TEAM CODE: Q

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12th K.R RAMAMANI MEMORIAL NATIONAL TAXATION MOOT COURT
COMPETITION, 2022
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Compendium

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 TABLE OF CONTENTS
ISSUE I ..................................................................................................................................... 3

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 ISSUE I
This extract is taken from CIT v Shaw Wallace & Co [1931] 2 Comp. Cas. 276

8. Their Lordships agree that the real matter for decision falls under (a), but they think that this
question is not happily worded, as it seems to sugarest that it was only if the sum there referred
to was " in the nature of a capital receipt" that it would be exempt from assessment, whereas
the more correct proposition would seem to be that it was only if it was in the nature of an
income receipt that it would fall to be assessed to the tax, The question was, however, re-stated
by the learned Chief Justice in more precise terms, viz., "whether these sums are income, profits
or gains within the meaning of the Act at all," and for the reasons stated in his judgment he
came to the conclusion that they were not. Their Lordships think that his conclusion was right
though they arrive at this result by a slightly different road.

This extract is taken from Tuticorin Alkali Chemicals & Fertilizers Ltd. v CIT [1997] 227
ITR 172/93

In other words, if the capital of a company is fruitfully utilised instead of keeping it idle the
income thus generated will be of revenue nature and not accretion of capital. Whether the
company raised the capital by issue of shares or debentures or by borrowing will not make any
difference to this principle. If borrowed capital is used for the purpose of earning income that
income will have to be taxed in accordance with law. Income is something which flows from
the property. Something received in place of the property will be capital receipt. The amount
of interest received by the company flows from its investments and is its income and is clearly
taxable even though the interest amount is earned by utilising borrowed capital.

It is true that the company will have to pay interest on the money borrowed by it. But that
cannot be a ground for exemption of interest earned by the company by utilising the borrowed
funds as its income. It was rightly pointed out in the case of Kedar Narain Singh vs. CIT that
"anything which can properly be described as income is taxable under the Act unless expressly
exempted". The interest earned by the assessee is clearly its income and unless it can be shown
that any provision like s. 10 has exempted it from tax, it will be taxable. Whether a particular
receipt is of the nature of income and falls within the charge of s. 4 of the IT Act is a question
of law which has to be decided by the Court on the basis of the provisions of the Act and the
interpretation of the term income given in a large number of decisions of the High Courts, the
Privy Council and also this Court. It is well-settled that income attracts tax as soon as it accrues.

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The application or destination of the income has nothing to do with its accrual or taxability. It
is also well-settled that interest income is always of a revenue nature unless it is received by
way of damages or compensation.

This extract is taken from Cadell Weaving Mill Co. (P) Ltd. v. Commissioner of Income
Tax 116 Taxman 77

Para 5- It was urged that the surrender of tenancy amounted to transfer of a capital asset. That
compensation received by a tenant on surrendering statutory tenancy was a capital receipt. That
capital receipts were not taxable under the Income-tax Act unless such receipts arose on
transfer of a capital asset. It was, therefore, contended that capital gains which are not
chargeable under Section 45 of the Act fell outside the provisions of the Income-tax Act.

This extract is taken from CIT v Subhash Kabini Power Corporation Ltd [(2016) 385
ITR 0592 (Karn.)]

24. Further, in our opinion, carbon credits cannot be considered as a bi-product. It is a credit
given to the assessee under the Kyoto Protocol and because of international understanding.
Thus, the assessees who have surplus carbon credits can sell them to other assessees to have
capped emission commitment under the Kyoto Protocol. Transferable carbon credit is not a
result or incidence of one's business and it is a credit for reducing emissions. The persons
having carbon credits get benefit by selling the same to a person who needs carbon credits to
overcome one's negative point carbon credit. The amount ITA No.258 of 2014 Subhash Kabini
Power Corpn Ltd Bangalore received is not received for producing and/or selling any product,
bi-product or for rendering any service for carrying on the business. In our opinion, carbon
credit is entitlement or accretion of capital and hence income earned on sale of these credits is
capital receipt. For this proposition, we place reliance on the judgment of the Supreme Court
in the case of CIT vs. Maheshwari Devi Jute Mills Ltd. (57 ITR 36) wherein held that transfer
of surplus loom hours to other mill out of those allotted to the assessee under an agreement for
control of production was capital receipt and not income.

This extract is taken from Tata Consultancy Services v. State of Andhra Pradesh [2004]
141 Taxman 132

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It is not in dispute that when a programme is created it is necessary to encode it, upload the
same and thereafter unloaded. Indian law, as noticed by my learned Brother, Variava, J., does
not make any distinction between tangible property and intangible property. A 'goods' may be
a tangible property or an intangible one. It would become goods provided it has the attributes
thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of
transmitted, transferred, delivered, stored and possessed. If a software whether customized or
non-customized satisfies these attributes, the same would be goods. Unlike the American
Courts, Supreme Court of India have also not gone into the question of severability.

36. These decisions are authorities for the proposition that the rule of strict construction of a
regulatory/penal statute may not be adhered to, if thereby the plain intention of Parliament to
combat crimes of special nature would be defeated."

A software may be intellectual property but such personal intellectual property contained in a
medium is bought and sold. It is an article of value. It is sold in various forms like floppies,
disks, CD-ROMs, punch cards, magnetic tapes, etc. Each one of the mediums in which the
intellectual property is contained is a marketable commodity. They are visible to senses. They
may be a medium through which the intellectual property is transferred but for the purpose of
determining the question as regard leviability of the tax under a fiscal statute, it may not make
a difference. A programme containing instructions in computer language is subject matter of a
licence. It has its value to the buyer. It is useful to the person who intends to use the hardware,
viz., the computer in an effective manner so as to enable him to obtain the desired results. It
indisputably becomes an object of trade and commerce. These mediums containing the
intellectual property are not only easily available in the market for a price but are circulated as
a commodity in the market. Only because an instruction manual designed to instruct use and
installation of the supplier programme is supplied with the software, the same would not
necessarily mean that it would cease to be a 'goods'. Such instructions contained in the manual
are supplied with several other goods including electronic ones. What is essential for an article
to become goods is its marketability.

This extract is taken from Yasha Overseas v. Commissioner of Sales Tax and Others
(2008) (5) TMI 43 SUPREME COURT.

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23. Having thus settled the precise ratio of the decision in Anjar, the Court turned to the
meaning of `goods' for the purposes of imposition of sales tax and in paragraph 35 of the
judgment observed as follows:

"The word "goods" for the purposes of imposition of sales tax has been uniformly defined in
the various sales tax laws as meaning all kinds of movable property. The word "property" may
denote the nature of the interest in goods and when used in this sense means title or ownership
in a thing. The word may also be used to describe the thing itself. The two concepts are distinct,
a distinction which must be kept in mind when considering the use of the word in connection
with the sale of goods. In the Dictionary of Commercial Law by A. H. Hudson (1983 Edn.) the
difference is clearly brought out. The definition reads thus:

"`Property' -- In commercial law this may carry its ordinary meaning of the subject-matter of
ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership
and lesser rights in goods.

Hence, when used in the definition of "goods" in the different sales tax statutes, the word
"property" means the subject-matter of ownership. The same word in the context of a "sale"
means the transfer of the ownership in goods."

(Emphasis added) At this stage the decision in Vikas once again came under reference; it was
pointed out (in paragraphs 38 to 40 of the decision in Sunrise) that in Vikas the Court observed
that REP licences were being bought and sold freely in the market as goods and took their
saleability as an additional ground to hold that it would be idle to contend that those licences
were in the nature of actionable claim. In other words, saleability was a feature of distinction
between goods and actionable claim (which but for its express exclusion from the definition is
also a kind of goods). Goods were saleable but actionable claim was not.

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