Tax Law Cases Sem-1

TAX LAW CASES
SECTION - 14A
CIT VS SBI BHFL LTD 2015 376 ITR 296 BOM HC
The case of CIT vs SBI BHFL Ltd [2015] 376 ITR 296 (Bom HC) dealt with the issue
of whether disallowance under Section 14A of the Income-tax Act, 1961 (the Act) can
be made in respect of interest expenditure incurred on borrowed funds, even if the
investments made out of such funds are in tax-free securities.
Facts of the case
SBI BHFL Ltd (the taxpayer) had made investments in tax-free bonds. The taxpayer
also had borrowed funds, which were used for both business and investment purposes.
The Assessing Officer (AO) held that the taxpayer had to disallow a portion of the
interest expenditure incurred on borrowed funds under Section 14A of the Act, on the
ground that the taxpayer had earned tax-free income from the tax-free bonds.
Judgment
The Bombay High Court held that no disallowance under Section 14A of the Act
could be made in respect of interest expenditure incurred on borrowed funds, even if
the investments made out of such funds are in tax-free securities. The High Court held
that the purpose of Section 14A of the Act is to prevent taxpayers from claiming
deductions for expenses incurred in earning exempt income. However, the High Court
held that the taxpayer had not earned any exempt income in the present case, as the
interest income earned on the tax-free bonds was specifically exempt from tax under
Section 10(10D) of the Act.
The High Court also held that the AO could not make an estimation to determine the
portion of the interest expenditure that was incurred in earning exempt income. The
High Court held that the AO could only disallow interest expenditure if it was proved
that the expenditure was actually incurred in earning exempt income.
Conclusion
The judgment of the Bombay High Court in the case of CIT vs SBI BHFL Ltd [2015]
376 ITR 296 (Bom HC) is a significant judgment for taxpayers. The judgment
clarifies that no disallowance under Section 14A of the Act can be made in respect of
interest expenditure incurred on borrowed funds, even if the investments made out of
such funds are in tax-free securities.
CIT VS WALFORD SHARE AND STOCK BROKER PVT LTD 2010
The case of CIT vs Walfort Share and Stock Broker Pvt Ltd [2010] 326 ITR 1 (SC)
dealt with the issue of whether the loss incurred on sale of units in a dividend
stripping transaction could be considered as expenditure in relation to earning of
dividend income exempt under Section 10(33) of the Income Tax Act, 1961 (the Act)
and therefore, disallowable under Section 14A of the Act.
Facts of the case
Walfort Share and Stock Broker Pvt Ltd (the assessee) purchased units in a mutual
fund scheme on the record date for the purpose of receiving dividend income. The
assessee sold the units on the next trading day at a loss. The Assessing Officer (AO)
held that the loss incurred on sale of units was disallowable under Section 14A of the
Act, on the ground that the loss was incurred in relation to earning exempt income
(i.e., dividend income exempt under Section 10(33) of the Act).
Judgment
The Supreme Court held that the loss incurred on sale of units in a dividend stripping
transaction could not be considered as expenditure in relation to earning of dividend
income exempt under Section 10(33) of the Act, and therefore, was not disallowable
under Section 14A of the Act.
The Supreme Court held that the purpose of Section 14A of the Act is to prevent
taxpayers from claiming deductions for expenses incurred in earning exempt income.
However, the Supreme Court held that the loss incurred on sale of units in a dividend
stripping transaction was not an expense incurred in earning exempt income. The
Supreme Court held that the loss was incurred due to the fall in the market value of
the units, and was not related to the earning of dividend income.
The Supreme Court also held that the AO could not make an estimation to determine
the portion of the loss that was incurred in relation to earning exempt income. The
Supreme Court held that the AO could only disallow loss if it was proved that the loss
was actually incurred in earning exempt income.
Conclusion
The judgment of the Supreme Court in the case of CIT vs Walfort Share and Stock
Broker Pvt Ltd [2010] 326 ITR 1 (SC) is a significant judgment for taxpayers. The
judgment clarifies that the loss incurred on sale of units in a dividend stripping
transaction is not disallowable under Section 14A of the Act.
MAXOPP INVESTMENT LTD VS CIT 2021 347 ITR 272 DEL HC
The case of Maxopp Investments Ltd vs CIT dealt with the issue of whether the
income from the sale of shares held for investment purposes is taxable as business
income or capital gains.
Facts of the case
Maxopp Investments Ltd (the assessee) was a company incorporated primarily for the
purpose of investing in shares of other companies. The assessee held a large number
of shares of various companies, and the income from the sale of these shares formed a
significant portion of the assessee's total income.
The Assessing Officer (AO) treated the income from the sale of shares as business
income and taxed it accordingly. The assessee argued that the income from the sale of
shares was taxable as capital gains.
Judgment
The Delhi High Court held that the income from the sale of shares held for investment
purposes is taxable as capital gains, and not as business income.
The High Court held that the assessee was not a trading company, and that the
purchase and sale of shares was not its primary business activity. The High Court also
held that the assessee had not incurred any significant expenditure in relation to the
purchase and sale of shares.
The High Court further held that the fact that the assessee had sold a large number of
shares in a particular year did not necessarily mean that the shares were held for
trading purposes. The High Court held that the intention of the assessee at the time of
purchase of the shares was the determining factor in deciding whether the income
from the sale of shares was taxable as business income or capital gains.
Conclusion
The judgment of the Delhi High Court in the case of Maxopp Investments Ltd vs CIT
[2012] 347 ITR 272 (Del HC) is a significant judgment for taxpayers who invest in
shares. The judgment clarifies that the income from the sale of shares held for
investment purposes is taxable as capital gains, and not as business income.
It is important to note that the Supreme Court of India has not yet ruled on the issue of
whether the income from the sale of shares held for investment purposes is taxable as
business income or capital gains. However, the judgment of the Delhi High Court in
the case of Maxopp Investments Ltd vs CIT is a persuasive authority on this issue.
RESPONSE 2
The appellant company is engaged in the business of finance, among other things. #
Main Topic: Investment and Dealing in Shares and Securities
The appellant holds shares/securities in two portfolios:
Profit/loss arising on the sale of shares/securities held as 'investment' is returned as
income under the head 'capital gains'.
Profit/loss arising on the sale of shares/securities held as 'trading assets' (with the
intention of acquiring, exercising, and retaining control over investee group
companies) is regularly offered and assessed to tax as business income under the head
'profits and gains of business or profession'.
The appellant filed a return for the previous year relevant to the Assessment Year
2002-03.
The declared income was Rs. 78,90,430/-. Disallowance of Expenditure under Section
14A of the Income Tax Act
Appellant's Argument
The appellant argued that the dominant purpose/intention of investing in shares of
Max India Limited was to acquire/retain controlling interest, not to earn dividend
income.
According to the appellant, the dividend income of Rs.49,90,860/- earned on shares of
Max India Limited was only incidental to the holding of such shares.
Assessment Order
The Assessing Officer (AO) passed the assessment order on August 27, 2004, under
Section 143(3) of the Income Tax Act.
The AO worked out the disallowance under Section 14A at Rs.67,74,175/-.
The disallowance was calculated by apportioning the interest expenditure of
Rs.1,16,21,168/- in the ratio of investment.
Expenditure related to the investment in shares of Max India Limited was considered
for disallowance under Section 14A of the Income Tax Act.
The disallowance was based on the argument that the shares were acquired for the
purpose of retaining controlling interest, not for earning dividend income.
The Assessing Officer calculated the disallowance by apportioning the interest
expenditure in the ratio of investment
HDFC Bank Ltd v. CIT [2016] 67 42 (Bom HC
The case of HDFC Bank Ltd v. CIT [2016] 67 taxmann.com 42 (Bom HC) dealt with
the issue of whether disallowance under Section 14A of the Income Tax Act, 1961
(the Act) could be made in respect of interest expenditure incurred on borrowed
funds, even if the investments made out of such funds are in tax-free securities.
Facts of the case
The assesse, while filing returns for the AY
2008-2009, declared a tax exempt income from investment in securities and
treated the same as stock-in-trade. It is pertinent to note that during the
same assessment year the assessee had paid interest on borrowed funds and
treated the same as expenditure. The assessee did not disallow any expenditure
on interest earned on tax free securities. However, both the Assessing officer
and the CIT-Appeals disallowed a sum of Rs. 3.39 crores as per section 14A read
with Rule 8D on the ground that the assessee did not provide evidence that the
investment was made from interest-free funds.
HDFC Bank Ltd (the assessee) had made investments in tax-free bonds. The assessee
also had borrowed funds, which were used for both business and investment purposes.
The Assessing Officer (AO) held that the assessee had to disallow a portion of the
interest expenditure incurred on borrowed funds under Section 14A of the Act, on the
ground that the assessee had earned tax-free income from the tax-free bonds.
Judgment
the investments made out of such funds are in tax-free securities. The High Court held
that the purpose of Section 14A of the Act is to prevent taxpayers from claiming
held that the assessee had not earned any exempt income in the present case, as the
Conclusion
The judgment of the Bombay High Court in the case of HDFC Bank Ltd v. CIT
[2016] 67 taxmann.com 42 (Bom HC) is a significant judgment for taxpayers. The
judgment clarifies that no disallowance under Section 14A of the Act can be made in
respect of interest expenditure incurred on borrowed funds, even if the investments
made out of such funds are in tax-free securities.
It is important to note that the Bombay High Court's judgment in the case of HDFC
Bank Ltd v. CIT is binding on all taxpayers within the jurisdiction of the Bombay
High Court. However, the judgment is not binding on taxpayers within the jurisdiction
of other High Courts.
GODREJ INVOICE CO. VS DCIT 2010 328 ITR 18 BOM HC

The case of Godrej & Boyce Mfg. Co. Ltd. v. Deputy Commissioner of Income Tax
[2010] 328 ITR 18 (Bom HC) dealt with the issue of whether the disallowance under
Section 14A of the Income Tax Act, 1961 (the Act) could be made in respect of
interest expenditure incurred on borrowed funds, even if the investments made out of
such funds were in tax-free securities.
Facts of the case
Godrej & Boyce Mfg. Co. Ltd. (the assessee) had made investments in tax-free bonds.
The assessee also had borrowed funds, which were used for both business and
investment purposes. The Assessing Officer (AO) held that the assessee had to
disallow a portion of the interest expenditure incurred on borrowed funds under
Section 14A of the Act, on the ground that the assessee had earned tax-free income
from the tax-free bonds.
Judgment
the investments made out of such funds were in tax-free securities. The High Court
held that the purpose of Section 14A of the Act is to prevent taxpayers from claiming
held that the assessee had not earned any exempt income in the present case, as the
Conclusion
The judgment of the Bombay High Court in the case of Godrej & Boyce Mfg. Co.
Ltd. v. Deputy Commissioner of Income Tax [2010] 328 ITR 18 (Bom HC) is a
significant judgment for taxpayers. The judgment clarifies that no disallowance under
Section 14A of the Act can be made in respect of interest expenditure incurred on
borrowed funds, even if the investments made out of such funds are in tax-free
securities.
It is important to note that the Bombay High Court's judgment in the case of Godrej &
Boyce Mfg. Co. Ltd. v. Deputy Commissioner of Income Tax is binding on all
taxpayers within the jurisdiction of the Bombay High Court. However, the judgment
is not binding on taxpayers within the jurisdiction of other High Courts.
HOUSE PROPERTY
CIT VS PODDAR CEMENT 1997 226 ITR 625

Lease hold property - ‘Owner' is a person who is entitled to receive income from
the propert y in his own ri gh
Facts of the case

Poddar Cement Pvt. Ltd. (the assessee) was a company engaged in the business of
manufacturing and selling cement. The assessee had acquired the lease of certain
limestone quarries for the purpose of manufacturing cement. The lease was for a
period of 20 years, with a provision for renewal for a further period of 20 years. The
lease agreement required the assessee to pay a half-yearly rent of Rs. 3,000 for the
first two years and Rs. 6,000 thereafter, as well as a royalty on the limestone
extracted.
The Assessing Officer (AO) treated the income from the lease of the limestone
quarries as business income. The assessee argued that the income from the lease of
the limestone quarries was income from house property, and was therefore exempt
from tax under Section 10(1) of the Income Tax Act, 1961 (the Act).
Judgment
The Supreme Court of India held that the income from the lease of the limestone
quarries was income from house property, and was therefore exempt from tax under
Section 10(1) of the Act.
The Supreme Court held that the term "house property" in Section 10(1) of the Act
should be interpreted liberally, and that it includes all lands and buildings, as well as
any interest in land or building. The Supreme Court also held that the fact that the
assessee was using the limestone quarries for business purposes did not prevent the
income from the lease of the limestone quarries from being treated as income from
house property.
The Supreme Court further held that the royalty paid by the assessee on the limestone
extracted was not deductible from the income from the lease of the limestone quarries,
as it was not a necessary expense incurred for the purposes of earning the income.
Conclusion
The judgment of the Supreme Court in the case of Poddar Cement Pvt. Ltd. v.
Commissioner of Income Tax [1997] 226 ITR 625 (SC) is a significant judgment for
taxpayers who lease out land or buildings for business purposes. The judgment
clarifies that the income from the lease of land or buildings is income from house
property, and is therefore exempt from tax under Section 10(1) of the Act, even if the
land or buildings are being used for business purposes.
DLF UNITED LTD VS CIT

The case of DLF United Ltd. v. Commissioner of Income Tax [1984] 149 ITR 24
(Delhi HC) dealt with the issue of whether the income from the sale of land held for
investment purposes is taxable as business income or capital gains.
Facts of the case
DLF United Ltd. (the assessee) was a company engaged in the business of developing
and selling land. The assessee had acquired a large tract of land for the purpose of
developing it into a residential colony. The assessee developed a part of the land and
sold it to customers. The assessee also sold a part of the land in its undeveloped state.
The Assessing Officer (AO) treated the income from the sale of land as business
income. The assessee argued that the income from the sale of land was taxable as
capital gains.
Judgment
The Delhi High Court held that the income from the sale of land held for investment
purposes is taxable as capital gains, and not as business income.
The High Court held that the assessee was not a trading company, and that the
purchase and sale of land was not its primary business activity. The High Court also
held that the assessee had not incurred any significant expenditure in relation to the
purchase and sale of land.
The High Court further held that the fact that the assessee had sold a large quantity of
land in a particular year did not necessarily mean that the land was held for trading
purposes. The High Court held that the intention of the assessee at the time of
purchase of the land was the determining factor in deciding whether the income from
the sale of land was taxable as business income or capital gains.
Conclusion
The judgment of the Delhi High Court in the case of DLF United Ltd. v.
Commissioner of Income Tax [1984] 149 ITR 24 (Delhi HC) is a significant
judgment for taxpayers who invest in land. The judgment clarifies that the income
from the sale of land held for investment purposes is taxable as capital gains, and not
as business income.
It is important to note that the Supreme Court of India has not yet ruled on the issue of
whether the income from the sale of land held for investment purposes is taxable as
business income or capital gains. However, the judgment of the Delhi High Court in
the case of DLF United Ltd. v. Commissioner of Income Tax is a persuasive authority
on this issue.
CIT VS MOHAMMADI BEGUM 1985 158 ITR 215 CAL HC

Facts of the case
Mohammadi Begum (the assessee) was the owner of a residential property. The
assessee had let out the property to a tenant for a period of five years. The lease
agreement provided for a monthly rent of Rs. 100. However, the tenant was in arrears
of rent for a period of two years.
The Assessing Officer (AO) treated the arrears of rent as income from house property,
and taxed it accordingly. The assessee argued that the arrears of rent were not income
from house property, as they were not received by her.
Judgment
The Calcutta High Court held that the arrears of rent were income from house
property, and were therefore taxable.
The High Court held that the income from house property includes the amount of rent
which is due or payable to the assessee, even if the rent is not actually received by the
assessee. The High Court also held that the fact that the tenant was in arrears of rent
did not prevent the assessee from claiming the rent as income from house property.
Conclusion
The judgment of the Calcutta High Court in the case of CIT vs Mohammadi Begum
[1985] 158 ITR 215 (Cal HC) is a significant judgment for taxpayers who let out their
properties on rent. The judgment clarifies that the income from house property
includes the amount of rent which is due or payable to the assessee, even if the rent is
not actually received by the assessee.
It is important to note that the Calcutta High Court's judgment in the case of CIT vs
Mohammadi Begum is binding on all taxpayers within the jurisdiction of the Calcutta
High Court. However, the judgment is not binding on taxpayers within the jurisdiction
of other High Courts.
CHENNAI PROEPRTIES LTD VS CIT
The Supreme Court had to consider whether the income from letting of property is
assessable as “profits and gains of business” or as “income from house property” and
what are the tests to be applied. HELD by the Supreme Court:
(i) A mere entry in the object clause showing a particular object would not be the
determinative factor to arrive at an conclusion whether the income is to be treated as
income from business and such a question would depend upon the circumstances of
each case, viz., whether a particular business is letting or not;
(ii) Each case has to be looked at from a businessman’s point of view to find out
whether the letting was the doing of a business or the exploitation of his property by
an owner. We do not further think that a thing can by its very nature be a commercial
asset. A commercial asset is only an asset used in a business and nothing else, and
business may be carried on with practically all things. Therefore, it is not possible to
say that a particular activity is business because it is concerned with an asset with
which trade is commonly carried on. There is nothing to support the proposition that
certain assets are commercial assets in their very nature;
(iii) Where there is a letting out of premises and collection of rents the assessment on
property basis may be correct but not so, where the letting or sub-letting is part of a
trading operation. The diving line is difficult to find; but in the case of a company
with its professed objects and the manner of its activities and the nature of its dealings
with its property, it is possible to say on which side the operations fall and to what
head the income is to be assigned (Karanpura Development Co. Ltd. v. Commissioner
of Income Tax, West Bengal‘ [44 ITR 362 (SC) & East India Housing and Land
Development Trust Ltd. v. Commissioner of Income Tax, West Bengal [(1961) 42
ITR 49] as well as the Constitution Bench judgment of this Court in ‘Sultan Brothers
(P) Ltd. v. Commissioner of Income Tax‘ [1964 (5) SCR 807 referred)
The case of Chennai Properties Ltd. v. CIT (2004) 272 ITR 673 (SC) dealt with the
issue of whether the income from the letting of properties by a company formed
primarily for the purpose of developing and selling properties is taxable as business
income or income from house property.
Facts of the case
Chennai Properties Ltd. (the assessee) was a company incorporated primarily for the
purpose of developing and selling properties. The assessee had developed a number of
commercial properties and let them out to tenants. The Assessing Officer (AO) treated
the income from the letting of properties as business income. The assessee argued that
the income from the letting of properties was income from house property, and was
therefore exempt from tax under Section 10(1) of the Income Tax Act, 1961 (the Act).
Judgment
The Supreme Court of India held that the income from the letting of properties by a
company formed primarily for the purpose of developing and selling properties is
taxable as business income and not as income from house property.
The Supreme Court held that the object with which the company was formed is the
determining factor in deciding whether the income from the letting of properties is
taxable as business income or income from house property. The Supreme Court also
held that the fact that the company is engaged in the business of developing and
selling properties does not prevent the income from the letting of properties from
being treated as business income.
The Supreme Court further held that the income from the letting of properties is not
automatically exempt from tax under Section 10(1) of the Act, even if the properties
are let out on a short-term basis. The Supreme Court held that the income from the
letting of properties is exempt from tax under Section 10(1) of the Act only if the
properties are let out for a period of six months or more.
Conclusion
The judgment of the Supreme Court in the case of Chennai Properties Ltd. v. CIT is a
significant judgment for taxpayers who are engaged in the business of developing and
selling properties. The judgment clarifies that the income from the letting of
properties by such companies is taxable as business income and not as income from
house property.
SULTAN BROTHERS CASE
Use of AC and DG sets inseparable from hiring of space - Commercial activies

performed in a systematic manner- Income is taxable under Other Sources
The case of Sultan Brothers (P) Ltd. v. Commissioner of Income Tax (1964) 51 ITR
353 (SC) is a landmark case in Indian tax law. The case dealt with the issue of
whether the income from the letting of a building fully equipped and furnished for a
term of six years for running a hotel and for certain ancillary purposes is taxable as
business income or income from house property.
Facts of the case
Sultan Brothers (P) Ltd. (the assessee) had let out a building fully equipped and
furnished for a term of six years for running a hotel and for certain ancillary purposes.
The lease agreement provided for a rent for the building and a hire for the furniture
and fixtures. The Assessing Officer (AO) treated the income from the lease as
business income. The assessee argued that the income from the lease was income
from house property, and was therefore exempt from tax under Section 10(1) of the
Income Tax Act, 1961 (the Act).
Judgment
The Supreme Court of India held that the income from the lease was business income
and not income from house property.
The Supreme Court held that the test for determining whether the income from the
letting of a building is business income or income from house property is whether the
letting is an ordinary incident of ownership of the property or whether it is a
commercial activity. The Supreme Court held that in the present case, the letting of
the building was a commercial activity, as the building was let out to a tenant for the
purpose of running a hotel and for certain ancillary purposes.
The Supreme Court also held that the fact that the building was fully equipped and
furnished did not change the character of the income from the lease. The Supreme
Court held that the income from the lease was still business income, as the letting of
the building was a commercial activity.
Conclusion
The judgment of the Supreme Court in the case of Sultan Brothers (P) Ltd. v.
Commissioner of Income Tax is a significant judgment for taxpayers who let out their
properties. The judgment clarifies that the income from the letting of a building is
taxable as business income if the letting is a commercial activity.
The judgment is also significant for the following reasons:
It established the principle that the test for determining whether the income from the
commercial activity.
It clarified that the fact that the building is fully equipped and furnished does not
change the character of the income from the lease.
It held that the income from the lease is still business income, even if the building is
let out for a short-term basis.
The judgment of the Supreme Court in the case of Sultan Brothers (P) Ltd. v.
Commissioner of Income Tax has been followed by subsequent courts, and it is now a
well-established principle of Indian tax law that the income from the letting of a
building is taxable as business income if the letting is a commercial activity.
RAYALAX PROPERTIES PVT LTD. VS CIT 2016
The case of Rayalax Properties Pvt. Ltd. v. Commissioner of Income Tax (2016) 389
ITR (AT) 564 (Trib.) dealt with the issue of whether the income from the letting of
properties by a company formed primarily for the purpose of developing and selling
properties is taxable as business income or income from house property.
Facts of the case
Rayalax Properties Pvt. Ltd. (the assessee) was a company incorporated primarily for
the purpose of developing and selling properties. The assessee had developed a
number of commercial properties and let them out to tenants. The Assessing Officer
(AO) treated the income from the letting of properties as business income. The
assessee argued that the income from the letting of properties was income from house
property, and was therefore exempt from tax under Section 10(1) of the Income Tax
Act, 1961 (the Act).
Judgment
The Tribunal held that the income from the letting of properties by a company formed
primarily for the purpose of developing and selling properties is taxable as business
income and not as income from house property.
The Tribunal held that the object with which the company was formed is the
determining factor in deciding whether the income from the letting of properties is
taxable as business income or income from house property. The Tribunal also held
that the fact that the company is engaged in the business of developing and selling
properties does not prevent the income from the letting of properties from being
treated as business income.
The Tribunal further held that the income from the letting of properties is not
automatically exempt from tax under Section 10(1) of the Act, even if the properties
are let out on a short-term basis. The Tribunal held that the income from the letting of
properties is exempt from tax under Section 10(1) of the Act only if the properties are
let out for a period of six months or more.
Conclusion
The judgment of the Tribunal in the case of Rayalax Properties Pvt. Ltd. v.
Commissioner of Income Tax is a significant judgment for taxpayers who are engaged
in the business of developing and selling properties. The judgment clarifies that the
income from the letting of properties by such companies is taxable as business income
and not as income from house property.
The judgment is also in line with the judgment of the Supreme Court in the case of
Chennai Properties Ltd. v. CIT (2004) 272 ITR 673 (SC).
KARNANI PROPERTIES LTD VS CIT 1971 82 ITR 547 SC

Composite rent - Held, if the services rendered by the assessee are the results of its
activities carried on continuously in an organised manner, with a set purpose and with
a view to earn profits, those activities would constitute business activities and the
income arising therefrom would be assessable under section 10 (of the 1922 Act, i.e.
as business income under section 28 of the 1961 Act).
The case of Karnani Properties Ltd. v. Commissioner of Income Tax (1971) 82 ITR
547 (SC) dealt with the issue of whether the income from the provision of services to
tenants, such as the supply of electrical energy, hot and cold water, and the
maintenance of lifts and other amenities, constituted a business activity.
Facts of the case
Karnani Properties Ltd. (the assessee) was a company that owned and managed a
number of residential and commercial buildings. The assessee provided a number of
services to its tenants, such as the supply of electrical energy, hot and cold water, and
the maintenance of lifts and other amenities. The Assessing Officer (AO) treated the
income from the provision of these services as business income. The assessee argued
that the income from the provision of these services was income from house property,
and was therefore exempt from tax under Section 10(1) of the Income Tax Act, 1961
(the Act).
Judgment
The Supreme Court of India held that the income from the provision of services to
tenants constituted a business activity.
provision of services to tenants is business income or income from house property is
whether the services are provided in the course of a business activity. The Supreme
Court held that in the present case, the services were provided in the course of a
business activity, as the assessee was engaged in the business of managing and letting
out its properties.
Conclusion
The judgment of the Supreme Court in the case of Karnani Properties Ltd. v.
Commissioner of Income Tax has been followed by subsequent courts, and it is now a
well-established principle of Indian tax law that the income from the provision of
services to tenants is taxable as business income if the services are provided in the
course of a business activity.
The judgment has a number of implications for taxpayers. For example, the judgment
means that the assessee in the case would have had to pay tax on the income from the
provision of services to tenants. The judgment also means that other taxpayers who
provide services to their tenants, such as the supply of electricity, water, and security,
may have to pay tax on the income from the provision of these services, depending on
the facts and circumstances of each case.
ATTUKAL SHOPPING COMPLEX VS CIT 2003
The case of Attukal Shopping Complex v. Commissioner of Income Tax (2003) 261
ITR 724 (Ker HC) dealt with the issue of whether the income from the letting of
shops in a shopping complex is taxable as business income or income from house
property.
Facts of the case
Attukal Shopping Complex (the assessee) was a company that owned and managed a
shopping complex. The assessee let out the shops in the shopping complex to tenants.
The Assessing Officer (AO) treated the income from the letting of shops as business
income. The assessee argued that the income from the letting of shops was income
from house property, and was therefore exempt from tax under Section 10(1) of the
Income Tax Act, 1961 (the Act).
Judgment
The Kerala High Court held that the income from the letting of shops in a shopping
complex is taxable as business income and not as income from house property.
The High Court held that the test for determining whether the income from the letting
of a building is business income or income from house property is whether the letting
is an ordinary incident of ownership of the property or whether it is a commercial
activity. The High Court held that in the present case, the letting of shops in the
shopping complex was a commercial activity, as the assessee was engaged in the
business of managing and letting out the shopping complex.
The High Court also held that the fact that the shops were let out to tenants did not
change the character of the income from the letting. The High Court held that the
income from the letting was still business income, as the letting of the shops was a
commercial activity.
Conclusion
The judgment of the Kerala High Court in the case of Attukal Shopping Complex v.
Commissioner of Income Tax is a significant judgment for taxpayers who let out
shops in shopping complexes. The judgment clarifies that the income from the letting
of shops in shopping complexes is taxable as business income and not as income from
house property.
The judgment is also in line with the judgments of the Supreme Court in the cases of
Sultan Brothers (P) Ltd. v. Commissioner of Income Tax (1964) 51 ITR 353 (SC) and
Karnani Properties Ltd. v. Commissioner of Income Tax (1971) 82 ITR 547 (SC).
CIT VS MODI INDUSTRIES LTD 1994
Facts:
The assessee, Modi Industries Ltd., was a company engaged in the manufacture of
cement.
The assessee had claimed development rebate on certain items of plant and
machinery.
The Assessing Officer (AO) disallowed the development rebate on the ground that the
items of plant and machinery were not used for the purposes of business.
The assessee appealed to the Tribunal, which upheld the AO's order.
The assessee then filed a reference to the Delhi High Court (Full Bench).
Issue:
Whether the assessee is entitled to development rebate on the items of plant and
machinery in question.
Judgment:
The Delhi High Court (Full Bench) held that the assessee was entitled to development
rebate on the items of plant and machinery in question.
The High Court held that the items of plant and machinery were used for the purposes
of business, even though they were not used directly in the production of cement. The
High Court held that the items of plant and machinery were essential for the smooth
running of the business.
The High Court further held that the development rebate is available on all items of
plant and machinery that are used for the purposes of business, irrespective of whether
they are used directly in the production of goods or not.
Conclusion:
The judgment of the Delhi High Court (Full Bench) in the case of Modi Industries Ltd
v. Commissioner of Income Tax is a significant judgment for taxpayers. The
judgment clarifies that the development rebate is available on all items of plant and
machinery that are used for the purposes of business, irrespective of whether they are
used directly in the production of goods or not.
CIT VS NATIONAL STORAGE PVT LTD 1967 66 ITR 596 SC

The case of CIT vs National Storage Pvt Ltd [1967] 66 ITR 596 (SC) dealt with the
issue of whether the income from the renting out of terrace space for the purpose of
storing goods is taxable as business income or income from house property.
Facts of the case:
National Storage Pvt Ltd (the assessee) was a company that owned a building with a
large terrace. The assessee rented out the terrace space to customers for the purpose of
storing goods. The Assessing Officer (AO) treated the income from the renting out of
terrace space as business income. The assessee argued that the income from the
renting out of terrace space was income from house property, and was therefore
exempt from tax under Section 10(1) of the Income Tax Act, 1961 (the Act).
Judgment:
The Supreme Court of India held that the income from the renting out of terrace space
for the purpose of storing goods is taxable as business income and not as income from
house property.
commercial activity. The Supreme Court held that in the present case, the letting of
terrace space for the purpose of storing goods was a commercial activity, as the
assessee was engaged in the business of providing storage facilities to its customers.
The Supreme Court also held that the fact that the terrace space was part of the
building did not change the character of the income from the letting. The Supreme
Court held that the income from the letting was still business income, as the letting of
the terrace space was a commercial activity.
Conclusion:
The judgment of the Supreme Court in the case of CIT vs National Storage Pvt Ltd is
a significant judgment for taxpayers who rent out their properties for commercial
purposes. The judgment clarifies that the income from the renting out of properties for
commercial purposes is taxable as business income and not as income from house
property.
The judgment is also important because it establishes the principle that the test for
determining whether the income from the letting of a building is business income or
income from house property is whether the letting is an ordinary incident of
ownership of the property or whether it is a commercial activity.
CIT VS GOYAL BUILDERS 2010 192

The case of Commissioner of Income Tax vs Goyal Builders [2010] 192 ITR 28 (All)
dealt with the issue of whether the income from the sale of plots developed by a
builder is taxable as business income or capital gains.
Facts of the case:
Goyal Builders (the assessee) was a company engaged in the business of developing
and selling plots. The assessee had developed a number of plots and sold them to
customers. The Assessing Officer (AO) treated the income from the sale of plots as
business income. The assessee argued that the income from the sale of plots was
capital gains, and was therefore taxable at a lower rate of tax.
Judgment:
The Allahabad High Court held that the income from the sale of plots developed by a
builder is taxable as business income and not as capital gains.
The High Court held that the assessee was engaged in the business of developing and
selling plots, and that the income from the sale of plots was therefore business
income. The High Court also held that the fact that the assessee had converted
agricultural land into plots did not change the character of the income from the sale of
plots.
The High Court further held that the assessee was not entitled to the benefit of the
lower rate of tax applicable to capital gains, as the income from the sale of plots was
business income.
Conclusion:
The judgment of the Allahabad High Court in the case of Commissioner of Income
Tax vs Goyal Builders is a significant judgment for taxpayers who are engaged in the
business of developing and selling plots. The judgment clarifies that the income from
the sale of plots developed by a builder is taxable as business income and not as
capital gains.
The judgment is also important because it establishes the principle that the character
of the income from the sale of plots is determined by the nature of the activity of the
assessee. If the assessee is engaged in the business of developing and selling plots,
then the income from the sale of plots will be taxable as business income, even if the
assessee has converted agricultural land into plots.
CIT VS MONI KUMAR SUPPA 2011 199 TAXMANN 310 DELHI

The case of CIT v. Moni Kumar Suppa (2011) 199 TAXMANN 310 (Del) dealt with
the issue of whether the income from the sale of a residential property by a person
who is not a builder or property dealer is taxable as capital gains or business income.
Facts of the case:
Moni Kumar Suppa (the assessee) was a doctor by profession. The assessee had
purchased a residential property in 1981 for Rs. 1,50,000. In 2007, the assessee sold
the property for Rs. 3,00,000. The Assessing Officer (AO) treated the income from
the sale of the property as business income. The assessee argued that the income from
the sale of the property was capital gains, and was therefore taxable at a lower rate of
tax.
Judgment
The Delhi High Court held that the income from the sale of a residential property by a
person who is not a builder or property dealer is taxable as capital gains and not
business income.
The High Court held that the assessee was not a builder or property dealer, and that
the purchase and sale of the property was not his primary business activity. The High
Court also held that the assessee had not incurred any significant expenditure in
relation to the purchase and sale of the property.
The High Court further held that the fact that the assessee had sold the property at a
profit did not necessarily mean that the property was held for trading purposes. The
High Court held that the intention of the assessee at the time of purchase of the
property was the determining factor in deciding whether the income from the sale of
the property was taxable as business income or capital gains.
Conclusion
The judgment of the Delhi High Court in the case of CIT v. Moni Kumar Suppa is a
significant judgment for taxpayers who sell residential properties that they have held
for investment purposes. The judgment clarifies that the income from the sale of
residential properties by persons who are not builders or property dealers is taxable as
capital gains and not business income.
The judgment is also important because it establishes the principle that the intention
of the assessee at the time of purchase of the property is the determining factor in
deciding whether the income from the sale of the property is taxable as business
CIT VS ANSAL HOUSING FINANCE AND RAISING CO LTD 2013 354 ITR
180 DEL HC
Facts of the case:

Ansal Housing Finance and Raising Co. Ltd. (the assessee) was a company engaged
in the business of developing and selling flats. The assessee had a number of unsold
flats in its possession at the end of the financial year. The Assessing Officer (AO)
treated the annual letting value (ALV) of the unsold flats as income from house
property under Section 22 of the Income Tax Act, 1961 (the Act). The assessee
argued that the unsold flats were stock-in-trade and that the ALV of the unsold flats
was not taxable as income from house property.
Judgment:
The Delhi High Court held that the ALV of unsold flats owned by a builder is not
taxable as income from house property under Section 22 of the Act.
The High Court held that the unsold flats were stock-in-trade and that the assessee
was not letting out the unsold flats. The High Court also held that the mere fact that
the assessee had the capacity to let out the unsold flats was not sufficient to bring the
income from the unsold flats within the scope of Section 22 of the Act.
The High Court further held that the income from the unsold flats would be taxable as
business income only when the assessee actually lets out the unsold flats.
Conclusion:
The judgment of the Delhi High Court in the case of CIT v. Ansal Housing Finance
and Raising Co. Ltd. is a significant judgment for builders. The judgment clarifies that
the ALV of unsold flats owned by a builder is not taxable as income from house
property under Section 22 of the Act.
The judgment is also important because it establishes the principle that the income
from unsold flats would be taxable as business income only when the builder actually
lets out the unsold flats.
The judgment has been followed by subsequent courts and is now the well-settled law
on the subject.
CIT VS NEHA BUILDERS 2008 296 ITR 661
The case of CIT v. Neha Builders (2008) 296 ITR 661 (Guj HC) dealt with the issue
of whether the income from the letting of unsold flats owned by a builder is taxable as
income from house property under Section 22 of the Income Tax Act, 1961 (the Act).
Facts of the case:
Neha Builders (the assessee) was a company engaged in the business of developing
and selling flats. The assessee had a number of unsold flats in its possession at the end
of the financial year. The Assessing Officer (AO) treated the annual letting value
(ALV) of the unsold flats as income from house property. The assessee argued that
the unsold flats were stock-in-trade and that the ALV of the unsold flats was not
taxable as income from house property.
Judgment:
The Gujarat High Court held that the ALV of unsold flats owned by a builder is not
taxable as income from house property under Section 22 of the Act.
The High Court held that the unsold flats were stock-in-trade and that the assessee
was not letting out the unsold flats. The High Court also held that the mere fact that
the assessee had the capacity to let out the unsold flats was not sufficient to bring the
income from the unsold flats within the scope of Section 22 of the Act.
The High Court further held that the income from the unsold flats would be taxable as
business income only when the assessee actually lets out the unsold flats.
Conclusion:
The judgment of the Gujarat High Court in the case of CIT v. Neha Builders is a
significant judgment for builders. The judgment clarifies that the ALV of unsold flats
owned by a builder is not taxable as income from house property under Section 22 of
the Act.
The judgment is also important because it establishes the principle that the income
from unsold flats would be taxable as business income only when the builder actually
lets out the unsold flats.
The judgment has been followed by subsequent courts and is now the well-settled law
on the subject.
MRS SHEERA KAUSHIK VS CIT 1981 131 ITR

The case of Mrs. Sheera Kaushik vs. CIT (1981) 131 ITR 194 (Delhi) dealt with the
issue of whether the income from the sale of a residential property by a person who is
not a builder or property dealer is taxable as capital gains or business income.
Facts of the case:
Mrs. Sheera Kaushik (the assessee) was a homemaker. The assessee had purchased a
residential property in 1976 for Rs. 1,50,000. In 1980, the assessee sold the property
for Rs. 3,00,000. The Assessing Officer (AO) treated the income from the sale of the
property as business income. The assessee argued that the income from the sale of the
property was capital gains, and was therefore taxable at a lower rate of tax.
Judgment:
The Delhi High Court held that the income from the sale of a residential property by a
person who is not a builder or property dealer is taxable as capital gains and not
business income.
The High Court held that the assessee was not a builder or property dealer, and that
the purchase and sale of the property was not her primary business activity. The High
Court also held that the assessee had not incurred any significant expenditure in
relation to the purchase and sale of the property.
The High Court further held that the fact that the assessee had sold the property at a
profit did not necessarily mean that the property was held for trading purposes. The
High Court held that the intention of the assessee at the time of purchase of the
property was the determining factor in deciding whether the income from the sale of
the property was taxable as business income or capital gains.
Conclusion:
The judgment of the Delhi High Court in the case of Mrs. Sheera Kaushik vs. CIT is a
significant judgment for taxpayers who sell residential properties that they have held
for investment purposes. The judgment clarifies that the income from the sale of
residential properties by persons who are not builders or property dealers is taxable as
capital gains and not business income.
of the assessee at the time of purchase of the property is the determining factor in
deciding whether the income from the sale of the property is taxable as business
CIT VS AWADH BIHARI ROHATGI 1986 DEL HC
Subtopic 1: Question of law

The application claims that a question of law arises out of the Tribunal's order.
The question claimed is: "Whether the assessed was entitled to the exemption claimed
under section 23(3) on the facts and circumstances of the case?"
Subtopic 2: Refusal of reference by the Tribunal
The Tribunal refused to make a reference under section 256(1) based on a similar case
of Shri K. K. Jhalani.
In Shri K. K. Jhalani's case, it was held that the exemption should be given.
The decision of the Tribunal was confirmed by a Bench of this court in I.T.C. No. 160
of 1980 on May 3, 1982.
Subtopic 3: Independent judgment
Despite the similarity in cases, there is a slight difference in facts.
The assessed is a sitting judge of this court.
The assessed owns a residential house at 419, Esplanade Road, Delhi, which is kept
vacant.
Note: The provided information is concise and does not require further explanation or
examples. Main Topic: Exemption under Section 23(3) of the Income-tax Act, 1961
Background
The assessed resides at an official residence provided by the State at No. 6, Dr. Zakir
Hussain Road, New Delhi. The assessed claims entitlement to the exemption provided
by section 23(3) of the Income-tax Act, 1961.
Exemption Criteria
According to section 23(3) of the Income-tax Act, 1961, an exemption is granted
when a person, due to their employment, business, or profession carried on at any
other place, has to reside at that other place in a building belonging to them.
Controversy
The controversy raised by the Department is whether Delhi and New Delhi can be
considered as "other places" or if they are the same place.
Assessment
It is clear that the assessed is residing in a building belonging to them and they are
residing there because their official business requires them to do so.
Conclusion
The controversy raised by the Department seems unfounded as Delhi and New Delhi
can be considered as "other places" for the purpose of the exemption under section
23(3) of the Income-tax Act, 1961.
It is suggested that a reference be made concerning the question set out earlier, as it is
a question of law.
Conclusion
Considering the self-evident answer, it may not be necessary to make a reference
regarding the question. # Residency for Tax Purposes in India
Introduction
In India, the determination of residency for tax purposes is important as it affects the
tax liability of an individual. The Income Tax Act provides guidelines for determining
residency status.
Differentiating Delhi and New Delhi
Delhi and New Delhi are considered as separate places for the purpose of determining
residency.
Residing in a Building not Belonging to the Assessee
If an individual resides in a building that does not belong to them, it is considered as
residing at a place other than their official residence.
Residing at Official Residence in New Delhi
If an individual's employment or business requires them to reside at their official
residence in New Delhi, they are considered as residing at their official residence.
Section 23(3) of the Income Tax Act
Section 23(3) of the Income Tax Act mentions the reasons for an individual to reside
at a place other than their official residence. If an individual is required to reside at
their official residence by reason of their office, they are considered as residing at a
place other than their official residence.
Examples of Officials and Dignitaries
Many officials and dignitaries, both under the Constitution and otherwise, are
required to reside in official residences instead of their own residences due to the
nature of their office. In such cases, the exemption mentioned in section 23(3) of the
Act would apply and the assessed individual would be eligible for the exemption.
Reference to Other Place and Other Town
The reference in section 23(3) of the Act is to residing at a place other than the
official residence and in a town other than the official town. This means that if an
individual is residing in a building not belonging to them in a place other than their
official residence, they would be eligible for the exemption.
In conclusion, if an individual is required to reside at their official residence in New
Delhi due to their employment or business, they are considered as residing at their
official residence. If they are residing in a building not belonging to them in a place
other than their official residence, they would be eligible for the exemption mentioned
in section 23(3) of the Income Tax Act. Application of the Section
BHAGWAN DAS JAIN VS UNION OF INDIA
The case of Bhagwan Das Jain vs. Union of India (1981) AIR 907 (SC) dealt with the
issue of whether the amount calculated in accordance with Section 23(2) of the
Income Tax Act, 1961 (the Act) in respect of a house in the occupation of the assessee
for the purposes of his own residence is taxable as income.
Facts of the case:
Bhagwan Das Jain (the assessee) was a taxpayer who owned a house in which he
resided. The Assessing Officer (AO) included the amount calculated in accordance
with Section 23(2) of the Act in respect of the house in the assessee's income. The
assessee challenged the AO's order on the ground that the amount was not income
within the meaning of Section 2(24) of the Act.
Judgment:
The Supreme Court held that the amount calculated in accordance with Section 23(2)
of the Act in respect of a house in the occupation of the assessee for the purposes of
his own residence is not taxable as income.
The Court held that the word "income" in Section 2(24) of the Act has to be
interpreted in its ordinary and popular sense, and that it does not include the notional
rent of a house in the occupation of the owner for the purposes of his own residence.
The Court further held that the liability to pay tax under Section 23(2) of the Act is
not a tax on income, but rather a tax on property.
Conclusion:
The judgment of the Supreme Court in the case of Bhagwan Das Jain vs. Union of
India is a significant judgment for taxpayers who own houses in which they reside.
The judgment clarifies that the amount calculated in accordance with Section 23(2) of
the Act in respect of a house in the occupation of the assessee for the purposes of his
own residence is not taxable as income.
The judgment is also important because it establishes the principle that the word
"income" in Section 2(24) of the Act has to be interpreted in its ordinary and popular
sense, and that it does not include the notional rent of a house in the occupation of the
owner for the purposes of his own residence.
PGBP
CHELMSFORT CLUB VS CIT 2000
The case of Chelmsfort Club vs. Commissioner of Income Tax (2000) 243 ITR 89
(SC) dealt with the issue of whether the interest income earned by a club from its
members' deposits is taxable as business income.
Facts of the case:
The Chelmsford Club (the assessee) was a club that had a number of members. The
members of the club were required to deposit a certain amount of money with the club
when they joined. The club used the members' deposits to meet its running expenses.
The club also earned interest on the members' deposits. The Assessing Officer (AO)
treated the interest income earned by the club as business income. The club argued
that the interest income was not taxable as business income, as it was not the club's
primary business activity to earn interest on its members' deposits.
Judgment:
The Supreme Court held that the interest income earned by a club from its members'
deposits is not taxable as business income.
The Court held that the test for determining whether income is taxable as business
income is whether the income is earned from the carrying on of a business activity.
The Court held that in the present case, the club was not engaged in the business of
earning interest on its members' deposits. The Court held that the club was a social
club, and that the primary purpose of the club was to provide its members with social
and recreational facilities.
The Court further held that the fact that the club earned interest on its members'
deposits did not mean that the club was engaged in the business of earning interest.
The Court held that the interest income was merely an incidental income of the club.
Conclusion:
The judgment of the Supreme Court in the case of Chelmsford Club vs.
Commissioner of Income Tax is a significant judgment for clubs. The judgment
clarifies that the interest income earned by a club from its members' deposits is not
taxable as business income.
determining whether income is taxable as business income is whether the income is
earned from the carrying on of a business activity.
ITO VS RANI RATNESH KUMARIM 1980 123 ITR 343
The case of ITO v. Rani Ratnesh Kumari (1980) 123 ITR 343 (SC) dealt with the
issue of whether the income from the lease of agricultural land is taxable as income
from agriculture or income from house property.
Facts of the case:
Rani Ratnesh Kumari (the assessee) was a taxpayer who owned agricultural land. The
assessee had leased the land to a tenant. The Assessing Officer (AO) treated the
income from the lease of the land as income from house property. The assessee
argued that the income from the lease of the land was income from agriculture, and
was therefore exempt from tax under Section 10(1) of the Income Tax Act, 1961 (the
Act).
Judgment:
The Supreme Court held that the income from the lease of agricultural land is not
taxable as income from house property.
The Court held that the test for determining whether income is taxable as income from
house property is whether the income is derived from the letting out of a building or
land for the purpose of residence. The Court held that in the present case, the
agricultural land was not leased out for the purpose of residence. The Court held that
the agricultural land was leased out for the purpose of cultivation.
The Court further held that the fact that the agricultural land was leased out to a tenant
did not mean that the income from the lease of the land was income from house
property. The Court held that the income from the lease of the land was still income
from agriculture, as the land was leased out for the purpose of cultivation.
Conclusion:
The judgment of the Supreme Court in the case of ITO v. Rani Ratnesh Kumari is a
significant judgment for taxpayers who lease out agricultural land. The judgment
clarifies that the income from the lease of agricultural land is not taxable as income
from house property.
determining whether income is taxable as income from house property is whether the
income is derived from the letting out of a building or land for the purpose of
residence.
CIT VS PRABHU DAYAL1971 82 ITR 804 SC
The case of CIT v. Prabhu Dayal (1971) 82 ITR 804 (SC) dealt with the issue of
whether the income from the sale of a plot of land, which was originally purchased for
residential purposes, is taxable as capital gains or business income.
Facts of the case:
Prabhu Dayal (the assessee) had purchased a plot of land in 1957 for the purpose of
building a house for himself. However, due to certain circumstances, the assessee was
unable to build the house and decided to sell the plot of land in 1966. The Assessing
Officer (AO) treated the income from the sale of the plot of land as business income.
The assessee argued that the income from the sale of the plot of land was capital
gains, and was therefore taxable at a lower rate of tax.
Judgment:
The Supreme Court held that the income from the sale of a plot of land, which was
originally purchased for residential purposes, is taxable as capital gains and not
business income.
The Court held that the test for determining whether the income from the sale of a plot
of land is taxable as capital gains or business income is whether the plot of land was
held for investment purposes or business purposes. The Court held that in the present
case, the plot of land was originally purchased for residential purposes and was not
held for business purposes. The Court held that the fact that the assessee changed his
mind and decided to sell the plot of land did not mean that the plot of land was held
for business purposes.
The Court further held that the fact that the plot of land was sold at a profit did not
necessarily mean that the income from the sale of the plot of land was business
income. The Court held that the capital gains arising from the sale of the plot of land
were taxable as capital gains and not business income.
Conclusion:
The judgment of the Supreme Court in the case of CIT v. Prabhu Dayal is a
significant judgment for taxpayers who sell plots of land, which were originally
purchased for residential purposes. The judgment clarifies that the income from the
sale of such plots of land is taxable as capital gains and not business income.
determining whether the income from the sale of a plot of land is taxable as capital
gains or business income is whether the plot of land was held for investment purposes
or business purposes.
HARSHA AND MEHTA VS CIT 2011 ITAT MUMBAI
The case of Harsha and Mehta vs CIT 2011 ITAT Mumbai dealt with the issue of
whether the addition of Rs. 35 lakh made by the Assessing Officer (AO) on account
of unexplained investment under Section 69 of the Income Tax Act, 1961 (the Act)
was justified.
Facts of the case:
The assessee, Harsha and Mehta, had claimed to have made an investment of Rs. 35
lakh in RBI/RCCL bonds. The AO had added this amount to the assessee's income on
account of unexplained investment. The assessee had explained that the investment
was made out of bank account and that the name of the assessee was joint with the
name of his father in REC bond of Rs. 20 lakh and that investment was made by his
father who claimed exemption under Section 54EC which was duly allowed by the
Assessing Officer in scrutiny assessment accepting the source of investment of Rs. 20
lakh. Regarding the remaining amount of Rs. 15 lakh it was explained that he received
gifts from his father on 01.06.2006 and 14.08.2006 which amount was invested in
RBI, GOI (SBI) bonds. These gifts were received through banking channels.
Judgment:
The Income Tax Appellate Tribunal (ITAT) held that the addition of Rs. 35 lakh
made by the AO on account of unexplained investment under Section 69 of the Act
was not justified.
The ITAT held that the assessee had explained the source of the investment and that
the AO had not rebutted the assessee's explanation. The ITAT also held that the
assessee had provided documentary evidence in support of his explanation.
Conclusion:
The judgment of the ITAT in the case of Harsha and Mehta vs CIT 2011 ITAT
Mumbai is a significant judgment for taxpayers who are faced with additions under
Section 69 of the Act. The judgment clarifies that the onus is on the AO to rebut the
assessee's explanation for the investment and that the AO cannot simply make
additions on the basis of suspicion.
The judgment also highlights the importance of maintaining proper documentation to
support any claims made in the tax return.
CIT VS ABDUL GHANI GURDEJI 1995 213 ITR 738
The case of CIT v. Abdul Ghani Gurdeji (1995) 213 ITR 738 (Del) dealt with the
issue of whether the amount received by the assessee as compensation for the loss of
his business was taxable as income or capital gains.
Facts of the case:
The assessee, Abdul Ghani Gurdeji, was the owner of a business. The assessee's
business was acquired by the government under the Land Acquisition Act, 1894. The
assessee received compensation from the government for the loss of his business. The
Assessing Officer (AO) treated the compensation received by the assessee as income.
The assessee argued that the compensation received by him was capital gains, and
was therefore taxable at a lower rate of tax.
Judgment:
The Delhi High Court held that the amount received by the assessee as compensation
for the loss of his business was taxable as capital gains and not income.
The High Court held that the compensation received by the assessee was not a
revenue receipt, but a capital receipt. The High Court held that the compensation
received by the assessee was for the loss of his business, which was a capital asset.
The High Court further held that the fact that the compensation received by the
assessee was calculated on the basis of the income of his business did not mean that
the compensation was income. The High Court held that the compensation was still
capital gains, as it was for the loss of a capital asset.
Conclusion:
The judgment of the Delhi High Court in the case of CIT v. Abdul Ghani Gurdeji is a
significant judgment for taxpayers who receive compensation for the loss of their
businesses. The judgment clarifies that the amount received as compensation for the
loss of a business is taxable as capital gains and not income.
The judgment is also important because it establishes the principle that the
compensation received for the loss of a capital asset is taxable as capital gains, even if
the compensation is calculated on the basis of the income of the capital asset.
CIT VS MANMOHAN DAS 1966 59 ITR 699 SC
The case of CIT v. Manmohan Das (1966) 59 ITR 699 (SC) dealt with the issue of
whether the income from the practice of a profession is taxable as income from
business or income from other sources.
Facts of the case:
Manmohan Das (the assessee) was a lawyer who practiced law in Allahabad. The
Assessing Officer (AO) treated the income from the assessee's practice of law as
income from business. The assessee argued that the income from the practice of law
was income from other sources, and was therefore taxable at a lower rate of tax.
Judgment:
The Supreme Court held that the income from the practice of a profession is taxable
as income from other sources and not income from business.
The Court held that the test for determining whether the income from a profession is
taxable as income from business or income from other sources is whether the
profession is carried on in a commercial and organized manner. The Court held that in
the present case, the assessee's practice of law was not carried on in a commercial and
organized manner. The Court held that the assessee was a professional and that his
income was therefore taxable as income from other sources.
The Court further held that the fact that the assessee charged fees for his services did
not mean that his practice of law was a business. The Court held that the charging of
fees is a common practice among professionals and that it does not necessarily mean
that the professional is carrying on a business.
Conclusion:
The judgment of the Supreme Court in the case of CIT v. Manmohan Das is a
significant judgment for professionals. The judgment clarifies that the income from
the practice of a profession is taxable as income from other sources and not income
from business.
determining whether the income from a profession is taxable as income from business
or income from other sources is whether the profession is carried on in a commercial
and organized manner.
GUFFICK CHEM PVT LTD. VS CIT 2011 332 ITR 602 SC
The case of Guffick Chem Pvt. Ltd. v. CIT (2011) 332 ITR 602 (SC) dealt with the
issue of whether the assessee, a company engaged in the manufacturing and sale of
chemicals, was entitled to deduction under Section 35DD of the Income Tax Act,
1961, for expenditure incurred on research and development (R&D) activities carried
on outside India.
Facts of the case:
The assessee was a company engaged in the manufacturing and sale of chemicals. The
assessee had incurred expenditure on R&D activities carried on outside India. The
assessee claimed deduction for the R&D expenditure under Section 35DD of the
Income Tax Act, 1961 (the Act). The Assessing Officer (AO) disallowed the
deduction on the ground that the R&D activities were carried on outside India. The
assessee challenged the AO's order before the Commissioner of Income Tax
(Appeals) (CIT(A)), who upheld the AO's order. The assessee further appealed to the
Income Tax Appellate Tribunal (ITAT), which allowed the deduction. The Revenue
appealed to the Supreme Court of India against the ITAT's order.
Judgment:
The Supreme Court held that the assessee was entitled to deduction under Section
35DD of the Act for the R&D expenditure incurred outside India.
The Court held that the language of Section 35DD of the Act is clear and
unambiguous and does not impose any restriction on the place where the R&D
activities should be carried on. The Court held that the only requirement is that the
R&D activities should be carried on for the development of new products, processes
or services.
The Court further held that the R&D activities carried on by the assessee were for the
development of new products and processes. The Court also held that the assessee had
incurred the R&D expenditure in order to increase its profits and that the expenditure
was therefore deductible under Section 35DD of the Act.
Conclusion:
The judgment of the Supreme Court in the case of Guffick Chem Pvt. Ltd. v. CIT is a
significant judgment for companies that incur expenditure on R&D activities outside
India. The judgment clarifies that companies are entitled to deduction under Section
35DD of the Act for R&D expenditure incurred outside India, provided that the R&D
activities are carried on for the development of new products, processes or services.
The judgment is also important because it establishes the principle that the language
of a tax statute should be interpreted in its plain and literal meaning.
INDO GLOBAL CORPORATE FINANCE LTD VS ITO 2012 ITAT MUMBAI
The case of Indo Global Corporate Finance Ltd. v. ITO (2012) ITAT Mumbai dealt
with the issue of whether the assessee, a company engaged in the business of
providing financial services, was entitled to a deduction under Section 35CCD of the
Income Tax Act, 1961 (the Act) for expenditure incurred on the purchase of research
data.
Facts of the case:
The assessee was a company engaged in the business of providing financial services.
The assessee had incurred expenditure on the purchase of research data from a foreign
company. The assessee claimed deduction for the expenditure under Section 35CCD
of the Act. The Assessing Officer (AO) disallowed the deduction on the ground that
the expenditure was not incurred on research and development (R&D) activities. The
assessee challenged the AO's order before the Income Tax Appellate Tribunal
(ITAT), Mumbai.
Judgment:
The ITAT held that the assessee was entitled to deduction under Section 35CCD of
the Act for the expenditure incurred on the purchase of research data.
The Tribunal held that the expenditure on the purchase of research data was incurred
for the development of new products and processes. The Tribunal also held that the
research data was necessary for the assessee to carry on its business of providing
financial services.
The Tribunal further held that the R&D activities carried on by the assessee were not
limited to the laboratory and that the purchase of research data was also an integral
part of the R&D process.
Conclusion:
The judgment of the ITAT in the case of Indo Global Corporate Finance Ltd. v. ITO
is a significant judgment for companies that incur expenditure on the purchase of
research data. The judgment clarifies that companies are entitled to deduction under
Section 35CCD of the Act for expenditure incurred on the purchase of research data,
provided that the research data is necessary for the development of new products and
processes.
The judgment is also important because it establishes the principle that the R&D
activities carried on by a company are not limited to the laboratory and that the
purchase of research data can also be an integral part of the R&D process.
TECHMSCH INDIA LTD VS CIT 2010 DEL ITAT SPECIAL BENCH
The case of Techmsche India Pvt Ltd. v. CIT (2010) 127 ITR 1 (Special Bench, ITAT
Delhi) dealt with the issue of whether the amount paid by the assessee to the
transferor company as non-compete fee was allowable as a deduction under Section
37(1) of the Income Tax Act, 1961 (the Act).
Facts of the case:
The assessee, Techmsche India Pvt. Ltd., was a company engaged in the business of
manufacturing and selling industrial chemicals. The assessee had acquired the
business of Techmsche (India) Pvt. Ltd. (the transferor company) on a slump sale
basis. The assessee had agreed to pay a non-compete fee of Rs. 1 crore to the
transferor company in consideration of the transferor company agreeing not to
compete with the assessee in the business of manufacturing and selling industrial
chemicals for a period of five years. The assessee claimed deduction for the non-
compete fee under Section 37(1) of the Act.
The Assessing Officer (AO) disallowed the deduction on the ground that the non-
compete fee was not incurred for the purpose of business. The assessee challenged the
AO's order before the Commissioner of Income Tax (Appeals) (CIT(A)), who upheld
the AO's order. The assessee further appealed to the Income Tax Appellate Tribunal
(ITAT), Delhi, which allowed the deduction. The Revenue appealed to the Special
Bench of the ITAT, Delhi, against the ITAT's order.
Judgment:
The Special Bench of the ITAT held that the amount paid by the assessee as non-
compete fee was allowable as a deduction under Section 37(1) of the Act.
The Special Bench held that the non-compete fee was incurred for the purpose of
protecting the assessee's business and was therefore a revenue expenditure. The
Special Bench also held that the non-compete fee was not a capital expenditure, as it
did not create any new asset for the assessee.
The Special Bench further held that the non-compete fee was not a payment in the
nature of compensation for loss of profits, as it was paid in consideration of the
transferor company agreeing not to compete with the assessee.
Conclusion:
The judgment of the Special Bench of the ITAT in the case of Techmsche India Pvt
Ltd. v. CIT is a significant judgment for companies that pay non-compete fees. The
judgment clarifies that non-compete fees are allowable as a deduction under Section
37(1) of the Act, provided that the non-compete fees are incurred for the purpose of
protecting the company's business.
The judgment is also important because it establishes the principle that non-compete
fees are not capital expenditure, as they do not create any new asset for the company.
CIT VS T V SUNDARAM IYENGAR AND SONS 1996 222 ITR 344
The case of CIT v. T.V. Sundaram Iyengar and Sons Ltd. (1996) 222 ITR 344 (SC)
dealt with the issue of whether unclaimed deposits received by a company in the
course of its trading transactions are taxable as income.
Facts of the case:
The assessee, T.V. Sundaram Iyengar and Sons Ltd., was a company engaged in the
business of manufacturing and selling textiles. The assessee had received certain
deposits from its customers, which remained unclaimed for a period of time. The
assessee treated the unclaimed deposits as a liability in its books of account. The
Assessing Officer (AO) treated the unclaimed deposits as income of the assessee. The
Income Tax Appellate Tribunal (ITAT), which allowed the assessee's appeal. The
Revenue appealed to the Supreme Court of India against the ITAT's order.
Judgment:
The Supreme Court held that unclaimed deposits received by a company in the course
of its trading transactions are not taxable as income.
The Court held that the unclaimed deposits are not revenue receipts, but rather
liabilities of the company. The Court held that the company is liable to repay the
unclaimed deposits to the customers if they claim them at any time in the future.
The Court further held that the unclaimed deposits are not capital receipts, as they are
not received in consideration of the transfer of a capital asset.
Conclusion:
The judgment of the Supreme Court in the case of CIT v. T.V. Sundaram Iyengar and
Sons Ltd. is a significant judgment for companies that receive unclaimed deposits
from their customers. The judgment clarifies that unclaimed deposits are not taxable
as income, as they are liabilities of the company.
The judgment is also important because it establishes the principle that the nature of a
receipt is determined by the substance of the transaction and not by the form of the
transaction.
DEVIN PORT AND CO PVT LTD VS CIT 1975 100 ITR 715 SC
The case of Devin Port and Co. Pvt. Ltd. v. CIT (1975) 100 ITR 715 (SC) dealt with
the issue of whether the assessee, a company engaged in the business of stevedoring
and general cargo handling, was entitled to deduction for expenditure incurred on the
purchase of tea and biscuits for its employees under Section 37(1) of the Income Tax
Act, 1961 (the Act).
Facts of the case:
The assessee was a company engaged in the business of stevedoring and general
cargo handling. The assessee had incurred expenditure on the purchase of tea and
biscuits for its employees. The assessee claimed deduction for the expenditure under
Section 37(1) of the Act on the ground that the expenditure was incurred for the
purpose of business.
The Assessing Officer (AO) disallowed the deduction on the ground that the
expenditure was not incurred for the purpose of business. The assessee challenged the
AO's order before the Commissioner of Income Tax (Appeals) (CIT(A)), who upheld
the AO's order. The assessee further appealed to the Income Tax Appellate Tribunal
(ITAT), which allowed the deduction. The Revenue appealed to the Supreme Court of
India against the ITAT's order.
Judgment:
The Supreme Court held that the assessee was entitled to deduction for the
expenditure incurred on the purchase of tea and biscuits for its employees under
Section 37(1) of the Act.
The Court held that the expenditure was incurred for the purpose of maintaining the
efficiency of the employees and was therefore a revenue expenditure. The Court also
held that the expenditure was not a personal expense of the employees, as it was
incurred for the benefit of the company.
The Court further held that the expenditure was not a capital expenditure, as it did not
create any new asset for the company.
Conclusion:
The judgment of the Supreme Court in the case of Devin Port and Co. Pvt. Ltd. v. CIT
is a significant judgment for companies that incur expenditure on the purchase of tea
and biscuits for their employees. The judgment clarifies that companies are entitled to
deduction for such expenditure under Section 37(1) of the Act, provided that the
expenditure is incurred for the purpose of maintaining the efficiency of the employees
and is not a personal expense of the employees.
The judgment is also important because it establishes the principle that expenditure
incurred for the benefit of the company is not a personal expense of the employees.
CIT VS BHAGWAN DAS RAMESHWAR DAYAL 1984 149 ITR 387 DEL HC
The case of CIT v. Bhagwan Das Rameshwar Dayal (1984) 149 ITR 387 (Delhi HC)
dealt with the issue of whether the amount paid by the assessee to his son as salary for
managing the assessee's business was allowable as a deduction under Section 37(1) of
the Income Tax Act, 1961 (the Act).
Facts of the case:
The assessee, Bhagwan Das Rameshwar Dayal, was a businessman. The assessee had
paid a salary of Rs. 20,000 to his son for managing the assessee's business. The
assessee claimed deduction for the salary under Section 37(1) of the Act.
The Assessing Officer (AO) disallowed the deduction on the ground that the salary
was excessive and was paid with the intention of reducing the assessee's tax liability.
The assessee challenged the AO's order before the Commissioner of Income Tax
appealed to the Delhi High Court against the ITAT's order.
Judgment:
The Delhi High Court held that the amount paid by the assessee to his son as salary
for managing the assessee's business was allowable as a deduction under Section
37(1) of the Act.
The Court held that the salary paid to the son was not excessive, as it was in line with
the salaries paid to other employees in similar positions. The Court also held that the
salary was not paid with the intention of reducing the assessee's tax liability, as the
assessee had been paying salary to his son for managing the business for several
years.
The Court further held that the assessee was entitled to deduct the salary paid to his
son under Section 37(1) of the Act, as the salary was incurred for the purpose of
business.
Conclusion:
The judgment of the Delhi High Court in the case of CIT v. Bhagwan Das Rameshwar
Dayal is a significant judgment for businessmen who pay salary to their family
members for managing their businesses. The judgment clarifies that businessmen are
entitled to deduct the salary paid to their family members under Section 37(1) of the
Act, provided that the salary is not excessive and is paid for the purpose of business.
of the assessee in paying salary to his family members is not relevant for the purpose
of allowing deduction under Section 37(1) of the Act.
CIT VS JOSEPH JOHN 1968 67 ITR
The case of CIT v. Joseph John (1968) 67 ITR 467 (SC) dealt with the issue of
whether the assessee, a doctor, was entitled to deduction for expenditure incurred on
the purchase of a car under Section 37(1) of the Income Tax Act, 1961 (the Act).
Facts of the case:
The assessee, Joseph John, was a doctor. The assessee had purchased a car for Rs.
10,000. The assessee claimed deduction for the expenditure incurred on the purchase
of the car under Section 37(1) of the Act on the ground that the car was used for the
purpose of his profession.
The Assessing Officer (AO) disallowed the deduction on the ground that the car was
not used wholly and exclusively for the purpose of the assessee's profession. The
Judgment:
expenditure incurred on the purchase of the car under Section 37(1) of the Act.
The Court held that the car was used wholly and exclusively for the purpose of the
assessee's profession, as the assessee used the car to visit his patients and to travel to
various hospitals where he worked. The Court also held that the fact that the assessee
also used the car for personal purposes did not mean that the car was not used wholly
and exclusively for the purpose of his profession.
The Court further held that the assessee was entitled to deduct the expenditure
incurred on the purchase of the car under Section 37(1) of the Act, even though the
car was also used for personal purposes, as the expenditure was incurred for the
purpose of his profession.
Conclusion:
The judgment of the Supreme Court in the case of CIT v. Joseph John is a significant
judgment for professionals who use their cars for both professional and personal
purposes. The judgment clarifies that professionals are entitled to deduction for the
expenditure incurred on the purchase of their cars under Section 37(1) of the Act,
even though the cars are also used for personal purposes, provided that the cars are
used wholly and exclusively for the purpose of their profession.
The judgment is also important because it establishes the principle that the mere fact
that a car is also used for personal purposes does not mean that the car is not used
wholly and exclusively for the purpose of the professional's profession.
S BINOD KUMAR DIAMOND LTD VS CIT 2013 35 337 MUMBAI ITAT
The case of S. Binod Kumar Diamonds Ltd. v. CIT (2013) 353 ITR 337 (Mumbai
ITAT) dealt with the issue of whether the assessee, a company engaged in the
business of manufacturing and selling diamonds, was entitled to deduction for
expenditure incurred on the travel of its directors under Section 37(1) of the Income
Tax Act, 1961 (the Act).
Facts of the case:
The assessee was a company engaged in the business of manufacturing and selling
diamonds. The assessee had incurred expenditure on the travel of its directors. The
assessee claimed deduction for the expenditure under Section 37(1) of the Act on the
ground that the expenditure was incurred for the purpose of business.
The Assessing Officer (AO) disallowed the deduction on the ground that the travel
expenditure was not incurred wholly and exclusively for the purpose of business. The
Income Tax Appellate Tribunal (ITAT), which allowed the deduction.
Judgment:
The ITAT held that the assessee was entitled to deduction for the expenditure incurred
on the travel of its directors under Section 37(1) of the Act.
The Tribunal held that the travel expenditure was incurred wholly and exclusively for
the purpose of business, as the directors had traveled to various places to meet with
customers and suppliers, to attend trade shows and exhibitions, and to explore new
business opportunities. The Tribunal also held that the fact that the directors had also
visited some personal places during their travels did not mean that the travel
expenditure was not incurred wholly and exclusively for the purpose of business.
The Tribunal further held that the assessee was entitled to deduct the travel
expenditure incurred on its directors under Section 37(1) of the Act, even though the
directors were also shareholders of the company, as the travel expenditure was
incurred for the purpose of the company's business.
Conclusion:
The judgment of the ITAT in the case of S. Binod Kumar Diamonds Ltd. v. CIT is a
significant judgment for companies that incur expenditure on the travel of their
directors. The judgment clarifies that companies are entitled to deduction for such
expenditure under Section 37(1) of the Act, even though the directors are also
shareholders of the company, provided that the travel expenditure is incurred wholly
and exclusively for the purpose of the company's business.
that the directors of a company have also visited some personal places during their
travels does not mean that the travel expenditure is not incurred wholly and
exclusively for the purpose of business.
MAISOOR MINERALS LTD VS CIT 1999 106 166 SC

The case of Mysore Minerals Ltd. v. CIT (1999) 106 ITR 166 (SC) dealt with the
issue of whether the assessee, a company engaged in the business of mining and
selling iron ore, was entitled to deduction for expenditure incurred on the
development of an iron ore mine under Section 35D of the Income Tax Act, 1961 (the
Act).
Facts of the case:
The assessee had incurred expenditure on the development of an iron ore mine. The
assessee claimed deduction for the expenditure under Section 35D of the Act on the
ground that the expenditure was incurred on the development of a new mine.
The Assessing Officer (AO) disallowed the deduction on the ground that the
expenditure was not incurred on the development of a new mine. The AO held that
the assessee had already been mining iron ore from the same area and that the
expenditure incurred was only on the expansion of the existing mine.
The assessee challenged the AO's order before the Commissioner of Income Tax
Judgment:
expenditure incurred on the development of the iron ore mine under Section 35D of
the Act.
The Court held that the expenditure was incurred on the development of a new mine,
as the assessee had not been mining iron ore from the same area before. The Court
held that the mere fact that the assessee was already mining iron ore from a nearby
area did not mean that the expenditure incurred on the development of the new mine
was not on the development of a new mine.
The Court further held that the assessee was entitled to deduct the expenditure
incurred on the development of the new mine under Section 35D of the Act, even
though the mine was not yet in operation. The Court held that it is not necessary for
the mine to be in operation in order to claim deduction under Section 35D of the Act.
Conclusion:
The judgment of the Supreme Court in the case of Mysore Minerals Ltd. v. CIT is a
significant judgment for companies that incur expenditure on the development of new
mines. The judgment clarifies that companies are entitled to deduction for such
expenditure under Section 35D of the Act, even though the mines are not yet in
operation.
that a company is already mining from a nearby area does not mean that the
expenditure incurred on the development of a new mine is not on the development of
a new mine.
CIT VS WEIZMANN FOREX LTD 2012 MUM ITAT

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BHAGWAN DAS JAIN VS UNION OF INDIA

ITO VS RANI RATNESH KUMARIM 1980 123 ITR 343

CIT VS PRABHU DAYAL1971 82 ITR 804 SC

HARSHA AND MEHTA VS CIT 2011 ITAT MUMBAI

CIT VS ABDUL GHANI GURDEJI 1995 213 ITR 738

CIT VS MANMOHAN DAS 1966 59 ITR 699 SC

GUFFICK CHEM PVT LTD. VS CIT 2011 332 ITR 602 SC

INDO GLOBAL CORPORATE FINANCE LTD VS ITO 2012 ITAT MUMBAI

TECHMSCH INDIA LTD VS CIT 2010 DEL ITAT SPECIAL BENCH

CIT VS JOSEPH JOHN 1968 67 ITR

S BINOD KUMAR DIAMOND LTD VS CIT 2013 35 337 MUMBAI ITAT

MAISOOR MINERALS LTD VS CIT 1999 106 166 SC

CIT VS WEIZMANN FOREX LTD 2012 MUM ITAT

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