Anr. Vs ADIT(Inv.) & Ors. (Ker) 238 ITR 501
Promain Ltd. Vs DCIT (ITAT,SB-Del) 95 ITD 489
• Authorization referred to in sec. 158BE(1) would be that

authorization which is executed on the conclusion of search as
recorded in the last panchanama. – Count the period of
limitation from the date when the last panchanama was drawn
in respect of any warrant of authorization
CIT Vs Anil Minda (Del) 328 ITR 320
• Search during 29-6-98 to 5-8-98 - Last panchanama drawn on

5-8-98 ie. within 60 days of initiation of search – Limitation of
two year period would come to an end on 30-08-2000 – No
ulterior motives could be attributed to the authorities in failing
to seize the books of accounts on the first day of search itself
and instead passing a restraint order – The authorities went
through the books and seized only those documents that were
necessary, rather than seizing all the books and documents –

The authorities could not be faulted for following a less drastic
procedure
VLS Finance Ltd. Vs CIT (Del) 289 ITR 286
Krishna Verma Vs ACIT (ITAT,SB-Del) 113 ITD 655
• Period of limitation provided in sec. 158BE(2)(a) is applicable

for completion of the first Block assessment order and not to
set-aside Block assessment – Sec. 153(2A) applies for such set-
aside assessments.
BHPE Kinhill Joint Venture Vs Addl. DIT (ITAT, Del) 116 ITD 200
• Revised Block assessment order passed in pursuance of order

u/s 263 – Time limit provided in sec. 153(2A) would apply
Bhartiben M. Kelawala Vs CIT (ITAT, Ahd) 128 ITD 468
Procedure for passing Block assessment order

• Issue notice u/s 158BC
• Block return cannot be revised (sec. 158BC)
• Prior approval of CIT (upto 01-01-1997) or JCIT required

before passing the Block assessment order (sec. 158BG)
• In ACIT & Anr. Vs Hotel Blue Mon (321 ITR 362) Supreme
Court held that if an assessment is to be completed u/s
143(3) r.w.s. 158BC, notice u/s 143(2) should be issued
within one year from the date of filing of block return
• Block assessment – Issue of notice is not a precondition as in

the case of reassessment but only a matter of procedure – Non-
mentioning of Block period, section under which notice was
issued, date of furnishing block return etc. are not fatal Section
292B applies
Shirish Madhukar Dalvi Vs ACIT (Bom) 287 ITR 242
• Sec. 158BC is a procedural section and not a substantive

section – Ratio of the decision in State bank of Patiala Vs S.K.
Sharma [1996] 3 SCC 364 applies – In the case of a procedural
provision which is not of a mandatory character, the complaint
of violation has to be examined from the standpoint of
substantial compliance – An order passed in violation of such
provision can be set aside only when such violation has
occasioned prejudice ot the subject – The conduct of the
subject is required to be examined and kept in mind Procedural
rules are assigned to afford a full and proper opportunity to the
person concerned to defend himself
Venad Proeprties Pvt. Ltd. Vs CIT 2011-TIOL-794-HC-DEL-IT
• Notice u/s 158 BC – Non-mention of status and non-

description of Block period – Notice not invalid
Chandra Bhan Vs ACIT ( ITAT, Agra ) 98 ITD 6
• Block Assessment – Notice format issued by Department is not

statutory, even a letter will do
K. Eswarappa Vs DCIT (ITAT, Chennai) 89 ITD 228
• Notice mentioning sec. 158BD and not sec. 158BD r.w.s.

158BC – Since no notice is prescribed u/s 158BD, what is
required is to issue an intimation about the initiation of
proceedings u/s 158BD by the officer and then to call for return
in Form 2B prescribed u/R 12(1)(a) for assessment u/s 158BC
Notice was received by the assessee and filed return in form 2B
Assessee cannot challenge the notice
CIT Vs Lekshmi Traders (Ker) 56 DTR 291
• Issuance of notice under sec. 158BC before conclusion of

search is a procedural irregularity and not fatal to the
assessment order.
First Global Stock Broking (P) ltd. Vs ACIT (ITAT, Mum) 115 TTJ 173
• Block assessment proceedings start from the date of search

Order for special audit made before issue of notice u/s 158BC
Valid
B.N. Reddy Vs ACIT (Kar) 284 ITR 245
• Block assessment – Assessing Officer gets jurisdiction upon

conduct of search – Issue of 158BC notice is part of procedure
Defect in notice does not invalidate block assessment – 15 days
time not granted to file block return – Curable irregularity
Krishna Verma Vs ACIT (ITAT,SB-Del) 107 ITD 1
CIT Vs Naveen Verma 2011-TIOL-102-HC-P&H-IT
• CIT need not give opportunity of being heard to assessee

before approval u/s 158BG
Rishabchand Bhansali Vs DCIT (Kar)267 ITR 577
Sakthivel Bankers Vs ACIT (Mad) 255 ITR 144
Kailash Moudgil Vs DCIT (ITAT, Del-SB) 72 ITD 97
• Special Audit u/s 142(2A) can be ordered even if block

assessment proceedings are pending
Kumar Films (P.) Ltd. Vs CIT (Pat) 258 ITR 257
• Return not submitted in response to notice u/s 158BC – Best

judgement assessment can be made
Alok Todi Vs CIT (Cal) 339 ITR 102
Levy of interest and penalty

• Interest and penalty can be levied u/s 158BFA. Time limit
and procedure for imposing the same also provided for.
Levy of Interest
• Interest u/s 158BFA is mandatory - No appeal lies against such

levy
Kandabai S. Baldawa (ITAT, Pune) 81 TTJ 953
• Block assessment completed within 6 months from the issue of

notice under section 158BC – After adjusting tax, excess
amount was refunded to assessee – No interest payable to
assessee
DCIT Vs M. Bansilal Jain (ITAT, Chennai) 99 ITD 8
• Appeal against 158BFA interest maintainable only if

assessment is challenged
Sk. Muneer Sk. Mannu Choudhary Vs DCIT (Bom) 300 ITR 216
• Application moved by assessee before Settlement

Commission does not raise any grievance against levy of
interest u/s 158BFA – Order of Settlement Commission is also
silent on the issue – While giving effect to the order of
Settlement Commission, Assessing Officer raised demand of
interest u/s 158BFA – Valid
Attukal Radhakrishnan Vs ACIT (Ker) 197 Taxman 193
Levy of Penalty
• Penalty u/s 158 BFA – For determining as to whether a case is

fit for levy of penalty, definition of “undisclosed income” in
sec. 158 B(6) applies and not Expln. 5 to 271(1)(c)
Kay Cee Electricals vs DCIT (ITAT, Del) 87 ITD 35
Kandoi Bhogilal Mulchand Vs DCIT (Guj) 341 ITR 271
CIT Vs Harkaran Das Ved Pal (Del) 336 ITR 8
• Piecemeal declaration of income during the course of

assessment proceedings – Penalty u/s 158BFA(2) leviable
DCIT Vs Spark Electro Communication Systems ( ITAT, Mum ) 98 ITD 237
• Penalty u/s 158BFA(2) – Effect of first proviso – Assessee

should not contest assessment in appeal – Even if appeal filed
by assessee regarding rate of tax, he is not eligible for the
benefit – Penalty rightly levied
CIT Vs Anju R. Innani (Bom) 323 ITR 626
• Penalty u/s 158BFA(2) – When substantial addition was made

in block assessment and taxes not paid, penalty to be levied
CIT allowing payment of tax in installments, is not relevant
CIT Vs Heera Construction Co. P. Ltd. (Ker) 337 ITR 359
• Addition on the basis of cash seized from assessee – Claim that

cash belonged to company rejected – Penalty u/s 158BFA(2)
leviable
Harish Dargan Vs DCIT (ITAT, Del) 8 ITR (Trib) 125
• Quantum of proceedings having attained finality, assessee

cannot challenge addition to the income in the appeal against
penalty proceedings – It is not mandatory to issue notice u/s
158BFA during the course of Block assessment proceedings
Sunil Dua Vs CIT 2010-TIOL-705-HC-DEL-IT
NEW PROVISIONS FOR SEARCH

ASSESSMENTS
• Applicable where search initiated / requisition made from
01-06-2003 onwards (sec. 153A)
• Assess or reassess total income of six assessment years

immediately preceding the A.Y. relevant to the previous
year in which search conducted / requisition made (sec.
153A)
• If any assessment or reassessment was pending on the date

of search / requisition in respect of the above mentioned
A.Y., such proceedings will abate (sec. 153A)
• If any proceeding initiated u/s 153A or any assessment or

reassessment made u/s 153A has been annulled in appeal or
any other legal proceedings, then the proceedings which
got abated earlier will get revived with effect from the date
of receipt of such order of annulment by the CIT (sec.
153A)
• If lateron such annulment is set aside, revival will cease to

have effect (sec. 153A)
• Tax chargeable at the rate applicable to the relevant A.Y.

(sec. 153A)
• All other provisions of I.T. Act applicable (sec. 153A)
• If assessment is made by officers below the rank of JCIT,

prior approval of JCIT necessary (sec. 153D)
• There is no requirement that assessment u/s 153A should be on

the basis of materials seized in the course of search
Shivnath Rai Harnarain (India) Ltd. Vs DCIT (ITAT, Del) 304 ITR (AT) 271; 117
ITD 74
Shyam Lata Kaushik Vs ACIT (ITAT, Del) 114 ITD 305
• Assessment or re-assessment as pending on the date of search

will only abate under second proviso to sec. 153A(b) and not
the completed assessments.
ACIT Vs Rupesh Bholidas Patel (ITAT, Ahd) 16 DTR 369
• Only pending assessment or reassessment will abate and not

appeal, revision, rectification etc. – After the expiry of time
available u/s 139(5), no new claim of deduction or allowance
can be made
Suncity Alloys (P) Ltd. Vs ACIT (ITAT, Jd) 27 DTR 139 ; 124 TTJ 674
• Only assessment pending on the date of search are abated and

not the assessments completed and appeal pending – The
proceedings which have already terminated are not liable for
abatement unless statute expressly provides for the same
Pendency of appeals before Tribunal is not a continuation of
the proceedings of assessment
CIT Vs Shaila Agarwal (All) 65 DTR 41
• Issue of notice u/s 143(2) not mandatory for assessment

completed u/s 153A – Decision of SC in Hotel Blue Moon
distinguished
Ashok Chaddha Vs ITO (Del) 337 ITR 399
Assessment on person not searched

• Where the Assessing officer is satisfied that any money,
valuables, books of accounts or documents seized or
requisitioned belongs to a person other than the person
against whom search or requisition was made, then the
books of accounts, documents or assets are to be handed
over to the Assessing Officer having jurisdiction over such
person so that block assessment proceedings can be
initiated against him u/s sec. 153A (sec. 153C)
• If any assessment or reassessment was pending on the date

of receipt of such books or documents or assets by the
Assessing Officer having jurisdiction, such proceedings
will abate (sec. 153C)
• Books of accounts or documents or assets seized or

requisitioned were received by the Assessing Officer having
jurisdiction after due date of furnishing return for the A.Y.
relevant to the previous year in which search or requisition
made, then issue notice u/s 153A and assess /reassess
income even if :-
No return furnished and no notice u/s 142(1) issued
Return furnished but no notice u/s 143(2) issued and
time for issuing notice u/s 143(2) expired, OR
Assessment or reassessment made
before the date of receipt of such books of accounts or
documents or assets. (sec. 153C)
• Sec. 153C – Assessment or re-assessment can be made relating

to the A.Y. falling within the block of 6 years consequent upon
the search – Such assessment need not be based on
incriminating materials found during the search – Sec. 153C
only mandates satisfaction by Assessing Officer that the
materials seized / requisitioned belongs to the other person
Harvey Heart Hospitals Ltd. Vs ACIT (ITAT, Chennai) 130 TTJ 700
• Sec. 153C – Satisfaction has to be arrived at with regard to the

ownership of a document found during the search and not
regarding the undisclosed income
ACIT Vs Panchuram Deshmukh & Ors. (ITAT, Bilaspur) 133 TTJ 53
• Protective assessment permissible u/s 153C

• Notice u/s 153C issued before receipt of seized material by the

Assessing Officer – However the satisfaction recorded by the
Assessing Officer contains enough references to the seized
materials which shows application of mind by the Assessing
Officer – Issue of notice upheld
Trilok Singh Dhillon & Ors Vs CIT (Chattisgarh) 332 ITR 185
Time limit for completion of assessment

• Within 21 months from the end of the F.Y. in which last of
the authorization / requisition executed (if last of the
authorization / requisition executed was prior to
01-04-2004, period available was 2 years) (sec. 153B)
- in respect of persons referred to in sec. 153C, either the
above mentioned period or 9 months from the end of the
F.Y. in which books of accounts or documents or assets
were received by the AO having jurisdiction over such
person, whichever is later (sec. 153B)
• Within 33 months from the end of the F.Y. in which last of

the authorization / requisition executed (if last of the
authorization / requisition executed is after 01-04-2005) if
reference to TPO made and TPO report not received before
01-06-2007 (sec. 153B)
- in respect of persons referred to in sec. 153C, either the
above mentioned period or 21 months from the end of
the F.Y. in which books of accounts or documents or
assets were received by the AO having jurisdiction over
such person, whichever is later (sec. 153B)
• Authorization will be deemed to have been executed on the

conclusion of search as recorded in the last panchanama
drawn in relation to any person in whose case warrant was
issued and in case of requisition, the date of receipt of
materials by the authorized officer. (sec. 153B)
• Situations where extended time limit available in case of

stay, compulsory audit, change of incumbent, application
before settlement commission etc. (sec. 153B)
Chapter 8
MINIMUM ALTERNATE TAX
U/S 115JA & 115JB
MINIMUM ALTERNATE TAX U/S 115JA & 115JB 749
Deemed income relating to certain companies

[sec. 115JA]
• Applicable to companies
• Applicable for A.Y. 1997-98 to 2000-01
• If total income computed under regular provisions is less

than 30% of book profit, then 30% of book profits will be
deemed as income
• Prepare P & L a/c in accordance with Part II & III of Sch.

VI to the Companies Act
• Calculate depreciation on the same method and rates

adopted in the P& L a/c laid down before annual general
meeting of the company in accordance with sec. 210 of
Companies Act
• Starting point of computation of book profits is net profit as

shown in the P&L a/c. To this,
Add the following amounts if debited to P&L a/c :

• Income tax paid or payable and provision thereof
• Amount carried to any reserve
• Amount set aside to provisions made for meeting
unascertained liabilities
• Provisions for loss of subsidiary companies
• Dividends paid or proposed
• Expenditure relatable to exempt income as per Chapter III
• Provision for diminution in the value of any asset [inserted
by Finance
(No.2) Act, 2009 w.r.e.f. 01-04-1998 - Decision of Apex Court in
CIT Vs HCL Comnet Systems & Services Ltd. reported in 305
ITR 409 is no longer good in law]
Less :
• Amount withdrawn from any reserve or provisions if any
such amount is credited to P&L a/c – deduction allowable
only if such reserve or provision was earlier added to the
book profit
• Exempt income (under Chapter III) if credited to P&L a/c
• Loss brought forward or unabsorbed depreciation,
whichever is less as per Books of account – loss shall not
include depreciation – if loss or depreciation is NIL, this
provision will not apply
• Profits derived by an industrial undertaking from business
of generation or generation and distribution of power
• Profits derived by an industrial undertaking which is
eligible to claim 100% deduction u/s 80IB(4) or (5) ie.
industrially backward State or district
• Profits derived by an industrial undertaking eligible for
deduction u/s 80IA(4) ie. business of developing,
maintaining and operating any infrastructure facility
• Profits of sick industrial company from A.Y. in which said
company become sick till its entire networth becomes equal
to or exceeds accumulated losses
• Profits eligible for deduction u/s 80HHC computed under
sub-sec. (3) or (3A) and subject to conditions specified in
sub-sec. (4) and (4A)
• Profits eligible for deduction u/s 80HHE(3)
• Carry forward of depreciation u/s 32(2) or losses u/s

72(1)(ii) or 73 or 74 or 74A(3) will not be affected
• All the provisions of the IT Act will apply
Tax credit in respect of tax paid on deemed income

[sec. 115JAA]
• Credit for taxes paid u/s 115JA or 115JB (w.e.f. A.Y. 2006-
07) will be allowed
• Difference between the tax paid u/s 115JA / 115JB and tax
payable during such A.Y. under the normal provisions is
the tax credit available
• No interest payable on the tax credit
• Tax credit can be carried forward and set off in an year in

which taxes payable on regular computation of income –

not allowable beyond the fifth [ for sec. 115JB it was 7 till
01-04-2010 and thereafter 10 ] A.Y. immediately
succeeding the A.Y. in which tax credit becomes allowable
• Set off is available only to the extent of tax payable under

regular computation exceeds tax payable u/s 115JA / 115JB
in the year of set off
• When amount of tax payable under regular computation is

increased or reduced, amount of tax credit allowed also
should be increased or reduced
• Conversion of private company or unlisted public

company to limited liability partnership – tax credit will
not be available to the successor
Tax payable by certain companies [sec. 115JB]

• Applicable to companies
• Applicable from A.Y. 2001-02
• If tax payable computed under regular provisions is less

than 7½ % of book profit, then book profits will be deemed
as total income and tax payable at 7½ % [From A.Y. 2007-
08 onwards it was 10%; for A.Y. 2010-11 it was 15%, for
A.Y. 2011-12 it was 18 ½% and for A.Y. 2012-13 it is 18% ]
• Prepare P & L a/c in accordance with Part II & III of Sch.

VI to the Companies Act
• Accounting policies, accounting standards and method and

rates adopted for calculating depreciation shall be the same
as was adopted in the Annual accounts laid down before
annual general meeting of the company in accordance with
sec. 210 of Companies Act
• Starting point of computation of book profits is net profit as

shown in the P&L a/c. To this,
Add the following amounts if debited to P&L a/c

• Income tax paid or payable and provision thereof includes
tax on distributed profits u/s 115-O or on distributed
income u/s 115R, interest charged under IT Act, surcharge
on IT, Education cess on IT and Secondary and Higher
Education Cess on IT
• Amount carried to any reserve [except reserve specified u/s
33AC w.e.f. 01-04-2003]
• Amount set aside to provisions made for meeting
unascertained liabilities
• Provisions for loss of subsidiary companies
• Dividends paid or proposed
• Expenditure relatable to exempt income to which sec. 10
[except sec. 10(38)] or 11 or 12 apply
• Depreciation [w.e.f. 01-04-2007]
• Deferred tax and provision thereof [w.r.e.f. 01-04-2001 by
F.Act, 2008]
• Provision for diminution in the value of any asset [inserted
by Finance (No.2) Act, 2009 w.r.e.f. 01-04-2001 - Decision
of Apex Court in CIT Vs HCL Comnet Systems & Services
Ltd. reported in 305 ITR 409 is no longer good in law]
Less :
• Amount withdrawn from any reserve or provisions if any
such amount is credited to P&L a/c – deduction allowable
only if such reserve or provision was earlier added to the
book profit during A.Y. 1997-98 onwards – Reserve created
prior to A.Y. 1997-98 otherwise than by way of debit to the
P&L a/c need not be reduced
• Exempt income u/s 10 [except sec. 10(38)] or 11 or 12 if
credited to P&L a/c
• Depreciation debited to P&L a/c except depreciation on
revaluation of assets
• Amount withdrawn from revaluation reserve and credited
to P&L a/c to the extent it does not exceed depreciation on
revaluation of assets
• Loss brought forward or unabsorbed depreciation,
whichever is less as per Books of account – loss shall not
include depreciation – if loss or depreciation is NIL, this
provision will not apply
• Profits of sick industrial company from A.Y. in which said
company become sick till its entire networth becomes equal
to or exceeds accumulated losses
• Profits eligible for deduction u/s 80HHC computed under
sub-sec. (3) or (3A) and subject to conditions specified in
sub-sec. (4) and (4A)
• Deferred tax if any, credited to P&L a/c
• Carry forward of depreciation u/s 32(2) or losses u/s

72(1)(ii) or 73 or 74 or 74A(3) will not be affected
• Furnish report in the prescribed form from C.A. along with

return filed u/s 139(1) or 142(1)
• All the provisions of the IT Act will apply

• Not applicable for income from business carried on or

services rendered by an entrepreneur or Developer in a
Unit or SEZ from A.Y. 2006-07 till A.Y. 2011-12
• In Ajanta Pharma Ltd. Vs CIT (327 ITR 305) Supreme

Court held that export profits are fully exempt from the
provisions of sec. 115JB and restrictions in deduction
placed in sec. 80HHC(1B) does not have any applicaiton.
• In CIT Vs Bhari Information Technology Systems (P) Ltd.

(245 CTR 1) Supreme Court held that deduction u/s
80HHE to be worked out on the basis of adjusted book
profit u/s 115JA and not on the basis of the profits
computed under the regular provisions of law. Decision of
ITAT, Special bench Mumabi in CIT Vs Syncome
Formulations (I) Ltd. (106 ITD 193) was upheld.
• In Dynamic Orthopedics (P) Ltd. Vs CIT (321 ITR 300)

Supreme Court referred the issue of necessity of both
private and public limited companies to preapore P & L a/c
in accordance with Part II and III of Sch. VI to the
Companies Act
Net profit as per Companies Act

• For the purpose of sec. 115-J, P & L a/c to be prepared
following corporate accounting method.
Sudharshan Chemical Industries Ltd. (ITAT, Pune) 60 ITD 629
• If the accounts are not prepared in the manner provided in Part

II & III of Sch. VI of the Companies Act, Assessing Officer has
the power to re-work the book profits by recasting the accounts
DCIT Vs Bombay Diamond Co. Ltd. 2009-TIOL-760-ITAT-MUM
• Assessing Officer is not debarred from making adjustment to

the net profit shown in the P&L a/c if any entry made therein
could not be properly explained in accordance with the
accounting principles / business practices – Assessing Officer
is entitled to make suitable adjustment to the net profit to
nullify the effect of such accounting entries
Eastern Power Distribution Company of AP Ltd. Vs ACIT (ITAT, Visakh) 56
DTR 33
• Prior period expenses claimed as deduction while computing

the book profits u/s 115JA is not allowable because MAT
assessment has to be completed strictly in terms of the
statutory provision – Assessee has no case that the prior period
expenses is an item that could be deducted from the profits in
terms of any of the clauses covered by the Expl. to sec. 115JA
It is not in accordance with the principles of accountancy also
since the income of the previous year under consideration
alone has to be computed
Sree Bhagawathy Textiles Ltd. Vs ACIT (Ker) 53 DTR 17; 199 Taxman 14
J.K. Cotton Spg. & Wvg. Mills Co. Ltd. Vs ACIT (ITAT, All) 60 ITD 99
Sree Rajendra Mills Ltd. Vs DCIT (ITAT, Mad) 63 TTJ 697
ITO Vs Kanchanganga Estates (P) Ltd. (ITAT, Mum) 63 TTJ 553
Singareni Collieries Company Ltd. Vs ACIT (ITAT, Hyd) 133 ITD 213
• Waiver of interest by Govt. approving capital restructuring

plan – Effect of such waiver to be included in the book profit –
Assessee did not account the benefits since the concerned
Ministry of Govt. of India in its report submitted to Parliament
has said that the impact of capital restructuring would be
reflected in the company's records only after receipt of
approval of MAT exemption from the Govt. – The observation
made by the concerned Ministry cannot take away the

responsibility of the assessee to account for the waiver benefits
nor it would put a bar on the Assessing Officer to assess the
same on the basis of disclosure in Notes to accounts appended
to the P&L a/c – In view of the saving clause in sec. 115JA(4),
sec. 41(1) applies to the interest waived and has to be added
back to book profits
Hindustan Ltd. Vs DCIT (ITAT, Visakh) 6 ITR (Trib) 407
• Cessation of liability on account of settlement of loan with

bank – Cannot be excluded from book profit eventhough part
of the liability may represent waiver of principal amount of
loan – Computation of book profit is a separate code and
determination has to be made on the basis of profit computed in
the Companies Act and in accordance with the various
Accounting Standard and guidelines issued in this regard
What is capital or revenue for the purpose of computation of
taxable income under the normal provisions may not be the
capital or revenue while computing book profit – In fact there
appears to be no distinction between the capital profit and the
revenue profit while computing the book profit as per the
provisions of Sch. VI of the Companies Act. Profit on sale of
capital assets as well as profit on sale of stock in trade form part
of P&L a/c to be taken into account while determining book
profits
Duke Offshore Ltd. Vs DCIT (ITAT, Mum) 45 SOT 399
• Book profit approved by Annual General Meeting – Further

deduction u/s 42 is not possible while computing income u/s
115JA – Expl. to sec. 115JA leaves no scope for further
interpretation with a view to introduce from the backdoor such
deduction or concession which are otherwise not available
Gujarat State Petroleum Corporation Ltd. Vs JCIT (ITAT, Ahd) 308 ITR (AT) 248
• Assessee transferring a portion of surplus of sale consideration

in excess of cost of acquisition directly to Capital Reserve – To
be included in book profits for the purpose of sec. 115JB in
view of cl. 3(xii)(b) of Part II to Sch. VI of Companies Act
which mandates disclosure of profits and losses from
transactions of exceptional nature
Kopran Pharmaceuticals Ltd. Vs DCIT (ITAT, Mum) 309 ITR (AT) 146 ; 119
ITD 355
• Long-term capital gains is profit includible in the Profit & Loss

account prepared in terms of Sch. VI of Companies Act – No
deduction under sec. 54E available while computing income
under sec. 115JA / 115JB – Permissible deductions and
additions are provided in Expl. to sec. 115JA / 115JB and only
such adjustments can be made to the profit as per P&L a/c and
sec. 54E is not provided in that – Profit on sale of assets is profit
includible in the P&L a/c prepared in terms of Sch. VI to the
Companies Act.
N.J. Jose & co. (P) ltd. Vs ACIT (Ker) 321 ITR 132
Growth Avenue Securities P. Ltd. Vs DCIT (ITAT, Del) 126 ITD 179 ; 1 ITR
(Trib) 807
GKW Ltd. Vs CIT 2011-TIOL-508-HC-KOL-IT
• Merely because the long-term capital gains is exempt u/s

47(iv) under the normal provisions of the Act, it is not correct
to say that it is also to be reduced from the net profit for the
purpose of computing book profit u/s 115JB when the Expl. to
sec. 115JB does not provide for any deduction in terms of sec.
47(iv) – If long-term capital gain is part of profit included in the
P&L a/c prepared as per Parts II and III of Sch. VI of the
Companies Act, it cannot be excluded from the net profit for
the purpose of computing book profit
Rain Commodities Ltd. Vs DCIT (ITAT,SB-Hyd) 4 ITR (Trib) 551
• Provisions of sec. 115J and 115JB are materially different as

the former requires compliance of only Companies Act and the
latter requires the compliance of accounting standards also.
Under the provisions of sec. 115JB Assessing Officer has
power to go behind the audited accounts to test the compliance
of accounting standards – Policy of assessee itself states that
income from investments was to be credited to the revenue
account – However assessee did not credit such income to the
Profit & Loss account which is contrary to the significant
accounting policy of the assessee itself as well as against the
requirement of Accounting Standard AS-13 and requirement
of parts II and III of Sch. VI of the companies Act – hence

Assessing Officer has rightly brought these items to taxation
u/s 115JB
Sumer Builders Pvt. Ltd. Vs DCIT 2012-TIOL-183-ITAT-MUM
Adjustment of loss / depreciation

• In order to work out the book profit, the loss and depreciation
has to be worked out in terms of the Companies Act and
thereafter, set off has to be made of whichever is less, then
alone the book profit will be worked out – If the intention of the
legislature was to give the benefit of previous years, then there
was nothing which prevented them to have invoked sec. 205(1)
cl. (a) of the first proviso of the companies Act which clearly
provides that before declaring or paying dividend for any
financial year provide for such depreciation out of the profits
of that financial year or out of the profits of any other previous
financial year or years to be worked out – But there is no such
intention reflected in cl. (b) of the first proviso to sec. 205(1) of
the Companies Act – It does not say so in so many words that
all the previous years' loss has to be given credit.
CIT Vs Krishna Oil Extraction Ltd. (MP) 232 ITR 928
• Depreciation must be worked out as per provisions of

companies Act for arriving at the book profit
CIT Vs Vandana Rolling Mills Ltd. ( MP ) 234 ITR 693
• P&L a/c. of Company does not show details of depreciation

Such P&L a/c. approved by CA & Directors – After that,
assessee cannot claim deduction of depreciation in 115JA
calculation. Decision of Supreme Court in Apollo Tyres Ltd.
Vs CIT ( 255 ITR 273 ) is equally applicable to assessee also.
DCIT Vs Thangavel Spinning Mills Ltd. (ITAT, Chennai) 97 ITD 262
• During the year assessee changed method of calculating

depreciation and claimed extra depreciation as arrears of past
years, being the difference between the two methods – Claim
of arrears added back to the book profit – Upheld since change
in method of accounting can only be prospective
Gilt Pack Ltd. Vs Union of India (MP) 163 Taxman 331
• Brought forward Written down value, unabsorbed depreciation

etc. to be adjusted against normal profits and only balance if
any can be carried forward even when provisions of sec. 115J is
applied.
Karnataka State Small Industries Dev. Corpn. Ltd. Vs CIT (SC) 258 ITR 770
• Sec. 115JB clearly states that the expression “loss brought

forward” does not include depreciation and that the net profit
of the current year is to be reduced by the lesser of the two.
Reduction made to book loss or depreciation in any particular
year must form the basis for computation of MAT liability for
the subsequent year.
Rashtriya Ispat Nigam Ltd. IN RE (AAR) 285 ITR 1
Lakshmi Machine Works Ltd. Vs ACIT (ITAT, Chennai) 1 ITR (Trib) 92 ; 126
ITD 343
CIT Vs Carbon & Chemiclas India Ltd. (Ker) 196 Taxman 302
• Deduction to be allowed of either business loss or unabsorbed

depreciation, whichever is less, in comparison to total of
unabsorbed depreciation and business loss.
CIT Vs Adoon Electronics P. Ltd,. (MP) 232 ITR 528
• Assessee not having any fixed assets, no claim of depreciation

was made in earlier years – Hence it has no unabsorbed
depreciation and had only b/f losses – Unabsorbed
depreciation being less than b/f losses, no set off is available on
book profits
Metmin Investment & Trading P. Ltd. Vs ITO (ITAT, Mum) 5 ITR (Trib) 378
• Carried forward loss cannot be adjusted against the 30% book

profit arrived u/s 115J.
Lallacherra Tea Co.(P) Ltd. Vs CIT (Gau) 239 ITR 611
• In the books of assessee unabsorbed depreciation was adjusted

against general reserve and consequently Balance Sheet does
not show any figure of carry forward loss and unabsorbed
depreciation – However assessee reduced unabsorbed
depreciation from book profits during the year while
computing income u/s 115J – Not proper
CIT Vs Madras Fertilizers Ltd. (Mad) 341 ITR 609
Other adjustments mentioned in Expl. to 115JA /

115JB
• Tax on distributed income levied under section 115 O – Add to

book profits since it is nothing but Income tax
DCIT Vs Dhanalakshmi Paper Mills Ltd. (ITAT, Chennai) 105 ITD 123
• Interest payable to Customs / Excise department, in relation to

certain levies challenged by assessee before High Court and
are pending is in the nature of contingent liability – Such
claims disallowed while computing income u/s 115J.
CIT Vs Essorpe Mills Ltd (Mad) 265 ITR 637
Sutlej Cotton Mills Ltd. Vs ACIT (ITAT,SB-Cal) 45 ITD 22
• Consequent upon Management's decision stated in Circular

dated 13.4.89, Company paid a certain amount representing
dues to employees in respect of prior period and claimed
deduction in AY 89-90 – Liability accrued only on 13.4.89 & in
the AY 89-90 it is contingent liability – Increase book profits by
said amount in view of explanation © to sec. 115J
Tata Yodogawa Ltd. Vs DCIT (ITAT, Pat) 56 ITD 194
• Provision for doubtful debts / Provision for diminution in value

of assets to be added back to book profits in view of
retrospective insertion of cl. (i) in Expl. 1 to sec. 115JB w.r.e.f
01-04-1998
CIT Vs Mysore Breweries Ltd. (Kar) 29 DTR 289
ACIT Vs Union Bank of India 2010-TIOL-774-ITAT-MUM
CIT Vs Steriplate P. Ltd. (P&H) 338 ITR 547
CIT Vs ILPEA Paramount (P) Ltd. (Del) 42 DTR 271 ; 192 Taxman 65 ; 233
CTR 545
Singareni Collieries Company Ltd. Vs ACIT (ITAT, Hyd) 133 ITD 213
ACIT Vs Chettinad Cement Corporation Ltd. (ITAT, Chennai) 133 ITD 317
• If the amount set aside as provision for diminution in value of

any asset appears on the debit side of P & L a/c, then such
amount to be added back to net profit for computing book
profit as per sec. 115JB – The way in which such provision is
shown in the B/s is immaterial – There is no condition in the
Act that for making such addition, some value of the asset must
remain after diminution
ITO Vs TCFC Finance Ltd. (ITAT, Mum) 131 ITD 103
• Amount transferred to Debenture Redemption Reserve during

the year to be added back to the book profits – Though it
represents ascertained liability, it cannot be reduced from the
profits since it is in capital field – Liability arising on capital
accounts cannot be charged to the P&L a/c to work out the net
profit even under the provisions of the companies Act wherein
it can be done only as appropriation of profits
JSW Steels Ltd. Vs ACIT (ITAT, Bang) 5 ITR (Trib) 31
• Amount transferred from revaluation reserve to Profit & Loss

appropriation account – Hit by proviso to Cl. (i) of Expl. to sec.
115J(1A) and could not be reduced from net profit while
computing book profits since such reserve had not gone to
increase the book profit in the earlier year in which it was
created
Indo Rama Synthetics (I) Ltd. Vs CIT (SC) 330 ITR 363
• Benefit of adjustment under Expl.(i) to sec. 115J cannot be

allowed in respect of amount drawn from revaluation reserve
a/c to balance the difference between depreciation and
obsolescence allowance calculated on historical cost vis-à-vis
on value of assets adopted on revaluation as net amount was
credited to P&L a/c and the said revaluation reserve a/c was not
a “reserve” within the meaning of Companies Act
DCW Ltd. Vs DCIT (ITAT, Mum) 77 ITD 462
Birla Jute & Industries Ltd. Vs DCIT (ITAT, Cal) 85 ITD 400
Southern Petro Chemical industries Vs DCIT (ITAT, Chennai) 93 TTJ 161
CIT Vs SRF Ltd. 2011-TIOL-472-HC-DEL-IT
• While computing the tax payable u/s 115JB, deduction u/s

80HHC to be worked out on the basis of normal business
profits computed under the I.T. Act and not on the basis of
Profit & loss a/c prepared under the Companies Act – Decision
of Apex court in Ajantha Pharma (327 ITR 305) considered
and distinguished
CIT Vs Packworth Udyog Ltd. (Ker) 331 ITR 416
• For the purpose of applying the provisions of sec. 115JA/JB,

book profits to be computed with reference to each A.Y. –
Profit earned during A.Y. 1994-95 when assessee was a sick
company cannot be reduced from the profit of A.Y. 2000-01

since net worth of assessee exceeded the accumulated liability
in A.Y. 1994-95 itself
Singareni Collieries Co. Ltd. Vs ACIT 2011-TIOL-358-ITAT-HYD
Tax and interest payable u/s 115JA / 115JB
• When income is computed in a manner provided in sec. 115JA,

it cannot be classified in different heads u/s 14 – Such income
to be taxed at normal rate even if it fully comprises of Long
Term Capital Gains and claim of the assessee to apply Sec.112
& tax at 20% is not tenable
Nafab India (P) Ltd. Vs DCIT (ITAT, Del) 92 ITD 343
• Surcharge leviable on the tax payable u/s 115JA

Escapade Resorts (P.) Ltd. (ITAT, Cochin) 107 ITD 323
• Interest under section 234A, 234B & 234C can be levied when
income is computed under section 115JA – Specific provisions
are made in sec. 115JA / 115JB to the effect that all other
provisions of the Act shall apply to the MAT company –
Expression “assessed tax” is defined to mean tax assessed on
regular assessment which means the tax determined on the
application of sec. 115JA in the regular assessment
JCIT Vs Rolta India Ltd. (SC) 330 ITR 470
Chapter 9
TAX DEDUCTION AT SOURCE
[Chapter XVII-B]
TAX DEDUCTION AT SOURCE 767
On Payment of Salary / provision of perquisites

[sec. 192]
• Deduct tax on the estimated income of employee in the F.Y.
in which payment made / perquisite provided, at the rates
in force
• If assessee has more than one employer during the year, at

his option furnish details of other employment as well as
TDS made by other employers to the employer responsible
for making TDS
• Assessee can claim rebate u/s 89(1) in respect of arrears of

salary received
• Assessee having income under other heads and losses under

the head “Income from House Property” to furnish details
to the employer so that employer can consider such details
while making TDS
• Employer to furnish statement giving complete particulars

of perquisites or profits in lieu of salary to the employee
• When accumulated balance from a recognized provident

fund (where Sch. IV-Part A Rule 9(1) applies) or
contribution by employer in an approved superannuation
fund (to the extent of Sch. IV Part-B Rule 6) is paid, make
TDS by the payer
• If salary is payable in foreign currency, TDS to be made on

value in rupee calculated at the prescribed rate of exchange
• Only the expenditure actually incurred on payment of rent

in respect of residential accommodation occupied by the
employee subject to the limits laid down in R. 2A qualifies
for exemption – HRA granted to an employee residing in a
house / flat owned by him is not exempt – The disbursing
authorities should satisfy themselves in this regard by
insisting on production of evidence on actual payment of
rent before excluding HRA or any portion thereof from the

total income of the employee while making TDS
Employees drawing HRA upto Rs. 3000 p.m. are exempt
from production of rent receipt – However in the regular
assessment, Assessing Officer will be free to make such
enquiry as he deems fit for satisfying himself that the
employee has incurred actual expenditure on payment of
rent [Circular No. 9/2003 dated 18-11-2003]
• Exemptions or deductions to be allowed by employers

while computing total income of employees [Circular No.
9/2008 dated 29-09-2008]
• Once tax has been deducted u/s 192, the deductor is bound
by sec. 203 to issue TDS certificate in Form No. 16 – No
employer-employee relationship is necessary for this
purpose. Such certificate cannot be denied on the ground
that the tax dedcutor ie. banks are unaware of the other
income of payees ie. pensioners drawing their pension
through banks [Circular No. 761 dated 13-01-1998]
• In CIT & Anr. Vs I.T.I. Ltd. (221 CTR 619) Supreme court
held that employer is under no statutory obligation to
collect and examine the supporting evidence to the
declaration submitted by an employee to the effect that he
has actually utilized the amount paid towards LTC /
conveyance allowance for the purpose of sec. 192
• Employer is responsible for TDS on salaries – Arrangement or

agreement privately arrived at between employer & employee
cannot affect / modify such statutory liability.
John Patterson & Co. (India) Ltd. Vs ITO & Ors. (Cal) 36 ITR 449
• Assessee agreed to pay tax-free salary to employees and

assessee was liable to pay tax on such tax-free salary – Amount
of tax payable has also to be treated as part of salary and TDS to
be made out of that. If assessee failed to deduct tax on that part,
interest leviable u/s 201(1A).
British Airways Vs CIT (Cal) 193 ITR 439
Asian Dev. Service Vs CIT (Ker) 239 ITR 713
• Payment to expatriate technicians by foreign employers having

Permanent Establishment in India, on account of remuneration
for services rendered in India is liable to tax in India
irrespective of their stay in India – Provisions of TDS will
apply – Since income of assessee was assessed u/s 44BB,
assessee contended that deduction of salary was not claimed
while computing the taxable income in India. Such contention
was rejected on the reasoning that remuneration paid to
expatriates is to be deemed to be included in 90% of the amount
allowed as deduction u/s 44BB
Pride Foramer S.A. Vs ACIT (ITAT, Del) 97 ITD 86
• Reimbursement of expenditure incurred towards

accommodation and conveyance of employees of non-resident
consultants – Tax deductible at source – Levy of interest under
sec. 201(1A) upheld.
Karnataka Urban Infrastructure Development Finance Corp. Vs CIT (Kar) 308
ITR 297
• As per the Technical assistance agreement with non-resident,

in addition to the fee for technical know-how, assessee was
required to reimburse the expenditure towards air fare,
accommodation and subsistence allowance of the personnel
deputed by the non-resident company to India –
Reimbursements were made in the process of executing the
agreement for obtaining advice of technical character – Fact
that non-resident company does not have a P.E. in India, is not
relevant – Payment on account of re-imbursement attracted
sec. 195.
Ashok Leyland Ltd. Vs DCIT (ITAT, Chennai) 119 TTJ 716 ; 120 ITD 14
• Receipt of tips by an employee from his employer will fall

within sec. 15(b) and is a part of salary – Obligatory for
employer to deduct tax at source on such payments
CIT Vs ITC Ltd. (Del) 338 ITR 598
• Lumpsum food allowance provided by assessee to its

employees amounts to perquisites – TDS to be made on such
sums
ITO Vs Nuclear Power Corporation of India Ltd. 2011-TIOL-659-ITAT-AHM
• Intention of sec. 192(3) is not that employer can casually make

TDS on salary in different months and resort to lump sum
deduction at the end of F.Y. for making good the deficiency
Employer has to find out immediately at the time of subsequent
payment to employee whether there was deficiency of TDS in
preceding month and make good such deficiency in the
succeeding month
Madhya Gujarat Vij Co. Ltd. Vs ITO (ITAT, Ahd) 133 ITD 89
• Perquisite value of free / concessional education provided by

assessee to wards of its teachers / staff exceeded Rs. 1000 p.m.
– Entire perquisite value to be included in the salary of the
recipient and deduction of Rs. 1000 p.m. per child is not
available
CIT Vs Director, Delhi Public School (P&H) 66 DTR 149
On Payment of Interest on securities [sec. 193]

• Payment made to residents as interest on securities
• At the time of credit to any account in the books of account

of assessee or at the time of payment, whichever is earlier
• Interest on certain specified securities exempt from TDS
On Payment of Dividends [sec. 194]
• Payment of dividend including that on preference shares
• Deemed dividend u/s 2(22) made to residents also included
• Before making payment or issuing warrant or distribution

of profits
• Exemptions :
• Amount paid by account payee cheques and less than
Rs. 2000
• Payment to insurance companies
• Dividend on which dividend distribution tax paid u/s
115-O
On Payment of Interest other than Interest on

securities [sec. 194A]
• Payment made to any resident as interest
• Individual and HUF liable to make TDS only if its total

sales / gross receipts from business or profession exceeds
the limit specified u/s 44AB(a)/(b) during the F.Y.
preceding the F.Y. in which such payment was made

• Interest on certain specified securities exempt from TDS
• Assessee engaged in providing financial service including

fund management – Assessee accepting funds from investors
against which it issued certificate of investment. Such funds
were invested by fiduciary custodians in different schemes
The fiduciary is agent of assessee only - Obligation on the part
of assessee to deduct tax on interest payment made by such
fiduciary custodians – The amount received by assessee from
investor may not be borrowal or deposit but it might partake the
nature of obligation in respect of which investors get some
benefit. Such benefit is interest in view of sec. 2(28A) – For
purpose of sec. 2(28A), a debtor-creditor relationship is not a
sine qua non so as to attract sec. 194A
Viswapriya Financial Services & Securities Ltd. Vs CIT (Mad) 258 ITR 496
• Interest paid on credit purchases overdue for payment – TDS

provisions applicable on such interest – Sec. 2(28A) defines
interest to mean not only interest payable on money borrowed
or debt incurred, but also any service fee or other charge in
respect of such borrowing or debt incurred, the amount of
penalty is in fact a charge relatable to the debt incurred by the
assessee because of non-payment of the value of the goods in
time and therefore has to be regarded as interest with the
consequent liability to deduct tax at source
A&M Agencies Vs CIT (Mad) 101 Taxman 655
• Tax Deduction at Source is to be made on gross interest and not

on net interest payable after mutual set off between parties – As
the statutory liability is imposed at the time of credit of interest,
it is not possible for the payer to cast off the liability and deduct
tax on net interest that may be payable by him after mutual set
off between the parties. Principle of netting the interest has no
application to sec. 194A – Expression “Income by way of
interest” in sec. 194A refers to the category of income viz.
interest income and not to the amount of income in the hands of
the payee
CIT Vs S.K. Sundararamier & Sons (Mad) 240 ITR 740
• Indian company borrowing money from non-resident and issuing

fully convertible bonds which are to be converted into shares at
the end of 5 or 10 years – On interest payable on such bonds,
Non-resident is liable to be taxed in India – TDS to be made –
Debentures and bonds are in the nature of debt certificates –
Payment cannot be treated as dividend because liability to pay
is independent of assessee company earning profits or not – It
does not make any difference whether the repayment of debt is
made in cash or by way of allotment of shares
LMN India Ltd., In Re (AAR) 307 ITR 40
• Interest on belated payment of compensation for acquisition of

land is revenue receipt – Tax deductible at source
Registrar, University of Agricultural Science Vs Fakirgowda (Kar) 325 ITR 239
Tuhi Ram Vs Land Acquistion Collector (P&H) 199 ITR 490
• Loans taken by company advanced to Directors on the same

day – Cheques were taken in the name of company and
transferred to the accounts of directors – Repayment of loan
and interest also routed by the directors through the company
Company bound to deduct tax at source when it is paying
interest to the creditor since there is no evidence on record to
show that the alleged loans were in fact taken by the directors
and merely routed it through the company whereas records
show that company is a debtor in the books of the lender
CIT Vs Century Building Industries P. Ltd. (SC) 293 ITR 194
• Compensation awarded by Motor Accidents Claims Tribunal

Tax to be deducted at source on the interest component u/s
194A
United India Insurance Co. Ltd. Vs Mitaben Dharmeshbhai Shah & Ors. (Guj) 269
ITR 63
New India Assurance Co. Ltd. Vs Mani & Ors. (Mad) 270 ITR 394
• Liability to deduct tax arises when interest is credited to books

of account as per the clear mandate in sec. 194A.
Southern Brick Works Ltd. Vs CIT (Mad) 146 ITR 479
• A trust cannot be treated as an individual and as such is not

exonerated from requirement of sec.194A – Trust connotes a
legal relationship and is an institution with specific objects and
purpose
ITO Vs Subhash Metal Industries (ITAT, Bom) 44 ITD 677
• Credit entry showing payment of interest was made in books of

account – Claim of assessee that such entry was made only to
comply with the provisions of companies Act, is not an excuse
for non-deduction of tax at source
Solar Automobiles India (P) Ltd. Vs DCIT (Kar) 204 Taxman 667
• Payment by assessee to company G for utilizing G's unspent

credit facility – Is interest within the meaning of sec. 2(28A) –
TDS to be made u/s 194A
Bhura Exports Ltd. Vs ITO (Cal) 66 DTR 87
On Payment of winnings from lottery, crossword

puzzle, card games or any other games [sec. 194B]
• Applicable even if winning is in kind (fully or partly)
• Exempt for payments upto Rs. 10,000 [Rs. 5000 till 01-07-
2010]
• Assessee running a prize scheme in which all subscribers

deposit a fixed amount every month for 52 months – Winner of
monthly draw get a scooter or an equivalent value and all
unsuccessful subscribers get back their contribution without
any interest on completion of the scheme – Intention of all
subscribers is to win the prize – Scheme is a lottery – Assessee
was liable to make TDS while paying the prize money – Sec.
194B applicable.
Lakshmi Gnaneswara Enterprises & Financiers Vs ITO (ITAT, Hyd) 72 ITD 295
On Payment of winnings from horse race [sec.

194BB]
• Bookmaker, licensee for horse racing in any race course or

for arranging for wagering or betting in any race course
liable
2010]
On Payment made to contractors [sec. 194C]

• Payment made to residents for carrying out any work
including supply of labour for carrying out any work in
pursuance of a contract

• @ 1% if the recipient is Individual or HUF and @ 2 % for

others [upto 01-10-2009, separate rate ie. 1% was fixed for
advertisement payments]
• In case of manufacturing or supplying a product according

to the requirement or specification of a customer by using
material purchased from such customer, TDS to be made
on the invoice value exceeding the value of material if such
value is mentioned separately in the invoice or on the whole
of the invoice value is the value of material is not mentioned
separately in the invoice.
• Individual or HUF need not make TDS for payments made

for personal purposes
• Exempt for payments upto Rs. 30,000 [Rs. 20,000 till 01-07-
2010] – However if aggregate payments made during the
F.Y. exceeds Rs. 75,000 [Rs. 50,000 till 01-07-2010}, TDS to
be made
• Exempt for payments made to contractor during the course
of business of plying, hiring or leasing goods carriages if he
furnishes PAN

• Contract shall include sub-contract [upto 01-10-2009,

separate rate was fixed for sub-contract payments]
• Work defined – inclusive definition to include advertising,

broadcasting and telecasting, carriage of goods or
passengers, catering etc. – w.e.f.01-10-2009 included
manufacture or supplying a product according to the
specification of a customer by using material purchased by
him (does not include if such material was purchased from
a third party).
• Cooling charges paid to cold storage owners – sec. 194c

applies and not sec. 194 I [ Circular No. 1 of 2008 dated
10-01-2008]
• Tax Deduction at Source applicable on Transport contractors

also since he is covered by sec. 194C(1) – The expression
“carrying out any work” used in sec. 194C has wide amplitude
and covers the works of all kinds which are carried out through
the contractors.
CBDT Vs Cochin Goods Transport Association (Ker) 236 ITR 993
Birla Cement Works Vs CBDT & Ors. (Raj) 139 CTR 540
• Payments made by cable network operator to TV channels

towards airing charges ie. Broadcasting and telecasting – Sec.
194C applies since the service that the assessee subscriber is
availing is the receipt of 'telecasting signals' from the licensor
Essence of the contract is to obtain broadcasting and
telecasting facility of TV channels and hence sec. 194C applies
Kurukshetra Darpans (P) Ltd. Vs CIT (P&H) 217 CTR 326
• Assessee engaged in the business of providing event

management services to various clients – Clients treated the
assessee as a professional and deducted tax u/s 194J in respect
of payments made to assessee – Job awarded by assessee to
other parties has to be treated as contract and not sub-contract –
Sec. 194C(1) apply – Art work and photography will not come
under the purview of professional services and will be covered
u/s 194C(1)
EMC Vs ITO (ITAT, Mum) 37 SOT 31 ; 45 DTR 275
• Assessee, a shipping agent availing of services for movement

of containers by use of cranes – Tax deductible u/s 194C since it
amounts to carriage of goods
ACIT(TDS) Vs Merchant Shipping Services Pvt. Ltd. (ITAT, Mum) 129 ITD 109
• Assessee obtained some contracts from Government which in

turn were given on sub-contract to various parties – On such
sub-contract, assessee received commission at certain
percentage of gross contract value – Assessee claimed that
provisions of sec. 194C not applicable since it was only
commission receipts and payments made to sub-contractors
were not debited to P & L a/c – Agreement between assessee
and sub-contractor showed continued responsibility and
obligation on the part of the assessee to the principals in respect
of such sub-contracted works – Contention of assessee rejected
– Sec. 194C will apply
A.K. Patel & Co. (Construction) Pvt. Ltd. Vs DCIT 2011-TIOL-579-ITAT-AHM
• When freight charges is claimed as deduction in its P & L a/c,

assessee cannot claim that contract for transportation is entered
into between its supplier and the transporter – Since the goods
purchased are ex the supplier's godown and is shipped into
assessee purchaser's destination as its property at its risk, the
contention of assessee that contract was between the supplier
and transporter fails – Assessee obliged to deduct tax on such
transportation charges paid
K.H. Floor Gallery (P) Ltd. Vs ACIT 2011-TIOL-701-ITAT-COCHIN
• Payment to truck operators without TDS - Second proviso to

sec. 194C(3)(i) is applicable only w.e.f. 01-06-2005 – Just for a
reason that the proviso was enacted to obviate any procedural
hardship faced by small truck owners, one cannot say that it
was also meant to obviate any hardships to a person who is the
payer and not the payee
ITO Vs M. Sankar (ITAT, Chennai) 127 ITD 316
• Assessee engaged in transportation work entered into

agreement with other parties who in turn transported the goods
Whether it is sub-contract or hiring of vehicles / dumpers
Charges collected by the sub-contractors showed that such
charges were on the basis of quantity of goods transported and
the number of trips carried out – Possession and control of
vehicles were always with the sub-contractors who only
provided service of shifting of goods from one place to another
It is a case of transportation of goods to which sec. 194C

applies and not hiring of plant and machinery to which sec.
194-I applies
CIT(TDS) Vs Shree Mahalaxmi Transport Co. (Guj) 339 ITR 484
CIT(TDS) Vs Swayam Shipping Services P. Ltd. (Guj) 339 ITR 647
• Raw material supplied to a manufacturer who in turn sold the

finished products to assessee – assessee supplying the
technical know-how for manufacturing and products
manufactures were in the brand name of assessee – Is works
contract liable for TDS u/s 194C
CIT Vs Nova Nordisk Pharma India Ltd. (Kar) 341 ITR 451
On Payment of insurance commission [sec. 194D]
• Payment to residents for soliciting or procuring insurance

business Applicable even if winning is in kind (fully or
partly)
• At the time of credit to the account of payee or at the time of

payment, which ever is earlier
2010]
On Payment to non-resident sportsmen or sports

association [sec. 194E]
• Payment to non-resident sportsmen or sports association

any income referred to in sec. 115BBA - @ 10%
• At the time of credit to the account of payee or at the time of

payment, which ever is earlier
• Once income accrues to a non-resident sportsman or sports

association on fulfillment of the conditions mentioned in sec.
115BBA, then payer has to deduct tax irrespective of taxability
thereof – Payments including guarantee money made by
assessee for the purpose of conducting the cricket tournament
to ICC as well as Cricket Control Boards or associations of
member countries of ICC in relation to matches played in India
Liable for TDS
PILCOM Vs CIT (Cal) 335 ITR 485
On Payment of amount referred to in sec.

80CCA(2)(a) [sec. 194EE]
• At the time of payment deduct @ 20%
• Exempt if aggregate amount of payment to payee during

the F.Y. is less than Rs. 2,500
• Exempt if payment made to heirs of assessee
On Payment of amount referred to in sec. 80CCB(2)

[sec. 194F]
On Payment of commission on lottery tickets [sec.

194G]
• Payment of commission for stocking, distributing,

purchase or sale of lottery tickets
• At the time of credit in any account in the books of account

of assessee or at the time of payment, which ever is earlier
• Exempt for payments upto Rs. 1,000

On Payment of commission or brokerage [sec. 194H]

• Payment made to residents any commission or brokerage
deduct @ 10% [5% till 01-07-2010]


• Exempt for payments made by BSNL to its public call office

franchisees
• Exempt if aggregate payments to a payee in a F.Y. upto Rs.

5,000 [Rs. 2,500 till 01-07-2010]
• Assessee sold its products through distributors by paying

commission Distributors allowed to make sales only in areas
specified by assessee and they cannot fix the sale price by
reducing their margins – If the stock lying with the distributors
is not sold before the expiry date, assessee will compensate
them – Transaction is not on principal to principal basis but is
on principal to agent basis - Liable to make TDS.
Hindustan Coca Cola Beverages (P) Ltd. Vs ITO (ITAT, Jp) 97 ITD 105
• Assessee engaged in business of providing cellular mobile

phone services Sold SIM and pre-paid cards to its franchisees
at a fixed rate below market price for onward sale to the
ultimate customers – Essence of contract is service since
distributors are linking agents in the chain of delivery of
service to customers - The margin paid to distributors was
commission payments and not discount as there was no sale of
any goods - Tax deductible at source u/s 194H
ACIT Vs Bharti Cellular Ltd. (Cal) 61 DTR 225
Vodafone Essar Cellular Ltd. Vs ACIT (Ker) 332 ITR 255
CIT Vs Idea Cellular Ltd. (Del) 325 ITR 148
ITO Vs Vodafone Essar Cellular Ltd. (ITAT, Chennai) 141 TTJ 461
• Assessee appointing concessionaires for selling milk

Ownership of goods not passing to agents – Transaction one of
principal to agent and not principal to principal – Liable to
deduct tax on payments
Delhi Milk Scheme Vs CIT (Del) 301 ITR 373
• Airlines selling tickets through travel agents – Amount realized

by travel agents in excess of net fare retained by them amounts
to commission – TDS to be made – As per terms of passenger
sales agency agreement between the assessee and travel agents,
travel agent acted on behalf of the assessee whereby a legal
relationship was established between the assessee-airline and
the third party ie. the passenger – Relationship between the
travel agent and the assessee is therefore that of a principal and
agent
CIT Vs Singapore Airlines Ltd. (Del) 319 ITR 29
Around The World Travels & Tours (P) Ltd. Vs Union of India (Mad) 268 ITR 477
• Amount paid by Doordarshan (DD) to advertising agents – The

agent canvasses the advertisement on behalf of DD under
agreement between them and the advertisement charges
recovered from the customers are also in accordance with tariff
prescribed by DD which is incorporated in the agreement – The
transaction is a pure agency arrangement between DD and the
advertising agencies because one acts for the other and the act
of the agent binds DD in their capacity as principal of the agent
– 15% of advertisement receipts retained by such agents is only
commission – Sec. 194H applies
CIT Vs Director, Prasar Bharti (Ker) 325 ITR 205
• When an income is received by an agent, he receives it for and

on behalf of his principal – There is no question of diversion by
overriding title as the agent is bound to make over the income
to the principal under the general law of agency – Hence
payment of commission amounts to discharge of an obligation
after such income reaches the assessee – Expl. (i) to sec. 194H
has a wide meaning and it covers any payment received or
receivable directly or indirectly by a person on behalf of
another person for services rendered
ACIT Vs Edroos Syed Mohammed Zakir (ITAT, Mum) 47 SOT 199
On Payment of rent [sec. 194-I]

• Payment made to residents
• Deduct @ 2% for use of plant / machinery / equipment

[10% during 01-06-2007 to 01-10-2009] and @ 10% for use
of land / building / land appurtenant thereto / furniture
fittings [15% if payee is Individual or HUF and 20% for
others during 01-06-2007 to 01-10-2009]



1,80,000 [Rs. 1,20,000 till 01-07-2010]
• While sec. 194-I would be attracted to payments received

for providing hotel accommodation on a regular basis
under lease/licence agreements, the said provision would
not apply to cases where only 'rate contract' agreements
are entered into, under which only room tariffs are fixed
[Circular No. 5/2002 dated 30-07-2002]
• Landing fee and parking fee for aircrafts amounts to rent for the
purpose of sec. 194 I – It is for use of the land
United Airlines Vs CIT (Del) 287 ITR 281
• Amount described in lease agreement as security deposit

Agreement providing for reduction of security deposit every
month by amount of rent payable – Security deposit was in
effect advance rent payment – Tax to be deducted at source on
entire security deposit
CIT Vs Reebok India Company (Del) 291 ITR 455
• Lease rent for 30 years paid upfront – TDS to be made

TRO Vs Bharat Hotels Ltd. (ITAT, Bang) 318 ITR (AT) 244
• Composite licence agreement leasing out entire factory

building along with plant and machinery etc. - License fee paid
to get right to enjoyment in property – Rent as per Expl. (i) to
Sec. 194 I
J.C. Bansal Vs TRO (ITAT, Indore) 123 ITD 245
• Assessee-hotel received payments from corporate customers

under an agreement for use of the rooms in the hotel by such
customers on regular basis – Such payments would squarely
fall within the term 'rent' as defined under the Expl. to sec.
194-I
Krishna Oberoi Vs Union of India (AP) 257 ITR 105
On Payment of fees for professional or technical

services [sec. 194J]
• Payment made to residents any fees for professional or

technical services or royalty or non-compete fee
• Deduct @ 10% [5% upto 01-06-2007]



30,000 [Rs. 20,000 till 01-07-2010]
• Individual or HUF need not make TDS for payments made

for personal purposes
• Licensor agreed with assessee to grant license to use trademark

NIIT, copy right and technical know-how in connection with
setting up of computer education centre – Falls within Expl. 2
to sec. 9(1)(vii) and sec. 194 J applies being fee for technical
services
ACIT Vs Frontline Software Services (P) Ltd. (ITAT, Indore) 122 ITD 325
• SBI was managing and clearing cheques through MICR centre

by rendering managerial service which falls within the
definition of technical services – Payment made to SBI is liable
for TDS u/s 194J
Canara Bank Vs ITO 2008-TIOL-205-ITAT-AHD
• Appointing Lead Manager to GDR issue – It could not be said

that there was sale of GDRs to the lead manager and that they
have re-sold them to the ultimate investors – Hence the amount
paid viz. selling concession / commission, underwriting
commission and management commission deducted by them
from sale proceeds does not represent any sales discount

Services rendered by lead manager is “managerial” or
“consultancy” services and fall within the meaning of
“technical services” u/s 9(1)(vii) r.w. Expl. 2 thereto
Raymond Ltd. Vs DCIT (ITAT, Mum) 86 ITD 791
• Third party administrators (TPA) for health insurance policies

making payment to hospitals – TPA is agent of insurance
company for payment and reimbursing the amount to the
hospital under cash-less system under the medi-claim service
to the policy holder – Service level agreement is between the
TPA and the hospitals - liable for TDS u/s 194J as fee for
technical services
Medi Assist India TPA P. Ltd. Vs DCIT (Kar) 324 ITR 356
Dedicated Health Care Services TPA (India) Pvt. Ltd. Vs ACIT (Bom) 324
ITR 345
Vipul Medcorp TPA Pvt. Ltd. & Ors. Vs CBDT & Anr. (Del) 63 DTR 65
• The BOLT system provided by the Bombay Stock Exchange is

a complete platform containing the entire spectrum of trading
in securities – The in-built mechanism in the BOLT system
itself is a part of managerial service – There is a direct linkage
between the managerial services rendered and the transaction
charges levied by the stock exchange – Payments made are
liable for TDS u/s 194J
CIT vs Kotak Securities Ltd. (Bom) 340 ITR 333
On Payment of compensation on acquisition of

immovable property [sec. 194LA w.e.f. 01-10-2004]
• Payment to resident as compensation / consideration or
enhanced compensation / consideration on account of
compulsory acquisition of any immovable property other
than agricultural land
• Exempt if aggregate amount of payment to payee during

the F.Y. is less than Rs. 1 lakh
• Compensation on acquisition of land – Duty of Land

Acquisition Officer to deduct tax at source u/s 194LA if
amount paid after 01-10-2004 exceeds the prescribed limit – If
tax not to be deducted, assessee to produce necessary
certificate from Assessing Officer.
Nalini Vs Deputy Collector, Land Acquisition (Ker) 294 ITR 423
• If there is a decree of a competent Court to pay enhanced

compensation on account of acquisition of immovable
property, the competent authority has an obligation to deduct
tax at source from those amounts. Even if the property was
acquired much prior to the introduction of sec. 194LA (ie. 01-
10-2004), the liability to deduct taxes arises on the date on
which the amounts are paid or deposited in court to be paid to
the claimants. The liability to deduct IT is with the Land
Acquisition Officer who initiates proceedings under the Land
Acquisition Act and who actually pays the compensation to the
claimants
State of Kerala Vs Mariyamma (Ker) 144 Taxman 744
On Payment of interest by infrastructure debt fund

[sec. 194LB w.e.f. 01-06-2011]
• Payment of interest to non-residents not being a company
by an infrastructure debt fund referred to in sec. 10(47)

On Payment to non-residents [sec. 195]

[ Also see decisions under the heads “Accrual of income” under Int.
Tax. as well as “Expenses on which tax not deducted” under Business
Income ]
• Payment to non-residents not being a company
• Any sum chargeable under the Act except salary

of assessee or at the time of payment, which ever is earlier –
interest payable by Govt. or public sector bank or public
financial institution TDS to be made only at the time of
payment
• Dividend referred to in sec. 115-O is exempt
• If deductor considers that whole of such payment is not

income chargeable in the hands of the recipient, approach
Assessing Officer to fix the appropriate proportion of
income chargeable to tax
• Recipient can also approach the Assessing Officer for

getting a certificate for no TDS
• Procedure for refund of tax deducted at source u/s 195 to

the person deducting the tax [ Circular No. 7 of 2007 dated
23-10-2007 further amended by Circular No. 7 of 2011
dated 27-09-2011]
• In GE India Technology Centre (P) Ltd. Vs CIT & Anr. (327

ITR 456) Supreme Court held that payer is bound to
deduct tax at source only if the sum paid is assessable to tax
in India
• In Vijay Ship Breaking Corpn. & Ors. Vs CIT & Anr. (314
ITR 309) Supreme Court held that usance interest payable
outside India by an undertaking engaged in the business of
ship breaking in respect of purchase of a ship is exempt
from tax in view of Expl. 2 to sec. 10(15)(iv)(c) and hence

not liable to deduct tax u/s 195(1) on such payments
• If remittances to non-resident contains wholly or partly taxable

income, duty of the assessee to deduct tax at source or approach
Assessing Officer u/s 195(2) or (3) – Sec. 195 covers
composite payments which has an element of income
embedded or incorporated in them and hence where an amount
is payable to a non-resident, the payer is under an obligation to
deduct tax at source in respect of such composite payments
G.E. India Technology Centre P. Ltd. Vs CIT (SC) 327 ITR 456
Transmission Corporation of A.P Ltd & Anr. Vs CIT (SC) 239 ITR 587
• Payment in kind to non-resident – TDS provisions applicable

Kanchanganga Sea Food Ltd. Vs CIT (AP) 265 ITR 644
• Transfer of business in India by a foreign company to Indian

company – Contention that sec. 195 is not applicable because
the deductee is a tax resident of India and is being assessed in
India is not sustainable – Further, status of the deductee has
been taken as foreign company which is not exempt from sec.
195 – Provisions of sec. 195(2) cannot be by-passed by merely
stating that the deductor was aware that the transaction will
result into loss
ITO Vs Intel Tech India (P) Ltd. (ITAT, Bang) 33 DTR 499 ; 32 SOT 227 ; 130
TTJ 348
• Non-resident paying abroad home salary to employees in India

Payment having nexus with services in India – Salary earned
by employees in India – TDS to be made on such payments
CIT Vs Eli Lilly & Co. (India) P. Ltd. (SC) 312 ITR 225
• Fee for technical services paid to a foreign enterprise – No

requirement that foreign party should have P.E. in India
Services utilized in India – Income accrues in India – TDS to be
made on such payments
Indian Summer Vs ACIT (ITAT, Del) 4 ITR (Trib) 181
• Reimbursement of expenditure incurred towards

accommodation and conveyance of employees of non-resident
consultants – Tax deductible at source – Levy of interest under
sec. 201(1A) upheld.
Karnataka Urban Infrastructure Development Finance Corp. Vs CIT (Kar) 308

ITR 297
• Commission to Lead mangers - Retention of commission by

non-resident Lead managers while remitting balance to Indian
Amounts to payment / credit of money to the account of the
non-resident – Liability to TDS u/s 195 arises at this moment
Mahindra & Mahindra Ltd. Vs DCIT (ITAT,SB-Mum) 313 ITR (AT) 263
On Income from units [sec. 196B]

• Income in respect of units referred to in sec. 115AB or
capital gain on transfer of such units paid to an Offshore
Fund
• At the time of credit to the account of the payee or at the

time of payment, which ever is earlier deduct tax @ 10%
On Income from foreign currency bonds or shares of

Indian company [sec. 196C]
• Income in respect of bonds or Global Depository Receipts

(GDR) referred to in sec. 115AC or capital gain on transfer
of such bonds or GDR paid to a non-resident Offshore
Fund

• Dividend referred to in sec. 115-O exempt
On Income of Foreign Institutional Investors from

securities [sec. 196D]
• Income in respect of securities referred to in sec.

115AD(1)(a) payable to a Foreign Institutional Investor

• Dividend referred to in sec. 115-O exempt
• Income by way of capital gains arising from the transfer of

securities referred to in sec. 115AD payable to Foreign
Institutional Investor exempt
Consequences of failure to deduct or pay

• Deemed to be an assessee in default in respect of the
shortfall [sec. 201]
• Liable for levy of penalty u/s 221 (unless assessee proves

good and sufficient reason for failure) [sec. 201]
• Liable for simple interest @ 1% for every month or part of

a month of failure [interest @ 1.5% p.m. if TDS made but
not paid to Govt. a/c] [sec. 201]
• If TDS made but not remitted, amount of tax and interest
will be a charge upon all the assets of the deductor [sec. 201]
• Order u/s 201(1) for recovery of tax to be made [sec.

201]
• within 2 years from the end of the F.Y. in which
statement filed u/s 200
• within 4 years from the end of the F.Y. in which payment
is made or credit given if no statement filed u/s 200 [w.e.f
01-04-2010]
• Order for a F.Y. commencing on or before 01-04-2007
may be passed on or before 31-03-2011
• Provisions of sec. 153(3)(ii) and Expl. 1 to sec. 153 shall
apply\
• Penalty for failure to deduct or pay tax equal to the amount

of tax failed to deduct or pay [sec. 271C]
• Penalty for failure to file TDS returns / TDS statements /

declarations in due time – Rs. 100 per day of default and
shall not exceed the amount of tax payable or deductible
[sec. 272A(2)]
• Failure to pay tax deducted at source may attract

prosecution also [sec. 276B]
• Deduct tax from entire sum paid or credited and not merely
income component of the sum – Words 'on income comprised
therein' appearing in sec. 194C(1) cannot be understood as
income component of sum credited or paid – It does not permit

exclusion of any amount paid as reimbursement
Associated Cement Co. Ltd. Vs CIT (SC) 201 ITR 435
• A certificate issued by a Chartered Accountant cannot be a

conclusive determination of taxability of income in the hands
of the recipient – Question of taxability in the hands of the
recipient remains open and the assessee continues to have
obligation to file all the relevant details enabling determination
of such liability before the revenue authorities
DCIT Vs Rediff.com India Ltd. (ITAT, Mum) 61 DTR 426
• ACIT (TDS) has jurisdiction over TDS matters since CCIT has
conferred powers on him by virtue of sec. 120(2)
Jubilee Investments & Industries Ltd. Vs ACIT (Cal) 238 ITR 648
• 'SE' was authorized person at Chandrapur to make TDS and

remit the same (even though H.O. of company is at Mumbai &
assessed there) – ITO Chandrapur has jurisdiction to levy
interest u/s 201(1A).
ITO Vs Supdtg. Engr, O&M Division, MSEB(ITAT, Nag) 63 ITD 49
• Once tax deducted by assessee, it has to make payment to Govt.

Assessee cannot claim that payment was towards supply of
material – If the assessee fails to remit, it is liable for interest u/s
201(1A)
Block Development Officer Vs ITO(TDS) (ITAT, Del) 5 ITR (Trib) 426
• Failure to deduct tax – Levy of interest u/s 201(1A) is

mandatory and is compensatory in nature – Payment of tax
subsequently by recipient or there is no ultimate tax liability in
the hands of the recipient etc. are not relevant.
Hindustan Coca Cola Beverage P. Ltd. Vs CIT (SC) 293 ITR 226
CIT Vs Rathi Gum Industries (Raj) 213 ITR 98,
CIT Vs Dhanalashmy Weaving Works ( Ker ) 245 ITR 13
Pentagon Engg. Pvt. Ltd. Vs CIT (Bom) 212 ITR 92
CIT Vs Prem Nath Motors (P) Ltd. (Del) 253 ITR 705
CIT Vs Ramesh Enterprises (Mad) 250 ITR 464.
ACIT Vs Adani Exports Ltd. (ITAT,Ahd-TM) 109 ITD 101
• Interest u/s 201(1A) is leviable even when recipient is a loss

making company – In such case interest is to be calculated from
date on which tax should have been deducted to date on which
payee should have filed its return

CIT Vs Chennai Metropolitan Water supply & Sewerage Board (Mad) 202
Taxman 454
• Persons who deducted tax but not paid within the prescribed
time will be visited with recovery of tax, interest u/s 201 and
penalty u/s 221 – For enforcing remittance of tax deducted at
source, Assessing Officer need not issue notice u/s 156 in view
of sec. 200 – The moment assessee is treated as in default u/s
201(1), he is liable for penalty u/s 221(1) – There is no
requirement that penalty u/s 221(1) can be imposed only after
ITAT upholds the order made by A.O. u/s 201(1)
ACIT Vs Catmoss Retail Ltd. 2011-TIOL-591-ITAT-DEL
• During the period 01-04-1989 to 01-04-2010 there was no bar

of the period of limitation for taking action u/s 201 – Time limit
prescribed u/s 149 cannot have any application in this regard
Limitation Act also would not apply.
• Even if the person to whom interest was paid without TDS had
subsequently paid taxes on such income, the deductor cannot
escape from the liability to pay interest u/s 201(1A) as well as
penalty u/s 271C.
• Assessee availed bank credit facility of other companies and
lateron reimbursed them the interest burden suffered by them
TDS to be made on such interest payments
Bhura Exports Ltd. Vs ITO (Cal) 66 DTR 87
CIT(TDS) Vs H.M.T. Ltd. (P&H) 340 ITR 219
• Question of good and sufficient reasons would not absolve

assessee from considering it as an assessee in default u/s 201(1)
– Interest u/s 201(1) is mandatory
CIT Vs American Express Bank Ltd. (Del) 204 Taxman 661
• Failure to remit TDS made to Govt. account - Oversight or

preoccupation is not a reasonable cause – Levy of penalty us/
221 r.w.s. 201 upheld.
SBI Capital Markets Ltd. Vs DCIT (ITAT, Bom) 57 ITD 72
• Failure to deposit TDS - Liable to penalty u/s 221 irrespective

of whether interest was paid or not – Once TDS has been made
from the income of somebody, assessee is merely a custodian
of such amount and has to be deposited in Govt. account within

the prescribed time and any loss or profit in the business of the
assessee has nothing to do with such deposit
Jubilee Investments & Industries Ltd. Vs ACIT (Cal) 238 ITR 648
• Failure to deduct tax – No mens rea required to be proved for

imposing penalty – Payment of tax by recipient does not
absolve the deductor from his statutory duty to make TDS
Kanha Vanaspati Ltd Vs ACIT 2007-TIOL-400-ITAT-DEL
• Penalty u/s 272A(2) for non-filing of Form No.26A leviable

even though TDS was made and paid to Government since it is
not technical or minor breach of law
Shah Traders Vs DCIT (ITAT, Pat) 56 ITD 33
• 197A default – Penalty u/s 272A(2)(f) leviable for default in

submitting copy of each declaration separately.
Escorts Employees Ancillary Ltd. Vs CIT (ITAT, Del-TM) 74 ITD 1
• Payment to sub-contractor – Since no exemption certificate

was produced by the said sub-contractor, assessee was liable to
deduct tax – However no TDS made by assessee – Still liable to
file TDS return u/s 206 – Penalty leviable u/s 272A for failure
to file TDS return under such circumstances
ACME Construction Co. Vs DCIT (ITAT, Pat) 68 ITD 1
• Failure to make TDS from remuneration paid to Directors and

interest credited in 'interest payable' a/c. – Prosecution of
Director being principal officer – Expln. to 194A(1) is
clarificatory & retrospective in operation.
ITO Vs D. Manoharlal Kothari (Mad) 236 ITR 357
Other provisions relating to TDS / TCS

• If tax chargeable is borne by the payer, grossing of tax with
payment to be made for computing TDS liability [sec.
195A]
• No TDS to be made for payments made to Govt., RBI,

Corporations established by Central Act which is exempt
from IT or Mutual funds specified u/s 10(23D) [sec. 196]
• Assessing Officer can give certificate for no TDS or TDS at

lower rate in respect of payments referred to in sec. 192,
193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J,
194K, 194LA and 195 [sec. 197]
• TDS made will be treated as income received by the

assessee [sec. 198]
• TDS made and paid to Cen. Govt. will be treated as tax paid
on behalf of the person from whose income the deduction
was made [sec. 199]
• Person making TDS to pay such sum to Cen. Govt. within

the prescribed time and file prescribed statements
periodically [sec. 200]
• Processing of TDS returns and issue of intimation [sec.

200A w.e.f. 01-04-2010]
• TDS is only one mode of recovery [sec. 202]
• Certificate for TDS made to be issued by the deductor to the

deductee [sec. 203]
• Persons making TDS / TCS to obtain and quote tax

deduction and collection account number [sec. 203A]
• Prescribed IT authority to deliver to every person from

whose income TDS deducted and paid a statement showing
particulars of tax deducted [sec. 203AA w.e.f. 01-04-2008]
• “Person responsible for paying” defined [sec. 204]
• Where TDS made, assessee shall not be called upon to pay

tax to that extent [sec. 205]
• Deductor is liable to file annual returns in the prescribed

form within prescribed time under verification – provision
made to file return in electronic medial also [sec. 206]
• Furnishing of quarterly return in respect of payment of

interest to residents without TDS [sec. 206A]
• Requirement to furnish PAN by the recipient – otherwise

TDS will be made at higher rate [sec. 206AA w.e.f.
01-04-2010]
• Provision for Collection of Tax at Source for certain

specified items [sec. 206C]
• Assessee cannot deduct tax at lower rate without getting an

authorization or certificate from I.T. authority
CIT Vs Chennai Metropolitan Water supply & Sewerage Board (Mad) 202
Taxman 454
• Even if assessee wins in appeal, no need to refund TDS for

which certificate was already issued to payee.
Samcor Glass Ltd. Vs ACIT (ITAT, Del) 94 ITD 202
• Tax credit can be given only where tax is deducted on the

income which is offered for assessment
CIT Vs Tanjore Permanent bank Ltd. (Mad) 149 ITR 788
• Credit for Tax Deducted at Source can be given only to the

extent of proportionate income offered for assessment
Pardeep Kumar Dhir Vs ACIT (ITAT, Chd-TM) 107 ITD 118
ACIT Vs Sarada Velu 2010-TIOL-607-ITAT-MAD
CIT Vs Pushpa Vijay & Anr. (Ker) 67 DTR 354
• Credit for TDS can be given only on the basis of TDS

certificate in the prescribed form issued by the deductor
mentioning details of payment to the Govt. treasury such as
date of payment, name of bank etc.
Perfect Communications Pvt. Ltd. Vs ACIT 2010-TIOL-735-ITAT-DEL
• Though tax was deducted at source, it was not remitted to the

Govt. account by the deductor – Deductee cannot claim credit
for the TDS merely on the strength of the certificate issued by
deductor
ACIT Vs Om Prakash Gattani (Gauhati) 242 ITR 638
• License holders purchasing country liquor from Government

distilleries and selling it to retail shops – Tax Collection at
Source compulsory
Rudra & Co. & Ors. Vs Union of India (HP) 233 ITR 66
S.K.G. Sugar Ltd Vs CIT & Anr. (Pat) 236 ITR 338
• U/s 206C(6) entire liability in respect of TCS is fastened upon

the person engaged in collection of forest produce and selling
them whether or not he collects the TCS as per the provisions of
sec. 206C(1) Contention that the assessee should not be made
liable to pay the TCS on the impugned sales since the
purchasers have already paid taxes thereon, is not sustainable
Decision of Supreme court in Hindustan Coca cola Beverages
(P) Ltd (293 ITR 226) distinguished
Girijan Co-op. Corporation Ltd. Vs ACIT (ITAT, Visak) 64 DTR 433
Chapter 10
INTERNATIONAL
TAXATION ISSUES
INTERNATIONAL TAXATION ISSUES 805
Note : It is important to refer to the concerned DTAA

before analyzing / using the decisions)
Non-resident / Foreign company
• Non-resident means a person who is not a resident – for the
purpose of sec. 92, 93 & 168 includes a person who is not
ordinarily resident as per sec. 6(6) [sec. 2(30)]
• Foreign company is a company which is not a domestic

company [sec. 2(23A)]. Domestic company defined in sec.
2(22A) - Indian company defined in sec. 2(26)
• Assessee not non-resident in nine out of ten proceeding years

and was in India for more than 729 days in the proceeding 7
years – Resident of India – Salaries earned abroad were taxable
in India
Sankar Narayan Das Vs ADIT (ITAT, Kol) 101 ITD 95
Agent of Non-resident [ Sec. 163 & 160(1)(i) ]

• Non-resident can appoint an agent in respect of his income
specified in sec. 9(1) who will be treated as representative
assessee [sec. 160(1)(i)]
• Who may be treated as agent of non-resident [sec. 163]

• Who is employed by or on behalf of the non-resident
• Who has any business connection with the non-resident
• From or though whom non-resident is in receipt of any
income (directly or indirectly)
• Trustee of non-resident
• Any other person (resident or non-resident) who
acquired a capital asset in India by transfer
• A broker in India who does not deal directly with or on

behalf of a non-resident principal but deals with or though
a non-resident broker shall not be treated as agent if the
transactions are carried out in the ordinary course of
business
• Before treating anybody as agent of non-resident, afford an

opportunity of being heard to such person
• As per contract, export benefit by way of customs duty

drawback and excise duty rebate received by assessee would
be passed on to foreign buyers – Assessee was treated as agent
of non-resident foreign buyers u/s 163 in respect of said benefit
Upheld since such benefits were actually received by the
assessee on behalf of foreign buyers
DCIT Vs A. Tosh & Sons Ltd. (ITAT, Kol) 89 ITD 138
• A person with whom a non-resident ahs any business

connection is deemed to be an agent of the non-resident u/s
163(1)(b) – It also includes a person from whom the non-
resident receives any income directly or indirectly
CESC Ltd. Vs DCIT (Cal) 263 ITR 402
• A non-resident can be treated as agent of another non-resident

A.P. Damodara Shenoy Vs CIT (Bom) 26 ITR 650
• In addition to taxability of dependent agent in respect of

remuneration earned by him in accordance with the domestic
law, he is also liable to be taxable in India on the profits
attributable to the foreign enterprise having Permanent
Establishment, of which he is acting as dependent agent
DDIT Vs Set Satellite (Singapore) (Pte.) Ltd. (ITAT, Mum) 106 ITD 175
• Assessee engaged in the business of cargo consolidation

Based on the volumes of cargo and business experience
assessee obtains a container from shipping lines – Assessee's
business associate in Singapore raises invoice for overseas
carriage ex-Mumbai – Assessee is agent of non-resident u/s
163(1)(b)
WSA Shipping Bombay (P) Ltd. Vs Addl. CIT (ITAT, Mum) 47 SOT 291
• Shares held in Indian company by Non-resident individual was

transferred to non-resident company – Transferee is
representative of assessee for paying tax on capital gains.
Triniti Corporation, IN RE (AAR) 295 ITR 258
• Assessee purchased certain shares from a non-resident foreign

company and remitted certain amount to it after deducting tax
at source and obtaining permission of RBI _ Assessee can be

treated as an agent of such non-resident u/s 163 since the
foreign company received income from assessee on account of
sale of shares since sec. 163(1)(c) uses the words 'from or
through' instead of the word 'through'
Utkal Investments Ltd. Vs ADIT (ITAT, Mum) 120 ITD 67, 5 ITR (Trib) 481
• Assessee carried on business of asset management – It made

payments to non-residents upon redemption of units of a debt
scheme without TDS – ITO held assessee to be an agent of such
non-resident investors u/s 163 since payments were made
through assessee to non-residents – Held valid since all income
accruing or arising to a non-resident through a transfer of
capital asset situated in India are taxable u/s 9(1) – To treat a
person as an agent u/s 163, what is required is to prove that the
non-resident was in receipt of any income directly or indirectly
from or thought he representative assessee
Birla Sunlife Asset Management Co. Ltd. Vs ITO (ITAT, Mum) 38 SOT 523
• Income accruing or arising in India to US company on transfer

of a capital asset situated in India ( shares of Indian company )
to an Indian company can be assessed in the hands of US
company or in the hands of the Indian company (who is the
purchaser of shares) as agent u/s 163 – When complexity is
involved, A.O. can proceed against both simultaneously
Proceedings u/s 195 and 163 operate in different fields
Aditya Birla Nuvo Ltd. Vs DDIT(Int.Tax) (Bom) 200 Taxman 437
• Income arising to Non-resident through agent – Direct

assessment of non-Resident in respect of other income Would
not bar assessment of agent u/s 163
CIT Vs Fertilizers & Chemicals (Travancore) Ltd. (Ker) 166 ITR 823
• Assessee company agent of non-resident u/s 163(1)(c) – Sec.

163(1)(c) provides that any person can be treated as agent in
relation to non-resident in India through whom non-resident is
in receipt of any income directly or indirectly – There is no
requirement to establish the business connection – It is only
when cl. (b) of sec. 163(1) is applied, the existence of business
connection was required to be established - No time limit
prescribed for passing order u/s 163(2)
Central Mine, Planning & Design Institute Limited Vs DCIT (ITAT, Pat) 67
ITD 195
• Assessee furnishing undertaking that taxes due from non-

resident would be paid by assessee – No occasion to pass order
u/s 163(2) – Time limit provided in sec. 149(3) not applicable
since return was filed voluntarily by the assessee as agent of
non-resident u/s 160(1)(i) – Notice issued u/s 148 valid
J.M. Baxi & Co. Vs DDIT (ITAT,SB-Mum) 312 ITR (AT) 102
• Notice to agent must be given for each A.Y.

H.L. Sud, ITO Vs Tata Engg. & Locomotive Co. Ltd. (SC) 71 ITR 457
• A written order treating the representative assessee as the agent

of the non-resident is necessary
CIT Vs Express Newspapers (P) Ltd. (Mad) 111 ITR 347
• Tax paid by representative assessee would be grossed up for

purpose of computing taxable income in hands of beneficiary
assessee.
Clouth Gummiwerke Aktiengesellschaft Vs CIT (AP) 238 ITR 861
Taxability of Non-resident / Foreign company

• Total income of a non-resident includes all income derived
which is received or is deemed to be received in India by or
on his behalf or accrues or arises or deemed to accrue or
arise to him in India [sec. 6]
• Once income is assessed on accrual basis, it will not be
again taxed on receipt basis
• Definition of India [sec. 2(25A)] amended by Finance Act,

2007 w.r.e.f. 25-08-1976 to include territorial waters,
seabed and sub-soil underlying such waters, continental
shelf, exclusive economic zone, maritime zone and the air
space above its territory and territorial waters
• Foreign company earning income in India as per sec. 5(2) but

not liable to pay tax in India in view of DTAA – Obliged to file
return in India u/s 139
VNU International B.V., In Re (AAR) 334 ITR 56
• Consortium of parties – Each party responsible for different

activity – Activity of one party not capable of being assigned to
another party – Parties cannot be assessed as AOP
Hyundai Rotem Co., In Re (AAR) 323 ITR 277
Double Taxation Avoidance Agreements
• Power of Central Govt. to enter into agreement with

foreign countries or specified territories
• Where DTAA exists, provisions of It Act is applicable if
they are more beneficial to assessee [sec. 90]
• Where DTAA provides for a particular mode of

computation of income, the same should prevail over the
provisions in the I.T. Act [F.No. 506/42/81-FTD dated 02-
04-1982]
• Provisions of DTAA can be resorted to only when a tax liability

is imposed on an assessee under the Indian IT Act
LG Cable Ltd. Vs DDIT (ITAT, Del) 113 ITD 113
• Protocol is an indispensable part of the treaty with the same

binding force as the main clauses therein – Provisions of the
DTAA to be read with the protocol clauses and are subject to
the provisions contained in such protocol
Maruti Udyog Ltd. Vs ADIT (Int.Tax) (ITAT, Del) 37 DTR 85 ; 34 SOT 480 ; 130
TTJ 66
• Payment made by Indian company for business support

services rendered through Philippines branch of Dutch
company – Governed by treaty between India and Netherlands
since Dutch company is providing the services to the Indian
company
Shell Technology India (P) Ltd, In Re (AAR) 65 DTR 34
• DTAA with a certain country cannot be used to interpret a

separate DTAA with another country
Perfetti Van Melle Holding B.V., In re (AAR) 65 DTR 12
Whether income exempt under DTAA ? As per

which Article of DTAA it is to be taxed?
• No immunity from tax to a sovereign unless specifically
granted - . Sovereign entity is different from the company
/organization promoted by it for commercial / business
considerations – Royal Jordanian Airlines being a company
under the Jordanian Companies Law is also a company for the
purpose of IT Act by virtue of sec. 2(17) and is a 'person' within
the meaning of sec. 2(31) – Hence it does not enjoy any
immunity from taxation in India and is liable to be assessed in
the status of a foreign company
DCIT Vs Royal Jordanians Airlines ( ITAT,SB-Del) 98 ITD 1
• Since the Indo-Canadian DTAA is based on the UN Model

Convention and not OECD Model, not only the profits
attributable to the PE is taxable, but even the profit attributable
to the sales in the other Contracting State of same and similar
kind as sold through that PE are also taxable – In view of Cl.(b)
of sub-Article (1) of Article 7 of DTAA, no part of the profit for
the execution of the project can be excluded while computing
the profit
SNC Lavlin / Acres Inc Vs ACIT 2007-TIOL-310-ITAT-DEL
• Rate of tax provided in Art. 12(2) cannot be applied to income

computed under Art. 7 in view of Art. 12(5) of DTAA with
Germany which specifically bars such treatment
DDIT (Int.Tax) Vs Pipeline Engineering GmBH (ITAT, Mum) 318 ITR (AT) 210
• Swedish company received management charges for

managing and supervising of installation of equipment in
India, overall testing and commissioning activities – Fees
payable in respect of aforesaid activities are management fees
which are specifically excluded from the purview of industrial
and commercial profits as per Art. 3(3) of DTAA – Same
cannot be treated as commercial profits exempt under Art. 3(1)
of DTAA
CIT Vs Swedish Telecoms International AB (Bom) 318 ITR 280
• Assessee was employee of a British company and working in

its London office – Also worked in India for some days in
subsidiary of British company for which salary was paid by

Indian company on behalf of British company and lateron
recovered the same from the British company – Since salary
was paid by Indian company treating assessee as its employee,
conditions stipulated in Art. 16(2)(b) not fulfilled and assessee
is not eligible for exemption
CIT Vs Ravi Rajagopal (Mad) 199 Taxman (Mag) 244
Shipping business
• Transportation of cargo from Indian port to China by Swiss

company – Taxable in India – Profits arising in India by the
carriage of goods from Indian ports to foreign ports will be
governed by the domestic law enforced in India ie. IT Act since
the shipping business income earned by a non-resident is not
covered by Indo-Swiss DTAA
Gearbulk AG, In Re (AAR) 318 ITR 66
• Assessee providing third party charter handling and

maintenance as well as screening of luggage belonging to
passengers of other airlines – Outside the scope of Art. 8(2)(b)
of Indo-U.S. Treaty – Not entitled to exemption – The
expression 'profit derived by an enterprise from operation of
ships and aircraft in international traffic' having been defined
in Art. 8(2) of DTAA with US, the claim of exemption can be
made / allowed only in accordance with such definition and
cannot be extended beyond that so as to consider OECD
Commentary or US Technical Explanation
• Interest earned on F.D. not entitled to exemption as it cannot be
said to be connected with the business of operation of aircrafts
since the money was deposited at the sweet will of assessee
ADIT (Int.Tax) Vs Delta Airlines Inc. (ITAT, Mum) 317 ITR (AT) 364 ; 124
ITD 114
• Assessee neither owner nor lessee nor charterer of feeder

vessels carrying cargo to destination – Transportation through
other airlines - Profits outside the scope of Art. 8– Profits from
inland transportation not connected with the main activity of
international traffic would be outside the scope of Art. 8 – Not
entitled to exemption
DDIT (Int.Tax) Vs Cia De Navegacao Norsul (ITAT, Mum) 121 ITD 113
DDIT Vs Federal Expresss Corporation (ITAT, Mum) 125 ITD 1
• Assessee did not carry on actual transportation of passenger or

goods by itself, but simply acted as an agent between actual
transporter and owner of cargo – Benefit of Art. 8 of DTAA not
available since it is not in the business of 'ship operation' – Sec.
44B applies
DDIT Vs Thoresen Chartering Singapore (Pte) Ltd. (ITAT, Mum) 118 ITD 416
• Assessee an Indian company carrying on business of cargo

consolidation engaged series non-resident companies for
transshipment of cargo to foreign destinations – Business
activity of shipment of cargo cannot be segregated as one upto
the port of transshipment and the other from the port of
transshipment to the port of final destination – There was a
business connection within the meaning of sec. 163(1)(b)
w.r.s. 9(1)(i) as well as sec. 163(1)(c) – Assessee can be treated
as agent of non-resident company – Income had accrued and
arisen to the non-resident in India
WSA Shipping (Bombay) (P) Ltd. Vs Addl. DIT (ITAT, Mum) 65 DTR 226
Interest income
• Interest received on refund of tax deducted at source from

receipts of permanent Establishment – Though the claim for
refund of income tax is connected with the PE of the assessee
company in the sense that it has arisen on account of TDS from
the receipts of the PE, it cannot be said to be effectively
connected with such receipts because the responsibility to pay
tax lies on the shoulders of the assessee company from the final
profit ascertained on closing the books of account – It is for the
company to pay the tax from any source available with it. It so
happened in this case that the tax got automatically deducted
from the receipts of the PE by operation of law. Such collection
of tax by force of law did not establish effective connection of
the indebtedness with the PE – Such interest is not effectively
connected with PE either on the basis of asset test or activity
test - Taxable under Article 11(2) of DTAA and not under Art.
11(4) r.w. Art. 7
ACIT Vs Clough Engineering Ltd. (ITAT, SB-Del) 130 ITD 137
• Payment of income tax is a discharge of statutory liability of

the assessee and hence cannot be equated with the investment
of funds in business of operation of ships in international
traffic – Art. 11(4) defines interest to mean income inter alia
from “debt claims of every kind” and the excess amount of tax
paid by the assessee becomes recoverable and assumes the
character of debt-claim – Such interest is chargeable under Art.
11
Hapag Lloyd Container Linie GmbHv Vs ADIT (Int.Tax) (ITAT, Mum) 131
ITD 122
• Assessee, a resident of U.K. having P.E. in India receiving

interest on Income Tax refund relating to the P.E. – Para. 6 of
Art. 12 of Indo-U.K. DTAA will apply and not para. 2 thereof –
Income assessable as Business profits under Art. 7 @ 48% and
not as Interest under Art. 12(2) @ 15%.
B.J. Services Company Middle East Ltd. Vs ACIT (ITAT, Del) 119 TTJ 553
Permanent Establishment / Business connection

• No need of having separate Permanent Establishment in
respect of each source of income, in the year of receipt in view
of Art 5 & 7 of DTAA – If the plea of the assessee that to tax its
income PE should be in existence during the A.Y. in which
income is received, is accepted, it would lead to anomaly that
the assessee would be entitled to deduction of all expenses but
the income received in the subsequent years would not be
taxable due to non-existence of PE – As per Art. 5 & 7 of DTAA
there are only two conditions for taxing an amount received by
a non-resident ie. there should be a PE of that person in India
and the income should be attributable to the PE
Van Odor Dredging & Marine Contractors BV Vs DDIT (ITAT, Mum) 105 ITD 97
• Permanent Establishment – Computation of period

Supervisory activities commences from commencement of
activity and not project – Activity once commenced continues
till completion of contract – Intervening period cannot be
excluded – Period of 6 months to be counted at a stretch even if
it is spread in two financial years
DIT (Int.Tax) Vs Krupp Udhe GmBH (ITAT, Mum) 1 ITR (Trib) 614
• Assessee rendered supervisory services for a period of more

than 6 months at installation site of SAIL where installation
work was carried out by Indian contractors – Assessee had
Permanent Establishment in India and income to be computed
under Article 7 of DTAA
Steel authority of India Ltd. Vs ACIT (ITAT, Del) 105 ITD 679
• If an enterprise has a certain amount of space at its disposal

which is used for business activities, it is sufficient to
constitute a place of business – No formal legal right to use that
place is required – PE can exist when an enterprise illegally
occupied a certain location where it carried on its business
Rolls Royce PLC Vs DIT (Del) 339 ITR 147
• Shipping Corporation entering into Time Charter agreements

with foreign shipping companies – Exclusive berthing facility
at ports guaranteed for ships of such companies – Amounts to
Permanent Establishment
Poompuhar Shipping Corporation Ltd. Vs ITO (ITAT, Chennai) 109 ITD 226
• Assessee, non-resident carried on drilling works in Indian soil

Hence it had fixed place in India and number of days of
presence in India is immaterial – No length of time is
prescribed in para. 1 of Art. 5 to constitute a P.E. – Art. 5(2)(a)
to (h) are not applicable as it is not a case of any installation or
structure used for exploration of natural resources
Furgo Engineers B.V. Vs ACIT (ITAT, Del) 26 SOT 78
• There was service agreement and Technical support agreement

between NTPL and cellular operators which supported
assessee's activity – Business connection u/s 9(1)(i) Assessee
projected itself in India through NTPL – 20% of net profit in
Indian sales attributable to Permanent Establishment.
Motorola Inc Vs DCIT (ITAT,SB-Del) 95 ITD 269
• Manufacture and sale of hard disk drives – Independent service

providers in India to clear goods from customs and store in
bonded warehouse and deliver them to equipment
manufacturers when required by them – Applicant has a fixed
place of business which is the focal point of its business
operations in India – Fact that the fixed place of business is
owned or possessed by the logistic service provider does not
detract from the position that the applicant has a distinct,
earmarked and identified place which caters to his business –
As per the agreement, the independent service provider has to
provide warehouse space at a specified location and also
necessary systems to facilitate electronic data interchange so
that the product can be pulled from the warehouse promptly
and necessary business information is exchanged. Agreement
also speaks of inventory control apart from storage, handling,
repacking etc. applicant's agent or representative has a right to
enter the warehouse for the purpose of physical inventory,
inspection, audit, repackaging etc. security requirements as
stipulated by the applicant are also required to be provided at
the place – Merely because the operations are outsourced, it
cannot be said that the applicant does not carry on any business
in India from a fixed place - P.E. in India within the meaning of
Art. 5(1) of DTAA established
Seagate Singapore International Headquarters P. Ltd., In Re (AAR) 322 ITR 650
• French company using own / hired equipment for providing

services in India – Since there is no contractual relation
between the Indian company receiving such services in India
and the owners of such hired equipments, al the equipments are
deemed to be under exclusive control of the French company –
A place of business means all tangible assets ( eg. Premises,
facilities, machinery & equipment and installations ) used for
carrying on the business, whether or not they are exclusively
used for business purposes – P.E. may exist if the business of
the enterprise is carried on mainly through automatic
equipment and the activities of the personnel are restricted to
setting up, operating, controlling and maintaining such
equipment – Thus even existence of computer server amounts
to existence of P.E.
Areva T & D India Ltd., In Re (AAR) 68 DTR 114
Agency P.E.
• For a place of business to constitute a P.E., enterprise using it
must be carrying on its business wholly or partly through it – It
is not necessary that whole of business should be carried on
through such P.E. or fixed place – P.E. will exist if business of
an enterprise is carried on mainly through automatic
equipment and activity of personnel being restricted to setting
up and operating such equipment – P.E. will exist if enterprise
which sets up machine also operates and maintain them for its
own account by itself or through a dependent agent.
• Under Global Computerized Reservation System for
reservation and ticketing, computers were supplied to
subscribers by assessee, a U.S. company – Connectivity were
installed by assessee through its Indian agent – Without
authority of assessee, such computers were not capable of
performing reservation and ticketing – Assessee exercised
complete control over computers installed at the premises of
subscribers – Assessee has P.E. under Article 5(1) – Indian
company was dependent agent of assessee – Business
connection existed – Income in respect of booking which took
place from equipment in India deemed to accrue or arise in
India.
Galileo International Inc. Vs DCIT (ITAT, Del) 116 ITD 1
• Liaison office in India engaged in identifying customers in

India for products of foreign company, negotiating with them,
agreeing to the price, procuring purchase orders and
forwarding the same to the head office and the follow up
activities relating to realization of payments from the
customers and offering after-sales support – Merely because
the buyers place orders directly with the head office and make
payment directly to the head office and it is the head office
which send goods directly to the buyers, it cannot be said that
the work done by the liaison office is only liaison work -
Business connection established – In spite of the conditions
stipulated in the RBI's permission preventing the liaison office
from carrying on commercial activities, it has been carrying on
such activities – Fact that no action has been initiated by RBI
against the liaison office so far does not render the findings of
the IT authorities erroneous or illegal – Liaison office is a PE as

per Art. 5 of DTAA and business profits earned through such
liaison office is taxable in India
DDIT (Int. Tax) Vs Jebon Corporation India (Kar) 55 DTR 113
• Assessee, a U.K. based company is supplying aero engines and

spare parts to Indian Defence establishments and has a wholly
owned subsidiary, RRIL in India. Any request of the Indian
customer is routed through RRIL This shows that RRIL is
maintaining permanent office in India to undertake all
activities on behalf of assessee. The assessee has a business
connection in India under sec. 9(1)(i) – Assessee has P.E. in
India within the meaning of Art. 5 since premises in the name
of RRIL are being used for the business operations of the
assessee in India and the cost of maintenance thereof is met by
assessee – Further the activities of RRIL are not merely
preparatory or auxiliary in character – Primary responsibility
rests on RRIL to analyze and scrutinize the proposals and
orders, and the employees of RRIL are functionally
responsible to the assessee in specified matters – RRIL is
required to act as a marketing office to receive orders and
promote the activities which converts the requests for
quotations into orders – Hence exclusion granted in Art. 5(3) is
not applicable – RRIL is a dependent agent of assessee in India
Rolls Royce PLC Vs DDIT (ITAT, Del) 113 TTJ 446
• Dependent agent P.E. under Art. 5(9) of DTAA – What is to be

seen is whether the activities of the agent are devoted wholly or
almost wholly on behalf of the assessee – The extent of income
earned by the agent from other clients is relevant
Rolls Royce Singapore Pvt. Ltd. Vs ADIT (Del) 61 DTR 145
• India liaison office of non-resident company engaged in

purchase of goods for export and also carrying out vendor
identification and recommendation, review of costing data,
quality control and uploading of material prices into
international product data management system – Thus the
liaison office is actually doing the work of the applicant in the
matter of manufacturing the product as per design and quality
Liaison office being practically involved in all the activities
connected with the business of the applicant except sale of
products, it cannot be excluded by Art. 5(3)(d) of DTAA

Liaison office constitutes P.E. under Art. 5(1) of DTAA
Columbia Sportswear Company, In Re (AAR) 337 ITR 407
Service P.E.
• Non-Resident company sends its employees to India as
deputationists in the employment of Indian Company - The
deputationists have lien on their employment with Non-
resident company - As long as this lien remains, Non-resident
company retains control over the deputationists' terms and
employment - Deputationists lend their experience to Indian
Co. in India as an employee of Non-resident company as he
retains his lien - Hence there is service PE under Art. 5(2)(l).
Morgan Stanley & Co. Inc. Vs DIT (Int. Taxation) (SC) 292 ITR 416
• Assessee, a US company, providing IT enabled services to its

clients by assigning or sub-contracting execution of the
contracts to its wholly-owned Indian subsidiary and supplying
the relevant software and database to the latter free of charges –
Business connection in India within the meaning of sec. 9(1)(i)
and Service P.E. as per Art. 5 of Indo-US DTAA
eFunds Corporation Vs ADIT (Int.Tax) (ITAT, Delhi) 134 TTJ 1
• Assessee, a tax resident of USA has its subsidiary in India

known as LTIL – Assessee entered into an agreement with E for
supply of hardware and software for turnkey project of GSM
network in India – E entered into contract with LTIL for
commissioning, installation and operation of the said turnkey
project – E made both assessee and LTIL responsible for the
turnkey completion of the GSM project, individually and
severally in the sense that if either one breaks its terms and
conditions of contract with E, the other would be responsible
for its completion, thus creating a consortium - LTIL extended
warranty for the hardware/software supplied by assessee –
LTIL for the purpose of executing its contract with E took
assistance of expatriates who were employees of affiliates of
assessee – Such employees of affiliates constituted 'other
personal' as per the inclusive term in Art. 5(2)(1) of the DTAA
as the assessee had control over them and having remained in
India for more than 90 days, assessee had a service P.E. in India
in the form of its subsidiary LTIL
Lucent Technologies International Inc Vs DCIT (ITAT, Del) 18 DTR 249 ; 28 SOT
98 ; 120 TTJ 929
Accrual of Income in India

[ to be seen in the angle of applicability of sec. 195 as well as
sec. 40(a)(i) also ]
As per sec. 9, the following income will be deemed to accrue or

arise in India :
(I) Income accruing or arising (whether directly or indirectly)

• through or from any business connection in India
• through or from any property in India
• through or from any asset or source of income in India
• through the transfer of a capital asset situated in India
• If all the operations of a business is not carried out in India,

profit to be apportioned on the basis of reasonable
attribution to the operations carried out in India
• On purchase of goods by a non-resident in India for
export – no income accrues in India
• On collection of news and views in India for
transmission out of India by a non-resident engaged in
the business of running a news agency, or publishing
newspapers, magazines or journals – no income accrues
in India
• On Operations confined to shooting of cinematographic
film in India by
• Non-resident Individual not a citizen of India
• Firm having no partner who is citizen of India and
resident in India
• Company which does not have any shareholder who is
citizen of India and resident in India
No income accrues in India
• Business connections includes any business activity carried

out through a person, who acting on behalf of the non-
resident [w.e.f.01-04-2004]
• Has and habitually exercise in India an authority to
conclude contracts on behalf of the non-resident
(unless the activities are limited to purchase of goods
or merchandise to the non-resident) OR
• Habitually maintains in India a stock of goods or

merchandise from which he regularly delivers goods
or merchandise on behalf of the non-resident OR
• Habitually secures orders in India mainly or wholly
for the non-resident or for that non-resident and other
non-residents controlling, controlled by or subject to
the same control as that non-resident
• Business connection does not include business activity

carried out through a broker, general commission agent or
any other agent having independent status if they are
acting in the ordinary course of business
• But if such broker / agent works mainly or wholly on behalf

of a non-resident or his group concerns having same
controlling interest, he cannot be given independent status
(ii) Salaries earned in India – Amount payable for services

rendered in India and the rest period or leave period which
is preceded and succeeded by services rendered in India
and forms part of service contract of employment
regarded as earned in India
(iii) Salaries payable by Govt. to a citizen of India for services

outside India
(iv) Dividend paid by an Indian company outside India
(v) Interest payable by Govt. OR

• By a resident (except where interest is payable in respect
of any debt incurred or moneys borrowed and used for
the purposes of a business or profession carried outside
India or for earning any income from any source outside
India)
• By a non-resident where interest is payable in respect of
any debt incurred or moneys borrowed and used for the
purposes of a business or profession carried on in India
(vi) Royalty payable by Govt. OR

• By a resident (except where royalty is payable in respect
of any right, property or information used or services

utilized for the purposes of a business or profession
carried outside India or for earning any income from
any source outside India)
• By a non-resident where royalty is payable in respect of
any right, property or information used or services
utilized for the purposes of a business or profession
carried on in India or for earning any income from any
source in India
• Royalty means consideration including lump sum

consideration (excluding consideration taxable as capital
gains) for
• Transfer of all or any rights including granting of a
licence in respect of a patent, invention, design, model,
secret formula or process or trade mark or similar
property
• Imparting of any information concerning the working
of or the use of a patent, invention, design, model, secret
formula or process or trade mark or similar property
• Use of patent, invention, design, model, secret formula
or process or trade mark or similar property
• Imparting of any information concerning technical,
industrial, commercial or scientific knowledge,
experience or skill
• Use or right to use any industrial, commercial or
scientific equipment (except amount referred to in sec.
44BB)
• Transfer of all or any rights including granting of a
licence in respect of any copyright, literary, artistic or
scientific work including films or video tapes for use in
connection with television or tapes for use in connection
with radio broadcasting (does not include consideration
for sale, distribution or exhibition of cinematographic
films)
• Rendering of any services in connection with the
activities mentioned above
Computer software means any computer programme

recorded on any disc, tape, perforated media or other
information storage device and includes any programme or

any customized electronic data
(vii) Fee for technical services payable by Govt. OR
• By a resident (except where fees are payable in respect
of services utilized for the purposes of a business or
profession carried outside India or for earning any
income from any source outside India)
• By a non-resident where fees are payable in respect of
services utilized for the purposes of a business or
profession carried on in India or for earning any income
from any source in India
• Fees for technical services means consideration including
lump sum consideration for rendering of any managerial,
technical or consultancy services including the provision of
services of technical or other personnel
• Consideration for any construction, assembly, mining
or like project undertaken by the recipient or salaries
exempt
• Income of a non-resident deemed to accrue or arise in India
in respect of interest, royalty and fee for technical services
irrespective of
• Non-resident has a residence or place of business or
business connection in India, OR
• Rendered services in India
[Expl. inserted by Finance Act, 2010 w.e.f 01-06-1976] -
• In Ishikawajma-Harima Heavy Industries Ltd. Vs DIT

(288 ITR 408) Supreme Court held that for technical
services of a non-resident to be deemed to accrue or arise in
India, non-resident must have rendered the service in India
and such service must have been utilized in India. To take
care of this situation, an Explanation was added to sec. 9 by
Finace Act, 2007 w.r.e.f. 01-06-1976. However Karnataka
High Court in Jindal Thermal Power Co. Ltd. Vs DCIT
(321 ITR 31) and Bombay High Court in Clifford Chance
Vs DCIT (318 ITR 237) held that even after such
Explanation, it is necessary that services must be rendered
in India for accrual of income in Inida. This lead to the
introduction of the present explanation to sec. 9 by Finance
Act, 2010 w.r.e.f 01-06-1976.
Income from business / source in India

• Indian company entering into agreement with non-resident for
chartering fishing vessels – Payment of hire charges by way of
adjustment of fish catch - Indian company bringing catch at
high seas to Indian port where value of catch was assessed and
local taxes paid and then apportionment of catch as per the
contract was made - Indian company carrying fish to
destination chosen by non-resident – Income of non-resident
chargeable in India as the moment apportionment was made,
income of charter fee was received by the non-resident in India
As per sec. 5(2), total income of a non-resident includes all
income from whatever source derived, received or deemed to
be received in India, including the income which accrues, arise
or deemed to accrue or arise to the non-resident in India
Kanchanganga Sea Foods Ltd. Vs CIT (SC) 325 ITR 540
• Resident Indian organizing food and wine show in India

wherein all business operations for holding the show are to be
carried on in India – Appointed a non-resident agent to furnish
information about terms and conditions to potential foreign
participants and for booking space in exhibition – Commission
is payable to the agent only if the exhibitor participates in the
exhibition in India and makes full and final payment in India –
Commission income taxable in India in view of sec. 5(2)(b)
r.w.s. 9(1)(i) – Fact that the agent is to render services abroad
and the commission is to be remitted to it abroad are wholly
irrelevant for the purpose of determining the situs of income
since income is from a source in India
Rajiv Malhotra, IN RE (AAR) 284 ITR 564
• Though the agreement provided for delivery of machinery,

equipments and instruments etc. f.o.b. European Port and the
sale of the machinery must be deemed to have taken place
outside the country, a combined reading of the two agreements
establishes that there was real and intimate connection
between the assessee and the non-resident within the taxable
territories and this relationship amounted to a business
connection through or from which income accrued or arose to
the non-resident. It is not as if there was a stray or isolated
transaction
Bharat Heavy Plates & Vessels Ltd. Vs Addl. CIT (AP) 119 ITR 986
• Assessee has PE in India and has business connection with

Indian company – Assessee entered into contract for supply,
erection, commissioning and performance test of machinery
with Indian company – One single indivisible / composite
contract as per the initial tender and pricing negotiations Later
on split into 4 different contracts as per the request of assessee
– Income from all 4 contracts assessable in India - Contract to
be construed as a single one since there was interlacing of all
activities under the various contracts
Ansaldo Energia SPA Vs ACIT (ITAT, Chennai) 305 ITR (AT) 310 affirmed in
(Mad) 310 ITR 237
Samsung Heavy Industries Co. Ltd. Vs Addl.DIT (Int.Tax) (ITAT, Del) 11 ITR
(Trib) 513 ; 12 ITR (Trib) 413
• Monthly salary paid to agent by non-resident company for

collecting information and submitting tenders and signing
contracts on behalf of non-resident – Can be treated as Local
paid agent for and on behalf of non-resident - Amounts to
business connection in India – Income from contract of sale of
equipment, installation and service agreement deemed to
accrue or arise in India and income attributable to P.E. is
taxable in India
Surton Corpn., IN RE (AAR) 268 ITR 156.
• Downloading of information of beneficiaries and printing

cheque / drafts on banks in India and forwarding them to
beneficiaries – Income deemed to accrue in India – The
commission which the applicant receives for remitting the
amount covers not only the business activities carried on in
UAE but also the activity of remittance of the amount to the
beneficiary in India by cheque/drafts through courier which is
being attended to by the liaison offices – There is, therefore, a
real relation between the business carried on by the applicant
for which it receives commission in UAE and the activities of
the liaison offices downloading of information, printing and
preparation of cheques/drafts and sending the same to the
beneficiaries in India , which contributes directly or indirectly
to the earning of the income by the applicant by way of
commission – There is also continuity between the business of
the applicant in UAE and the activities carried on by the liaison

offices and hence income deemed to accrue or arise to the
applicant in India from business connection in India
UAE Exchange Centre LLC, IN RE (AAR) 268 ITR 9
• As per contract, export benefit by way of customs duty

drawback and excise duty rebate received by assessee would
be passed on to foreign buyers – Said export benefits actually
received by assessee on behalf of foreign buyers – Provisions
of Expl. (b) to sec. 9(1)(i) cannot be extended where the
income actually does accrue or arise or is received in India
Amount representing the export benefits were actually
received in India as per sec. 5(2)(a) as incidental to business
activities of foreign buyers – Same chargeable to tax in view of
sec. 28(iiic) r.w.s. 2(24)(vc) – Tax is attracted at the point of
earning of income and is not dependent upon its destination or
manner of utilization
DCIT Vs A. Tosh & Sons Ltd. (ITAT, Kol) 89 ITD 138
• Non-resident subsidiary company procuring support activities

relating to purchases in India for parent company which is also
non-resident – Subsidiary company to establish office in India
Indian office not to undertake other business and funded
entirely by reimbursement from head office outside India
Liable to tax in India in respect of support services rendered in
India – Support services do not amount to export – Not entitled
to the benefit of Expl. 1(b) to sec. 9(1)(i) of IT Act since
assessee do not act for and on behalf of non-residents in the
purchase transactions but only provide certain support services
to non-residents in connection with the purchases made by
them and for which Indian office is provided 5% mark up on its
costs – Income accrues in India on such mark up received in
India
Aramco Overseas Company BV, In Re (AAR) 322 ITR 612
• India liaison office of non-resident company engaged in

purchase of goods for export and also carrying out vendor
identification and recommendation, review of costing data,
quality control and uploading of material prices into
international product data management system – Thus the
liaison office is actually doing the work of the applicant in the
matter of manufacturing the product as per design and quality –

A person engaged in the business of designing, manufacturing
and selling cannot contend that he earns profit only by the sale
of goods and activities other than the actual sale of goods are
not integral part of the business and have no role in profit
earning – It cannot be accepted that what is done in India by the
liaison office is only to expend money on purchase of goods
and that all its income accrues outside India simply because no
product is sold in India – Expl. (b) to sec. 9(1)(i) of IT Act is not
applicable since it excludes only income from activities
limited to purchase of goods in India for the purpose of export
and operation of liaison office is not confined to purchases
alone – Income from activities of liaison office taxable in India
Columbia Sportswear Company, In Re (AAR) 337 ITR 407
• Advertisement revenue earned by a non-resident in India from

its own channel – CIT(A) holding it to be not taxable in India
on the ground that arm's length payment made to dependent
agent – Not proper – Taxable in India as business income
DDIT (Int. Tax) Vs SET Satellite (Singapore) PTE Ltd. (ITAT, Mumbai)
307 ITR(AT) 181
• Income arising to the non-resident agents on account of

commission payable to them for soliciting export order for the
Indian company is to be deemed to accrue or arise in India and
is taxable in view of the specific provisions of sec. 5(2)(b)
r.w.s. 9(1)(i) as the right to receive the commission would arise
in India when the order is executed by the Indian company in
India
SKF Boilers & Driers (P) Ltd., In Re (AAR) 68 DTR 106
Income from transfer of capital asset situated in

India
• Tax attracted if capital asset is situated in India even if actual
process of transfer is outside India – Intellectual property,
trademark, goodwill, brand, technical know-how are capital
assets situated at the place where the related business exist
Capital gains arises in India
Foster's Australia Ltd. IN RE (AAR) 302 ITR 289
• Shares held in Indian company by Non-resident individual was

transferred to non-resident company – Capital gains accruing
is taxable in India – Transferee is representative of assessee for
paying tax on capital gains.
Triniti Corporation, IN RE (AAR) 295 ITR 258
• A French company floated 100% subsidiary and acquired

majority shares of an Indian company in the name of the said
subsidiary – Transferred the shares of subsidiary company to
another French company – It was a preordained scheme for
avoidance of tax and in substance it involved alienation of the
assets and controlling interest of the Indian company having
assets, business and income in India – Capital gains arising
from such transaction is taxable in India in terms of Art. 14(5)
of DTAA between India and France
Groupe Industrial Marcel Dassault, In re (AAR) 64 DTR 1
• Non-resident company having P.E. in India discontinued its

operations in India – Subsequently sold the plant and
machinery earlier used by the P.E. in India - Cessation of PE is
relevant only for the taxability of business profits – Even after
cessation of P.E. in India, a non-resident assessee is liable for
taxable under other heads including Capital Gains – It is
wholly immaterial whether the assets belonging to the P.E.
were sold in India or outside India – It is an income from
business connection in India because the assets sold was a part
of the assets of Indian business operations of the assessee,
hence direct business connection in India – This machinery
was an 'asset in India' as well as 'a source of income in India' –
Situs of taxability of the profits on alienation of the assets is the
same as the situs of taxability of income from such assets – Art.
13(2) of DTAA with Mauritius as well as Sec. 9(1) of I.T. Act

relevant
Cartier Shipping Co. Ltd. Vs DDIT (Int.Tax) (ITAT, Mum) 40 DTR 459 ; 131
TTJ 129
Salary earned in India
• Non-resident paying abroad home salary to expatriate

employees outside India – Payment having nexus with
rendition of services in India – Salary earned by employees in
India – sec. 9(1) integrates the charging section, the
computation provisions as well as the machinery provisions
CIT Vs Eli Lilly & Co. (India) P. Ltd. (SC) 312 ITR 225
• Non-resident working on oil rigs on Bombay High – Contract

for employment provides for alternating on period and off
periods – Both periods form integral part of the contract – Off
period in which the non-resident stayed in U.K. was a stand by
arrangement and not a rest period and he was required to
undergo training during such period which had nexus with the
services he had to render in India – Salary for off period was
income earned in India and taxable in India u/s 9(1)(ii)
CIT & Anr. Vs Sedco Forex Intl. Drilling Co. Ltd. (Uttaranchal) 264 ITR 320
• Not ordinarily resident - Bureau Chief of Japanese

Broadcasting Corporation at New Delhi - Functions entailing
gathering of news in South Asia - Travel outside India for
purpose of main functions as Bureau Chief at New Delhi -
Salary for period outside India - Accrued in India - taxable in
India.
ACIT Vs Hiromi Hirose (ITAT, Delhi) 111 ITD 9
• Payment to expatriate technicians by foreign employers having

Permanent Establishment in India, on account of remuneration
for services rendered in India – Is income of such technicians
liable to tax in India irrespective of their stay in India –
Contention of the assessee that in determination of income u/s
44BB deduction on account of salaries has not been allowed, is
not correct – Deeming provision of sec. 44BB not only aims at
estimating income but necessary implication also allows
deduction of remuneration
Pride Foramer S.A. Vs ACIT (ITAT, Del) 97 ITD 86
Income by way of interest receipt
• Indian company borrowing money from non-resident and

issuing fully convertible bonds – At the end of 5 or 10 years,
such bonds to be converted into shares – Interest payable on
such bonds is income chargeable to tax in view of sec. 2(28A)
of I.T. Act as well as Art. 11.4 of DTAA with USA – Non-
resident liable to tax in India on such interest income payment
is not dividend because the liability to pay is independent of
assessee company earning profits or not
LMN India Ltd., In Re (AAR) 307 ITR 40
Royalty / Fee for Technical Services

• Fee for technical services paid to a foreign enterprise – No
requirement that foreign party should have P.E. in India
Services utilized in India – Payment taxable in India in view of
Expl. to sec. 9
Indian Summer Vs ACIT (ITAT, Del) 4 ITR (Trib) 181
Dr. Hutarew & Partner (India) (P) Ltd. Vs ITO (ITAT, Del) 24 DTR 400 ; 25 SOT
347 ; 123 TTJ 951
• Even in absence of any business connection, non-resident

assessee's receipt on account of technical services rendered to
Indian party outside India would be covered u/s 9(1)(vii)
SNC/ACRES Vs DCIT (ITAT, Del) 57 ITD 419
• Collaboration agreement between the assessee non-resident

company and an Indian company to manufacture weaving
machines etc. with the help of documentation supplied by the
assessee – It also deputed its technical personnel with the
Indian company and gave licence to it to manufacture and sell
machines under the trade name owned by assessee – Also
invested 25% equity capital in Indian Company – Royalty
received by non-resident accrued in India and there was
business connection between assessee and Indian Company
Royalty taxable in India.
CIT Vs Ruti Machinery Works Ltd. (Mad) 243 ITR 442
• Amounts paid for preparatory studies in foreign country

Services to be utilized in India – In view of Explanation to Sec.
9, such amounts would be deemed to accrue / arise in India
Statutory test for place of accrual of such amounts is not the
place where services are rendered, but the place where those
services are utilized - No difference between fees for
engineering services and amounts paid as living allowance and
travel allowance and hence entire consideration will be taxable
as income accruing or arising in India.
Steffen, Robertson and Kirsten Consulting Engineers and Scientists, IN RE
(AAR) 230 ITR 206
• Assessee, a foreign company supplied a machine to BHEL

Such machine got damaged after expiry of the warranty period
- Foreign company send its engineer to repair & supervise

installation – Amount actually paid to its engineer plus tax
liability, is income of assessee which accrued in India since the
work performed by the foreign supplier was not a part of the
service which it was required to render under the original
purchase order and hence it will not form part of sale price
CIT Vs Cross Fraser Division By agent BHEL (Mad) 244 ITR 654
• Fee paid to foreign company for service of engineers for

supervising erection of project – Taxable in view of sec.
9(1)(vii) - Airfare of engineers paid by Indian Company – Is
perquisite & taxable – Income Tax paid by Indian company To
be included in gross .
Clouth Gummiwerke Aktiengeselis Schaft Vs CIT (AP) 238 ITR 861
• As per the Technical assistance agreement with non-resident,

in addition to the fee for technical know-how, assessee was
required to reimburse the expenditure towards air fare,
accommodation and subsistence allowance of the personnel
deputed by the non-resident company to India
Reimbursements were made in the process of executing the
agreement for obtaining advice of technical character – Fact
that non-resident company does not have a P.E. in India, is not
relevant – Payment on account of re-imbursement also
attracted sec. 195 since it is a part of fee for technical services
Ashok Leyland Ltd. Vs DCIT (ITAT, Chennai) 119 TTJ 716 ; 120 ITD 14
• Non-resident – Business connection – Technical assistance and

consultancy service rendered by foreign company for
installation of plant, putting it on stream and also in training
personnel by deputing its experts – Income received by it
attributable to its activity in India – Consultancy fee calculated
on the basis of 'man month' and was in direct proportion to
number and duration of experts' stay in India
Skoda Exports Vs Addl. CIT (AP) 143 ITR 452
• Supervision of construction, commissioning, arranging for

practical experience of Indian technicians – These are
management services - Taxable in India.
Haldor Topsoe Vs DCIT (ITAT, Mum) 59 ITD 76
• English law firm giving advice for projects in India – Partner of

the law firm in India for more than 90 days in the previous year
Income charged on hourly basis in India and utilized in India
Assessable in India u/s 9(1)(vii)
Clifford Chance Vs DCIT (Bom) 318 ITR 237
• Agreement by a non-resident company to grant Indian

company non-exclusive irrevocable right to use know-how for
a lump sum consideration – Contract complete only when
Indian company received documents of agreements in India
Consideration for transfer of know-how and product
development taxable in India – There was no sale of technical
documents as the non-resident company was not alienating its
property or intellectual property rights in the know-how and it
would still be the owner and holder of such know-how Theory
of “offshore supply of technical documentation” sought to be
developed by the non-resident has no factual foundation and
the consideration is taxable as royalty u/s 9(1)(vi) as well as
Art. 12(3)(a) of DTAA - Consultancy and assistance including
training service falls under 'included service' as per Art. 12(4)
of DTAA as well as sec. 9(1)(vii) of I.T. Act
International Tire Engineering Resources LLC, In Re (AAR) 319 ITR 228
• Non-resident with no P.E. in India – Agreement for provision of

architectural designs – As per the agreement, non-resident and
the associate architect are jointly responsible for providing the
entire design, construction documents and construction
administration services necessary to complete the project -
'Fee for technical services' under Art.12 of DTAA – Contention
of the applicant that the transaction has to be regarded as one
of sale of designs cannot be accepted. Transfer of designs is
apart of package of architectural services provided by the non-
resident under the contract – Agreement is for “rendering
design and consultancy services” and at every stage starting
from the conceptual stage till construction, non-resident gives
expert advice – Art. 12(4)(b) which says “development and
transfer of a technical plan or technical design” is squarely
applicable as the technical services rendered by the non-
resident resulted in development and transfer of technical plan
and design
HMS Real Estate P. Ltd., In Re (AAR) 325 ITR 71
• Non-resident appointed as consultant for supply of

architectural designs and drawings for huge complex of Govt.
Delivered designs and drawings through internet – Not pure
and simple sale of drawings and designs – Consideration
received amounts to 'fee for technical services'
GMP International GmBH, In Re (AAR) 321 ITR 411
• Services rendered abroad but utilized in India – In view of

amendment to Expl. To Sec. 9, income accrues in India
• Assessee to pay consideration to China based company for
bauxite testing services – Art. 12(4) of DTAA with China – The
expression 'provision for services' is much wider in scope than
the expression ' provision for rendering of services' and will
cover the services even when it is not rendered in the other
Contracting state – As per Art. 12(6) of DTAA, irrespective of
the situs of technical services having been rendered, the fees
for technical services will be deemed to have accrued in the tax
jurisdiction in which the person making the payment is located
While India-China tax treaty follows the source rule in the
matter of fees for technical services, Pakistan-China tax treaty
does not do so. Hat being a conscious choice by respective
Governments, it does not mean that India-China tax treaty
should also be construed on the same basis
Ashapura Minichem Ltd. Vs ADIT (Int.Tax) (ITAT, Mum) 40 DTR 42 ; 40 SOT
220 ; 131 TTJ 291
• Fee for technical services – In order to attract tax liability in

India, it is no longer necessary that the services must also be
rendered in India – Utilization of these services in India is
enough to attract its taxability in India in view of Expl. to sec. 9
• DTAA between Indian and U.K. – Art. 7 provides that if the
enterprise carries on business through a P.E., the profit of the
enterprise may be taxed in the other State but only so much of
them as is 'directly or indirectly attributable to that P.E.”
Inclusion of 'profits indirectly attributable to the P.E.' clearly
incorporates a force of attraction principle in the tax treaty
Therefore, in addition to the taxability of income in respect of
services rendered by the P.E. in India, any income in respect of
the services rendered to an Indian project, which is similar to
the services rendered by the P.E., is also to be taxed in India,
irrespective of the fact whether such services are rendered
through the P.E. or directly by the general enterprise Thus,

entire profits relating to the services rendered by the assessee,
whether in India or outside India, in respect of Indian projects
are taxable in India
Linklaters LLP Vs ITO (Int.Tax) (ITAT, Mum) 40 SOT 51 ; 42 DTR 233 ; 132
TTJ 20
• Assessee entered into an agreement with an American

company for setting up power plant in India – Total
consideration payable was bifurcated as (a) for supply of
equipment and essential parts, (b) for technical services, and
(c) for start up services and turnkey responsibility – Amount
paid towards technical services and start up services etc. to be
treated as fee for technical services u/s 9(1)(vii) and as fees for
included services under Article 12(4)(b) of DTAA – Same was
chargeable to tax in India – The said services were not ancillary
and subsidiary of the supply of equipments made by it since
the services were in respect of equipments supplied by other
parties also
Jindal Tractebal Power Co. Ltd. Vs DCIT (ITAT, Bang) 106 ITD 227
• Inspection of damaged equipment cannot be done in the

absence of persons equipped with technical knowledge
Inspection fee received is technical fees in view of Art. 12 of
DTAA
DIT (Int.Tax) Vs Krupp Uhde Gmbh (ITAT, Mum) 1 ITR (Trib) 614
• Consideration for construction and assembly itself is only

exempt under Expln. 2 to Sec. 9(1)(vii) and not for its
supervision – As per the contract assessee to depute their
experts to supervise the erection, commissioning and
conducting of performance guarantee tests etc. – Supervisory
services undertaken by the assessee would not be tantamount
to undertaking of construction or assembly of plant - If a
receipt satisfies 9(1)(vii) Expln. 2, it has to be treated as fee for
technical services irrespective of the fact that it has a relation to
the supply of plant and equipment.
ITO Vs SMS Scholemann Siemag Aktiengesellschaft (ITAT, Hyd) 57 ITD 254
• German Company undertaking electrical contract work for

Indian company - Payments received separately for preparing
drawings and documents – Fees for technical services as per

sec. 9(1)(vii) of I.T. Act as well as Art. 8-A of DTAA – Taxable.
A.E.G. Aktien Aktiengesllschaft Vs CIT (Kar) 267 ITR 209
• Assessee has not purchased any property from the non-resident

Therefore, impact testing fees or fees paid for tests report is not
ancillary and subsidiary to the sale of property – Impact tests
conducted are in the nature of technical services rendered by
the non-resident which enhanced the capability of product
development of the assessee - Test reports were used for the
purpose of modification of the products of assessee – Fee for
technical services
Maruti Udyog Ltd. Vs ADIT (Int.Tax) (ITAT, Del) 37 DTR 85 ; 34 SOT 480 ; 130
TTJ 66
• Under an agreement, assessee was given non-exclusive right to

use know-how. Assessee cannot assign any rights of such
know-how to anyone else – Not outright purchase of know-
how but only right to use know-how for which royalty was paid
Such receipt of royalty in India is taxable in India
DCIT Vs All Russia Scientific Research Institute of Cable Industry ( ITAT, Mum )
98 ITD 69
• Providing access to internet based air cargo portal hosted

outside India – Indian subscribers paying fees for access and
use of portal for booking cargo with airlines, training
subscribers and help connected therewith – Portal and server
together constitute integrated commercial-cum-scientific
equipment – Contention that the cargo booking agent never
uses the server of the non-resident for processing or obtaining
any data is not tenable – Sever platform being a scientific
equipment, payments made for concurrent access to utilize the
sophisticated services offered by the portal is covered by the
expression “royalty” as used in Art. 12 as well as in sec.
9(1)(vi) – Technical and consultancy services rendered by the
non-resident in training the subscribers and providing
helpdesk support in India is covered by the description of “fees
for technical services” as used in Art. 12(4)(a) of the DTAA as
well as sec. 9(1)(vii)
Cargo Community Network Pte. Ltd., IN RE (AAR) 289 ITR 355
• Non-resident promoting enterprises in hotels and conducting

international advertising etc. for a chain of hotels – Contract
with resident Indian company for participation in promotion
programmes of marketing business , providing advertisements
in magazines and newspapers etc. outside India – Indian
company to pay percentage of gross revenue by way of
reimbursement expenses – Real and intimate relation exists
between the business activities carried on by the non-resident
outside India and the activities of the hotel owner in India and
thus there exists a business connection within the meaning of
sec. 9(1)(i) – Even when the activities are carried out by the
non-resident from outside India, they would have extension in
India as well and hence the source of income of the non-
resident is in India – Services in the form of marketing,
advertisement, promotion, sales program and special services
would amount to rendering managerial and consultancy
services and hence the payments made therefore are “ Fees for
rendering technical services ” as per sec. 9(1)(vii)
International Hotel Licensing Co. S.A.R.L., IN RE (AAR) 288 ITR 534
• Non-resident company inspected the existing control system of

three units of ONGC and utilized services of engineers at
offshore installation in India – The Inspectors were well
trained technical hands and gave their advice and received
payment as fee – Payment received was for technical services
Expl. 2 to sec. 9(1)(vii) applies.
CIT & Another Vs ONGC as Rep. assessee of Rolls Royce (P) Ltd. (Uttarakhand)
214 CTR 135
• Bare-boat charter and demise agreement in respect of ship

owned by non-resident – Option to buy vessels not exercised
till end of financial year – Payment of hire charges to owner –
Not income from plying ships in international traffic but
payment for use of ship ie. equipment – Hire charges taxable in
India as royalty.
West Asia Maritime Ltd. Vs ITO (ITAT, Chennai) 297 ITR (AT) 202
• Shipping Corporation entering into Time Charter agreements

with foreign shipping companies – Since assessee is in
shipping business, ship can be construed to be an equipment of
the business - Payment made is for use of ship and is royalty
liable for tax

Poompuhar Shipping Corporation Ltd. Vs ITO (ITAT, Chennai) 109 ITD 226
• License to resident to use software developed by non-resident

only on its server platform and charged on the basis of number
of sessions of use – Such application software is a scientific
equipment licensed to be used for commercial purposes -
License fee paid to non-resident is royalty and fee for technical
services – Taxable in India in view of sec. 9 as well as Art. 12 of
DTAA
IMT Labs (India) P. Ltd., IN RE (AAR) 287 ITR 450
• Contract by Indian company with Non-resident for providing

software and its documentation in the form of licenses – Non-
resident liable to tax on income from software and its
documentation as royalty income as they are copyrights given
to Indian company only for intended use – Ownership in the
copyright of the software remained with the non-resident Also
liable to tax on installation and service charges since it is in the
nature of technical services as per sec. 9 and included services
as per art. 12(4) of DTAA
Airports Authority of India, In RE (AAR) 304 ITR 216
• End-user of computer programmes made payments for getting

license in respect of copyright in such programs – Non-
resident supplied software products to end users through
distributors in India under certain restrictive terms and
conditions attached to the end user licence agreements with
clear stipulations that the product is protected by copyright and
other intellectual property laws and that the product is licensed
and not sold, the payments made by the end users are for
granting of licence in copyright and other intellectual property
rights in the product - Consideration paid is royalty as per Expl.
2 to sec. 9(1) and art. 12(3) of DTAA with USA
Gracemac Corporation Vs ADIT (Int.Tax) (ITAT, Del) 8 ITR (Trib) 522
• Assessee imported shrink wrapped software / off-the-shelf

software from non-resident companies under software licence
agreement whereby licence is granted to the assessee for taking
copy of the software, store the same in the hard disk of the
designated computer and to take a back up copy while the
ownership of the copyright continues to vest in the supplier

What is granted under the licence is only a licence to use the
software for internal business without having any right for
making any alteration or reverse engineering or creating sub-
licences while the copyright continues to be with the non-
resident as per the agreement – Even as per the agreement
entered into with other distributors as also the end-user licence
agreement, except as expressly set forth in the agreement, the
distributor cannot rent, lease, loan, sell or otherwise distribute
the software, documentation or any derivative works based
upon the software or documentation in whole or in part – Thus
licence is granted for making use of the copyright in respect of
shrink wrapped software / off-the-shelf software under the
respective agreements which authorizes the end-user ie.
customer to make use of the copyright in the said software But
for the licence granted to the assessee to make copy of the
software into the hard disk of the designated computer and to
take a copy for back up purposes, the end-user has no other
right and the said backup would have constituted an
infringement of copyright – What is transferred is the right to
use the software, an exclusive right which the owner of the
copyright ie. the supplier owns – Payment made to the
suppliers of the software constitutes 'royalty' within the
meaning of Art. 12(3) of Indo-US DTAA and also as per the
provisions of sec. 9(1)(vi) of IT Act.
CIT Vs Samsung Electronics Co. Ltd. & Ors. (Kar) 64 DTR 178
Citrix Systems Asia Pacific Pty. Ltd., In Re (AAR) 68 DTR 185
Acclerys KK, In Re (AAR) 68 DTR 206
• Assessee obtained orders from DOT for manufacture and

supply of telecommunication / switching equipments – In
order to execute this order in India, it placed orders on L
Technologies, USA for supply of software and L Technologies,
Taiwan for supply of hardware – Then assessee integrated such
hardware and software and executed its commitment –
Payments made for supply of software were in nature of
royalty u/s 9(1)(vi) read with DTAA with USA – Since
transaction with L Technologies, USA was an independent
transaction and not related with import of hardware, it cannot
be treated as an integrated import
CIT Vs Sunray Computers (P) Ltd. (Kar) 204 Taxman 1
• Applicant entered into software License and Maintenance

Agreement with Indian Co. – Applicant allowed Indian co. to
use the software product owned by it – Such programme will
be developed by applicant and installed in the computer of
Indian Co., train the employees of Indian Co. and provide
maintenance and support service for a period of 4 years
Payment was made by the Indian co. for obtaining the right to
use the copyright in the software – Indian law does not
distinguish between copyrighted article and copyright
Consideration for the grant of the right to use the copyright can
only be royalty and cannot be understood as sale price as there
is no parting of the right or title by the owner of the copyright in
favour of the grantee – Licensee is also given the right to copy
the software and use it wherever it is needed for its business -
Royalty within the meaning of Art. 12.3 of DTAA since it
envisages payment of any kind received as consideration for
the 'use of or the right to any copyright' - Royalty in view of
Expl. 2(v) to sec. 9(1)(vi) of I.T. Act
Millennium IT Software Ltd., In Re (AAR) 338 ITR 391
• License to use the “shrink wrapped” or “off the shelf” software

constitutes “royalty” u/s 9(1)(vi) and under Art. 12(3) of the
DTAA – Consideration received by Oracle for use of its
software constitutes royalty and assessee ought to have
deducted tax at source
ING Vysya Bank Ltd. Vs DDIT(Int.Tax) (ITAT, Bang) 61 DTR 401
• Sale of software – Transaction depends on the End User

License Agreement – If copyright is not transferred, it is only
service and not outright sale
Infotech Software Dealers Association Vs Union of India & ors. (Mad) W.P. No.
3811 & 18886 of 2009 – order dated 24-08-2010
• US Company to deliver technical designs / plan for use in India

and to ensure that the plan is strictly executed in India – Fee for
Technical Services as per art. 12(4)(b) of DTAA
Gentex Merchants (P) Ltd Vs DDIT (ITAT, Kol) 94 ITD 211
• DTAA with USA – Payment made by assessee an Indian

company to a US based company for availing the connectivity
facility to enable the assessee to generate and to cater to
outbound PSTN calls within USA through equipments located

in that country along with maintenance services – Royalty
within the meaning of cl. (iva) of Expl. 2 to sec. 9(1)(vi) r.w.
Art. 3(b) of DTAA – Payment for use of software belonging to
non-resident constitutes royalty and taxable in India in view of
Art. 12 of DTAA
Frontline Soft Ltd. Vs DCIT (ITAT, Hyd) 12 DTR 131
• Payment for providing international connectivity services The

customer acquires significant economic or possessory interest
in the equipment of the non-resident to the extent of bandwidth
hired by it which is dedicated for the entire contract period
Payment is for the use of 'process' besides for the use of or right
to use industrial, commercial or scientific equipment As per
Technical Advisory Group of OECD, physical possession is
not essential for determining whether the payments are for the
use of or right to use industrial, commercial or scientific
equipments - Royalty within the meaning of Art. 12(3) of Indo-
Singapore DTAA
Verizon Communication Singapore Pte. Ltd. Vs ITO (ITAT, Chennai) 54 DTR 65
• Legal charges paid to advisors at Hong Kong in connection

with GDR issue – Fee for rendering managerial or technical
consultancy services and falls u/s 9(1)(vii) Expl.2
DDIT Vs Tata Iron & steel Co. Ltd. (ITAT, Mum) 6 ITR (Trib) 463
• Company formed for generation and sale of electricity

Agreement with Non-resident Company for help in raising
finance – Non-resident company giving advice regarding
processing of loans – Success fees paid to non-resident – Fee
for technical services u/s 9(1)(vii)(b) since advice given to
procure loan to strengthen finances would be as much a
technical or consultancy service as it would be with regard to
management, generation of power or plant and machinery.
G.V.K. Industries Limited & Anr. Vs CIT & Anr. (AP) 228 ITR 564
• Fees received by U.K. company for imparting technical

training in U.K. to the employees of the assessee to be used for
improving the operational performance of the assessee's steel
plants in India – Fee for technical services in terms of Art.
13(4)(c) of the DTAA r.w.s 9(1)(vii) – Income deemed to arise
in India
Steel Authority of India Ltd. Vs ITO (ITAT, Del) 120 TTJ 297 ; 17 DTR 177
• The term 'transfer' as used in Art. 12(4) of DTAA with Canada

does not refer to absolute transfer of right of ownership – It
refers to transfer of technical drawings or designs by resident
of one State to resident of other State which is to be used by or
for benefit of resident of other State
DIT Vs SNC Lavalin International Inc. (Del) 199 Taxman (Mag) 247
• Srilankan company deputed engineers at short intervals to

India to make studies to improve channel depth and dredging
operations and provide know-how on long term basis – This
work involved transfer and installation of software with
perpetual licence and support. Rights granted are non-
transferable and non-exclusive rights to use one or more copies
of the software. What has been provided by the non-resident is
not an off-the-shelf product but a scientific equipment for its
perpetual use. Ownership in the core of the product ie. software
is not sold - Consideration received is for the use of scientific
work, model, plan, and for the use of scientific equipment and
scientific experience and it falls under the term “royalties” as
per Art. 12 of DTAA
Lanka Hydraulic Institute Ltd., In Re (AAR) 337 ITR 47
• Assessee resident company entered into agreement with non-

resident group company in terms of which 3 employees of non-
resident company were to provide managerial service to
assessee – Salary payment and benefits to such expatriate
employees have suffered withholding tax u/s 192 – Since the
seconded employees remained as employees of non-resident
company, payment of their salaries were made to the non-
resident company – It is the capacity in which a person receives
the amount that determines its taxability in his hands – Amount
remitted by assessee towards reimbursement of salary and
expenses of expatriate employees accrue and arise to the non-
resident company for providing services to the assessee -
Application of this income by the non-resident for making
salary to these employees has nothing to do with their accrual
in the hands of the non-resident company – Said employees
perform managerial or other services and activities in India
'Make available' clause would not apply to the services which

are no tin the nature of technical services – Since the services
rendered is in the nature of managerial services, payments are
covered by “fee for included services” under Art. 12(4) of the
DTAA and “fees for technical services” as defined in Expl. 2 to
sec. 9(1)(vii)
Verizon Data Services India (P) Ltd., In Re (AAR) 337 ITR 192
• Agreement with Prasar Bharati for telecasting production of

cricket events Consideration received is fees for technical
services
Nimbus Sport International Pte Ltd. Vs DDIT(Int.Tax) (ITAT, Del) 12 ITR
(Trib) 709
• Agreement for supply of know-how for manufacture and to

render technical assistance in said manufacturing process
during the existence of agreement – Since consideration paid
was on account of right to use know-how for a specified period
and there was no outright transfer of know-how, it was in the
nature of royalty under Art. 7 of DTAA with Sweden – Taxable
in India
Atlas Copco AB of Sweden Vs CIT (Bom) 205 Taxman 5
• Business support services in the form general finance advice,

advice on information technology, media advice, assistance in
contract and procurement and assistance in marketing were
technical services as per Art. 13.4 of India-U.K. DTAA and
were made available to the applicant – Hence income earned
by the supplier from such activities is taxable in India
Shell India Markets (P) Ltd., In Re (AAR) 67 DTR 1
• Various operational and other support services provided by a

Dutch company to an Indian company under a service
agreement for imparting knowledge and experience of the
confectionary industry are technical in nature falling within
the purview of Art. 12.5(a) & (b) of DTAA – for a service to fall
under “rendering of any technical or consultancy services”
mere development and transfer of a technical plan or technical
design should be sufficient compliance. The term “make
available” means that the person acquiring the service is
enabled to independently apply the technology – The fact that
the services are “continuous” odes not by itself imply that they
do not enable the recipient to independently apply the
knowledge / skill that is provided – the word “enable” is used in
the sense that the services should be such that they make the
recipient able or wiser in the subject matter. It is the recipient
who applies the knowledge and skill and the provider only
supports the recipient with knowledge and skill
Perfetti Van Melle Holding B.V., In re (AAR) 65 DTR 12
• Assessee providing various types of commercial information

relating to selling of rough diamonds and finished diamond
products – Information supplied was confidential in nature and
was based on its experience – Such information was protected
by intellectual property rights belonging to assessee and was
provided to sight holders with condition that they would be
kept confidential – payment received is royalty under Art.
13(3)(a) of DTAA with U.K. being payment for various types
of information of commercial nature acquired based on
experience and partly as Fee for Technical Services under Art.
13(4)(a) being payment attributable to services rendered
through workshops etc. which are ancillary and subsidiary to
application or enjoyment of information
De Beers U.K. Ltd. Vs DCIT (ITAT, Mum) 134 ITD 697
Double Taxation Relief

• If DTAA provides that any income of a resident of India
'may be taxed' in the other country, such income shall be
included in his total income chargeable to tax in India and
relief shall be granted in accordance with the method of
elimination or avoidance of double taxation provided in
such agreement [Notification No. S.O.2123(E) dated
28-08-2008]
• Double Taxation relief – The requirement is that the income

must have been taxed outside India and the same income must
have been subjected to tax in India – No need to give relief in
respect of income eligible for deduction u/s 80 RRA - Double
taxation relief is in respect of gross amount ant not net amount
CIT Vs S.S. Murthy (AP) 169 ITR 686
CIT Vs K.L. Parekh (Raj) 208 ITR 965
CIT Vs M.A. Mois (AP) 210 ITR 284
Manpreet Singh Gambhir Vs DCIT (ITAT, Del) 123 ITD 16
• Assessee won Sikkim State Lottery prize – Sikkim

Government made TDS – Prize money taxable under IT Act
No double taxation exemption.
N. Manonmani Vs ITO (ITAT, Mad) 58 ITD 53
M.K. Raghu Vs ACIT (Ker) 226 CTR 269 ; 29 DTR 69 ; 182 Taxman 362
• Gross dividend and interest income accrued in foreign

countries to be taxed without deducting therefrom TDS by
foreign Govt. as per sec. 91(1)
CIT Vs United India Insurance Co. Ltd. ( Mad ) 243 ITR 114
Madhavrao J. Scindia Vs CIT (Bom) 243 ITR 683
• Credit for tax paid in USA cannot exceed IT liability payable in

India in view of Sec. 25(2)(a) of DTAA between USA and India
JCIT Vs Digital Equipments India Ltd. (ITAT, Mum) 94 ITD 340
Vikram Tannan Vs ITO (ITAT, Mum) 319 ITR (AT) 407
• Income Tax paid at foreign ports is not deductible u/s 37 since it

is only application of profits
CIT Vs Kerala Lines Ltd. (Mad) 201 ITR 106
Wipro Information Technology Ltd. Vs DCIT (ITAT, Bang) 88 TTJ 778
• Salary in Indian Rupees received in India – Services rendered

in Norway for period exceeding 182 days – Income taxable in
India & Norway – Individual not claiming that he was taxed in
Norway – No relief from Indian tax available under DTAA
S. Mohan, IN RE ( AAR ) 294 ITR 177
• Double Taxation Relief – Tax credit method or Exemption

method to be used – Depend on the particular DTAA applicable
O.A.P. Andiappan Vs CIT (SC) 82 ITR 876 affirmed 66 ITR 209 (Mad)
CIT Vs S.K. Srinivasan (Mad) 75 ITR 93
M. Abubacker Vs CIT (Ker) 69 ITR 809
A.C. Paul Vs CIT (Mad) 97 ITR 652
CIT Vs VR.S.R.M. Firm & Ors. (Mad) 208 ITR 400
ITO Vs Data Software Research Co. P. Ltd. 2008-TIOL-09-ITAT-MAD
• Credit for foreign tax can be allowed to the extent of foreign tax
liability in India is brought to NIL and no refund can be issued
out of that.
JCIT Vs Digital Equipments India Ltd. (ITAT, Mum) 94 ITD 340
Non-discrimination clause in DTAA

• Non-discriminatory clause in DTAA – In order to establish
discrimination, assessee not only to demonstrate that he has
been subjected to differential treatment vis-à-vis other tax
payers but also that the ground for this differentiation in
treatment is unreasonable, arbitrary or irrelevant.
Automated Securities Clearance Inc Vs ITO (ITAT, Pune) 118 TTJ 619
• Non-discrimination clause aims at ensuring equality of

treatment to the nationals of the Contracting States so that they
are not subjected to any taxation requirement which is more
burdensome to the nationals of one State as compared to the
nationals of the other State in the same circumstances – This
only pertains to the procedure by which tax is imposed – A
State is not obliged to extend the same privileges to non-
residents which it accords to its own residents – Denial of the
benefit of second proviso to sec. 48 to a non-resident assessee
while computing capital gains assign from the sale of shares
would not amount to discrimination in terms of Art. 24 of
DTAA with Canada
Transworld Garnet Company Ltd., In Re (AAR) 333 ITR 1
• A banking company based at Korea had a branch in India – Tax

was levied at rates applicable to Non-resident companies
Discrimination clause in article 25 of Indo-Korean DTAA not
applicable
Chohung Bank Vs DDIT (ITAT, Mum) 102 ITD 45
• DTAA with Germany – Assessee non-resident having PE in

India received royalty income in India – As per Art. 7(3),
income of P.E. has to be computed as per domestic laws –
During the year, sec. 44D was applicable as per which no
deduction is allowable while determining such income - Non-
discriminating clause in Art 24(2) does not apply where Art.
7(3) applies
DDIT (Int.Tax) Vs Pipeline Engineering GmBH (ITAT, Mum) 318 ITR (AT) 210
• Art. 26(4) of DTAA with Singapore – Contracting State need

not grant to residents of other contracting State any personal
allowance, relief, reduction and deduction which it grant to its
own residents – Non-resident not eligible for deduction u/s

80HHC
Mustaq Ahmed Vs CIT (ITAT, Chennai) 124 ITD 312
COMPUTATION OF BUSINESS PROFITS OF

NON-RESIDENTS / FOREIGN COMPANIES
Profits and gains of shipping business in the case of
non-residents [sec. 44B]
• Applicable to Non-resident
• Business of operation of ships
• 7 ½ % of sum paid / payable / received / deemed to be

received on account of carriage of passengers, livestock,
mail or goods shipped at any port in India – includes
demurrage charges or handling charges or any other
amount of similar nature
• Sec. 44B is not applicable to all non-resident assessee, but only

to such assesses who have a regularity of business of operating
ships
Chairman, CBDT Vs Chowgule & Co. Ltd. (Kar) 192 ITR 40
CIT Vs Taiyo Gyogyo Kabushiki Kaisha (Ker) 244 ITR 177
• Demurrage charges to be taxed in the same way as freight is

taxed
CIT Vs Nippon Yusen Kaisha (Cal) 233 ITR 158
• Deferred rebate allowed to the shippers cannot be deducted

from gross freight earnings for the purpose of computation of
income u/s 44B
British India Steam Navigation Co. Ltd. Vs CIT (Cal) 107 CTR 278
Profits and gains in connection with business of

exploration etc. of mineral oils [sec. 44BB]
• Applicable to Non-resident
• Business of providing
• services or facilities in connection with or
• supplying plant and machinery on hire
for use in prospecting for or extraction or production of
mineral oils
• 10% of sum paid / payable / received / deemed to be

received on account of the above activities is profits
chargeable to tax
• Can claim lower profits if it maintain books of account as

per sec. 44AA and get the accounts audited u/s 44AB and
furnish audit report along with return – Assessing Officer
will determine income u/s 143(3)
• Do not apply if sec. 42 or 44D or 44DA or 115 or 293A apply
• Non-resident enters into contract with ONGC for conducting

seismic surveys, seismic data acquisition and processing
offshore areas and acquisition of seismic, gravity and magnetic
data – Activities / services undertaken are meant for
prospecting mineral oils - Taxable u/s 44BB
Seabird Exploration FZ LLC, In Re (AAR) 320 ITR 286
Global Geophysical Services Ltd. ,In Re (AAR) 52 DTR 322 ; 332 ITR 418
• Tax resident of Norway providing sea logistics service to

ONGC – Sec. 44BB applies since it is engaged in
transportation of cargo, material and personnel required at the
rig in addition to ensuring marine logistics support in the event
of any operational exigency
Siem Offshore Inc., In Re (AAR) 337 ITR 207
• Non-resident entering into contract with another non-resident

company for providing chase vessel on time charter basis for
providing 3D seismic survey and data acquisition operation
which are essential for prospecting for mineral oil – Fact that
the operation and management of the vessel is under the control
and command of the owners, their master and crew does not go
against the concept of hiring - Sec. 44BB applies
Wavefield Inseis ASA, In Re (AAR) 320 ITR 290
Bourbon Offshore Asia Pte Ltd., In Re (AAR) 337 ITR 122
• Bareboat charter agreement executed abroad and delivery of

vessels outside India – Hiring of seismic survey vessels on
global usage basis - Amount paid to providers of vessels
taxable in India u/s 44BB in respect of periods for which
vessels were in Indian waters
Seabird Exploration FZ, LLGUAE, In Re (AAR) 326 ITR 558
• Assessee provided only results of investigation and not the

technical skill – Such receipts to be includible for the purpose
of sec. 44BB
Furgo Engineers B.V. Vs ACIT (ITAT, Del) 26 SOT 78
• Assessee took contract for laying pipeline to transport natural

gas – Sec. 44BB does not apply - Post production activities are
not included in the word “production” as given u/s 44BB.
ARB Inc. Vs JCIT (ITAT, Del) 93 ITD 520
• Mobilization fee and operating charges separately indicated in

agreement – Expenses incurred by assessee for transporting
rigs from Portugal to India – ONGC paid fixed mobilization
fees – Assessee claims it as only reimbursement of expenses→
Not correct – Said amount is part of gross receipts u/s 44BB -
Boat & helicopter charges withheld by ONGC from payment
not to be deducted from contract receipts u/s 44BB.
Sedco Forex International Drilling Inc. Vs DCIT ( ITAT, Del ) 72 ITD 415
• Re-imbursement of freight and transportation charges

includible in receipts for computing income u/s 44BB Income
to be computed on the basis of all the payments.
CIT Vs Halliburton Offshore Services Inc (Uttarakhand) 300 ITR 265
• Amount received on account of spare parts includible in

receipts for computing income u/s 44BB
CIT Vs B.J. Services Co. (Uttar) 300 ITR 392
• Amount reimbursed to assessee non-resident towards supply

of plant and machinery to be used in prospecting as well as
reimbursement of mobilization charges in respect of
transportation of rigs outside territorial waters of India to be
taken into account for computing profits u/s 44BB
CIT Vs Atwood Oceanics Pacific Ltd (Uttarakhand) 338 ITR 156
• Reimbursement of catering charges and fuel expenses

includible in receipts for computing income u/s 44BB
CIT Vs RBF Rig Corporation (Uttarakahnd) 313 ITR 369
• Income to be assessed @ 10% of gross contractual receipts u/s

44BB – Sub-contractor cost and salary payments cannot be
deducted
Saipem SPA Vs CIT (ITAT, Del) 123 ITD 153
• Service tax collected by the assessee was directly in connection

with services and facilities provided by it to ONGC and the
same was includible in receipts for the purpose of
determination of profit u/s 44B
DDIT (Int.Tax) Vs Technip Offshore Contracting BV (ITAT, Del) 29 SOT 33
• If during activities of installation, income in nature of royalty

or fee for technical services or interest or of any other nature
arises, then such income has to be assessed under that head of
income – Payment for mobilization and de-mobilization
relates to use of equipment for undertaking installation work
and falls under definition of royalty under Art. 12.3 of DTAA
with Singapore – Since installation is ancillary and subsidiary
to use of equipment or enjoyment of right for such use,
payment for installation would fall under definition of 'fee for
technical services' as per Art. 12.4(a) of DTAA
Global Industries Asia Pacific Pte. Ltd., In Re (AAR) 205 taxman 273
Profits and gains of foreign companies engaged in the

business of civil construction etc. in certain turnkey
power projects [sec. 44BBB]
• Foreign company engaged in the business of civil
construction or the business of erection of plant or
machinery or testing or commissioning thereof in
connection with a turnkey power project approved by Cen.
Govt.
• 10% of the amount paid or payable (whether in or out of

India) is income
• Can claim lower profits if it maintain books of account as

per sec. 44AA and get the accounts audited u/s 44AB and
furnish audit report along with return – Assessing Officer
will determine income u/s 143(3)
• Contract awarded to assessee, a Japanese company, for

erection of steam turbines, turbo generators and auxiliary
equipments / heaters to execute a power project in India by an
Indian company being separate and independent of the supply
contract awarded for offshore supply of plant and machineries
for the same project to the holding company of the assessee, the
contract awarded to the assessee fits into the description given
in sec. 44BBB
Toshiba Plant Systems & Services Corporation, In Re (AAR) 52 DTR 155 ; 332
ITR 456
Income by way of royalties etc. of foreign companies

[sec. 44D]
• Royalty or fees for technical services received by foreign

company from Govt. or an Indian concern in pursuance of
an agreement entered during 01-04-1976 to 31-03-2003
• No deductions mentioned in sec. 28 to 44C available while

computing income
Income by way of royalties etc. of non-residents [sec.

44DA]
• Royalty or fees for technical services received by non-
resident / foreign company from Govt. or an Indian
concern in pursuance of an agreement entered after 31-03-
2003
• Carries on business in India through a P.E. or perform

professional services from a fixed place in India
• Right, property or contract relating to royalty or fee for
technical services is connected with such P.E. or fixed place
of profession
• Compute income as per sec. 28 to 44C
• Only expenditure or allowance wholly and exclusively

incurred for the business of such P.E. or fixed place is
allowable
• Amount paid to head office not allowable (except as

reimbursement of actual expenses)
• Sec. 44BB will not apply [w.e.f. 01-04-2011]
• Maintain books of account as per sec. 44AA and get the

accounts audited and furnish audit report along with
return
• Computation of income from royalty and fee for technical

services received by non-resident prior to 01-04-2004 – Sec.
44D applies – No deduction to be allowed – Sec. 44DA is not
retrospective in operation
DDIT Vs Pipeline Engineering Gmbh (ITAT, Mum) 28 DTR 270 ; 28 SOT 121 ;
125 TTJ 534
Tax on long term capital gains [sec. 112]
• To be taxed at 20%
• Transfer of equity shares in Indian company by a non-resident

to another non-resident by off-market trade – To be taxed at
20% and not 10%.
Sec. 48 governs the mode of computation of income whereas sec.
112 determines the tax payable on such income. The application of
the proviso to sec. 112 is as under :
(D) determine the tax payable on L.T.C.G. as per sec. 48
(E) determine 10% of L.T.C.G. without giving effect to
second proviso to sec. 48 ie. 10% of full value of
consideration minus cost of purchase and cost of
improvement
(F) If (A) is greater than (B), ignore the excess
Assets covered by first proviso to sec. 48 are not entitled to the
benefit of 10% tax on L.T.C.G. as per proviso occurring after cl.(d)
of sec. 112(1). Non-resident assessee is given protection from
inflation by way of first proviso to sec. 48 and hence they are not
eligible for concessional rate (10%) of tax u/s 112.
Cairn U.K. Holdings Ltd., In Re (AAR) 337 ITR 131
Income of Foreign Institutional Investors from

securities or capital gains arising from their transfer
[sec. 115AD]
• Income on securities - @ 20% (dividends on which

dividend distribution tax paid and units referred to in sec.
115AB exempt) – No deduction to be allowed u/s 28 to 44C
or sec. 57(iii)(i) or chapter VI-A
• Short term capital gains - @ 30% (in case of equity share in

a company or unit of an equity oriented fund @ 15% [10%
till 01-04-2009])
• Long term capital gains - @ 10%

• Indexation and conversion or purchase and sale in
foreign currency not available while computing capital

gains
• Other income – at the rates applicable
• Foreign institutional investor – Special provision u/s 115AD

for computation of Capital gains from investment in securities
– Indexation not available
Advantage Advisors Inc. Vs DDIT (Int. Tax) (ITAT, Mum) 6 ITR (Trib) 235
Tax on investment income and long term capital

gains of non-resident Indian [sec. 115E]
• Income from investment - @ 20%
• Income from long term capital gains - @ 10%
• Other income – at the rates applicable
• Sec. 115E -'Investment income' mentioned in this section does

not include Short Term capital gains - Not eligible for
concessional tax rate.
Sunderdas Haridas Vs ACIT (ITAT, Mum) 67 ITD 89
Income from foreign exchange assets of a non-

resident who lateron becomes resident [sec. 115H]
• Non-resident in any previous year becomes resident in a

subsequent previous year
• Investment income derived from foreign exchange assets

mentioned in sec. 115C (f) (ii), (iii), (iv) or (v)
• File declaration along with the return filed u/s 139

• Taxed @ 20% until the transfer or conversion of such
assets into money takes place
• Interest on interest re-deposited alongwith the original sum

(foreign funds) in the bank – Not eligible for concessional rate
of tax u/s 115H
M. Manohar Vs ACIT (Mad) 339 ITR 49
Transfer Pricing [sec. 92 to 92F w.e.f. 01-04-2002]

• Income, allowance for any expense or interest arising from
international transaction or cost allocation or
apportionment in international transaction shall be
computed having regard to Arms Length price (ALP) [sec.
92]
• Sec. 92 not to apply for reducing the chargeable income or

increasing the loss
• Associated enterprise (AE) defined [sec. 92A]
• International transaction defined [sec. 92B] – atleast one

party to the transaction be non-resident AE
• Computation of ALP of an international transaction using

the most appropriate method out of the following : [ sec.
92C]
• Comparable uncontrolled price method
• Resale price method
• Cost plus method
• Profit split method
• Transaction net margin method
• Such other method prescribed by CBDT
• Where more than one price determined by most

appropriate method, take arithmetic mean as ALP – If
variation between ALP and actuals does not exceed 5%,
ignore ALP [sec. 92C]
• Assessing Officer to compute ALP and use it for arriving at

the total income. No deduction u/s 10A, 10AA or 10B or
under chapter VI-A on such enhancement of income [sec.
92C]
• Assessing Officer to refer computation of ALP to Transfer

Pricing officer (TPO) with prior approval of CIT [sec.
92CA]
• TPO can determine ALP of transactions not referred to

him also [sec. 92C(2A) w.e.f. 01-06-2011]
• TPO to pass order 60 days before the limitation period

mentioned in sec. 153 or 153B [sec. 92C(3A)]
• Assessing Officer to compute total income in conformity

with the order of TPO [sec. 92C(4)]
• Every person who has entered into an international

transaction to keep and maintain prescribed information
and document in respect thereof and produce it when
called for by assessing officer of CIT(A) [sec. 92D]. Failure
will result in penalty u/s 271G which is 2% of the value of
the international transaction for each failure
• Obtain audit report and furnish it before the specified date

in the prescribed form duly signed and verified [sec. 92E]
• ALP, enterprise, permanent establishment, specified date,

transaction defined [sec. 92F]
• Rules 10A to 10E relevant
• Before a case is referred to Transfer Pricing Officer (TPO) for

computation of Arms Length Price, Assessing Officer need not
demonstrate that any one or more of circumstances set out in
Sec. 92C(3) are satisfied – Assessing Officer is not required to
record his opinion / reason before seeking approval of CIT u/s
92CA(1) – Before referring to TPO, Assessing Officer need not
give opportunity of being heard to the assessee.
Aztec Software & Technology Services Ltd. Vs ACIT (ITAT,SB-Bang) 107
ITD 141
Veer Gens Vs ACIT (Guj) 65 DTR 66
• Reference to Transfer Pricing Officer under Instruction No.

3/2003 is mandatory in nature.
• Initial burden on assessee to prove that international
transaction was carried out at arm's length price – It cannot take
a stand that such data cannot be called for or insisted upon from
taxpayer
Cargill India (P.) Ltd. Vs DCIT (ITAT, Del) 110 ITD 616
• Transfer pricing rules are applicable when one of the parties to

the transaction is a non-resident, even if the transaction takes
place within India – Existence of actual cross-border
transactions or motive to shift profits outside India or to evade
taxes are not pre-conditions for the applicability of transfer
pricing provisions
DCIT Vs Deloitte Consulting India (P) Ltd. (ITAT, Hyd) 61 DTR 101
ITO Vs Tianjin Tianshi India (P.) Ltd. (ITAT, Del) 133 ITD 123
• Assessing Officer has power and duty to select the most

appropriate method and compute ALP
Serdia Pharmaceuticals (India) (P) Ltd. Vs ACIT (ITAT, Mum) 50 DTR 98
• More than one price not used to compute ALP in respect of

each transaction – Benefit of 5% not available – Proviso for
which Cir. No. 12 dated 23-08-2001 was issued, never came
into operation and hence circular is irrelevant – With
subsequent amendment brought in by Finance Act, 2002 the
circular became otiose
ACIT Vs Essar Steel Ltd. (ITAT, Visakh) 136 TTJ 470; 131 ITD 22
Perot Systems TSI (India) Ltd. Vs DCIT (ITAT, Del) 5 ITR (Trib) 106
ACIT Vs UE Trade Corporation (India) (P) Ltd. (ITAT, Del) 9 ITR(Trib) 400
Haworth (India)(P.) Ltd. Vs DCIT (ITAT, Del) 131 ITD 215 ; 11 ITR (Trib) 757
• Computation of ALP – Benefit of 5% disallowed since

difference between ALP determined and value of transaction
declared exceeding 5% of ALP – Upheld since tolerance band
provided in the proviso to sec. 92C(2)is not to be construed as
standard deduction
Global Vantedge P. Ltd. Vs DCIT (ITAT, Del) 1 ITR (Trib) 326
ST Microelectronics (P) Ltd. Vs CIT(A) (ITAT, Del) 61 DTR 1
• Benefit of 5% provided in the proviso to sec. 92C(2) is

available only when assessee is computing the ALP and not
when the AO/TPO is computing the ALP
Marubeni India (P) Ltd. Vs Addl. CIT (ITAT, Del) 56 DTR 252
• Interest free loans advanced to foreign Associated Enterprise

Lending or borrowing money between two A.E. covered
within the ambit of International taxation – Approval of RBI

not a seal on the true character of the transaction from the
perspective of Transfer Pricing regulation – Profit shifted to tax
haven or low tax regimes to bring down aggregate tax
incidence of the multinational group – Case of violation of
Transfer Pricing norms – Transaction not at arm's length
Perot Systems TSI (India) Ltd. Vs DCIT (ITAT, Del) 5 ITR (Trib) 106
• In the case of Service PE, TNMM is the appropriate method

since it apportions total operating profit on the basis of sales,
costs, assets etc.- Under Art. 7(1), profit of PE is determined as
if it is an independent enterprise - Once TP analysis is
undertaken and the mark up fixed by the assessee was accepted
by the Department, no further income to be attributed to the
P.E. – This equates arms length analysis with attribution of
profits - Data to be examined in each case - If TP analysis does
not reflect the functions performed and the risks assumed by
the enterprise, there is need to attribute profits to PE for those
functions / risks that have not been considered.
Morgan Stanley & Co. Inc. Vs DIT (Int. Taxation) (SC) 292 ITR 416
• Valuation made by Customs authorities cannot be a guiding

factor for TPO to arrive at ALP
Panasonic India (P) Ltd. Vs ITO (IAT, Del) 135 TTJ 43
• Delay in payment or remittances from AE – Potential loss to be

considered while evaluating the financial impact of the
international transaction between assessee & AE
Logix Micro Systems Ltd. Vs ACIT (ITAT, Bang) 50 DTR 359 ; 8 ITR (Trib) 159
• Assessee was in a position to dictate terms to its agent in India

and hence it could not be said that the commission paid was at
arms length – The manner in which commission / remuneration
has been fixed was normally not done between independent
parties – T.P. analysis to determine ALP to be done by taking
the “Function, Assets used and Risk involved” (FAR) – The test
is “profits expected to make” and has to be determined bearing
in mind the fact that the agent was merely rendering support
services and had no authority to negotiate and accept contracts
and also assumed limited risk
Rolls Royce Singapore Pvt. Ltd. Vs ADIT (Del) 61 DTR 145
• Objectives of T.P. regulations and conditions for invoking such

provision explained – Principles and methods for
determination of ALP – Even without a specific provision like
sec. 92, it is always possible for Assessing Officer to examine
every vital and relevant aspects of international transactions
between related parties in the course of assessment
proceedings.
• Selection of one of the methods as the most appropriate method
has to be made by human skill and expertise – It is not possible
to prescribe procedure / practice for every occasion.
• While computing operating revenue, foreign exchange
fluctuation gain should be added and I.T. refund to be excluded
Donation to be added to the operating cost and compensation to
be excluded
SAP labs India (P) Ltd. Vs ACIT (ITAT, Bang) 6 ITR (Trib) 81 ; 44 SOT 156
• In order to determine ALP, only current year financial data of

comparables is relevant – For considering data relating to a
period not more than two years prior to the relevant year, party
has to bring in material to suggest that circumstances warrant
application of Rule 10B(4)
Haworth (India)(P.) Ltd. Vs DCIT (ITAT, Del) 131 ITD 215 ; 11 ITR (Trib) 757
• Selection of comparables – Assessee submitted TP report in

each year by using different filters for selecting or eliminating
comparables in each year so that the results of comparables are
commensurate to the results declared by assessee – TPO was
justified in rejecting the same and selecting new comparables
by applying quantitative and qualitative filters
• Application of excess earning method to arrive at CUP price

while valuing intellectual property rights is proper since it
gives the price at which the assessee would have sold in an
uncontrolled condition – In this method discounted cost of
improvement, discounted return on fixed assets, net present
value of working capital requirements and discounted cost of
human capital for each of the future years using weighted
average cost of capital as discounting factor is reduced from the

net discounted future cash flows based on past performance
Tally Solutions (P) Ltd. Vs DCIT (ITAT, Bang) 64 DTR 289
• Determination of Arms Length price by assessee was accepted

in earlier years without considering certain facts – Orders for
earlier years not to operate as res judicata – Associated
Enterprise receiving compensation on basis of free on board
value while assessee compensated at cost plus 5% mark up
Assessee providing critical functions with the help of tangible
and unique intangibles developed by it – Mark up to be on free
on board value of goods sourced through assessee
Li & Fung (India) P. Ltd. Vs DCIT (ITAT, Delhi) 12 ITR (Trib) 748
• When there was no even one piece of documentation in support

of the comparable uncontrolled price of the diamonds imported
or exported, application of CUP method for computing ALP
was not valid – When ALP cannot be reasonably determined by
CUP or any other direct method (cost plus method and resale
method), application of TNMM or other indirect method ie.
profit split method is inevitable
ACIT Vs Tara Ultimao (P) Ltd. (ITAT, Mum) 63 DTR 333
• Though no order of preference is prescribed in which methods

for determining the ALP must be considered, the traditional
methods (ie. CUP method, Resale price method and cost plus
method) particularly CUP, have an edge in the sense that, all
things being equal, CUP and traditional transaction methods
are preferred over the transaction profit methods (ie. TNMM
and Profit split method). This is because the CUP method does
offer most direct method of neutralizing the impact of inter-
relationship between AEs on the price at which the transactions
have been entered into by such AEs – CUP method is the most
appropriate method in respect of purchase of generic drug even
when such a drug is manufactured by its original patent holder
Serdia Pharmaceuticals (India) (P) Ltd. Vs ACIT (ITAT, Mum) 50 DTR 98
• For initiating penalty u/s 271G, satisfaction need not be

recorded before initiation of proceedings
Cargill India (P.) Ltd. Vs DCIT (ITAT, Del) 110 ITD 616
• When there are different segmental activities which are

independent of each other, they are to be analyzed on
transaction to transaction basis and not by combining all
activities
Benetton India (P) Ltd. Vs ITO (ITAT, Del) 134 ITD 229
• When functions, assets and risks are same in more than one
activity, they can be clubbed for determining ALP – When there
is no comparable uncontrolled transaction data, a transaction
between two AEs at ALP, though technically called controlled
transaction would partake character of 'uncontrolled
transaction' for purpose of determination of ALP in a later
international transaction between two AEs
Bayer Material Science (P) Ltd. Vs Addl. CIT (ITAT, Mum) 134 ITD 582
• Working capital constitutes an item of difference in matters of

computation of ALP / net margin – hence corresponding
adjustment to be made
Demag Cranes & Components (India) (P) Ltd. Vs DCIT (ITAT, Pune) 144 TTJ
320
Chapter 11
INTERESTS UNDER I.T. ACT
INTERESTS UNDER I.T. ACT 875
INTEREST FOR DEFAULT IN PAYING

DEMAND [sec. 220(2)]
• If amount specified in the demand notice u/s 156 is not paid
within 30 days of service of such notice – liable for levy of
simple interest
• Rate : 1% per month / part of a month [1.25% till

08-09-2003 and 1.5% till 01-06-2001]
• Period : Day following the end of the period of 30days after

service of demand notice till date of payment
• Principal : Amount specified in demand notice

• If by rectification / giving appeal effect / revision u/s
264 / order of Settlement Commission, amount specified
in demand notice is reduced, revise interest accordingly
• Decision of Supreme Court in Vikrant Tyres Ltd. Vs CIT

(276 ITR 278) applies only if assessee initially paid tax as
per the demand notice which was lateron refunded while
giving effect to the order of CIT(A) and which again got
revived with the order of ITAT
• Accrual of interest u/s 220(2) is automatic – No opportunity to

be given before levy.
J. Jayalalitha Vs CIT & Ors. (Mad) 244 ITR 74
• Though addition made by Assessing Officer was deleted by

CIT(A), it was restored by the order of ITAT – The effect of the
order of Tribunal is that the earlier notice of demand stood
revived and became legal, valid and enforceable – In view of
sec. 3 of the Taxation Laws (Continuation and Validation of
Recovery Proceedings) Act, 1964, the original notice of
demand continued to be valid and operative– In the absence of
payment of entire demand, interest u/s 220(2) to be levied from
the date of original order.
Super Spinning Mills Ltd. Vs CIT & Anr. (Mad) 244 ITR 814
K. Venugopalan Nambiar Vs CIT ( Ker ) 231 ITR 607
Girnar Investment Ltd. Vs CIT (Del) 340 ITR 529
• One addition in original assessment order remanded to A.O. by

Tribunal – Entire order and demand not wiped out or cancelled
by the said order – Interest u/s 220(2) to be charged from date
of original order itself.
B. Indira Rani Vs CIT & Ors. (Ker) 237 ITR 20
DCIT Vs A.S. Krushna & Co. P. Ltd. (ITAT, Visakh) 125 ITD 267
• Interest levied u/s.220(2) – Not appealable since sec. 246 does

not provide for appeal against order u/s 220(2) and it is not a
part of assessment order also
ANZ Grindlays Bank PLC Vs CIT (Cal) 241 ITR 269
• Jurisdiction of Settlement Commission is only with effect from

date of admission of application for settlement and not from
the date of application – Assessment order passed before date
of admission of application by Settlement Commission
Interest u/s 220(2) to be levied upto the date of admission of
settlement application
ACIT Vs Leonie M. Almeida (ITAT, Mum) 8 ITR (Trib) 293
• Interest u/s 220(2) from the date of original assessment order to

date of reassessment order can be validly levied. It is not
correct to say that once notice u/s 148 is given, the original
assessment order becomes void ab initio or non-est
Mawab Mir Barkat Ali Khan Bahadur Vs ITO (AP) 172 ITR 13
INTEREST FOR DEFAULT IN FILING RETURN

[sec. 234A]
If return of income filed after due date u/s 139(1) or not filed
liable for levy of simple interest

08-09-2003 and 1.5% till 01-06-2001]
• Period : Day following the due date till date of filing or

return (if return filed) or completion of assessment u/s 144
(if return not filed)
• Principal : Amount of tax on the total income as

determined u/s 143(1) or in regular assessment – Advance
tax paid – TDS/TCS – Relief u/s 90/90A/91 on taxes paid
outside India – credit u/s 115JAA
• Assessment made for the first time u/s 147 or 153A will
be regarded as regular assessment
• Interest paid u/s 140A will be reduced from the interest
payable
If notice u/s 148 or 153A issued after determination of income u/s

143(1) or assessment u/s 143(3) / 144 / 147 and failure to file return
within time specified in such notice or return not filed – liable for
levy of simple interest

08-09-2003 and 1.5% till 01-06-2001]
• Period : Day following the expiry of time allowed in the

notice till date of filing or return (if return filed) or
completion of assessment u/s 147 / 153A (if return not filed)
• Principal : Tax on the total income determined in

reassessment – Tax determined in regular assessment or u/s
143(1)
If by rectification / giving appeal effect / revision / order of

Settlement Commission, amount of tax on which interest is

payable is reduced or increased, revise interest accordingly
• In CIT & Anr. Vs Pranoy Roy & Anr. (309 ITR 231)
Supreme Court held that interest u/s 234A is not
chargeable in a case where tax was paid before the due date
of filing of return, though return was filed late
INTEREST FOR DEFAULT IN PAYMENT OF

ADVANCE TAX [sec. 234B]
Failed to pay advance tax or advance ax paid is less than 90% of
assessed tax - liable for levy of simple interest

08-09-2003 and 1.5% till 01-06-2001]
• Period : 1st April of A.Y. till date of order u/s 143(1) or

regular assessment
• Principal : Amount of tax on the total income as

determined u/s 143(1) or in regular assessment – Advance
tax paid – TDS/TCS – Relief u/s 90/90A/91 on taxes paid
outside India – credit u/s 115JAA
• Assessment made for the first time u/s 147 or 153A will
be regarded as regular assessment
• Tax paid u/s 140A before the date of order u/s 143(1) or
regular assessment to be considered while computing
interest
If amount on which interest was payable got increased in a

proceedings u/s 147 or 153A – liable for levy of simple interest

08-09-2003 and 1.5% till 01-06-2001]
• Period : Day following the date of determination of tax u/s

143(1) or regular assessment till date of reassessment u/s
147 / 153A
• Principal : Tax on the total income determined in

reassessment – Tax determined in regular assessment or u/s
143(1)
If by rectification / giving appeal effect / revision / order of

Settlement Commission, amount of tax on which interest is
INTEREST FOR DEFERMENT OF ADVANCE

TAX [sec. 234C]
• Schedule of payment of advance tax (as % of tax due on
returned income ie. tax chargeable on the income declared
in the return – TDS/TCS - – Relief u/s 90/90A/91 on taxes
paid outside India – credit u/s 115JAA)
Date Company Others

15 June 15%
15 September 45% 30%
15 December 75% 60%
• If failure to pay tax as per the above schedule, liable to pay

simple interest @ 1% p.m. for 3 months on the amount of
shortfall
• If advance tax paid by 15th march is less than tax due on the
returned income, liable to pay simple interest @ 1% on the
amount of shortfall
• No interest to be levied on a company if it had paid atleast

12% tax due on the returned income by 15th June and 36%
by 15th September
• No interest levy if failure is on account of capital gains or

winnings from lotteries
• Charge of interest is not appealable unless assessee contests /

denies its liability to levy itself
Central Provinces Manganese Ore Co. Ltd Vs CIT (SC) 160 ITR 961
• Interest u/s.234A, 234B and 234C are mandatory in nature –

No right to be heard before imposition of interest.
CIT Vs Anjum M.H. Ghaswala & ors. (SC) 252 ITR 1
• When some amount is paid beyond F.Y. but before return is

filed, assessee cannot plead that it is not liable to pay interest
u/s 234A nor can it be given credit for such payment for
computation of interest u/s 234B for default in payment of
advance tax
Roshanlal S. Jain Vs DCIT (Guj) 309 ITR 174
• Interest u/s 234B compensatory in nature – Plea of bonafide

default totally alien
CIT Vs Insilco Ltd. (Del) 321 ITR 105
Jacob Export House Vs CIT (P&H) 199 Taxman (Mag) 147
• For levying 234 B interest, no need to pass speaking order

CIT Vs Computer Graphics Ltd. (Mad) 285 ITR 84
CIT Vs Vijay Yarn and Textiles P. Ltd. (P&H) 303 ITR 219
• By virtue of amendment of Expl. 1 to sec. 234B by the Finance

Act, 2001 w.r.e.f. 01.04.1989, interest under sec. 234B is
chargeable on income assessed by Assessing Officer and not on
income declared in the return.
Jacob Export House Vs CIT (P&H) 330 ITR 53
• Interest u/s 234B can be levied upto date of order u/s 143(1)
and thereafter can be increased if order u/s 143(3) is passed
subsequently.
Travancore Titanium Products Ltd. Vs DCIT (ITAT, Coch) 57 ITD 16
Grasim Industries Limited Vs DCIT (ITAT, Mum) 64 TTJ 357
ACIT Vs Telsa Transformers (P) Ltd. (ITAT, Indore) 72 ITD 459
Hindustan Sanitary Engineers Vs ITO (ITAT, Asr) 95 ITD 226
Manish D. Shah Vs C.M. Betgeri (Bom) 318 ITR 397
• Order u/s 143(1) followed by order u/s 143(3) r.w.s.147

Covered by Expl. 2 to sec. 234B(1) – Interest to be levied from
the first day of A.Y. till the date of order u/s 143(3) r.w.s. 147
Barbar Ship Management India (P) Ltd. Vs ITO (ITAT, Mum) 38 SOT 563
• Failure to charge interest u/s 234A – Mistake apparent from

record since such levy is mandatory in nature – Rectification
u/s 154 possible.
ACIT Vs Santosh Kumar Soni (ITAT, All) 57 ITD 220
• Interest u/s 234B can be levied for the first time in re-
assessment proceedings – First assessment resulted in refund
to the assessee and hence no interest was levied u/s 234B at that
time – Contention of the assessee that interest u/s 234B(3) can
not be levied without levying interest u/s 234B(1) is not tenable
When the section contemplates levy of interest in stages,
interest u/s 234B(3) can be levied in any number of

reassessments u/s 147
South Indian Bank Ltd. Vs CIT (Ker) 325 ITR 517
• Settlement Commission can levy interest u/s 234B for the first
time in view of sec. 234B(4) – The words “interest shall be
increased” would contemplate situation where interest had
been levied on the assessee in the first order as well as no
interest was levied on the assessee in the original order of
assessment
Akbar Travels of India P. Ltd. Vs ITSC (Bom) 332 ITR 572
• Interest under section 234A, 234B & 234C can be levied when
income is computed under section 115JA – Specific provisions
are made in sec. 115JA / 115JB to the effect that all other
provisions of the Act shall apply to the MAT company
JCIT Vs Rolta India Ltd. (SC) 330 ITR 470
• Acquisition of land by Government – Interest on

compensation, additional compensation and solatium granted
after few years – Interest accrues in respective years Argument
that such income was not anticipated and hence there is no
default in payment of advance tax, not tenable – If assessability
of income in a particular year is not disputed by assessee,
liability to pay interest u/s 234A, 234B & 234C is mere
consequence attached thereto
Ashwani Dhingra Vs Addl. CIT (ITAT, Del) 308 ITR (AT) 111
• Assessee did not file return in time – Subsequently filed a

return which was out of time and hence non-est in the eyes of
law – In response to notice u/s 148, assessee requested to treat
the return already filed as one filed in response to the said
notice - Assessing Officer accepting the plea – Liability to
interest u/s 234A arises till the date of filing of letter by the
assessee
CIT Vs Kalpaka Transport Co. Ltd. (Ker) 287 ITR 15
• So long as a final order u/s.132(5) is not passed, ITO cannot

release a portion of seized money nor can he direct that the
seized money be adjusted towards the existing liability of
advance tax – Interest u/s 234 B & 234C leviable irrespective
of seized cash lying with Department.
Ramjilal Jagannath & Ors. Vs ACIT (MP) 241 ITR 758
• Return filed for the first time in pursuance of notice u/s 148 –
interest u/s 234A to be levied from the due date of filing of
return
CIT Vs N. Sannamma (Kar) 204 Taxman 356
INTEREST ON EXCESS REFUND [sec. 234D]

Refund granted got reduced on regular assessment - liable for
levy of simple interest
• Rate : ½ % per month / part of a month [2/3 % till

08-09-2003]
• Period : Date of grant of refund to date of regular

assessment
• Principal : Excess refund granted
• If by rectification / giving appeal effect / revision / order of

Settlement Commission, amount of refund granted u/s
143(1) is held to be wholly or partly correct, reduce interest
accordingly
• Assessment made for the first time u/s 147 or 153A will be
regarded as regular assessment
• Interest u/s 234D is leviable for the period after 01-06-2003

irrespective of the A.Y. involved since it was introduced w.e.f
01-06-2003 and not with reference to any A.Y.
CIT Vs Kerala Chemicals & Proteins Ltd. (Ker) 323 ITR 584
CIT Vs Infrastructure Development Finance Co. Ltd. (Mad) 340 ITR 580
INTEREST ON REFUNDS [sec. 244A]

Refund of any amount due to the assessee – entitled to simple
interest
• Rate : ½ % per month / part of a month [2/3 % till

08-09-2003; ¾ % till 01-06-2002; 1% till 01-06-2001; 1.5%
till 01/10/1991]
• Period : If refund arises out of payment made by way of

TDS/TCS or advance tax – from 1st April of A.Y. till date on
which refund granted
Other cases – from date of payment to date on which refund
granted
• Principal : Amount due to assessee
• If by rectification / giving appeal effect / revision / order of

Settlement Commission, amount on which interest is
• No interest if refund is less than 10% of tax determined
• If proceedings resulting in refund got delayed for reasons

wholly or partly attributable to assessee – such delay will be
excluded while computing interest – dispute on this issue
will be resolved by CIT / CCIT whose decision will be final
• While granting refund to the assessee, care should be taken

to ensure that any interest payable u/s 244A on eh amount
of refund due should be granted simultaneously
[Instruction No. 2/2007 dated 28-03-2007]
• In CIT Vs H.E.G. Ltd. ( 324 ITR 331) supreme court held

that the words “Any amount due” used in sec. 244A
includes interest which accrued to the assessee on account
of not refunding the TDS
• Interest u/s 244A – Interest on interest payable only when

refund is made without interest and there is delay in payment of
interest – Decision of Supreme Court in Sandvik Asia (280 ITR

643) explained in detail
Motor and General Finance Ltd. Vs CIT (Del) 320 ITR 88
• Amount of TDS though deducted, not paid to Central

Government – Assessee deductee is not eligible for interest u/s
244A in respect of such amounts since sec. 199 is very clear
that only when TDS is remitted to Govt. account it can be
treated as payment of tax on behalf of the person from whose
income the deduction was made
ACIT Vs Shri Digvijay Cement Co. Ltd. (ITAT, Rajkot) 104 ITD 185
• On date of regular assessment, self assessment tax loses its

identity and assumes character of tax paid as per Demand
Notice u/s 156 – Interest u/s 244A to be granted from date of
assessment order till date of actual refund and not from date of
payment self assessment tax.
Sutlej Industries Limited Vs ACIT (ITAT, Del) 86 ITD 335
Nirma Chemical Works Ltd. Vs JCIT (ITAT, Ahd-TM) 29 DTR 76 ; 125 TTJ 487
• Assessee itself declared a receipt as taxable and voluntarily

paid taxes on it Subsequently won in appeal before CIT(A)
Delay in granting refund was attributable to assessee – Interest
u/s 244A to be granted only from the date of giving effect of the
order of CIT(A) till date of actual payment of refund
CIT Vs Assam Roofing Ltd. (Gau) 330 ITR 87
• Assessee erroneously deducted tax at source though provisions

of the Act were clear – Such amount was refunded to the
assessee – Since there was no statutory liability on the
appellant to deduct tax, it is not an assessee – Hence it is not
eligible for interest u/s 244A since making TDS and remitting it
to Govt, was not done as per any of the provisions of IT Act
Universal Cables Ltd. Vs CIT (MP) 26 DTR 98 ; 237 CTR 157
• Where delay in completion of assessment which led to refund

was on account of delay in filing returns by assessee, it was not
entitled for interest for period of said delay in view of sec.
244A(2)
M. Ahammadkutty Haji Vs CCIT (Ker) 288 ITR 304
• For computing interest payable u/s 244A, the term 'month'

must be given the ordinary sense of the term ie. 30 days of
period and not the British calendar month as defined in sec.
3(35) of the General Clauses Act.
CIT Vs Arvind Mills Ltd. (Guj) 204 Taxman 38
Chapter 12
PENALTIES UNDER I.T. ACT
PENALTIES UNDER I.T. ACT 891
PENALTY FOR CONCEALMENT OF INCOME

[Sec. 271(1)(c)]
• Assessing Officer / CIT(A) / CIT in the course of any
proceedings is satisfied
• Concealed particulars of income or furnished inaccurate

particulars
• Penalty equivalent to 1-3 times tax sought to be evaded
• Tax sought to be evaded is tax that would have been

chargeable on the income in respect of which particulars
have been concealed or inaccurate particulars furnished –
where Expl. 3 applies tax sought to be evaded is tax on total
income assessed less advance tax paid, TDS/TCS and self
assessment tax paid before issue of notice u/s 148
• Penalty can be levied even when no tax payable in the said

A.Y.
• Direction contained in assessment order is deemed as

satisfaction for initiation of penalty proceedings
Some High Courts have held that before initiating penalty

proceedings, satisfaction to be specifically recorded by the
authority. To clarify the position, sec. 271(1B) was inserted by
Finance Act, 2008 w.r.e.f. 01-04-1989
• Cases of deemed to have concealed income / furnished

inaccurate particulars
Expl. 1 : Assessee fail to offer explanation or offers an

explanation which is found to be false, or
- not able to substantiate and fails to prove that such
explanation is bonafide and that all the facts relating to
the same and material to the computation of total
income have been disclosed
Expl. 2 :Intangible additions made in earlier A.Y. on

which no concealment penalty was levied

- It is claimed as source for any receipt, deposit,
outgoing or Investment in any subsequent A.Y.
- Deemed as concealment for such earlier A.Y. and
penalty can be initiated for such earlier A.Y. even if no
proceedings are pending for that A.Y.
Expl. 3 : Failure to file return within the period specified u/s

153(1) for completion of assessment without
reasonable cause and no notice u/s 142(1)(i) or 148
issued within such period
- If he has taxable income, deemed to have concealed
income even if he files return in response to notice u/s
148 after expiry of the period specified u/s 153(1)
Expl. 5 : Search initiated u/s 132 before 01-06-2007

- Found to be owner of any money, bullion, jewellery or
other valuable article (assets)
- Assessee claims to have acquired such assets by utilizing
his income
- For a previous year which ended before the search
but return not filed / return filed but income not
declared therein
- For a previous year ending on or after search
Then, even if he declares such income in a return filed after
search, deemed to have concealed / furnished inaccurate
particulars
Exception – such income / transactions are recorded in the

books of account before the search (where previous year
ended before the search) or on or before the search
- Disclosed to CIT / CCIT before the search
- Makes statement u/s 132(4) that such assets were
acquired out of income not declared so far in the return due
to be filed u/s 139(1) and specify the manner in which such
income was derived, pay tax and interest on the same
Expl. 5A : Search initiated u/s 132 on or after
01-06-2007
- Found to be owner of any money, bullion, jewellery or
other valuable article (assets) and claims to have acquired
such assets by utilizing his income of any previous year

which ended before the date of search, or
- income based on any entry in the books of account /other
documents pertaining to any previous year which ended
before the date of search
- Return filed before search but such income not disclosed

- Return not filed though due date of filing expired
Then, even if he declares such income in a return filed after

search, deemed to have concealed / furnished inaccurate
particulars
For the year of search as well as A.Y. for which due date of filing of
return has not expired, provisions for levy of penalty are
contained in sec. 271 AAA
Expl. 7 : Assessee entered into an international transaction as

per sec. 92B and
addition made u/s 92C(4)
Fails to prove that price charged / paid in such
transaction was computed by him in good faith and
due diligence
Deemed to have concealed / furnished inaccurate

particulars
• In CIT Vs Reliance Petroproducts (P) Ltd. (322 ITR 158)

Supreme Court held that making an incorrect claim in law
cannot tantamount to furnishing inaccurate particulars
General
• Penalty is imposable under the main provisions of sec.
271(1)© and there is no need to refer to any Explanation
Various Explanations in Sec. 271(1)© only explain the
ambiguity in the provisions relating to imposition of penalty
Merely because the case is not covered by any particular
Explanation does not mean that penalty cannot be imposed
Harish P. Mashruwala Vs ACIT (ITAT, SB-Mum) 9 ITR (Trib) 752
• Explanation is a part of the main section and the Explanation

clears the ambiguity, if any, there in the main section.
Explanation cannot be read in isolation. The intention of
adding the explanation is that if anything is not clear in the
main section then it should be made clear by adding the
Explanation – For the purpose of taking any action or for the
purpose of interpreting any law, foundation is the main section
and Explanation is a subordinate part for the purpose of
arriving at a particular conclusion in the mater of interpretation
of statute
Badri Prasad Om Prakash Vs CIT (Raj) 163 ITR 440
• Notice need not specify that penalty invoked under Expl. to

section 271(1)© since such Expl. is apart of the main provision
K.P. Madhusudhanan Vs CIT (SC) 251 ITR 99.
• Even where the incorrectness of the return is claimed due to

want of care on the part of the assessee and there is no
reasonable explanation for such want of care, infer
deliberateness and treat it as a false return.
Cement Marketing Company of India Ltd. Vs Assistant Commissioner of Sales
Tax & Ors. (SC) 124 ITR 15
• Assessee did not furnish any Explanation – Levy of penalty u/s

271(1)(c) upheld.
CIT Vs Chanchal Katyal (All) 173 Taxman 71
• Mere offering explanation, is not sufficient – Explanation to be

substantiated by cogent and reliable evidence.
CIT Vs Lalchand Tirath Ram (P&H) 225 ITR 675
• 271(1)© penalty can be levied even if after addition of

concealed income, there was no positive income Explanation-
4 is clarificatory and retrospective
CIT Vs Gold Coin Health Food P. Ltd. (SC) 304 ITR 308
• Bogus claims for deduction in returns prepared by auditor

Penalty imposable – Contention that it is a mistake committed
by auditor and hence penalty cannot be levied has no merit
Decision of supreme court in T. Ashok Pai vs CIT (292 ITR 11)
considered and distinguished
Kuttookaran Machine Tools Vs ACIT (Ker) 313 ITR 413
• Addition made on facts upheld by Tribunal – Admission of

appeal against assessment order by the High Court would not
ipso facto make out a case for non-levy of penalty on the
reasoning that two views existed
Triumph International Finance India Ltd. Vs ACIT 2011-TIOL-524-ITAT-MUM
CIT Vs Splender Construction (Del) ITA 1977/2010 – order dated 14-01-2011
• Income claimed in Part III / IV of Return and claimed to be

exempt – If assessee could not prove eligibility for exemption,
levy of penalty u/s 271(1)( c) is valid.
Dr. K.D. Arora Vs CIT (Patna) 162 ITR 481
Lal Chand Gopal Das Vs CIT (All) 48 ITR 324
V.P. Samtani Vs CIT (Cal) 140 ITR 693
CIT Vs Vidyagauri Natverlal & Ors. (Guj) 238 ITR 91
• If the assessment order became final, it was binding on both

parties and neither party could seek to reopen it in a penalty
proceeding.
Bharat Rice Mill Vs CIT (All) 278 ITR 599
S.S. Ratanchand Bholanath Vs CIT (MP) 210 ITR 682
CIT Vs Ram Niwas Agarwal (All) 125 ITR 432
• Finding by Tribunal in assessment proceedings that assessee

had income from undisclosed sources and that it had concealed
its sales – Concealment penalty leviable and in the appeal
against penalty, Tribunal cannot hold that assessee in fact did
not earn any income
CIT Vs Somnath Oil Mills (Guj) 214 ITR 32
Penalty leviable on income disclosed in re-

assessment proceedings
• Reassessment proceedings – Imposition of penalty for
concealment in original proceeding is valid eventhough
assessee submits a correct return in reassessment proceedings
and such return is accepted – They are not distinct and separate
proceedings but is continuation of the original assessment
proceedings
CIT Vs Angara Satyam (AP) 37 ITR 230
C.V. Govindarajulu Iyer Vs CIT (Mad) 16 ITR 391
CIT Vs Gopal Krishna Singhania (All) 89 ITR 27
K.C. Mukherjee & Anr. Vs CIT (Pat) 37 ITR 224
Addl. CIT Vs Bhartia Bhandar (MP) 122 ITR 622
CIT Vs Popular Lunghi Co. (Mad) 238 ITR 229
Penalty leviable even if income is estimated
• Even when addition is based on estimate, concealment penalty

can be levied – Omission on the part of the assessee to maintain
accounts cannot be regarded in law as a ground for exonerating
the liability of the assessee from culpability u/s 271(1)© where
the question to be answered is whether the assessee has
concealed the particulars of his income or furnished inaccurate
particulars of such income – Once an assessment has been
done, whether it is best judgement or otherwise, the figure
assessed represents the income of the assessee – Failure to
furnish the original records shows the intention of assessee to
conceal income – In every case falling within the mischief of
Expl. 1 to sec. 271(1)©, a presumption of deliberate
concealment has to be raised
Addl. CIT Vs Chandrakantha and another (MP) 205 ITR 607
CIT Vs Md. Warasat Hussain (Patna) 171 ITR 405
CIT Vs Krishnaswamy and Sons (Mad) 219 ITR 157
Penalty leviable on income disclosed / admitted after

detection
• Assessee has the right to file a revised return if he discovers any
omission or wrong statement in his original return before the
assessment is made – Where the omission is deliberate, he
cannot get rid of merely by filing a revised return – Revised
return filed only after Department got information which was
confronted to the assessee - Penalty is attracted
notwithstanding the fact that assessee corrected his return and
was accepted by the Department
Dayabhai Girdharbai Vs CIT (Bom) 32 ITR 677
CIT Vs Haji P. Mohammed (Ker) 132 ITR 623
Mahavir Metal Works Vs CIT (P&H) 92 ITR 513
Badri Prasad Om Prakash Vs CIT (Raj) 163 ITR 440
S.R. Arulprakasam Vs Prema Malini Vasan, ITO (Mad) 163 ITR 487
F.C. Agarwal Vs CIT (Gauhati) 102 ITR 408
CIT Vs J.K.A. Subramania Chettiar (Mad) 110 ITR 602
Ravi & Co. Vs ACIT (Mad) 271 ITR 286
• During the course of assessment proceedings query was raised

about certain cash credits appearing in the books – Then
assessee filed a revised return offering additional income Such
return was accepted and assessment completed without
levying penalty u/s 271(1)© - Scrutiny of books of account
during assessment of subsequent A.Y. showed that such
income offered in the earlier A.Y. was credited to the accounts
of partners of the assessee firm – Expl. 2 arises and penalty
proceedings can be initiated during the course of assessment
proceedings of the subsequent A.Y. for levying penalty for the
A.Y. in which such income was offered for assessment
Calicut Trading Co. Vs CIT (Ker) 178 ITR 430,
• Survey of business premises leading to impounding of books

of account which revealed various erroneous entries -
Assessee agreeing to assessment – Imposition of penalty valid
since the revised return was filed only after discovery of
concealment by the revenue
CIT Vs K. A. Sampath Reddy (Kar) 197 ITR 232
Biland Ram Hargan Das Vs CIT (All) 171 ITR 390
• Revised return filed after books were impounded and

concealment detected – Levy of penalty upheld

CIT Vs A. Sreenivasa Pai (Ker) 242 ITR 29
M.N. Rajaraman Vs DCIT (ITAT, Chennai) 119 ITD 362
LMP Precision Engg. Co. Ltd. Vs DCIT (Guj) 330 ITR 93
• “Voluntarily” means out of free will without any compulsion

If Department has incriminating material with regard to
disclosed income, disclosure is not voluntary and vice versa
K.L. Swamy Vs CIT (Kar) 239 ITR 386 – search in third party's premises
Bhairav Lal Verma Vs Union of India (All) 230 ITR 855
M.N. Rajaraman Vs ACIT (ITAT, Chennai) 119 ITD 362
• Simply because assessee agreed to addition of concealed

income after detection thereof and filed return in response to
notice u/s 148 offering additional income, assessee cannot
escape from penalty u/s 271(1)( c )
P.C. Joseph & Bros Vs CIT (Ker) 240 ITR 818
CIT Vs Rakesh Suri (All) 331 ITR 458
CIT Vs Sushma Devi Agarwal (ITAT, Kol-TM) 67 DTR 430
Penalty in search cases

• Search of premises and seizure of cash and jewellery or other
incriminating documents – Additional income disclosed by
assessee by filing a revised return thereafter – No explanation
offered for the said disclosure except to assert that he has
disclosed the same to buy peace with the Department – Levy of
penalty upheld
CIT Vs C. Ananthan Chettiar (Mad) 273 ITR 401
Banaras Chemical Factory Vs CIT (All) 108 ITR 96
P.C. Joseph & Bros. Vs CIT ( Ker ) 240 ITR 818
M.S. Mohammed Marzook Vs ITO ( Mad ) 283 ITR 254
CIT Vs Dr. A. Mohammed Abdul Khader ( Mad ) 260 ITR 650
CIT Vs Mahabit Prasad Bajaj (Jhar) 298 ITR 109
CIT Vs R. Kesavan Nair (Ker) 287 ITR 276
Mandli Hanumanthappa Setty Vs ITO (ITAT, Bang) 30 ITD 480
• Amount requisitioned u/s 132A – Though the amount was

lateron included in return, no proof of source of acquisition of
that asset was produced and hence penalty u/s 271(1)(c)
leviable – Expl. 5 to sec. 271(1)© would also apply to a
proceedings u/s 132A
CIT v. Aboo Mohmed (Kar) 250 ITR 313
• Cash seized by Police authorities – Surrender of amount for

assessment for want of source – Penalty leviable
CIT Vs Mohd Mohtram Farooqui (Raj) 259 ITR 132
• Immunity provided under Expl. 5 to sec. 271(1)© not available

since time limit for filing return already expired
Mahendra Mittal Vs ACIT (ITAT, Mum) 55 DTR 247
• Search and seizure – Discovery of concealed assets during

search – Return not filed on time and tax also not paid on time
in respect of such income – Expl applicable - Penalty u/s
271(1)© upheld
Surender Paul Vs CIT (P&H) 287 ITR 223
Ashok Kumar Gupta Vs CIT (P&H) 287 ITR 376
• Immunity from penalty – Diaries and Kucha books are not

books of accounts maintained in ordinary course of business
Such books or diaries cannot be accepted as books of account
for the purposes of Expl. 5 so as to afford immunity from
penalty - Penalty leviable

Sheraton Apparels Vs ACIT (Bom) 256 ITR 20
• Income pertained to previous year which ended before the

search – Assessee filed return before the search without
disclosing such income – Source of income was not disclosed
in the statement recorded u/s 132(4) – Benefit of Expl. 5 not
available - Levy of penalty upheld
Indus Engineering Co. & Anr. Vs ACIT (Bom) 323 ITR 302
• Return filed under sec. 153C only after issue of summons

Search not conducted under sec. 132 in this case – No
explanation offered for not having disclosed income earlier
Levy of penalty upheld.
M.N. Rajaraman Vs ACIT (ITAT, Chennai) 310 ITR (AT) 88
• Return filed in response to notice under sec. 153A could not be

treated as one filed under sec. 139 so as to extent benefit of
Expl. 5 to sec. 271(1)© - Even after introduction of sec.
271AAA w.e.f. 01.06.2007, penalty under sec. 271(1)© could
be imposed when search was initiated before 01-06.2007.
ACIT Vs Rupesh Bholidas Patel (ITAT, Ahd) 16 DTR 369
• Penalty leviable on the difference of income declared in return

filed u/s 153A and original return – Satisfaction for initiation of
penalty proceedings to be inferred from the assessment order
and no specific recording of satisfaction required – Sales made
outside books and not disclosed in the original return
Documents relating to undisclosed sales found during search
Penalty upheld
DCIT Vs K. Natarajan (ITAT, Bang) 2 ITR (Trib) 273
ACIT Vs Kirit Dahyabhai Patel (ITAT, Ahd-TM) 121 ITD 159
• In response to notice u/s 153C, assessee filed return disclosing

cash seized during the course of search in the case of another
person – Though assessee filed original return u/s 139(1)
subsequent to the date of search, assessee did not include such
income in the said return – Surrender of income in the
subsequent return filed u/s 153C was not voluntary – Levy of
penalty u/s 271(1)© upheld
DCIT Vs Jayantilal Ambalal Chokshi (ITAT, Ahd) 132 ITD 184
Penalty on deemed income

• Sec. 68 / 69A are deeming provisions – Still penalty is leviable
Chuharmal Vs CIT ( SC ) 172 ITR 250
CIT Vs Aboo Mohmed ( Kar ) 160 CTR 128
• Cash credits discovered in accounts – Assessee agreeing to

inclusion of such credits in assessment – Onus shifts to
assessee in penalty proceedings to show that amount was not
concealed income – Findings given at the time of assessment
have probative value where assessee offered nothing beyond
explanation at the assessment stage
Western Automobiles (India) Vs CIT (Bom) 112 ITR 1048
CIT Vs Prathi Hardware Stores (Orissa) 203 ITR 641
CIT Vs Jamnadas & Co. (Guj) 210 ITR 218
CIT Vs Ganpatrai Gajanand (Orissa) 108 ITR 403
Durga Timber Works Vs CIT (Del) 79 ITR 63
• Sundry creditors offered for taxation – Inconsistent stand taken

by assessee before lower authorities with no supporting
evidence – Penalty upheld
Kamal Basha Vs DCIT (Mad) 316 ITR 58
• Unexplained investment – Deemed to be income for the

purpose of levying penalty – If no satisfactory explanation
regarding investment is offered, penalty leviable.
Loknath Chowdhary Vs CIT (Cal) 155 ITR 291
Rahmat Development & Engineering Corporation Vs CIT (Cal) 130 ITR 602
CIT Vs Rattam Singh Grewal (P&H) 304 ITR 75
Charudutt H. Danget Vs ITO (ITAT, Mum) 126 ITD 483
No agreement possible for non-levy of penalty
• Letter of assessee saying “penalty may not be levied” – Not an

understanding that penalty will not be levied – Penalty can be
levied – There is no promise against a statute – There is no
provision in the statute which permits a compromise
assessment
Anand Liquors Vs CIT (Ker) 232 ITR 35
CIT Vs D.K.B and Co. (Ker) 243 ITR 618
Rathnam & Co. Vs IAC (Mad) 124 ITR 376

Trivium Power Engineers P. Ltd. Vs ITO (ITAT, Del) 5 ITR (Trib) 347
• Penalty leviable on agreed additions – In a case where the

assessee himself has admitted that the amount represented his
own income, no further evidence would be necessary to show
that it was the amount which represented his income and that it
had been concealed in the return
Polo Singh & Co. Vs CIT ( Del ) 98 ITR 564
CIT Vs Krishna & Co. ( Mad ) 120 ITR 144
CIT Vs Dr. R.C. Gupta & Co. ( Raj ) 122 ITR 567
Union Engineering Co. Vs CIT ( Ker ) 122 ITR 719
ITO Vs Leela Mammen ( ITAT, Cochin ) 63 TTJ 252
CIT Vs P.B. Shah & Co. (Pvt. ) Ltd. ( Cal ) 113 ITR 587
ACIT Vs S.M. Kannappa Automobiles (P) Ltd. ( ITAT, Bang ) 72 ITD 474
Whether concealment to be proved

• Mens rea not essential for civil liability of penalty – Penalties
under fiscal statutes are for breach of civil liabilities – Wilful
concealment is not an essential ingredient for attracting civil
liability as is the case in the matter of prosecution u/s 276C
Union of India Vs Dharmendra Textile processors (SC) 306 ITR 277
Guljag Industries Ltd. Vs CTO (SC) 293 ITR 584
CIT vs Atul Mohan Bindal (SC) 317 ITR 1
• Admission of assessee during assessment regarding

concealment – No independent enquiry to prove concealment
necessary in penalty proceedings.
H.V. Venugopal Chettiar Vs CIT (Mad) 153 ITR 376
DDIT Vs Chirag Metal Rolling Mills Ltd. (MP) 305 ITR 29
Whether representative assessee is liable for penalty
• Representative assessee is liable for penalty – The words “all

provisions of the Act shall apply” makes representative
assessee also liable for penalty
Pratap Chandra & Ors. Vs ITO & Ors.(All) 100 ITR 551 Receiver of HUF
Sunita Gupta Vs ACIT (All) 136 ITR 672 Rep. of minor
CIT Vs R. Srinivasan (Mad) 228 ITR 214 Rep. of minor
Rani H.R. Laxmi (Estate) Vs CWT (Pat) 228 ITR 372 Executor
ACIT Vs Nageshwar Prasad (ITAT, Pat-TM) 63 ITD 29 -legal heir
Tapati Pal Vs CIT (Cal) 241 ITR 468-legal heir.
• Non-disclosure of investment in FDRs and interest income

Assessee cannot be exonerated of the charge of concealment on
the ground that the original return was filed by his son as P/A
holder – Subsequent return filed by assessee disclosing the
same after expiry of time-limit u/s 139(5) in response to notice
u/s 142(1) after AO discovered such omission cannot be said to
be voluntary return – Levy of penalty upheld
Kailashbhai Ambalal Shah Vs ITO (ITAT, Ahd) 52 DTR 449
Some instances where levy of penalty was upheld

• Return filed did not disclose salary earned for a part of the year
Penalty u/s 271(1)© leviable eventhough TDS was made on
such salary
Pankaj Rathi Vs CIT(A) (Cal) 62 DTR 185
• Compensation received on discontinuation of professional

partnership not shown as revenue receipt – Said receipt was
credited to partner's capital accounts and not reflected in P & L
a/c – Assessee being a firm of Chartered Accountants, it cannot
be treated as a bonafide belief that such receipts are not revenue
in nature
ACIT Vs Khanna & Annadhanam (ITAT, Del) 62 DTR 250
• Assessing Officer detecting capital loss debited to P & L a/c

and added this to income – Penalty upheld
Paswara Petrochem Ltd. Vs ACIT (ITAT, Del) 49 DTR 491
• Wrong claim of deduction of income tax and equipments

written off – Assessee claimed it as oversight – If one takes the
view that a claim which is wholly untenable in law and has
absolutely no foundation on which it could be made, the
assessee would not be liable to imposition of penalty, even if he
was not acting bonafide while making a claim of this nature,
that would give a licence to unscrupulous assessees to make
wholly untenable and unsustainable claims without there being
any basis for making the same – Moreover assessee is a
company having professional assistance – Penalty upheld
CIT Vs Zoom Communications P. Ltd. (Del) 327 ITR 510
• Wrong claim made u/s 35D when primarily assessee did not
qualify for it – It is inconceivable that the chartered accountants
could give such an opinion having regard to the plain language
of sec. 35D which is not applicable to a finance company Since
only 2% of the return are taken for scrutiny assessment,
assesses can venture to give wrong information with a hope
that his return may not come under scrutiny - Penalty upheld
CIT Vs Escort Finance Ltd. (Del) 328 ITR 44
• Assessee claimed deduction of fee paid for increasing

authorized share capital – Since this issue was settled by

Supreme Court long back, claim made was ex facie wrong -
Plea of bonafide could not be accepted – Levy of penalty
upheld
Trinity Touch (P) Ltd. Vs ITO (ITAT, Del) 132 ITD 88
• Joint development agreement entered into, part consideration

received and possession handed over – Did not offer capital
gains for tax – Levy of penalty upheld
DCIT Vs Metal Rolling Works Ltd. (ITAT, Mum) 132 ITD 97
• Assessee claimed capital gains exemption u/s 10(38) – When

assessee was asked to produce evidence, it surrendered the
claim – Levy of penalty upheld
DCIT Vs Madhu Raj Lalwani (ITAT, Del) 132 ITD 109
• Purchase of units with dividend and sale within 3 months at a

loss – Such loss set off against other taxable income whereas
dividend claimed exempt – Relevant particulars and basic facts
necessary for applying provisions of sec. 94(7) not disclosed in
return – Levy of Penalty upheld
Survidhi Financial Services Ltd. Vs ACIT (ITAT, Del) 11 ITR (Trib) 49
• Wrong claim of Short Term Capital Loss which were ex-facie

inadmissible – Penalty upheld
Anand & Anand Vs ACIT 2010-TIOL-592-ITAT-DEL
• Wrong claim in computation of income u/s 115JB - +ve figure

put as (-) figure ie. income shown as loss in the computation
Penalty upheld
DCIT Vs Terra Energy Ltd. 2010-TIOL-593-ITAT-MAD
• False claim made u/s 80 I after expiry of the eligible period for
such deduction – Penalty upheld
Model Footwear (P) Ltd. Vs ITO (ITAT, Del) 124 ITD 353
ACIT Vs Hindustan Conductors (P) Ltd. (ITAT, Mum) 58 ITD 410
• False claim of deduction u/s 54 – Assessee claimed to have

invested sale proceeds in a group concern for acquiring
residential flats – Enquiry proved that nobody else have made
booking of flats with such company, the building plan of the
proposed construction was never approved by local authority,
commencement certificate never obtained and ultimately

booking made by assessee was cancelled – Malafide intention
was existing ab initio for making false claim of exemption -
Penalty upheld
DCIT Vs Champalal K. Vardhan (ITAT, Mum) 128 ITD 309 ; 136 TTJ 565
• Assessee claiming deduction u/s 80 O on interest income

earned on F.D. in India – Claim patently incorrect – Amounts to
furnishing inaccurate particulars – Penalty upheld
ACIT Vs Surinder Lal Chopra (ITAT, Del) 2 ITR (Trib) 790
• Claimed expenditure on luxury foreign trips undertaken by

directors of company and premium paid to LIC on policy in the
name of directors – No proof produced to show that foreign
travel was undertaken for business purposes of company
Claim not legitimate – Amounts to furnishing inaccurate
particulars of income – Penalty upheld
Spica Finstock Ltd. Vs ACIT (ITAT, Ahd) 1 ITR (Trib) 437
• Capital Gains on sale of land – Claim of agricultural land made

in the original return was disproved – Revised return filed
disclosing income from such transaction – Blameworthiness of
concealment in the original return attached to the assessee
cannot be avoided by filing a fresh return after concealment
was detected and hence penalty was rightly levied
Sanjay D. Gupta Vs ACIT (ITAT, Mum) 90 ITD 776
• Deliberate under valuation of stock by adopting rate of another

quality of the same item – Penalty upheld
Sree Nithyakalyani Textiles Ltd. Vs DCIT ( Mad ) 282 ITR 154
• Failure to disclose interest received u/s 244A – Penalty upheld

– Assessee having exercised his statutory right of entitlement
of interest u/s 244A ought to have shown the same as income in
his return and the question of lack of intention and defence of
oversight does not arise
Thirupathy Kumar Khemka Vs CIT (Mad) 291 ITR 122
• Failure to declare in accounts the amount received from

Haryana State Agricultural Marketing Board - Not a bonafide
mistake - Showing lower receipt of income itself proves
concealment – Penalty upheld.
Sandeep Kumar Garg and Co. Vs ITO (P&H) 298 ITR 106
• Failure to disclose capital gains in original as well as revised

returns – Concealment penalty leviable even though it was
disclosed in the second revised return.
CIT Vs Sova Bajoria (Cal) 232 ITR 202
• Assessee failed to produce purchase & sale register and stock

register – Failed to furnish particulars of brokers through
whom alleged bogus purchases made – Concealment penalty
valid.
Beena Metals Vs CIT (Ker) 240 ITR 222
• Failure to disclose share of spouse and minor children in firm -

Amounts to concealment – Words “his income” in sec. 139(1)
include every item of income which goes to make up assessee's
total income liable to tax
CIT Vs P.K. Kochammu Amma Peroke (SC) 125 ITR 624
• If an assessee consciously conceals income arising u/s 41,

Penalty leviable.
Hindustan Tools Mfg. Co. Vs CIT (P&H) 102 ITR 174
CIT Vs Aya Singh Ishar Singh (P&H) 92 ITR 182
• Assessee admitting income from lorries in earlier year – No

income shown in subsequent year on the claim that the lorries
were sold – Since the permits continued in assessee's name
during the current A.Y. and assessee could not show that lorries
were sold, penalty was validly levied.
CIT Vs Mir Mohamed Ali (Mad) 128 ITR 215
• Assessing Officer established bogus credit entries,

unexplained investment and suppression of assets in assessee's
accounts – Even though the assessments were modified in
appeal by cancelling specific additions, income estimated by
CIT(A) is more than 3-4 times the returned income – Assessee
deemed to have concealed particulars of income.
CIT Vs Bachu & Co. (Ker) 12 DTR 286
• Assessee following mercantile system – Failure to include

accrued interest in returns – No evidence to show change in
method of accounting or interest did not accrue – Penalty valid
James Finlay & Co. Ltd. Vs CIT (Cal) 144 ITR 423
• Assessee collected sales tax and did not pay it – Did not show it
in accounts also - Penalty upheld since there was suppression in
trading receipts
CIT Vs Bassein Metals P. Ltd (Bom) 263 ITR 518
• Non-receipt of income maneuvered by assessee – Failure to

disclose such income – Penalty leviable.
Bhagirath Kanoria Vs CIT (Cal) 122 ITR 728
• Sales to sister concerns at prices below prevailing market rate,

who in turn sold those goods to third parties on the same day at
higher price – Delivery of goods directly by assessee to third
parties - Sham transaction for diversion of profits – Penalty u/s
271(1)( c) rightly levied
Patel Chemical Works Vs ITO (ITAT, Ahd) 74 ITD 322
• Amount credited in the books were shown as advance received

towards supply of goods – No evidence to show that any goods
were delivered subsequently to the said parties – Said amounts
were lateron offered for assessment – Levy of penalty valid
Mohan Gupta Vs ACIT (Raj) 274 ITR 179
• Assessee showing share income from firm – Assessing Officer

held firm not genuine and assessed entire income in the hands
of the assessee – Penalty valid
R.K. Bhargawa Vs CIT (Raj) 274 ITR 287
• Contractor obtaining amount with interest thereon from PWD

under decree – Failure to disclose interest – Penalty imposed
Subsequent setting aside of order awarding interest is not a
valid reason for non-disclosure of the same – Levy of Penalty
upheld
Padam Kumar Jain Vs CIT (Patna) 230 ITR 766
• Disclosure of rental income after enquiry by A.O. Withdrawal

of wrong set off of b/f losses – Penalty upheld
ACIT Vs Nuchem Ltd. (ITAT, Del) 6 ITR (Trib) 429
• Claim of loss not substantiated with evidence – Penalty upheld

since it was found that assessee entered into an agreement with
a view to evade the income on account of purchase and sale of
film distribution rights as the agreement was with an ulterior

motive with an intention to defraud revenue and cannot be
called as a genuine commercial agreement.
Classic Credit Ltd. Vs DCIT (ITAT, Mum) 126 ITD 469
• Wrong claim of deduction towards payment of housing loan

interest – Levy of penalty upheld
ITO Vs Mool Chand Gupta (ITAT, Del) 110 ITD 89
• Sale and lease back transaction - Bogus claim of depreciation

on non-existing assets – Withdrawal of claim in revised return
filed after search – Penalty upheld
CRN Investments P. Ltd. Vs CIT (Mad) 300 ITR 342
Praj Indsutries Ltd. Vs JCIT (ITAT, Pune ) 118 ITD 447
TVS Finance & Services Ltd. (ITAT, Chennai-TM) 125 ITD 341
• Discrepancies in closing stock and accounting, low Gross

Profit – When confronted, assessee agreed for addition of Rs.
30,000 on the condition that no penalty be levied – Penalty u/s
271(1)(c) levied which was upheld
India Ceramic Corporation (ITAT, Del) 93 Taxman (Mag) 83
• Wrong claim of depreciation will amount to furnishing of

inaccurate particulars.
ITO Vs Geep Industrial Syndicate Ltd. (ITAT, All) 23 ITD 448
• Depreciation and Investment Allowance claimed in respect of

machinery Machinery not reaching assessee's premises before
close of accounting year – Assessee later withdrawing claim
Penalty upheld – Contention of the assessee that the claim was
made on the basis of a certificate issued by factory manager
cannot be considered as a defence – Assessee is bound by the
act of his servants / employees
CIT Vs Sree Valliappa Textiles (Kar) 294 ITR 322
• False inflation of expenses / any deductible item for computing

income – Falsity of entries - Penalty levied.
CIT Vs Gates Foam and Rubber Co. (Ker) 91 ITR 464
ACIT Vs Mcleod Russel (I) Ltd. (ITAT, Kol) 101 ITD 39
Kalpaka Bazar Vs CIT (Ker) 313 ITR 414
• Agricultural income boosted up – Colourable device – Penalty

leviable.
CIT Vs Ramanujam Thampi & Ors. (Ker) 233 ITR 521
CIT Vs Dass Trading & Holding (P) Ltd. 2009-TIOL-492-HC-DEL-IT
• Addition on account of low withdrawal for household

expenses –Concealment penalty upheld.
Sushil Kumar Sharad Kumar (All) 232 ITR 588
• Difference in cost of construction of building treated as

unexplained investment - Penalty u/s 271(1)(c) leviable.
Loknath Chowdhury Vs CIT (Cal) 155 ITR 291
Rahmat Development & Engineering Corporation Vs CIT (Cal) 130 ITR 602
• Wrong claim of exemption u/s 11 when trust property was used

by one of the trustees for his individual business – Penalty
upheld
Chinnammal ENT Medical Education and Research Foundation Vs ACIT (Exem)
(ITAT, Chennai) 12 ITR (Trib) 589
• Vacant land – Not used in business - No evidence that assessee

bonafide believed land not taxable – Penalty upheld
V.G. Paneerdas & Co. P. Ltd. Vs CWT (Mad) 284 ITR 444
• Return not filed though assessee had taxable wealth – Penalty

u/s 18(1)© r.w. Expl. 3 upheld since no bonafide reason for not
filing the return
ACIT Vs Sahara India Savings & Investment Corporation Ltd. 2010-TIOL-ITAT-
DEL-WT
• Declaring value of jewellery in Wealth Tax return at a very low

figure – Fact that the return was filed on the basis of certificate
issued by an approved valuer is not relevant - Concealment
penalty leviable
ACWT Vs Lata Rani Mehta (ITAT, Del) 69 ITD 173
• Sum deposited by the assessee with a company as share

application money was converted by assessee into loan by
unilateral act upon failure to allot shares – No interest charged
from the company or offered to tax in earlier years – Particulars
furnished by the assessee not complete while claiming
deduction as bad debt – Amounts to furnishing of inaccurate
particulars of income – Penalty upheld
Kanchengunga Advertising P. Ltd. Vs CIT (Del) 340 ITR 595
Procedure for levy of penalty

• Grant opportunity of being heard before levying penalty
[sec. 274]
• Take prior approval of JCIT if penalty levied by ITO

exceeds Rs. 10,000 or levied by ACIT / DCIT exceeds Rs.
20,000 [sec. 274]
• Direction contained in assessment order is deemed as

satisfaction for initiation of penalty proceedings [sec.
271(1B) inserted by Finance Act, 2008 w.r.e.f. 01-04-1989]
• Mentioning of the words “ penalty proceedings initiated

separately ” in assessment order is sufficient for invoking penal
action
M. Sajjanraj Nahar & Ors. Vs CIT ( Mad ) 283 ITR 230
Nainu Mal Het Chand Vs CIT (All) 294 ITR 185
• The Act does not contemplate initiation of penalty proceedings

only on the completion of the assessment proceedings – The
words 'in the course of any proceedings' as occurring in sec.
271(1) can only indicate that such initiation of penalty
proceedings can be made during the pendency of any
proceedings under the Act
Jyoti Prakash Mitter Vs Union of India (Cal) 112 ITR 378
• It is not necessary that before feeling satisfied regarding the

necessity of initiating proceedings for imposition of penalty
and before issuing the consequential notice, the ITO should
issue another notice to the assessee and hold a preliminary
enquiry regarding the necessity of initiating proceedings
D.M. Manasvi Vs CIT (SC) 86 ITR 557
Time limit for passing penalty order [sec. 275]

• If relevant assessment order is subject matter of appeal
before CIT(A) or ITAT
• Expiry of F.Y. in which the proceedings in the course of
which penalty was initiated, are completed OR
• Within 6 months (12 months if CIT(A) passes order
after 01-06-2003) from the end of the month in which
order of CIT(A) or ITAT received by CIT/CCIT
whichever expires later
• If relevant assessment order is subject matter of revision by

CIT u/s 263 / 264 - within 6 months from the end of the
month in which such order was passed
• Other cases
• Expiry of F.Y. in which the proceedings in the course of
which penalty was initiated, are completed OR
• within 6 months from the end of the month in which
penalty was initiated
whichever expires later
• Order imposing or enhancing or reducing or cancelling

penalty or dropping penalty proceedings passed [w.e.f
13-07-2006] –
• Subsequently appeal order of CIT(A) / ITAT / High
Court / Supreme Court on the relevant assessment order
was received by CIT/CCIT or order of revision u/s
263/264 was passed by CIT
After giving effect to such order, revise the order earlier passed
imposing or enhancing or reducing or canceling penalty or
dropping penalty proceedings
• Within 6 months of receipt of appellate order by
CIT/CCIT or from the date of passing of the order u/s
263/264
• Grant opportunity to assessee before passing such order
• Approval of JCIT is require as provided u/s 274(2)
• It is an appealable order before CIT(A)
• Effect of sec. 275(a)(i) – Meaning of the word “ completed ”

Assessment order passed on 28-03-1982 which was set aside
on appeal and matter remanded for fresh assessment
Consequential assessment order passed on 14-03-1986
Limitation period starts from this date
CIT Vs Santosh Mahey (P&H) 293 ITR 573
• Penalty proceedings initiated in de novo assessment made u/s

143(3)/254 against which assessee did not appeal – Six months
time available for passing the penalty order – Sec. 275(1)(a)
would not apply and sec. 275(1)(c) applies – Date of order of
ITAT in the first round of assessment, is irrelevant
Silicon Graphics Systems (India) (P) Ltd. Vs ACIT (ITAT, Del) 22 DTR 538 ; 122
TTJ 800
• Assessment order set-aside by ITAT for de novo assessment

Revised assessment order passed – Further time of 6 months
available to pass penalty order u/s 271(1)© - Sec. 275(1)©
applies
CIT Vs John Tinson & Co. (P) Ltd. (Del) 53 DTR 135
• Tax sought to be evaded arose because of lower rate of tax paid

and not because of any addition to income – Still penalty u/s
271(1)© is leviable under the main provision and no need to
invoke any Explanation
Harish P. Mashruwala Vs ACIT (ITAT, Mum) 38 SOT 398
• Tribunal set aside penalty while setting aside assessment, for

re-consideration by Assessing Officer – Penalty proceedings
initiated in set-aside assessment are in continuation of penalty
proceedings initiated in original assessment – Assessee cannot
raise issue of limitation.
R. Bharathan Vs CIT (Ker) 218 CTR 422
• In a case where quantum proceedings are carried in appeal to

the tribunal, time limit for completion of penalty proceedings
shall be 6 months from the end of the month in which the order
of ITAT is received by the CIT The proviso to sec. 275(1)(a)
extends the period for imposing penalty from 6 months to 1
year after the receipt of the order of CIT(A) after 01-06-2003
This only carves out an exception from the main section and
does not obliterate the main section.
CIT Vs Mohair Investment & Trading Co. P. Ltd. (Del) 63 DTR 226
ITO Vs Pandit Vijay Kant Sharma 2009-TIOL-554-ITAT-DEL
Mahindra Intertrade Ltd. Vs DCIT (ITAT, Mum) 133 ITD 597
• Penalty proceedings dropped by ITO – CIT can again initiate

penalty proceeding u/s 263 – Another 2 year period will be
available to ITO to pass penalty order.
CIT Vs Sara Enterprises (Mad) 224 ITR 169
PENALTY WHERE SEARCH INITIATED ON

OR AFTER 01-06-07 [Sec. 271AAA]
• Penalty is 10% of undisclosed income of the specified previous
year
• No penalty if
• assessee admits the undisclosed income and specifies the
manner in which such income has been derived
• Substantiates the manner in which it was derived, and
• pays tax together with interest in respect of such
undisclosed income
• No penalty imposable u/s 271(1)© in respect of the

undisclosed income referred to in this section
• Undisclosed income defined to mean any income of the

specified previous year represented either wholly or partly by
• any money, bullion, jewellery, or other valuable article or
thing or any entry in the books of account or other
documents or transactions found in the course of search
which has
• not been recorded on or before the date of search in
the books of account or other documents maintained
in the normal course
• not disclosed to CCIT / CIT before the date of search
• any entry in respect of an expense recorded in the books

of account or other documents maintained in the normal
course relating to the specified previous year which is
found to be false and such finding would not have been
made but for the search
• Specified previous year defined as to mean only

• previous year in which search was conducted, or
• previous year for which due date for filing return u/s
139(1) has not expired and assessee has not furnished
return before the date of search
PENALTY FOR FAILURE TO GET ACCOUNTS

AUDITED[sec. 271B]
• Fails to get accounts audited or furnish such report as
required u/s 4AB
• ½ % of turnover / gross receipts or Rs. 1 lakh (Rs. 1.5 lakh

w.e.f. 01-04-2011), whichever is less
• Accounts got audited belatedly after the specified date u/s

44AB – Penalty leviable since sufficient cause / reason not
furnished
ACIT Vs Gayathri Traders (ITAT,SB-Hyd) 58 ITD 121
• No limitation period for initiation of penalty proceedings u/s

271B – There is no requirement that initiation of penalty should
be during the course of any assessment proceedings
ITO Vs Rama Medical Stores (ITAT, All) 59 ITD 110
Bharat Construction Co. Vs ITO (MP) 153 CTR 414
Gokal Chand Shammi Kumar Vs ITO (ITAT, Asr) 67 ITD 425
• Penalty u/s 271B – Six month period of limitation runs from

the date of initiation of penalty proceedings
CIT Vs Tam Tam Pedda Guruva Reddy (Kar) 287 ITR 72
• Penalty u/s 271B not based on assessed tax – Hence setting

aside of assessment will not automatically cancel penalty.
U.P. Nalkoop Nigam Limited Vs DCIT (ITAT, All) 71 ITD 395
• Applicability in the case of commission agents explained - If

good are being sold by him and he is showing as his own
turnover then he will have to be subjected to the requirements
of audit
Abhay Kumar & Co. Vs Union of India & Ors. (Raj) 164 ITR 148
• Person providing accommodation entries – Whole turnover to

be considered and not the commission receipts on such
transactions
Mukesh Choksi Vs ACIT 2011-TIOL-234-ITAT-MUM
• Turnover of head office & branches to be taken together to see

whether it exceeded 40 lakhs or not. Proceedings are in respect

of an assessee and not one of its unit alone.
ITO Vs Rama Medical Store (ITAT, All) 59 ITD 110
• In the case of a Builder, advance received from customers for

booking flats is Turnover / gross receipts – It cannot be
contended that the assessee following project completion
method would get the books of account audited in the last year
and not in earlier years when he is debiting the expenses and
other items and showing different types of receipts
DCIT Vs Gopal Kishan Builders (ITAT, Luck) 91 ITD 124
• Dispute between Directors – Not a reasonable cause for delay

in getting the accounts audited
Shri Swastik Steels P. Ltd. Vs ACIT (Bom) 264 ITR 447
• Delay in appointment of statutory auditors by Government as

per Companies Act is not a reasonable cause for delay in
getting the accounts audited – Income Tax Act is a self-
contained code and it is not necessary to go into the provisions
of the Companies Act in order to implement it.
DCIT Vs Bihar State Leather Dev. Corpn. P. Ltd. (ITAT, Pat) 58 ITD 276
U.P. Nalkoop Nigam Ltd. Vs DCIT (ITAT, All) 71 ITD 395
• Ignorance of law is no excuse – Levy of penalty u/s 271B

upheld
• Assessee maintained pucca books of cash sales and purchase

registers which are books of account as defined u/s 2(12A)
Argument that assessee has not maintained any books of
accounts is not tenable
PENALTY FOR FAILURE TO DEDUCT TAX AT

SOURCE [sec. 271C]
• Fails to deduct tax wholly or partly
• Pay whole or part of tax on dividend distribution tax (sec.

115-O) or tax on lottery winnings in kind
• Penalty equal to tax failed to deduct / pay
• To be imposed by JCIT
• Penalty u/s 271C initiated on 6.1.97 and order passed on

31.7.97 – Not barred by time
Mitsui & Co. Ltd. Vs DCIT (ITAT, Del) 65 TTJ 1
PENALTY FOR FAILURE TO COMPY WITH

SEC. 269SS / 269T [sec. 271D & 271E]
• Takes / accepts / repays loan / deposit otherwise than by
account payee cheque / account payee bank draft in
contravention of sec. 269SS / 269T
• Sum equal to the amount of loan / deposit
• To be imposed by JCIT
• Imposition of fine equal to amount of loan / deposit received in

cash – Object of introducing sec. 269SS is to ensure that a
taxpayer is not allowed to give false explanation for his
unaccounted money, or if he has made some false entries in his
accounts, he should not escape by giving false explanation for
the same – Provision inserted to curb the rampant circulation of
black money
ADIT Vs A.B. Shanthi (SC) 255 ITR 258
Dhanji R. Zalte Vs ACIT (Bom) 265 ITR 204
• Limitation for passing order u/s 271E to be reckoned with

reference to the date of the notice issued by JCIT – Since
assessing Officer does not have the jurisdiction either to initiate
or impose penalty u/s 271D / 271E, notice issued by him for
making enquiries relating to contravention of sec. 269SS /
269T cannot be construed to be initiation of penalty
proceedings by the competent authority – Non-prescribing the
limit for initiation of penalty proceedings by the legislature is
conscious and there is neither any necessity nor the Tribunal is
empowered to prescribe any limitation for initiation of penalty
proceedings
CIT Vs Gupta Mill Stores (All) 184 Taxman 230 ; 230 CTR 75
Dewan Chand Amrit Lal Vs DCIT (ITAT,SB-Chd) 98 ITD 200
• Penalty proceedings u/s 271E need not be initiated during the

course of assessment proceedings.
• Merely because a transaction is genuine, it cannot be taken out
of the ambit of sec. 271E
ACIT Vs Vinman Finance & Leasing Ltd. (ITAT, Visak-TM) 115 ITD 115
• Sec. 271D applies to share application money also since it is a

deposit – Money paid to a company share application is a
deposit of money in the company which is repayable by the
company after the period for allotment of shares comes to an
end, or a decision is taken regarding the allotment of shares – If
the mischief that is sought to be averted by introducing sec.
269SS and 269T is kept in mind, it will be appropriate to hold
that any payment of Rs. 20,000 or above, made to a company as
share application money, should be as provided us/ 269SS
Bhalotia Engineering Works P. Ltd. Vs CIT (Jharkhand) 275 ITR 399
CIT Vs Samora Hotels Pvt. Ltd. 2012-TIOL-157-HC-DEL-IT
• While considering contravention of the provisions of sec.

269SS, genuineness of loan / deposit is not a criteria – Since
urgency for taking loan in cash was not proved, penalty rightly
levied.
Thenamal Chharjjer Vs JCIT (ITAT, Chennai) 96 ITD 210
ITO Vs Sunil M. Kasliwal (ITAT, Pune-TM) 94 ITD 281
Kasi Consultant Corporation Vs DCIT (Mad) 311 ITR 419
P. Baskar Vs CIT (Mad) 340 ITR 560
• Meaning of “deposit” – Expression wide and include trade

deposits as evident from the use of the words “includes” as well
as “any” – Amount received for supply of commodity became
“deposit” once the supply was not made, whatever may be the
nature of money earlier was – Amount repaid in cash - Penalty
leviable
Chaubey Overseas Corporation Vs CIT (All) 303 ITR 9
• Ignorance of law is not a reason to cancel penalty levied u/s

271D / 271E
CIT vs Sunil Kumar Goel (P&H) 274 ITR 53
• Repayment of loan in cash in part on various dates – Does not

exonerate current loans / deposit from the purview of penalty
provisions u/s 271E
Ajay Goel Vs Addl.CIT (ITAT, Del) 126 ITD 89
• 'Mens rea' is not an essential ingredient for attracting penalty

u/s 271D for breach of civil liability
Mahak Singh Vs ITO (ITAT, Del) 127 ITD 1
PENALTY FOR FAILURE TO PAY SELF-

ASSESSMENT TAX [sec. 140A(3)]
• Fails to pay whole or any part of self assessment tax /
interest
• Deemed to be an assessee in default
• Such amount as fixed by Assessing Officer – not to exceed

the amount of default [sec. 221(1)]
• Assessee engaged in heavy construction work and was short of

liquid funds – Not a reasonable cause as it was the duty of the
assessee to make provision for payment of taxes before making
investment for other purposes – Penalty upheld.
Bhauram Jodhraj Properties (P) Ltd. Vs CIT (Gau) 108 ITR 305
V. Govinda Chetty Vs CIT (Mad) 231 ITR 615
• Failure to pay self-assessment tax – No requirement to issue

demand notice under sec. 156
Safari Mercantile (P) Ltd. Vs ACIT (ITAT, Mumbai) 21 SOT 531
Chapter 13
OTHER TAXES
OTHER TAXES 927
EXPENDITURE TAX
• Room charges cannot be divided among number of persons
who occupied it.
H.P. Tourism Dev. Corpn. Vs Union of India & Ors. (HP) 238 ITR 38
• Assessee maintaining air-conditioned restaurant – It is not “air

cooling machine” as contended by assessee – Liable to pay
expenditure tax
ACIT Vs Khandari Hotels P. Ltd. (ITAT, Visakh) 308 ITR (AT) 291 ; 124 ITD 453
• Licence fee paid in respect of shops taken from a hotel

Expenditure tax applicable
Zarine Mangesh Edekar Vs Union of India (Bom) 200 Taxman (Mag) 93
FRINGE BENFIT TAX [sec. 115W to 115WM]

• Applicable for A.Y. 2006-07 to 2009-10
• Fringe benefits specified in sec. 115WB
• Circular on applicability of FBT [Circular No. 8/2005

dated 29-08-2005]
• Explanatory circular on Fringe Benfit Tax arising on

allotment or transfer of specified securities or sweat equity
shares [Circular No. 9 of 2007 dated 20-12-2007]
• Non-resident employer – Transportation cost incurred in
bringing non-resident employees to place of work in India and
back to their foreign residence – Liable to FBT
R & B Falcon (A) Pty. Ltd., IN RE (AAR) 289 ITR 369; (SC) 301 ITR 309
• Non-resident organization carrying on charitable, scientific

and educational activities in India – Having branch office in
India – Fringe benefits provided to employees – Organization
is liable to pay FBT even if not taxable under I.T. Act
Population Council Inc., IN RE (AAR) 286 ITR 342
• Non-resident having liaison office in India – Not earning

income in India – Employees in India enjoying fringe benefits
– Liable to pay Fringe Benefit Tax
Singapore Tourism Board, In Re (AAR) 307 ITR 34
• A.O. has power to cause enquiry into the Audit certificate and
prove it to be a false certificate – Free air tickets given to
employees – Daily allowance given to pilots and hotel stay of
crew members in between the flights – FBT applicable
Kingfisher Training & Aviation Services Ltd. Vs ACIT 2010-TIOL-558-ITAT-
BANG
• Expenditure incurred on payment of salary to driver to be

included in computing the expenses on running of the car u/s
115WB(2)(H)
Brihan Maharashtra Sugar Syndicate Ltd. Vs DCIT (ITAT, Pune) 134 TTJ 98
• FBT is payable even if no tax is payable by an employer – FBT

OTHER TAXES 929
is not linked with the income of the employer but with

reference to the expenditure incurred by the employer on the
benefits / privileges provided to its employees and is liable
even if part of its income is agricultural in nature
DCIT Vs Mcleod Russel India Ltd. 2011-TIOL-365-ITAT-KOL
• Assessee engaged in any type of “construction” activity is

liable for FBT as the words used in sec. 115WC(2)(b) is
“construction” and not “civil construction”
Innovative Steels (P) Ltd. Vs ITO (ITAT, Del) 58 DTR 549 ; 140 TTJ 1 ; 132
ITD 338
• Medical reimbursement of Rs. 15,000 to each employee is

liable to FBT
MRF Ltd. Vs ACIT 2011-TIOL-592-ITAT-MAD
• Once the employer has undertaken an obligation to pay or

contracted a liability in this respect, he has suffered the
consideration for the provision of fringe benefit to his
employees u/s 115WB(1) – Date of discharge of the said
liability by the employer as well as its year of deductibility
under I.T. Act is wholly irrelevant to decide the year in which
FBT is payable
Federal Bank Ltd. Vs ACIT (ITAT, Cochin) 134 ITD 654
INTEREST TAX
• In CIT Vs Sahara India Savings & Investment
Corporation Ltd. (321 ITR 371) Supreme Court held that
interest on bonds and debentures are not chargeable
interest under the interest tax Act
• In CIT Vs City Union Bank Ltd. (220 CTR 8) Supreme

Court held that interest on Government securities is not
chargeable interest under the interest tax Act
• In CIT Vs Canara Bank (293 ITR 115) Supreme Court held

that rediscounting charges collected by the assessee are not
chargeable interest under the interest tax Act
• Bank advancing credit to exporters – Interest charged at lower

rate – loss covered by export subsidy from RBI – Such subsidy
also part of interest levy and chargeable to interest tax.
State Bank of Indore Vs CIT (MP) 270 ITR 336
• Interest tax – Chargeable Interest to be considered on accrual

basis.
Kerala St. Ind. Dev. Corp. Ltd. Vs CIT (Ker) 246 ITR 330
• Interest tax – Interest tax collected from customers forms part

of chargeable interest.
Punjab National Bank Vs CIT (ITAT, Del) 95 ITD 217 distinguished Bank of
Madura decision of Madras High Court
• Interest tax – Interest on inter-corporate deposits – chargeable.

Bajaj Auto Holdings Limited Vs DCIT (ITAT, Mum) 95 ITD 356
• Overdue interest on demand bills – Chargeable interest

State Bank of Mysore Vs CIT (Kar) 175 ITR 607
• In case of financial lease, recovery of finance charges is

interest on loans – Forms part of chargeable interest
Gujarat Gas Financial Services Ltd. Vs ACIT (ITAT,SB-Ahd) 115 ITD 218
• Transaction of financing of motor vehicles by credit

institutions where motor vehicles stands registered in the name
of the purchaser with endorsement of hire purchase on the
OTHER TAXES 931
registration certificate, is loan transaction and finance charges

received over the period of agreement is chargeable interest
CIT Vs Kallur Chit Funds & Finance (P) Ltd. (Ker) 25 DTR 44
CIT Vs Muthoot Leasing & Finance Ltd. (Ker) 181 Taxman 197
S E Investments Ltd. Vs ACIT 2012-TIOL-79-ITAT-DEL
• Essence of Vyaj Badla transaction is to provide finance for

smooth carry over of the transactions on the settlement date in
respect of persons who are in over-bought or over-sold
position, and not purchase and sale of shares – It is a case of
extending of loan – Income is interest from loan and includible
in chargeable interest
Tulip Star Hotels Ltd. Vs ITO (ITAT, Del) 25 DTR 429 ; 124 TTJ 173
TONNAGE TAX [sec. 115V to 115VZC]

• Applicable to Indian company
• Income from operating qualifying ships
• At the option of assessee
• The term “income from” used in sec. 115VA is akin to the term
“derived from” used in sec. 80HH and other sections Receipts
such as Interest on housing loan and other advances given to
employees, sale of tender documents, training fee, fee for
supply of information under RTI Act etc. emanating from
activities which do not have a direct and necessary nexus with
the shipping / dredging activities cannot be exempted
Dredging Corporation of India Ltd. Vs ACIT (ITAT, Visakh) 63 DTR 15
• Income from sale of ships – Eventhough it is from core activity

of shipping, nevertheless it was taxable under the head
“Capital gains” and is outside the purview of Chapter XII-G
Separate addition to be made for this source of income
Shipping Corpporation of India Ltd. Vs Addl. CIT (ITAT, Mum) 133 ITD 290
• Activity of sale of old ships cannot be regarded as an activity of

operating qualifying ships since it does not form part of
activities which are linked to the operation of qualifying ships
– Income from such sales will not form part of income u/s
115VG and has to be assessed separately
Garware Offshore Services Ltd. Vs Addl. CIT 2012-TIOL-187-ITAT-MUM
OTHER TAXES 933
WEALTH TAX
• Net wealth defined in sec. 2(m) = Aggregate value of all
assets wherever located belonging to assesee on valuation
date – aggregate value of debts owed on valuation date
incurred in relation to the said assets
• [In the case of non-residents and not ordinarily
residents, assets and debts outside India are excluded by
virtue of sec. 6]
Taxable Assets [sec. 2(e)]

• Any building or land appurtenant thereto whether used for
residential or commercial purposes or for maintaining a
guest house or otherwise including a farm house situated
within 25 km. from local limits of any Municipality or
Cantonment Board
Except : House meant exclusively for residential purposes and
allotted by a company to an employee or officer or director
in whole time employment having gross annual salary less
than Rs. 5 lakhs
House forming part of stock-in-trade
House occupied by assessee for any business / profession
carried on by him
Residential property let out for a minimum period of 300
days in the previous year
Commercial establishments or complexes
• Motor cars
Except : used in the business of running them on hire or treated as
stock-in-trade
• Jewellery, bullion, furnitures, utensils or any article made

wholly or partly of gold, silver, platinum or any other
precious metal or alloy containing these metals
Except : stock-in-trade
• Yachts, boats & aircrafts
Except : used by assessee for commercial purposes
• Urban land – area within a Municipality or Cantonment

Board with population 10,000 and above and area within 8
km. of the local limits of a Municipality or Cantonment
Board notified by Cen. Govt.
Except : Land on which construction of building not possible
under any law
Land occupied by a building
Land held for industrial purposes for a period of 2 years
from the date of acquisition
Land held as stock-in-trade for a period of 10 years from
the date of acquisition
Cash-in-hand : Individual & HUF - cash in excess of

Rs. 50,000 Others – Cash not recorded in
books
• Assessee is legal owner of property – To include asset in Net

Wealth.
Nawab Sir Mir Oman Ali Khan Vs CWT (SC) 162 ITR 888
• Land not appurtenant to building – Taxable asset as urban land.

Binny Ltd. Vs ACWT (ITAT, Chennai) 96 ITD 500
• Even if asset is incapable of being sold, interest has to be

valued.
Binny Ltd. Vs ACWT (ITAT, Chennai) 96 ITD 500
• Vacant land – Urban Land Ceiling Act – Land deemed to have

acquired by Government once notification issued u/s 10(3) of
Ceiling Act – Till such notification, arrive the market value and
include in taxable wealth
CWT Vs Sri Srikantadatta Narasimharaja Wadiyar (Kar) 279 ITR 226
• Land & Building taken by assessee-company on 98 years lease

– Asset includible in Net Wealth.
Tulsidas V. Patel (P) Ltd. Vs WTO (ITAT, Mum) 65 ITD 287
• House allotted by company for employees, officers or director

- Qualification of gross annual salary applies to all categories,
not merely director
Bennett Coleman & Co. Ltd. Vs ACWT (Bom) 304 ITR 235
OTHER TAXES 935
• Right to occupation of a flat due to membership of society Flat

is chargeable asset
Bennett Coleman & Co. Ltd. Vs ACWT (Bom) 304 ITR 235
• Assessee company let out factory sheds – Rental income

assessed under the head 'Business' – To be included in net
wealth.
T.P. Roy Choudhury & Co. Ltd. Vs DCWT (ITAT, Cal) 69 ITD 135
CWT Vs Indian Warehousing Ind. Ltd. (Mad) 269 ITR 203
• Land used for internal roads and playground – Not asset used
for the purpose of business – Not entitled fro exemption
Motware Mfg. Co. Pvt. Ltd. Vs CWT (Bom) 329 ITR 413
• Premises in a business centre given on lease under an

agreement – It cannot be said that assessee was in occupation
of the property for the purpose of a business or profession
carried on by him so as to exclude from the definition of the
term “asset'
Cravatex Ltd. Vs Addl.CIT (ITAT, Mum) 52 DTR 123
• As per Expl. (b) to sec. 2(ea), unused land held by the assessee
for industrial purposes will be exempt for a period of two years
from the date of its acquisition – Date on which permission to
use it for industrial purposes is irrelevant – Urban land forms
part of taxable assets
Rockman Cycle Industries Ltd. Vs CWT(A) & Anr. (P&H) 35 DTR 35 ; 191
Taxman 399 ; 229 CTR 398
• Motor cars includes Jeeps

CWT Vs Karnataka Minerals & Mfg. Co. Ltd. (Kar) 287 ITR 411
Southern Roadways Limited Vs CWT (Mad) 251 ITR 213
Exemptions
• One house or part of a house or a plot of land – for
Individual & HUF
• Plot of land with area 500 sq. m. or less
• Indian citizen residing in a foreign country who returns to

India for permanent residence – Money (including balance
in NRE a/c on the date of return) & value of assets brought
to India and value of assets acquired out of such money 1
year prior to the date of return or thereafter – exempt for a
period of 7 A.Y. starting from the A.Y. in which he returns
to India
• Hotel cannot be treated as a “house”

CWT Vs Hiro J. Nagpal (Raj) 313 ITR 28
• Building under construction – Not entitled for exemption

CWT Vs Cadmach Machinery Co. P. Ltd. (Guj) 295 ITR 307
CWT Vs Giridhar G. Yadalam (Kar) 163 Taxman 372
Boman Irani Vs ACIT 2011-TIOL-813-ITAT-MUM
• Wealth Tax – exemption – Cinema theatre is not a “house” - For

a building to be exempt it has to be a house in first place ( even
if it not being used for residential purposes ) i.e. it could be used
for letting out either fully or partly or could partly used for
storage etc. The requirement of being the house in the first
place has to be met before it allowed as an exemption
CIT Vs Jai Kishan Gupta (All) 264 ITR 482
CIT V Angoori Devi (All) 273 ITR 500
CIT v Dinesh Kumar (All) 282 ITR 271
OTHER TAXES 937
Valuation [sec. 7]
• Value as per schedule III
• One house belonging to assessee and exclusively used for

residential purposes throughout the 12 month period can
be valued at the option of assessee as per sch. III on the
valuation date immediately falling after the date in which
he became owner of such property.
• ITAT can direct AAC to refer question of valuation to Valuation
Officer u/s 16A
Raja Baldeodas Birla Santatikosh Vs CWT (Cal) 189 ITR 613
• Valuation of motor cars for wealth-tax purpose – Take insured

value instead of Written Down Value.
Samrath Knitters (P) LTD Vs DCWT (ITAT, Mum) 60 ITD 657
• Valuation as per Sch. III – Service charges to be included in rent

H.M. Punwani Vs ACWT (ITAT, Cal) 61 ITD 203
• Method of accounting has no relevance in determining value of

assets, which is to be determined by adopting “market value”.
Trilok Chandra Seth Vs Union of India & Anr. (All) 244 ITR 658
• Order of District Valuation Officer binding on Assessing

Officer .
Gulab Singh Vs ACIT (ITAT Del) 89 ITD 510
• A.O. need not give opportunity to assessee while giving effect

to Valuation Report since Valuation Officer has given such
opportunity
CWT Vs Vardhman Polytex Ltd. (P&H) 28 DTR 275 ; 332 ITR 81
• Reference to valuation officer u/s 16A can also be made in the

case of reassessment u/s 17
Union of India & Ors. Vs Vijaya Raje (MP) 235 ITR 380
• Prices paid within a reasonable time in bona-fide transactions

of purchase / sale of lands acquired on adjacent lands – Basis
for valuation- Multiple of 12.5 times is reasonable.
Special Land Acquisition Officer Vs P. Veerabhadrappa and others (SC) 154
ITR 190
Wenger & Co. and Others Vs District Valuation Officer & Ors. (Del) 115 ITR 648
CWT Vs Taraben R. Patel & Ors. (Kar) 198 ITR 657
• Valuation cannot go lesser than what was valued by assessee.

CWT Vs Dilip Kumar Singhania (Gau) 226 ITR 16
Parvatibai K. Tiwari (Bom) 168 ITR 219
• Even in cases where the asset to be valued has no real market,

Assessing Officer has to fix a notional market value – The
principles that are ordinarily applied in the case of non-fiscal
statutes like the Land Acquisition Act cannot be applied
mechanically to cases arising under fiscal Acts.
CWT Vs Sara Varghese (Ker) 187 ITR 450
• Reference to Valuation Officer can be made without giving

assessee an opportunity of being heard and without disclosing
reasons therefore.
Prem Hotel Vs ITO (J & H) 93 Taxman 237
• Reference to valuation officer can be made even where

assessee did not file return of income
CWT Vs Anil Tayal (HUF) (P&H) 285 ITR 243
OTHER TAXES 939
Liabilities not deductible
• Only debts owed in relation to the taxable assets are

allowable as deduction [sec. 2(m)]
• Income Tax & Wealth Tax liabilities are not debt owed in
relation to taxable assets – Not deductible from taxable wealth
ACWT Vs Selvi J. Jayalalitha ( ITAT, Chennai ) 99 ITD 377
• Debts secured / relating to exempted assets – Not deductible.

Jiwan Lal Virmani Vs CWT (All) 66 ITR 338
D. Basappa Vs CWT (Kar) 160 ITR 826
CWT Vs Premnarayan Garg (MP) 134 ITR 315
CWT Vs Narayandas J. Hemani (MP) 143 ITR 87
Rajkumar Singh Kasliwal Vs CWT (MP) 143 ITR 597
CWT Vs K.S. Vaidyanathan (Mad) 153 ITR 11
Phoenix International Ltd. Vs ITO (ITAT, Agra-TM) 122 ITD 17
• Share application money received is not debt owed

Winner Estates (P) Ltd. Vs DCIT (ITAT, Del) 91 ITD 431
APPENDIX I 941
APPENDIX I
COMMON LEGAL MAXIMS
Actus Legis Nemini Est Damnosus – A act in law shall prejudice no

man
Ad proximum antecedens fiat relation, nisi impediatur sentential
– Relative words refer to the next antecedent, unless by such
construction the meaning of the sentence would be impaired
Allegans Contraria non est audiendus – He is not to be heard who
alleges things contradictory to each other
Assignatus utitur Jure Auctoris – An assignee is clothed with the
rights of his principal
Audi alteram partem – No man should be condemned unheard
Casus omissus – A case inadvertently left unprovided for by
statute
Cessante Ratione Legis cessat ipsa Lex – Reason is the soul of the
law, and when the reason of any particular law ceases, so does
the law itself
Contemporanea expositio – Meaning when it was originally
enacted
Cujus est Solum ejus est usque ad coelum – He who possesses land
possesses also that which is above
Cursus Curl fest Lex Curle – The practice of the Court is the law of
the Court
Ejusdem generis – Of the same kind, class or nature
Ex abundanti cautela – By way of abundant caution
Fiat justitia ruat coelum – Justice should be done though the
heaven falls
Homo irus – legal person
Ignorentia legis non excusat – Ignorance of law is not excuse
Incumbit probation qui dicit non qui negat – Burden lies upon one
who alleges and not upon one who deny the existence of a fact
Lex non scripta – Unwritten law
Lex noncogit ad Impossibilia – The law does not compel a man to
do that which he cannot possibly perform
Lex scripta – Written law
Mens legis - Intention of the law
Ne vive fano justicia – Let nothing defile the temple of justice

Nemo debet bis vexari pro una et eadem Causa – It is a rule of law
that a man shall not be twice vexed for one and the same cause
Nemo debet esse Judex in propria sua Causa – No man can be
judge in his own case
Noscitur a sociis – Words derive colour from the surrounding
words
Nova Constitutio futuris Formam imponere debet, non preteritis –
A new law ought to be prospective, not retrospective, in its
operations
Nullum Tempus occurrit Regi – Lapse of time does not bar the
right of the Crown
Nullus Commodum capere potest de injuria sua propria – No man
can take advantage of his own wrong
Omnia presumuntur rite et solenniter esse acta – All acts are
presumed to have been done rightly and regularly
Omnis Ratihabitio retrotrahitur et Mandato priori equiparatur –
A subsequent ratification has a retrospective effect, and is
equivalent to a prior command
Per incurium – In ignorance of a statute or other binding
authority Pro bono publico – For the public good
Qui per alium facit per seipsum facere videtur – He who does an
act through another is deemed in law to do it himself
Qui prior est Tempore potior est Jure – He has the better title who
was first in point of time
Qui sentit Commodum sentire debet et Onus – He who derives the
advantage ought to sustain the burden
Quoties in Verbis nulla est Ambiguitas, ibi nulla Expositio contra
Verba fienda est – In the absence of ambiguity, no exposition
shall be made which is opposed to the express words of the
instrument
Senetia legis – Intention of law
Stare decisis – To stand by decided cases
Sub silentio – Point of law involved in the decision is not
perceived by the court
Ut res magis valeat quam pereat – That the language may rather
have effect than be destroyed

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(Civil List No. 88058)

DIRECTORATE OF INCOME TAX

“Knowledge destroys the darkness of ignorance ... we should try to

Revenue administration has long been handicapped due to non

I congratulate the team involved in writing, reviewing and

May 26, 2012.

The Income Tax Department has taken several initiatives to

4. I feel great pleasure in placing this compilation before you.

May 10, 2012.

The Income Tax Department has the distinction of being the

The plethora of publications available in the market containing

In this second edition Shri Jacob has painstakingly selected the

The effort of Shri Jacob has been ably supplemented by the

The Printing & Publication wing of this Directorate has done a

April 26, 2012.

FROM THE COMPILER’S DESK

Courts have often made references to the perpetual war waged

April 10, 2012.

India is governed by the judicial system identified by a

Considering all these practical difficulties faced during my

The decisions contained in this compilation are not exhaustive

June 30, 2009.

CHAPTER 1 : GENERAL TOPICS 1

CHAPTER 2 : STATUS OF ASSESSEE 67

CHAPTER 3 : INCOME – CHARGEABILITY AND

SALARY INCOME 155

HOUSE PROPERTY INCOME 169

BUSINESS INCOME 181

CAPITAL GAINS 375

INCOME FROM OTHER SOURCES 442

CHAPTER 4 : LOSS / DEPRECIATION –

CHAPTER 5 : DEDUCTIONS AND EXEMPTIONS 483

CHAPTER 6 : PROCEDURE OF ASSESSMENT,

RE-OPENING OF ASSESSMENT 620

RECTIFICATION OF ORDERS 656

REVISION OF ORDERS 670

APPEALS – Law and procedure 682

CHAPTER 8 : MINIMUM ALTERNATE TAX U/S

CHAPTER 9 : TAX DEDUCTION AT SOURCE 765

CHAPTER 10 : INTERNATIONAL TAXATION ISSUES 803

CHAPTER 11 : INTERESTS UNDER I.T. ACT 873

CHAPTER 12 : PENALTIES UNDER I.T. ACT 887

CHAPTER 13 : OTHER TAXES 923

APPENDIX I : COMMON LEGAL MAXIMS 939

AFFIDAVIT – Evidentiary value 3

ESTOPPEL – Whether applicable ? 6

• General Principles of interpretation 11

Principle of literal construction - Natural and

Principle of Purposive Construction –

Principle of strict / reasonable construction 17

Principle of harmonious construction 19

Meaning of some words 22

• How far binding ? 27

• Rule of Consistency – Res judicata & Stare decisis 30

Effect of Circulars & Notifications 38

LIFTING OF CORPORATE VEIL – Sham transaction 44

• Substance over form 46

PRINCIPLES OF NATURAL JUSTICE –

PROCEDURAL LAPSE – When fatal? 51

• Registration of Trust [sec. 12A & 12AA] 98

• Registration u/s 80G 105

• Registration u/s 10(23C)