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30 / 36

RECENT judgements

DIRECT TAXES

CIT vs. Woodward Governor India (P.) Ltd., 179 Taxman 326 (SC)/ 312 ITR 254 (SC)

S. 37(1) : A.Y. 1998-99 : Loss suffered by assessee on account of foreign exchange difference as on the date of balance sheet is an item of expenditure u/s. 37(1). Hence exchange fluctuation loss arising on mark to market restatement of liabilities at the year end is an allowable loss. Further, prior to amendment to s. 43A, assessee was entitled to adjust actual cost of imported assets acquired in foreign currency on account of fluctuation in rate at each balance sheet date.

CIT vs. Doom Dooma India Ltd., 178 Taxman 261 (SC)/ 310 ITR 392 (SC)

S. 43(6) r.w.rule 8 : A.Y. 1988-89 to 1991-92 : The words “depreciation actually allowed” under s. 43(6)(b) mean depreciation actually deducted in arriving at taxable income. Assessee was in the business of growing and manufacturing tea. Since income which is brought to tax is only 40% of composite income, only 40% of the depreciation computed at the prescribed rate is required to be taken in to account, being depreciation actually allowed, to determine WDV u/s. 43(6)(b).

CIT v B. Suresh, 178 Taxman 457 (SC)

S. 80HHC : A.Y. 1993-94 : Feature film right would fall in the category of article of trade and commerce and, hence, merchandise. Foreign exchange earned by transfer of feature film rights for exploitation outside India in form of lease is eligible for deduction u/s. 80HHC.

CIT v Eli Lilly & Co. (India) (P.) Ltd., 178 Taxman 505 (SC)/ 312 ITR 225 (SC)

S. 192 r.w.s. 9 : A foreign company seconded some employees to its Indian joint venture company, and such Indian company has not deducted tax at source on home salary/ special allowance payment made outside India by foreign company. Where home salary/ special allowance payment made to expatriate by a foreign company abroad for rendition of service in India and no work is found to have been performed for foreign company, such payment would come under s. 192 read with section 9(1)(ii). Further, for computation of interest u/s. 201(1A), the period of defaults starts from the date of deductibility of tax and restricted till the date of actual payment by concerned employees.

CIT v Pranoy Roy, 179 Taxman 53 (SC)

  • S.

    234A : A.Y. 1995-96 : Assessee earned substantial capital gains for

  • A.

    Y. 1995-96. The return was filed after a delay of about 11 months.

However taxes due were paid before the due date for filing the return. It was held that interest is levied by way of compensation and is not a penalty. Since tax due had been paid question of levy of interest did not arise.

CIT v Shaikh Hassan Hotels, 178 Taxman 313 (Bom)

S. 271(1)(c) : AO levied penalty for concealment of income. However Tribunal found that assessee has disclosed all the details in return filed belatedly but prior to receipt of notice u/s. 148. Therefore it was held that Tribunal was justified in coming to conclusion that there is no deliberate concealment.

Pallonji M. Mistry v CIT, 178 Taxman 341 (Bom)

S. 22: Assesse was co-owner of property consisting of 40 flats, out of which 23 flats were sold during A.Y. 1978-79 and conveyance deed was executed in next year. The AO treated assessee as owner of said 23 flats for the purpose of assessing income therefrom on the ground that for transfer mere execution of conveyance deed is not enogh, without deed being registered. It was held that there is no requirement that there has to be a registered deed of conveyance for the purpose of s. 22. Hence assessee has ceased to be the owner of flats in question.

Compagnie Financiere Hamon, In re; 177 Taxman 511 (AAR)

S. 112 : A.Y. 2008-09 : It was ruled that the benefit of lower rate of tax envisaged by s. 112(1) is available to non-resident foreign company also even if second proviso to s. 48 is not applicable to them. Further, while computing capital gains, deduction is admissible for legal expenses distinctly related to and integrally connected with transfer of shares. On facts, it was ruled that legal fees paid to lawyers for filing petition u/s. 397 & 398 before CLB and for appearing before CLB prior to passing the final order giving green signal for transfer of shares are inadmissible.

Contributed by CA. Kiran Nisar, CA. Lalchand Chaudhary

30

INTERNATIONAL TAXATION

E-TRADE MAURITIUS LIMITED (BOMBAY HC) WRIT PETITION NO.2134 OF 2008 DATED : 23RD MARCH, 2009 AND DATED:26TH SEPTEMBER, 2008.

E-Trade Mauritius Limited, a Mauritius company(ETML) is a limited company formed under the laws of Mauritius and is a subsidiary of E*Trade Financial Corporation, aUS company (ET US). ETML sold shares of IL&FS Investmart Limited (IL&FS) to HSBC Violet Investments (Mauritius) Limited (HSBC Mauritius). Question arose as to taxability of income of a Mauritius Company from sale of shares of an Indian company whether liable to capital gains in India. The Bombay High Court has disposed of a writ petition filed by ETML and directed that the tax amount deposited with it earlier should be released to the Tax Department. The capital gains tax (approximate of Rs. 24.5 crores) was paid on the consideration received by ETML from another Mauritian company on sale of shares of an Indian company. After the transaction, ETML filed a writ petition before the Bombay High Court challenging a withholding tax certificate issued by the Tax Department to pay capital gain tax on the consideration. The HC had directed the matter back to the Tax Department for revision proceedings. Further, until disposal of the matter by the Tax authorities, the High Court directed HSBC Mauritius to deposit an amount of Rs 24.5 crore, being the tax amount, with the HC. The court held that the tax amount set aside under its earlier order be released to the Tax Department and the balance, of Rs 18.94 lakh should be released to ETML. The court has directed HSBC Mauritius to issue a Tax Deducted at Source (TDS) Certificate to ETML to the extent of tax amount released to the Tax Department.

CIT, DEHRADUN V. R & B FALCON DRILLING CO. {ITA 132 OF 2007 DATED 24TH APRIL, 2009}(UTTARAKHAND HC) (AY 2001-02)

The assessee a non-resident company, engaged in business of extraction of mineral oils etc. received reimbursement of mobilisation and demobilisation charges for transporting drilling rigs from various parts of the world to specified locations. The AO included said reimbursements in gross receipts. The ITAT, allowed the appeal holding that the mobilization / demobilization charges are not required to be included in the receipts for the purposes of calculating the presumptive income under Section 44BB of the Act. High Court held that the payment made to the assessee on account of mobilization fee is not the actual reimbursement; rather, it includes the expenditure incurred by the company in transporting the drilling units of rigs to the specified drilling locations in India. Hence such amounts received are liable to be included in the ‘gross receipts’ and it makes no difference whether the amount was paid or payable in or outside India. The section does not exclude the mobilization / demobilization charges paid for transportation of the plant and machinery from the place out of India to the locations in India or its territorial waters.

Hence, the impugned order passed by the ITAT, was set aside and Revenue’s appeal was allowed.

DDIT ( INTERNATIONAL TAXATION ) V. M/S. RELIANCE INDUSTRIES LIMITED {ITA NO. 4383/ MUM/2002 DATED 20TH JANUARY, 2009}( MUMBAI TRIBUNAL – L BENCH) ( AY : 1999-2000)

The assessee floated three Euro Issues to raise funds. For bringing out these Euro issues, the assessee employed the services of US based Lead Managers for assisting it in all aspects of consultancy for preparing documents connected with bringing out the issue, dealing with various regulatory authorities in India and abroad etc. For these services the assessee made certain payments without deducting tax at source u/s. 195. The AO initiated the proceedings u/s 201(1) and 201(1A) since the services rendered by non- resident amounted to fees for technical services within the ambit of section 9(1)(vii) of the Act and such payments amounted to fees for included services as per Article 12 of the DTAA between India and USA and consequently, the provisions of section 195 were attracted. Aggrieved by the order, appeal was filed before the CIT(A) who confirmed the view of the Assessing Officer that such payment amounted to fees for technical services within the meaning of section 9(1)(vii) of the Act. However, ITAT held that such payments could not be treated as fees for included services within the meaning of Article 12 of the Indo-US. Treaty and consequently the provisions of Article 7 were attracted. Since, the non-resident has no PE in India, it was further held that the fees received by the non-resident could not be taxed in India The appeal of the assessee was, therefore, allowed. Hence the order of the CIT(A) is, therefore, upheld.

DCIT, DEHRADUN VS SHRI ASHOK KUMAR{ITA NO. 2398/DEL/2007 DATED 6TH MARCH, 2009}( DELHI TRIBUNAL ) ( AY : 2004-2005)

July 2009 | Western India Chartered Accountants Newsletter

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