The Income-tax Act, 1961, under Chapter VI-A, provides for certain special deductions. These special deductions have been subject matter oflitigation all along. One such provision is Section80HH, which provides for deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.
In a recent judgment in the case of Vijay
Industries1, a three-judge bench of the Hon’ble
Supreme Court decided the issue as to whether
the deduction under Section 80HH is to be
calculated after deducting ‘depreciation’ and
‘investment allowance’ from profits and gains or
not. The Court held that the deduction under
Section 80HH is to be allowed on the ‘profit and
gains’ without applying the provisions of the Act
(‘Gross amount’) and not on profits and gains
computed as per the Act (‘Net amount’). The
relevant assessment years in this case were
assessment years 1979-80 and 1980-81.
In this case, the assessee had challenged
the judgment of division bench of Hon’ble
Supreme Court in Motilal Pesticides2, wherein in
respect of same section 80HH and for the same
assessment years, the Court had held that the
deduction is to be allowed on the net amount and
not on the gross amount. This ruling was being
1 Civil Appeal No. 1581-82/2005 (SC). 2 [2000] 160 CTR 389 (SC).
regularly followed by the department to compute
deduction under 80HH on net amount.
This article tries to analyse the legal position
existing prior to Vijay Industries judgment, and
the change in position brought by this judgment.
Position of law before Vijay Industries:
The provisions relating to special deductions
under chapter VI-A, heading “C- Deductions in
respect of certain income†have been interpreted
differently by the courts in India as discussed in
the following paragraphs. This part of the article
tries to discuss the interpretation given by the
courts to other provisions of Chapter VI-A and its
relevance in interpreting Section 80HH.
Interpretation of phrase “where the total
income (as computed in accordance with the
other provisions of this Act) includes any
profits and gainsâ€
In Cambay Electric Supply Industrial Co Ltd3,
the Supreme Court interpreted the above-
mentioned phrase in Section 80E, as it existed,
and held that the deduction is to be allowed on
the net amount, i.e. profits and gains after
deducting unabsorbed depreciation and
unabsorbed development rebate. The Court held
that since the total income is required to be
computed as per the provisions of the Act,
unabsorbed depreciation and unabsorbed
development rebate will have to be considered
for arriving at the amount eligible for deduction.
3 [1978] 113 ITR 84 (SC).
Article
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Interpretation of the phrase “where the gross
total income includes any income by way
of…..â€
In Cloth Traders4, the Supreme Court held
that the deduction under Section 80M in respect
of dividend is to be allowed on gross amount.
Court held that the opening words in the section,
namely, "Where the gross total income of an
assessee.......includes any income by way of
dividends from a domestic company" refer only to
the inclusion of the category of income by way of
dividends and not to the quantum of the income
included in the gross total income. Therefore, the
deduction is to be calculated with reference to the
whole amount of dividends. In this judgment, the
Court referred to some other provisions such as
80-K, 80-MM, 80N-, 80-O, etc. and noted that
deductions under these sections as well are on
the whole amount. However, it is to be noted that
the judgment of Cambay Electric Supply
Industrial Co. Ltd. was not discussed in Cloth
Traders.
Insertion of Section 80AA and 80AB
After the judgment of Cloth Traders, the
legislature inserted Section 80AA (applicable to
Section 80M) and 80AB (applicable to other
deductions) in Chapter VIA of the Act. Both these
sections provided that the deductions specified in
the aforesaid sections will be calculated with
reference to the net income as computed in
accordance with the provisions of the Act (before
making any deduction under Chapter VIA) and
not with reference to the gross amount of such
income. Section 80AA was inserted with
retrospective effect i.e. from 1st April, 1968
whereas 80AB was prospective in operation from
1st April, 1981 (from assessment year 1981-82
onwards).
4 [1979] 118 ITR 243 (SC).
Constitution bench in Distributors Baroda
The Constitution Bench of the Hon’ble
Supreme Court in Distributors Baroda5
overturned the decision of Cloth Traders and held
that the deduction in respect of Section 80M is to
be allowed on net amount and not gross amount.
The Supreme Court in this judgment did not
discuss the retrospectivity of Section 80AA, as it
was not necessary in view of its interpretation of
Section 80M.
The Court held that the condition for
applicability of Section 80M is that the gross total
income must include the income by way of
dividend. The deduction is to be made from 'such
income by way of dividends', and therefore, it is
elementary that 'such income by way of
dividends' from which deduction has to be made
must be part of the gross total income. The Court
held that it is not the full amount of dividend
which is included in the gross total income, but
what is included would only be the amount of
dividend as computed in accordance with the
provisions of the Act. Accordingly, the deduction
required to be made for computing the total
income from the gross total income can only be
from the amount of dividend computed.
Therefore, the deduction was to be allowed on
net amount and not gross amount. The court
rejected the interpretation of Cloth Traders that
the term ‘such income by way of dividends’ only
refers to category of income and not to quantum
of income.
After this judgment, section 80AA was
rendered superfluous.
However, in Motilal Pesticides, the question
came up whether the interpretation as provided in
Distributors Baroda in respect of Section 80M is
to be followed for the purposes of section 80HH
or not.
5 [1985] 155 ITR 120 (SC).
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The Court held that the language of Section
80HH and 80M was similar and following the
judgment of Distributors Baroda, the deduction is
to be allowed on the net amount. The Court held
that the interpretation of Distributors Baroda is
irrespective of Section 80AA. Further, the Court
noted that though Section 80AB was to have
prospective operation, similar to section 80 AA,
even Section 80AB is to be understood to have
been enacted to declare the law as it always
stood. Therefore, it was held that the deduction
was to be allowed on net amount.
Judgment of Vijay Industries and analysis
In this judgment, the Court held that Chapter
VI-A is a standalone chapter dehors Chapter IV
of the Act. Therefore, provisions relating to
various kinds of deductions mentioned therein
have to be construed independent of Chapter IV
of the Act. Further, the Court held that there is a
distinction between the concept of ‘income’ on
one hand and ‘profits and gains’ on the other
hand.
The Court held that the scheme of Chapter
VI-A which includes Sections 80C to 80U contain
different subject matters and also specify
particular percentage of deductions for a
particular period. Further, different provisions
from Sections 80C to 80U also specify as to how
such a deduction is to be worked out. The court
held that insofar as Section 80HH is concerned, it
specifically mentions deduction at the rate of 20%
of ‘profits and gains’. On reading of Section
80HH along with Section 80A, it is clear that such
a deduction has to be on gross profits and gains
i.e. before computing the income as specified in
Sections 30 to 43D of the Act.
The Court noted that the change in legal
position was brought by Section 80AB which is
prospective in operation and therefore not
applicable to relevant assessment years.
It may be noted that the judgment of Cambay
Electric Supply Industrial Co Ltd and Distributors
Baroda were referred to and discussed.
However, the same were distinguished on the
ground that the language of Section 80HH was
different from 80E and 80M.
The judgment of Distributor Baroda was
distinguished on the basis that it was a decision
on Section 80M which used the term ‘income by
way of dividend’, whereas 80HH uses the term
‘profit and gains’ and does not use term ‘income’.
However, one could always debate whether the
judgment of Supreme Court in Distributors
Baroda has been properly considered in Vijay
Industries.
In Distributors Baroda, while holding that the
deduction is to be allowed on net amount, the
Court interpreted the condition for applicability of
Section 80M, i.e. gross total income must include
income by way of dividend. The Court held that it
not only refers to category of income but also to
quantum of income. The Court held that what is
included in gross total income is the amount of
dividends computed in accordance with the
provisions of the Act. The judgment of Vijay
Industries unfortunately does not discuss this
point.
Be that as it may, section 80AB inserted with
effect from 1st April, 1981 seems to make it very
clear that deductions specified in Chapter VIA will
be calculated with reference to the net income as
computed in accordance with the provisions of
the Act (before making any deduction under
Chapter VIA) and not with reference to the gross
amount of such income. Therefore, the recent
judgment in the case of Vijay Industries may not
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have any impact on Chapter VIA deductions for
the period post 1st April, 1981.
However, this judgment is likely to have an
impact on the interpretation of various other
sections which grants exemptions or deductions
with reference to “profits and gains†of a business
or activity rather than the “income†therefrom.
May be the final verdict on this issue is yet to be
pronounced.
[The author is an Associate, Direct Tax
Team, Lakshmikumaran & Sridharan, Delhi]
Receipt of share premium by start-ups from certain resident investors not to attract Section 56(2)(viib)
The CBDT has issued Notification No. 13/2019,
dated 5-3-2019 stating that Section 56 (2)(viib)
would not apply to consideration received from a
resident who fulfils the conditions laid down in the
notification dated 19-2-2019 issued by DPIIT. As
per the notification issued by DPIIT, investment in
excess of fair market value of shares, by a
resident in a start-up company would not be
taxed as income in the hands of the company if it
fulfils conditions specified. The conditions
mentioned include, stipulation that the net worth
of the investor exceeds INR 100 crores or its
turnover in the previous year exceeds INR 250
crores, the aggregate of paid up share capital
and share premium received by the start-up
should not exceed INR 25 crores and also
restrictions on investment by the start-up in
certain assets.
Non-compete fee received by persons associated with transferor of business taxable as business income, not as capital gain
The assessee claimed that consideration
received by him for sale of ‘technical concept’
was not taxable since it pertained to sale of self-
generated asset with nil cost of acquisition and
hence capital gains could not be computed. The
assessee had entered into an agreement with his
‘employer’ (IFCo) who incurred expenses to
develop/commercially exploit a concept of
website malware monitoring developed by him.
No consideration was paid to the assessee for
providing the right, but as per the terms of the
agreement the company was allowed to exploit
the right manufacture or use in business the
concept/product without payment of royalty. The
Ratio Decidendi
Notification
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agreements further stated that if IFCo was not
able to commercialise the concept or it sold the
business within seven years, the reversionary
right to use the concept would revert to the
assessee. The product developed along with
certain other assets was sold to another
company (purchaser). The assessee also signed
a non-compete covenant whereby the assessee
agreed not to engage in any activity which would
compete with the business of the purchaser.
The CIT(A) upheld the reasoning of the AO that
since the assessee was an employee of IFCo at
time the concept was developed the employer
would own the same in terms of Section 17 (c) of
the Copyright Act 1957 and hence the assessee
claim that the consideration was for transfer of a
capital asset was incorrect. Further, the CIT (A)
concluded that the sum received by the assessee
was for ‘not carrying on any activity in relation to
any businesses under Section 28(va) (a) of the
Income Tax Act and hence was taxable as
revenue receipt. The CIT(A), following Dr. B.V
Raju (2012) 18 taxman.com 188 (Hyderabad)
(SB), held that non-compete fee paid to the
transferor of a business could be taxable under
capital gains but sums paid to persons
associated with the transferor to ensure that they
also do not indulge in competing business would
be taxable under Section 28(va)(a). The CIT(A)
Order was upheld by the Tribunal. [Ashish
Tandon v. ACIT, ITA No.: 1954/Ahd/ 2017, ITAT,
Ahd, Order dated 8-2-2019]
Assessee must have filed return in previous year in order to claim carry forward of loss
High Court of Bombay held that in order to be
eligible to carry forward loss of previous year, the
assessee must have filed a return of income
claiming such loss. In the case of the assessee, it
was incorporated as a trust in the US and later
converted to a LLC. The assessee had five
investment funds operating under a separate
PAN and sought to carry forward the loss of three
of the funds. It argued that since there was no
change in the status of the assessee as per the
laws of US which were the applicable law, it was
eligible to carry forward the loss as per Section
74 of the Income Tax Act, 1961. However, the
High Court upheld the reasoning of the AAR,
holding that while the status of the assessee
remained unchanged, it should also fulfil the
condition of having filed a return of income before
the due date as per Section 80 of the Income Tax
Act. Since the returns had been filed by the
investment funds and not the assessee, it was
not entitled to carry forward the loss. [Aberdeen
Institutional Commingled Funds v. AAR, DCIT,
WP 9358/2018, decision dated 8-3-2019]
Option price paid for right of first refusal is not taxable as business income
The revenue department argued that option price
received by the assessee in terms of a joint
venture agreement to co-promote insurance
business was taxable as business income in the
hands of the assessee. However, the assessee
contended that the transaction was in nature of
capital contribution and investment in shares was
not the business of the assessee. The said
agreement was entered into with a non-resident
company in view of the restriction on foreign
companies to enter the insurance business and
the clauses provided that in case the non-
resident was permitted to increase its stake, the
asesssee would offer shares to the non-resident
first. In consideration of this the non-resident had
paid a sum as option price to the assessee. The
option price was to be refunded at the time of
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transfer of shares to the non-resident. Thus, in
the years prior to the actual transfer of shares,
the sum was not offered to tax. The
Commissioner invoked his powers under Section
263 of the Income Tax Act, stating that the
assessment was erroneous and prejudicial to the
interest of Revenue. However, the ITAT set aside
the order of the Pr. CIT. [Dabur Invest Corp v.
Pr.CIT, ITA No. 1763/DEL/2018, ITA No.
1764/DEL/2018, ITAT, Delhi order dated 11-3-
2019]
Appeal proceedings against defunct company not infructuous
The departmental appeal before the jurisdictional
High Court was dismissed by terming it
‘infructuous’, on the sole ground that since the
assessee company’s name had been struck-off
from the Register of the Company u/s. 560(5) of
the Companies Act, 1956, it stands dissolved and
the issue need not be decided. The Apex Court
set aside the order of the High Court and
remanded the matter for fresh consideration on
merits, on the following grounds – (i) High Court
had overlooked Proviso to Section 560(5) of the
1956 Act that covers the liability of the Company
and its official after its dissolution under Sec.
560(5); (ii) High Court had failed to consider
Chapter XV of the Income Tax Act, 1961, which
deals with 'liability in special cases', wherein Sec.
176 specifically talks about ‘discontinuance of
business or dissolution’. Therefore, it was held
that considering the foregoing provisions, which
squarely cover the scenario in the facts of the
case, the High Court was incorrect in dismissing
the appeal. [CIT v. Gopal Shri Scrips Pvt. Ltd,
Civil Appeal No. 2922/2019, Supreme Court
judgement dated 12-2-2019]
Retrenchment expenses paid to out- going workmen upon closure of one out of the three manufacturing units is an allowable expense
The assessee was running three units for
manufacture of chemicals, wherein, all the units
had a single management. One of the units was
making huge losses and therefore the assessee-
company decided to close it, for the reason that it
would better facilitate carrying on of business of
the other units. Consequently, the loss-making
unit was closed and the out-going workmen were
paid retrenchment compensation as per the
contract with the labour union. This retrenchment
compensation and the other expenses relating to
the sale of the unit were disallowed by the AO for
being a capital expenditure, for AY 2004-05. The
Court held that, first; the retrenchment
compensation was necessitated for reason of the
closure of business and the employees being
sent out of employment. Second, assessee had
only a single management for all units and the
purpose of closure of the unit was that it was a
loss making unit and its sale would facilitate
carrying on of business of the other units, i.e. for
increasing business efficiency. Therefore, their
expenses are revenue expenses and thus
allowed under Section 37 of the Income Tax Act.
[CIT v. TCM Ltd., ITA No. 171 of 2011, Kerala
High Court judgement dated 12-2-2019]
Increase in general reserve post amalgamation is not taxable as income
Under a Composite Scheme of Arrangement and
Amalgamation the assessee company undertook
a restructuring of various entities within the
group. As per the Scheme various business
undertaking of the assessee were transferred to
SPVs by way of demerger, without consideration
and it was held by an entity which later
amalgamated with the assessee. The investment
held by the amalgamating company was
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recorded at market value and hence the balance
of general reserve increased. The department
argued that the increase was taxable as business
income in terms of Section 28(iv) of the Income
Tax Act. The assessee argued that the
legislative intent behind introduction of sub-
section (iv) to Section 28 was to tax real and
tangible benefit arising from a business or
profession. The ITAT held that amalgamation is
not a business transaction and increase in
general reserve on recording of investments does
not give rise to income. [Aamby Valley Ltd. v.
ACIT, ITAT, Mumbai Order dated 22-2-2019]
Section 56(2) (viia) does not apply to transfer of shares in amalgamation
The ITAT also held that Section 56(2) (viia)
cannot apply to transaction of amalgamation.
Referring to the Memorandum to the Finance bill,
2010, it stated that the objective of introducing
the section is to prevent the practice of
transferring unlisted shares and for a transfer
there must be a transferor and transferee and an
asset which is transferred. In case of
amalgamation, there is not transfer, rather there
is a statutory vesting and hence Section 56(2)
(viia) is not attracted. Also, the section is in
nature of an anti-abuse provision and would not
apply to court approved Schemes. [Aamby Valley
Ltd. v. ACIT, ITAT, Mumbai Order dated 22-2-
2019]
Amendment to Section 47(vii) is retrospective
The revenue department also argued that since
the words ’except when the shareholder itself is
the amalgamated company’ were inserted in
Section 47(vii) in 2012 and hence in transactions
prior to 2012, the assessee cannot take benefit of
the same and in absence of consideration being
paid, the transaction would not qualify as a tax
neutral transfer. However, the ITAT held that the
insertion was made only to make the provision
workable and the amendment would apply even
to transactions prior to 2012. [Aamby Valley Ltd.
v. ACIT, ITAT, Mumbai Order dated 22-2-2019]
Transfer of cases under Section 127 does not affect jurisdiction of High Court
The assessee preferred an appeal in High Court
of Bombay against the order passed by the
Bangalore Tribunal. The assessee’s case had
been transferred from Bangalore to Pune as per
Section 127 the Income Tax Act. It was argued
that transfer of case or ‘all proceedings under the
Act’ would cover appeals under the Income Tax
Act, before the High court. However, the High
Court held that the jurisdiction of High Court
would be decided based on the situs of the
tribunal passing the order and transfer of cases
under Section 127 of the Income Tax Act, cannot
apply to High Court which are constituted under
the Constitution and hence appeal against the
order of Bangalore Tribunal would lie in
Karnataka High Court. [Pr. CIT v. Sungard
Solutions (I) P Ltd, ITA 1142/2016, Bombay High
Court judgement dated 26-2-2019]
Extension of stay - Ratio in Asian Resurfacing (P) Ltd. not applicable when case adjourned not at instance of Assessee
The Assessee filed an application for stay
seeking extension of stay beyond 6 months. The
argument by the Assessee was that it has a
strong prima facie case on merits and that the
delay on disposal of the matter cannot be
attributed to the Assessee. The Assessee had
further argued that when the matter was first
posted, the Bench did not function, that on the
second occasion, the matter was adjourned for
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want of time and on the third occasion, the
Department sought an adjournment. The
Department placed reliance on the Apex Court
ruling in Asian Resurfacing of Road Agency
Private Limited and argued that in light of the said
ruling, stay beyond 6 months is not permissible
unless the Court, by an order in writing, grants
so, in exceptional circumstances. It was held that
since on all three occasions, the matter has been
adjourned not at the instance of the assessee,
stay extension application was to be allowed and
the stay was ordered to be extended for a further
period of 6 months or disposal of Appeal
whichever is earlier. It was also directed that the
assessee shall not seek time whenever the
matter is posted next for hearing. [Sheela Foam
Limited v. DCIT (TS-116-ITAT-2019 (Delhi
ITAT))]
Receipt from surrender of sub-tenancy rights would be a capital receipt
The assessee’s wife had taken the ground floor
and mezzanine floor of premises on rent. The
assessee was granted permission by his wife to
use the ground floor of the premises to carry out
his medical profession for which the assessee
paid periodical rents to his wife. The rentals
received were disclosed by the assessee’s wife
in her return of income. In FY 2013-14, the
assessee’s wife transferred her tenancy rights to
a third party for a consideration. Since the
assessee was a subtenant, he was also a
confirming party to the arrangement. The
assessee received a consideration of Rs.1.40
crores for transferring his occupational right in the
ground floor. It was held that sub-tenancy rights
would constitute a capital asset and the income
from transfer of the same would be taxable under
the head “Capital gainsâ€. [ACIT v. Jayesh
Kashrichand Shah (TS-118-ITAT (2019)-ITAT
Mumbai))]
Primary onus on the assessee to establish genuineness of the transaction and credit worthiness of the investor under Section 68
The assessee company has received certain
sums as share capital and share premium from
certain companies based in Mumbai, Kolkata and
Guwahati. The face value of the shares of the
Assessee Company was Rs.10. However, the
same was subscribed to by the investor
companies at a premium Rs.190 per share. To
establish the genuineness of the transaction and
to also enquire of the credit worthiness of the
investors, the department sent notices to the
investor companies. However, none of the
representatives of the investor companies
appeared in person. Further, the department,
upon perusing the return of income filed by the
companies and noted that very meagre return of
income was disclosed by these companies. The
department also observed that some of these
investor entities were non-existent. For these
reasons, the total amounts received by the
assessee company as share capital and share
premium was added to the total income of the
assessee company under Section 68. The CIT
(A) and the ITAT had deleted the disallowances
made on the ground that the assessee had
provided confirmations from the investor
companies and that the amounts were received
through normal banking channels. Before the
Apex Court, the question of law was whether the
Assessee had discharged its onus in establishing
the genuineness of the transaction as required
under Section 68 of the IT Act. It was held that
the onus is on the Assessee to establish the
genuineness of the transaction and that the
enquires made by the department clearly
revealed that the investors companies were
either non-existent or did not have sufficient
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sources to invest such huge sums in share
capital of the Assessee company and that it was
not demonstrated by the Assessee as to why
shares were subscribed to at a very high
premium. Therefore, it was held that the primary
onus has not been discharged by the Assessee
and the additions made under Section 68 of the
IT Act were justified. [PCIT v. N.R.A.Steel P
Limited (2019) 103 taxmann.com 48 (SC).
Price paid to sugarcane growers in excess of the minimum cane price fixed as per Sugarcane Control Order (1966) not allowable as a deduction.
The assessee a cooperative society was
engaged in the business of production and sale
of sugarcane. The assessment years in question
were AY 1996-97 and 1997-98 for which years
the Assessee was asked to explain as to why the
price paid in excess of what was fixed as
minimum cane price under the Sugar Control
Order, 1996, to sugarcane growers which
includes members of the society as also non-
members should not be disallowed as deduction.
The Assessee contended that the price paid was
as per the rate fixed by the Commissionerate of
Sugar for the State of Maharashtra which was in
turn decided based on Mantri Committee
guidelines. The tax authorities observed that
while the minimum cane price was payable as
per Clause 3 of the Sugar Control Order, Clause
5A of the said Order stipulated additional cane
price to be paid based on profitability of the
factory (society) and therefore such additional
price which is decided based on the profitability
would amount to distribution of profits and hence
not allowable as a deduction. It was held that
difference between the price payable as per
Clause 3 of the Order and Clause 5A of the order
comprises of an element of profit and to that
extent the difference constitutes profit element,
the same would amount to distribution of surplus
by the society and deduction would not be
permissible under Section 37(1). [CIT v. Tasgaon
Taluka S.S.K.Ltd (2019) 103 taxmann.com 57
(SC)]
Deduction under Section 80-IC available at 100% from 6th year onwards if substantial expansion is undertaken by the assessee
The assessee had set up a unit in the State of
Himachal Pradesh and had claimed deduction of
100% of profits, under Section 80-IC of the IT Act
for the first five assessment years. Thereafter
substantial expansion was carried out and
Assessee sought to claim 100% deduction from
the 6th Assessment year onwards. If such a
substantial expansion not been carried out, then,
the assessee would have been eligible to claim
deduction of only 25% of the profits under
Section 80-IC of the IT Act from the 6th to the 10th
Assessment year. The deduction was denied by
the department on the ground that there cannot
be two initial assessment years for the purposes
of claim of deduction under Section 80-IC of the
IT Act. Held, distinguishing the decision in
Classic Binding Industries, that the definition of
initial assessment year, as is given in subsection
(8) to Section 80IC itself contemplates a scenario
where there can be two initial assessment years
and that the cap in Section 80-IC is only on the
number of assessment years and not on the
quantum of deduction. Thus, the Apex Court held
that the Assessee can claim deduction of 100%
from the 6th year onwards till the end of the 10th
assessment year if substantial expansion is
carried out. [PCIT v. Aarham Softronics (2019)
102 taxmann.com 343 (SC)]
Provisions of Section 92BA would not apply in case of indirect shareholding
The assessee had purchased loans from HDFC
Ltd. where it had 16.39% stake and where its
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wholly owned subsidiary has 6.25% stake. The
department sought to apply the provisions of
Section 92BA on the ground that assessee
effectively held more than 20% shareholding in
HDFC Ltd. Section 92BA provides that any
expenditure in respect of which payment has
been made or is to be made to a person referred
in 40A(2)(b) will be considered as a specified
domestic transaction and subject to transfer
pricing. Section 40A(2)(b) covers any person who
has a substantial interest in the assessee will be
covered and substantial interest is defined to
mean beneficial ownership in shares carrying not
less than 20% of voting power. It was held that
the assessee owns only 16.39% shares in HDFC
Bank and if one were to say assessee is
beneficially holding the 6.35% shareholding in
HDFC Ltd., then, this would mean that assessee
is beneficial owner of shares held by HDFC
Investments which is contrary to the canon of
company law that shareholder cannot be
construed as legal and beneficial owner of
properties and assets of the company where it
holds shares (Bacha F.Guzdar [1955] 27 ITR 1
(SC)). It was further, the expression used in
Section 92BA is expenditure and purchase of
loans is not expenditure for the assessee rather it
is consideration paid for asset acquired and
hence the transaction would not fall under the
definition of Specified Domestic Transaction.
[HDFC Bank Limited v. CIT (2019) 306 CTR
(Bom) 189
Transit mixture enabling RMC to be kept wet during transportation is ‘plant’
At issue was the claim for depreciation at 30% by
the assessee, a manufacturer of Ready Mix
Concrete (RMC) in respect of vehicles on which
the transit mixer was mounted. The assessee
argued that the RMC manufactured at the factory
was to be transported to the sites and the transit
mixer mounted on the vehicles, was used to keep
the same wet by constant rotation. It was claimed
that the vehicles were to be treated as vehicles
used for hire since the contract for supply of RMC
was a composite one. Alternately it argued that
the transit mixer would qualify as plant since it
was used to complete the process of production
and would be eligible for additional depreciation.
ITAT did not accept the first contention as
regards the use of vehicles for hire since no
separate charges were received but agreed that
the assessee could claim higher depreciation on
the transit mixture since it qualified as a plant.
[Innovative Infrastructure P. Ltd v. DCIT, I.T.A.
Nos. 3425 & 3426/Ahd/2015, ITAT, Ahmedabad,
order dated 12-3-2019]
Expenses pertaining to previous year should be claimed at least on approximate basis: Assessee cannot plead impossibility in determining expenditure
The assessee was maintaining books on
mercantile basis and did not claim expenditure
related to legal fees in the previous year on the
plea that the amount was being negotiated and it
was finalised only in the following year. It also
argued that the deduction was tax neutral since
in either year the amount was otherwise
allowable and did not have an element of rate
arbitrage. However, ITAT held that the assessee’
s plea of expenses being indeterminable could
not be a ground to shift claim of deduction to the
following year since it would distort the
computation of profits and the assessee ought to
have claimed expenses on an approximate basis
and revised the same later. [Living Media India
Ltd. v. DCIT, ITA No.648/Del/2016, Order of
ITAT, Delhi dated 12-3-2019]
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12
DIRECT TAX AMICUS March, 2019
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