CASE STUDEIES (CMA –FINAL) CA Ranjeet Kunwar 1

Case Studies

1 CIT -vs.- M. Venkateswara Rao (2015) 370 ITR 212 (T & AP)

ISSUE INVOLVED

The issue under the said case is whether the amount of contribution received by the partnership firm from the
partners can be added as unexplained credits as per section 68 of the Income Tax Act.

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 68 of the Income Tax Act empowers the Assessing Officer to make an addition to the income of the
assessee if there are credits in the books of accounts for which the assessee is not able to provide proper
explanation regarding its nature and source.

ANALYSIS OF THE ISSUE INVOLVED

Let us understand the provision first. Section 68 of Income Tax acts allows Assessing Officer to treat cash
credits in the hands of the assessee in case the assessee fails to explain and establish the nature and source
of such credits. Proviso to Section 68 provides that in case of a closely held private limited company, the
Company is also required to explain the source in case of share capital, share premium etc. In this case as the
assessee is a partnership firm and the cash credits are the contribution received from the partners the
Assessing Officer made the additions based on the proviso of Section 68 but the honourable court held that
the liability of the assessee is limited to establish that the cash credits are actually received from its partners
towards the capital contributions and the proviso cannot be applied on partnership firms as it is specific to
the closely held companies. The Assessing Officer cannot further go and compel the assessee to explain the
source of income of the partners.

CONCLUSION

On the basis of above facts and provisions, the addition in the hands of the firm under section 68 is not
sustainable in law

2 CIT -vs.- Rajasthan and Gujarati Charitable Foundation (SC)

ISSUE INVOLVED

The issue involved here is whether the Section 11(6) as inserted by Finance Act (No.2) Act, 2014, w.e.f.1-4-
2015 can be applied with retrospective effect.

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

The honourable high court has held in ‘Commissioner of Income Tax -vs.- Institute of Banking Personnel
Selection (IBPS)’ (2003) 131 Taxman 386 (Bombay), that income of the Trust is required to be computed u/s

CA. Ranjeet Kunwar RKSD Tax Classes: 9313445966, 9811459593;

 2 CA. Ranjeet Kunwar CASE STUDEIES (CMA –FINAL)

11 on commercial principles after providing for allowance for normal depreciation from Trust’s gross income,
despite full expenditure allowed in the year of acquisition of assets.
As there was no provision in the Income Tax Act to disallow such depreciation, section 11(6) was inserted by
Finance Act (No.2) Act, 2014, w.e.f. 1-4-2015. The said section abstain the trust to claim any deduction or
allowance by way of depreciation in respect of any asset the cost of which has been treated as an application
of income in the same or any other previous year.

ANALYSIS OF THE ISSUE INVOLVED

The section was inserted by Finance Act, 2014 to specifically ensure that the trust does not get the double
benefit, once by claiming the cost of an asset as application of income and then by claiming the depreciation
on such asset. The said amendment became effective from the Assessment Year 2015-2016 hence the said
section is prospective in nature.

CONCLUSION

As the section is prospective in nature, it cannot be applied with retrospective effect. Hence the trust can claim
the depreciation in the any assessment year earlier to AY 2015-16

3 Siemens Public Communications Network Ltd -vs.- CIT (2016) (SC)

ISSUE INVOLVED

The issue involved herein is whether the Subsidy received from the parent company by the loss making
subsidiary is covered under section 2(24)(xviii).

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

The Section 2(24) describes the incomes chargeable under Income Tax Act. Clause xviii of said section describe
that the income includes all kind of subsidies, grants, cash incentives etc except the subsidies, grants, cash
incentives etc received for capital asset or for the purpose of the corpus of a trust or institution established by
the Central Government or a State Government.

ANALYSIS OF THE ISSUE INVOLVED

The Assessee Company received subsidies from the Parent Company to compensate the losses. The said
subsidies were treated as revenue receipts by the Assessing Officer which was also confirmed by the High
Court. The view of the court was that unless the grant-in-aid received by an Assessee is utilized for acquisition
of an asset, the same must be understood to be in the nature of a revenue receipt as per Section 2(24)(xviii).
But the view adopted by the Supreme Court is that the subsidy in this case is in order to protect the capital
investment made by the parent company in its subsidiary. Thus in no case it can be considered as income for
the subsidiary company.

CONCLUSION

The subsidy received by the Loss making Subsidiary company from its parent company is a capital receipt not
chargeable to tax.

RKSD Tax Classes: 9313445966, 9811459593; CA. Ranjeet Kunwar

 CASE STUDEIES (CMA –FINAL) CA Ranjeet Kunwar 3

5 SUSHAM SINGLA -VS.- CIT (2016)(P&H)

ISSUE INVOLVED

The issue involved here is that the assessee has more than one house property and notional rent was offered
for taxation for all house properties except one self occupied property. The assessment was done and the
addition was made under section 23(1)(a). The assessee whereas argued that the income should be assessed
as per section 23(1)(c) and not as per section 23(1)(a).

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

The Sec. 23(1)(a) provides that the annual value of any property shall be deemed to be the sum for which the
property might reasonably be expected to let from year to year whereas Section 23(1)(c) provides for the
calculation of the annual value in case property is let but remained vacant during the whole or any part of
the previous year and owing to such vacancy, the actual rent received or receivable is less than the sum,
which such property might reasonably be expected to yield on being let out.

ANALYSIS OF THE ISSUE INVOLVED

According to Section 23(4), where the property consists of more than one house, then only one house property
can be considered as self occupied as per Section 23(2) and the annual value of the other house or houses
shall be determined under Section 23(1) as if such house or houses had been let.
Section 23(1) has three clauses of which clause a and clause c are relevant here. Sec. 23(1)(a) provides for the
calculation of rent in case of property which is not at all let out. Whereas Sec. 23(1)(c) provides for the cases
where property is let out but remained vacant during the whole or any part of the previous year. Now if all
the house properties are self occupied, only one would be treated as self occupied and rest as deemed to be
let out. Also, there is clear distinction between the situations where the house property is let out and then
remained vacant and where the house property is not at all let out and remained vacant. The second case is
the case where deeming fiction applies and the rent is calculated as per Section 23(1)(a)

CONCLUSION

It is held that sec. 23(1)(c) would apply only to those properties which were actually let out and for which
rent was actually received or receivable by the assessee. These provisions deal with the concept of real income
and not notional income. Thus, the annual value of the properties like the ones in the case in hand which are
more than one, owned by the assessee and which admittedly remained vacant throughout the previous year
would not be assessed u/s 23(1)(c) but u/s 23(1)(a). The annual value would, therefore, be determined
notionally.

6 PR. CIT -VS.- U. K. PAINTS INDIA PVT. LTD (2016) (DELHI)

ISSUE INVOLVED

The issue involved here is whether provisions of sec. 14A can be invoked by the Assessing Officer by rejecting
the suo-moto disallowances made by assessee, without assigning any reasons

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 14A has two sub sections. Section 14A(1) empowers the assessing officer to disallow the expenses in
relation to the income that does not form part of the total income. The expenses can be disallowed by the

CA. Ranjeet Kunwar RKSD Tax Classes: 9313445966, 9811459593;

 4 CA. Ranjeet Kunwar CASE STUDEIES (CMA –FINAL)

Assessing Officer if he is not satisfied with the correctness of claims made by the assessee. Section 14A(2)
provides for the method by which the amount of expenditure in relation to exempt income must be
determined.

ANALYSIS OF THE ISSUE INVOLVED

The issue involved is that the assessee suo moto disallowed the expenses related to exempt income in his
income tax return. The Assessing Officer while completing the assessment overlooked the suo-moto
disallowance and made disallowance as per Section 14A(1). On application of rectification under section 154,
the assessing officer gave the benefit of suo moto disallowance and clarified that the said disallowance which
was not considered while assessment u/s 143(3) has now been considered while passing rectification order
u/s 154. The assessee the challenged the disallowance made by the assessing officer u/s 14A which was
argued to be made arbitrarily.

CONCLUSION

On appeal, the High Court clarified that Section 14A need to be applied in case the assessing officer is not
satisfied with the claims made by the assessee. Mere disallowance u/s 14A without verifying the claims made
by the assessee cannot be done and hence Section 14A cannot be applied in this case.

7 RAJ DADARKAR & ASSOCIATES -VS.- ACIT (2017) (SC)

ISSUE INVOLVED

The issue involved here is whether the income received from sub licensing of the property can be treated as
Business Income?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 22 provides that the annual value of property consisting of any buildings or lands appurtenant thereto
of which the assessee is the owner shall be chargeable to income-tax under the head "Income from house
property".
It also provides that such portions of such property as he may occupy for the purposes of any business or
profession carried on by him the profits of which are chargeable to income-tax.
Also, Section 27 defines the owner of the property for the purpose of section 22. Clause (iiib) of Section 27
provides that a person who acquires any rights (excluding any rights by way of a lease from month to month
or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such
transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building
or part thereof.
Clause f of Section 269UA defines the transfer. It provides that transfer in relation to any immovable property
means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years.

ANALYSIS OF THE ISSUE INVOLVED

The issue involved here is that the assessee got the ground floor (stilt portion) on lease from the Market
Department of Municipal Corporation Greater Bombay (MCGB) on lease. The assessee developed the stilt
portion into the market place. The assessee then gave the shops on sub-license basis to the sub-licensees
from whom the assessee collected
❖ Compensation from sub-licensees

RKSD Tax Classes: 9313445966, 9811459593; CA. Ranjeet Kunwar

 CASE STUDEIES (CMA –FINAL) CA Ranjeet Kunwar 5

❖ Leave and license fees

❖ Service Charge for providing various services, including security charges, utilities etc.

The assessee also incurred expenses related to day-to-day maintenance, cleanliness and upkeep of the market
premises and incurred water charges, electricity charges, taxes and repair charges. The assessee offered such
income as the income from the business whereas the Assessing Officer assessed such income as the income
from house property.

CONCLUSION

On the basis of above facts and on the basis of provisions discussed above it was held by the Supreme Court
that wherever there is an income from leasing out of premises and collecting rent, normally such an income
is to be treated as income from house property in case provisions of sec. 22 are satisfied with primary
ingredient that the assessee is the owner of the said building or lands appurtenant thereto. But the ‘Owner
of the house property’ is defined in sec. 27 which includes certain situations where a person not actually the
owner shall be treated as the deemed owner of a building or part thereof. Thus as per Section 22 read with
Section 27, the income in this case is chargeable to tax as income from House Property and not as Business
Income.

8 PALAM GAS SERVICE -VS.- CIT (2017) (SC)

ISSUE INVOLVED

The word used in Section 40(a)(ia) is 'payable', hence the question was whether this Section would cover only
those contingencies where the amount is due and still payable or it would also cover the situations where
the amount is already paid but no tax was deducted thereupon.

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

As per Section 40(a)(ia), 30% thirty per cent of any sum payable to a resident is not deductible in computing
the income chargeable to income tax under the head PGBP in case the tax is deductible at source under
Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the
due date specified in section 139(1).

ANALYSIS OF THE ISSUE INVOLVED,

The appellant-assessee is engaged in the business of purchase and sale of LPG cylinders under the name and
style of M/s. Palam Gas Service at Palampur. During the course of assessment proceedings, it was noticed by
the Assessing Officer that the main contract of the assessee for carriage of LPG was with the Indian Oil
Corporation. The assessee had received the total freight payments from the IOC to the tune of Rs.32 lacs. The
assessee had, in turn, got the transportation of LPG done through three truck owners to whom he made the
freight payment amounting to Rs. 20 lakhs. The Assessing Officer observed that the assessee had made a
sub-contract with the said three persons within the meaning of Section 194C of the Act and, therefore, he
was liable to deduct tax at source from the payment of Rs. 20 lakhs. On account of his failure to do so the
said freight expenses were disallowed by the Assessing Officer as per the provisions of Section 40(a)(ia) of
the Act.

CA. Ranjeet Kunwar RKSD Tax Classes: 9313445966, 9811459593;

 6 CA. Ranjeet Kunwar CASE STUDEIES (CMA –FINAL)

CONCLUSION

Supreme Court upholds section 40(a)(ia) disallowance for TDS default on freight payment. The plea of the
assessee company that no disallowance can be made under section 40 (a)(ia) as word payable occurring in
section 40(a)(ia) refers to only those cases where the amount is yet to be paid and does not cover the cases
where the amount is actually paid is not acceptable as section 40(a)(ia) covers not only those cases where
the amount is payable but also when it is paid.

10 NARESH BHAVANI SHAH(HUF) -VS.- CIT (2017) (GUJ)

ISSUE INVOLVED

The issue involved is whether tax credit of tax deducted in name of Karta, in his individual capacity, on the
funds of HUF invested in RBI taxable bonds be allowed to HUF?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 199 prescribes that the deduction made in accordance with the provisions of Chapter XVII and paid
to the Central Government shall be treated as a payment of tax on behalf of the person from whose income
the deduction was made.
Rule 37BA(1) provides that credit of the tax deducted at source and paid to the Central Government in
accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been
made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to
deduction of tax furnished by the deductor to the income-tax authority. The credit may be given to any other
person as per Rule 37BA(2) in case the specified conditions are met.

ANALYSIS OF THE ISSUE INVOLVED

The assessee, a HUF, invested the funds belonging to the HUF in RBI taxable bonds. Inadvertently, it made
such investment in the name of Karta and PAN of Karta was mentioned instead of HUF. RBI while deducting
TDS issued certificates in the name of Karta only as per Section 199 read with rule 37BA(1). The Assessing
Officer while processing the return did not gave claim to the assessee.
The assessing officer is of the view that conditions as mentioned in Rule 37BA(2) should have been complied
with in case HUF wanted to claim the credit. The conditions are:
❖ the deductee files a declaration with the deductor in this respect, such declaration would contain the
details of the person entitled to the credit.
❖ the reasons for giving such credit.
❖ the deductor issues certificate for deducting tax at source in the name of such a person
As the conditions were not fulfilled, the claim of TDS was not given to HUF.

CONCLUSION

On the basis of above provisions, credit of tax cannot be granted to assesses under section 199 read with rule
37BA but the court held that in the instant case, however, many years have passed since the event arose and
the HUF has already offered the entire income to tax which the department has also accepted and taxed the
HUF. In view of such special facts and circumstances, the court directed the department to give such credit to
the assessee upon Karta filing an affidavit before the department that the sum invested in the RBI does not
belong to him, the income is also not his and that he has not claimed any credit of the tax deducted at source
on such income for the relevant assessment year.

RKSD Tax Classes: 9313445966, 9811459593; CA. Ranjeet Kunwar

 CASE STUDEIES (CMA –FINAL) CA Ranjeet Kunwar 7

11 CIT -VS.- SMT. SARIKA JAIN (2017)(ALL)

ISSUE INVOLVED

The issue involved here is whether the ITAT is competent to make an addition under any section other than
the section that is subject matter of appeal.

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 254(1) of the Income Tax Act provides that the Appellate Tribunal may, after giving both the parties
to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

ANALYSIS OF THE ISSUE INVOLVED

The assessee received a gift through banking channel to prove which the gift deeds were also produced
before the authorities. The Assessing Officer has held that gifts were not genuine as these were held to be
unnatural and aforesaid amounts were added as undisclosed income of assessee u/s 68. On appeal, the
Commissioner (Appeals) affirmed the said order. On further appeal, the Tribunal reversed the order by the
Assessing Officer as confirmed by the Commissioner (Appeals). However, the Tribunal proceeded to add the
aforesaid amount as the income of the assessee u/s 69-A.

CONCLUSION

The Section 254(1) empowers the tribunal to pass such orders thereon as it thinks fit. But the decision can be
made only after the opportunity of bein heard given to both parties.
The High Court has held that the use of the word ‘thereon’ is important and it reflects that the Tribunal has
confined itself to the questions, which are arising or are subject matter in the appeal and it cannot be travelled
beyond the same. The power to pass such orders as the Tribunal thinks fit can be exercised only in relation
to the matter that arises in the appeal and it is not open to the Tribunal to adjudicate any other question or
an issue, which is not in dispute and which is not the subject matter of the dispute in appeal. When said
income could not be added u/s 68 and Tribunal was not competent to make said addition u/s 69A.

12 CIT -VS.- ORYX FINANCE & INVESTMENT (PVT) LTD (2017) (BOM.)

ISSUE INVOLVED

The issue involved herein is whether the amount of tax in arrears as per Section 221 includes the interest
component as well?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 221 empowers the assessing officer to levy penalty, when an assessee is in default or is deemed to
be in default in making a payment of tax, in addition to the amount of the arrears and the amount of interest
payable under section 220(2). But such penalty does not exceed the amount of tax in arrears.
Also, The definition of tax u/s 2(43) read in its entirety suggests that the “tax” means income tax, super tax
and/or the fringe benefit tax. The definition of tax does not take within its fold the interest component. Also
the definition of “interest” as envisaged u/s 2(28 A) is restricted to the interest payable in respect of any
moneys borrowed or debt incurred.

CA. Ranjeet Kunwar RKSD Tax Classes: 9313445966, 9811459593;

 8 CA. Ranjeet Kunwar CASE STUDEIES (CMA –FINAL)

ANALYSIS OF THE ISSUE INVOLVED

The tax return of the assessee was processed u/s 143(1) against which a demand of Rs 1.64 crores was raised.
The Assessing Officer imposed penalty of Rs 1.19 crores u/s 221(1) due to default in payment of demand. The
penalty includes the tax amount in arrears as well as the interest component on such demand. Commissioner
(Appeals) deleted the penalty imposed by the Assessing Officer on the ground that interest component was
to be excluded while levying penalty u/s 221(1) and since penalty exceeded tax component the order was set
aside.

CONCLUSION

Section 221 clearly specifies that the aspect of default in payment of tax and the amount of interest payable
are treated as distinct and separate components. The section categorically and specifically states that when
an Assessee is in default or is deemed to be in default in making payment of tax, he shall in addition to the
amount of arrears and the amount of interest payable u/s 220(2), be liable, to pay penalty, however the
amount of penalty does not exceed the amount of tax in arrears.
Thus, as the penalty levied is in excess of the demand of tax payable due to the fact that the interest
component has been considered while calculating the penalty, said penalty for non payment of the tax is not
sustainable in law.

13 PURNIMA ADVERTISING AGENCY PVT LTD -VS.- DCIT (2017)(GUJ)

ISSUE INVOLVED

The issue involved herein whether the higher tax demand u/s 206AA can be raised in case the incorrect PAN
is mentioned in the TDS Return?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 206AA provides that any person entitled to receive any sum or income or amount, on which tax is
deductible under Chapter XVIIB shall furnish his Permanent Account Number to the person responsible for
deducting such tax failing which tax shall be deducted at the higher of the following rates:—
❖ at the rate specified in the relevant provision of this Act; or
❖ at the rate or rates in force; or
❖ at the rate of twenty per cent.
ANALYSIS OF THE ISSUE INVOLVED

The taxpayer made payments to various recipients, on which the taxpayer has deducted tax at 2%. While
filing TDS returns for the second and third quarters there was an inadvertent error since the PAN of one
deductee was wrongly mentioned. During the course of processing TDS returns, the Assessing Officer (AO)
found that the PAN indicated by the taxpayer in the declaration did not match with the actual PAN of the
deductee. The PAN provided in the TDS return did not belong to that deductee and, therefore, in terms of sec.
206AA(6)2, it would have the effect as if the deductee has not furnished the PAN to the deductor and the
effect of provisions of sec. 206AA(1)3 is applicable. The AO held that the taxpayer who was required to deduct
tax at the rate of 20% had deducted the same at the rate of 2%. Therefore, the AO raised a demand for the
remaining tax after adjusting such tax deducted.

RKSD Tax Classes: 9313445966, 9811459593; CA. Ranjeet Kunwar

 CASE STUDEIES (CMA –FINAL) CA Ranjeet Kunwar 9

CONCLUSION

Section 206AA applies when the recipient does not provide the PAN to the deductor. In case the PAN is
provided to the deductor but the deductor inadvertently mention incorrect PAN in the TDS return, the
assessing officer cannot say that the TDS had to be deducted at the higher rate. Also, Section 200A of the Act
itself refers to correction TDS statement. Accordingly, it has been held that the decision of the tax department
in not permitting the taxpayer to correct the PAN of the deductee in the TDS statement was not acceptable
and hence the higher rate as per Section 206AA cannot be applied.

14 CIT -VS.- EQUINOX SOLUTION PVT. LTD (2017)(SC)

ISSUE INVOLVED

The issue involved here is that whether the Section 50(2) be applied where the sale is subject to slump sale
as per the Section 50B.

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 50B is the special provision for the computation of capital gains in the case of slump sale whereas
Section 50 is the special provision for the computation of capital gain in case of depreciable assets.
Section 50B provides that in case of a slump sale where the undertaking is held by the assessee for more that
36 months shall be treated as Long Term Capital Gain whereas Section 50 provides that where the assets are
depreciable assets, the capital gain shall be treated as Short Term Capital Gain.

ANALYSIS OF THE ISSUE INVOLVED

The Assessee Company sold the entire undertaking as a running business with all its assets and liabilities to
another company and claimed the sale to be of ‘slump sale’ in the nature of long term capital gains as the
undertaking was owned by assessee for almost 6 years. The assessing officer whereas treated such sale as
sale of depreciable assets as per the provisions of Section 50(2) and considered the capital gain as a short
term capital gain. The view of the assessing officer was that the Section 50 and Section 50B are two
independent sections and Section 50 needs to be applied in this case.

CONCLUSION

On appeal to Supreme Court, the supreme court held that when it is established that the sale is actually a
slump sale as per the meaning provided under section 2(42C), Section 50B must prevail over Section 50 and
the capital gain shall be calculated as per the provisions of Section 50B and not Section 50(2). Hence, in this
case the Capital Gain would be Long Term Capital Gain as per section 50B.

16 SHANKAR DALAL & OTHERS -VS.- CIT (2017)(BOM.)

ISSUE INVOLVED

The issue involved here is whether the land can be treated as agricultural land as defined u/s 2(14) even if no
agricultural activity is performed?

CA. Ranjeet Kunwar RKSD Tax Classes: 9313445966, 9811459593;

 10 CA. Ranjeet Kunwar CASE STUDEIES (CMA –FINAL)

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Third proviso to Section 2(14) excludes the agricultural land from the list of capital assets. The agricultural
land is defined as any land in India that is not situated
in any area which is comprised within the jurisdiction of a municipality or a cantonment board and which has
a population of not less than ten thousand; or
in any area within the distance, measured aerially,—
(I) not being more than two kilometres, from the local limits of any municipality or cantonment board and
which has a population of more than ten thousand but not exceeding one lakh; or
(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred
to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or
(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board
referred to in item (a) and which has a population of more than ten lakh.
The Section discusses only on the situation of the land and not the activity performed thereon.

ANALYSIS OF THE ISSUE INVOLVED

The assesse claimed the gain on sale of land as exempt as the same was treated by the assessee as agricultural
land as it was situated beyond the specified limits from the municipal limits. But the Assessing Officer
contended that the land although located beyond the specified limits, still cannot be treated as agricultural
land as no activity is performed thereon and also the said land is sold to a company engaged in the business
of development of infrastructure activity. The Assessee whereas contented that the land is located beyond
the specified limits and also that the activities performed by assessee on the land were recognised as
‘agricultural’ activities under the Local land law.

CONCLUSION

The honourable court held that merely because the assessee could not produce and utilize the land fully by
employing labour, and/or unable to give the crop statements should not have been the criteria for considering
it as non-agricultural land. The Assessing officer must also give regard to the provisions of local land laws, as
activities performed by assessee on the land were recognised as ‘agricultural’ activities under the Local land
law.

17 MOTHER HOSPITAL (P) LTD -VS.- CIT (2017)(SC)

ISSUE INVOLVED

The issue involved here is whether the lessee can claim the depreciation on the cost of construction incurred
by the owner but reimbursed by him?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

The assessee is allowed to claim depreciation as per Section 32(1) on assets owned by the assessee and used
for the purposes of business or profession.
Also, Explanation 1 of said section provides that where the business or profession of the assessee is carried
on in a building that is not owned by assessee but acquired on lease or by other right of occupancy and any
capital expenditure is incurred by the assessee on the construction of any structure or doing of any work in or

RKSD Tax Classes: 9313445966, 9811459593; CA. Ranjeet Kunwar

 CASE STUDEIES (CMA –FINAL) CA Ranjeet Kunwar 11

in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions
of this clause shall apply as if the said structure or work is a building owned by the assessee.

ANALYSIS OF THE ISSUE INVOLVED,

A partnership firm has been setup to run a super speciality hospital and, accordingly, the firm started
construction of the hospital building on a land owned by it. Thereafter, an agreement was entered into
between the firm and the assessee by which it was agreed that the firm would complete the construction of
the building and hand over possession of the same on completion, on the condition that the entire cost of
construction of the building would be borne by the assessee company.
The assessee-company filed its return in which it claimed depreciation on the building part of the said
property. The Assessing Officer rejected the claim of depreciation and added back the same. The Assessing
Officer contended that the building belonged to the firm and the title has not transferred to the Assessee
Company. In the absence thereof, it could not be said that the assessee had become the owner of the property.
The assessee whereas was of the view that Explanation 1 of Section 32(1) allows even the lessee to claim the
depreciation.

CONCLUSION

The Court held Explanation 1 of Section 32(1) can only be invoked in case when assessee holds a lease right
or other right of occupancy and any capital expenditure is incurred by it on construction or renovation or
improvement of building. However, where construction is carried out by owner and expenditure is only
reimbursed by assessee-lessee, Explanation 1 to section 32(1) could not be invoked..

22 CIT -VS.- SUBHASH VINAYAK SUPNEKAR (2016) (BOM.)

ISSUE INVOLVED

The issue involved is whether relief under sec. 54EC can be availed even though the investment is made out
of advance received under sale agreement?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 54EC of Income Tax Act,1961 provides that the assessee can claim the exemption of capital gain by
making investment in certain bonds at any time within a period of six months after the date of such transfer.

ANALYSIS OF THE ISSUE INVOLVED

Benefit of section 54EC can be availed by assessee where the capital gain arises from the transfer of a long-
term capital asset and the assessee has invested the whole or any part of capital gains in the long term
specified assets. In this case assessee invested the amount from the advance received under the agreement
as the amount was invested in the bonds prior to the sale of the subject property. Hence Assessing Officer as
well as CIT(A) held that the assessee was not entitled to the benefit of section 54EC as the sale is not complete
at the time of investment and hence the capital gain did not aroused.
CONCLUSION
The court held that although the investment needs to be made within six months from the transfer of the long
term capital asset, the assessee may be allowed the exemption u/s 54EC even though it made an investment
out of the advance received but after the agreement to sell has been made.

CA. Ranjeet Kunwar RKSD Tax Classes: 9313445966, 9811459593;

 12 CA. Ranjeet Kunwar CASE STUDEIES (CMA –FINAL)

23 IAN PETER MORRIS -VS.- ACIT (2016) (SC)

ISSUE INVOLVED

The issue involved here is whether Interest under section 234B & 234BC applies when advance tax is not
paid on salary income?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 192 provides special provision for deduction of tax in case of salaries. The Employer computes the
taxable income by taking in account all the income and deductions declared by the employee and deduct the
tax at average monthly rate. Also, in case of Salary income, the employee is not required to pay the advance
tax.

ANALYSIS OF THE ISSUE INVOLVED

A Non-Compete Agreement was signed between the Assessee and the Acquirer Company imposing a
restriction on the appellant from carrying on any business of Computer Software development and marketing
for a period of five years for which the Assessee was paid a sum of Rs 21,00,000/-. The assessee in his return
of income considered such income as capital receipt and hence non-taxable income. As the salary income
includes income received against non-compete agreement, the said receipt was added as salary income by
the assessing officer and thus the interest under Section 234B and 234 C is levied.
CONCLUSION
The Court held that a deduction at the requisite rate need to be made by the employer in case of the salaries
failing which the employer is liable to pay simple interest there on. Where receipt is by way of salary,
deductions u/s 192 of the Act is required to be made. No question of payment of advance tax under Part ‘C’
of Chapter VII of the Act can arise in cases of receipt by way of ‘salary’ Therefore, interest obligations under
section 234B and 234C would have no application.

RKSD Tax Classes: 9313445966, 9811459593; CA. Ranjeet Kunwar

 CASE STUDEIES (CMA –FINAL) CA Ranjeet Kunwar 13

25 PR. CIT -VS.- BHARAT HEAVY ELECT. LTD. (2016) (P&H)

ISSUE INVOLVED

The issue involved here is whether TDS on the amounts paid under the contracts for construction, erection &
commissioning etc of plants involving inputs from technical personnel should be deducted under section 194C
or 194J?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 194C provides that any person responsible for paying any sum to any resident for carrying out any
work in pursuance of a contract shall deduct tax at source at specified rates.
Section 194J provides that any person who is responsible for paying to a resident any sum by way of
❖ fees for professional services, or
❖ fees for technical services, or
❖ any remuneration or fees or commission by whatever name called, other than those on which tax is
deductible under section 192, to a director of a company, or
❖ royalty, or
❖ any sum referred to in clause (va) of section 28,
shall deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein.

ANALYSIS OF THE ISSUE INVOLVED,

The assess company had made payments to five contractors in respect of various contracts and deducted tax
in respect thereof u/s 194C of the Act. As all the contracts involved the provision of professional and technical
services, the assessing officer is of the view that such payments fell within the ambit of the provisions of
section 194J of the Act and hence tax should have been deducted at the rate of 10%.

CONCLUSION

Section 194C applies in case of contractual services whereas section 194J applies in case of
Technical/Professional Services. Although, the required testing, pre-commissioning, commissioning and post
commissioning services were performed by the contractor, through the professional personals, to satisfy the
customer that the work has been executed in a proper manner; the contract still remains between the
customer and the contractor.
The personnel that are required to test and commission the plant and equipment perform their functions not
under a contract for the supply of technical services to the customer, but to satisfy the customer on behalf of
the contractor that the plant and equipment has been duly supplied as per the contractual specifications.
Although this would require the deployment of technical personnel, but the technical personnel are deployed
not for and on behalf of the customer, but for and on behalf of the contractor itself with a view to ensuring
that the contractor has supplied the equipment as per the contractual specifications.
Thus contract entered did not involve the supply of professional or technical services within the meaning of
Section 194J.

CA. Ranjeet Kunwar RKSD Tax Classes: 9313445966, 9811459593;

 14 CA. Ranjeet Kunwar CASE STUDEIES (CMA –FINAL)

34 ITC LTD. -VS.- CIT (TDS) (2016) (SC)

ISSUE INVOLVED

The issue involved here is whether tips collected by hotel from customers and paid to employees taxable as
salary and hence TDS u/s 192 is applicable?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 192 provides that any person responsible for paying any income chargeable under the head "Salaries"
shall, at the time of payment, deduct income-tax on the amount payable.

ANALYSIS OF THE ISSUE INVOLVED

The assessees are engaged in the business of owning, operating, and managing hotels. Surveys conducted
at the business premises of the assessees allegedly revealed that the assessees had been paying tips to its
employees but not deducting taxes thereon. The Assessing Officer treated the receipt of the tips as income
under the head “salary” in the hands of the various employees and held that the assessees were liable to
deduct tax at source from such payments u/s 192.

CONCLUSION

The Apex Court held that as per section 192(1) only the person responsible for paying any income chargeable
under the head “salaries” can be brought into the dragnet of deduction of tax at source. The person
responsible for paying an employee an amount which is to be regarded as the employee’s income is only the
employer. In the facts of the present case, the person who is responsible for paying the employee is not the
employer at all, but a third person – namely, the customer.
Also, if an employee receives income chargeable under a head other than the head “salaries”, then Section
192 does not get attracted at all. Income from tips would be chargeable in the hands of the employees as
income from other sources, such tips being received from customers and not from the employer. Section 192
would not get attracted at all on the facts of the present case.
Further, there should be a vested right in an employee to claim any salary from an employer or former
employer, whether due or not if paid; or paid or allowed, though not due. There is no vested right in the
employee to claim any amount of tip from his employer. Tips being purely voluntary amounts that may or
may not be paid by customers for services rendered to them would not, therefore, fall within Section 15(b) at
all.

47 PCIT -VS.- TEJUA ROHITKUMAR KAPADIA (2018) (SC)

ISSUE INVOLVED

The issue involved herein whether the purchases can be treated as bogus purchases even if supported by
the documents?
BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE
Section 69 provides that where the assessee has made investments which are not recorded in the books of
account, if any, maintained by him for any source of income, and the assessee offers no explanation about
the nature and source of the investments or the explanation offered by him is not, in the opinion of the
Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee
of such financial year.

RKSD Tax Classes: 9313445966, 9811459593; CA. Ranjeet Kunwar

 CASE STUDEIES (CMA –FINAL) CA Ranjeet Kunwar 15

ANALYSIS OF THE ISSUE INVOLVED

Section 69 empowers the assessing officer to make an addition in case the assessee cannot offer the proper
explanation or the explanation by the assessee is not proper in the opinion of the Assessing Officer.

CONCLUSION

The court held that purchases cannot be treated as Bogus if all the documents prima facie shows that the
purchases are genuine. The Court also highlighted that if the purchases are duly supported by bills and all
payments are made by account payee cheques, the Assessing Officer cannot disregard such facts and treats
them as Bogus Purchases. Further, the confirmation from the supplier about such transactions and his act of
accounting the sales made to the assessee and payment of taxes thereon strengthen the fact that the
purchases were actually made.

48 CIT -VS.- MAHINDRA AND MAHINDRA LTD (2018) (SC)

ISSUE INVOLVED

The issue involved here is whether the waiver of loan can be charged as income under Section 28(iv) or under
Section 41(1)?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 28(iv) provides that the value of any benefit or perquisite, whether convertible into money or not,
arising from business or the exercise of a profession shall be chargeable to income-tax under the head "Profits
and gains of business or profession.

Also, Section 41(1) provides that where an allowance or deduction has been made in the assessment for any
year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any
previous year receives any amount in respect of such loss or expenditure or some benefit in respect of such
trading liability by way of remission or cessation thereof, the amount obtained shall be deemed to be profits
and gains of business or profession.

ANALYSIS OF THE ISSUE INVOLVED

The assessee company entered into an agreement with another company(KJC) based in America which agreed
to sell the dies, welding equipments and die models to the assessee. However, for the procurement of the
said toolings and other equipments, the KJC agreed to provide loan to the Assessee at the rate of 6% interest
repayable after 10 years in instalments.
Later on the said loan was waived. The ITO concluded that with the waiver of the loan amount, the credit
represented income and not a liability. Accordingly, the ITO held that the sum of Rs 57,74,064/- was taxable
u/s 28.
It was contended that since an amount is waived off, for which the company is claiming exemption, it actually
amounts to income at the hands of the assessee in the sense that an amount which ought to be paid by it is
now not required to be paid. As a result, the case of the Revenue falls within the ambit of sec. 28(iv) and,
alternatively within sec. 41.

CA. Ranjeet Kunwar RKSD Tax Classes: 9313445966, 9811459593;

 16 CA. Ranjeet Kunwar CASE STUDEIES (CMA –FINAL)

CONCLUSION

It is noted that the waiver of loan cannot be charged as income either under Section 28(iv) or under Section
41(1). Section 28(iv) does not apply if the receipts are in the nature of cash or money. As the waiver of loan
is the waiver of liability to return the cash received at earlier date, the Section 28(iv) cannot be invoked.
Section 41(1) does not apply if the waiver of loan does not amount to cessation of trading liability i.e if the
assessee has not claimed any deduction u/s 36 (1) (iii) of the IT Act qua the payment of interest in any previous
year. Section 41(1) specifies that there should be an allowance or deduction claimed by the assessee in any
assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and
subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee
is liable to pay tax under Section 41 of the IT Act. The objective is to ensure that the assessee does not get
away with a double benefit once by way of deduction and another by not being taxed on the benefit received
by him in the later year with reference to deduction allowed earlier in case of remission of such liability. Thus
where the benefit is not claimed earlier, the waiver does not create any liability in subsequent year.

50 ITO -VS.- TECHSPAN INDIA PRIVATE LTD (2018) (SC)

ISSUE INVOLVED

The issue involved here is whether the change of opinion can form basis of reassessment?

BRIEF DISCUSSION ON PROVISIONS APPLICABLE TO THE ISSUE

Section 147 empowers the Assessing Officer if he has reason to believe that any income chargeable to tax
has escaped assessment for any assessment year assess or reassess such income and also any other income
chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course
of the proceedings under this section.

ANALYSIS OF THE ISSUE INVOLVED

The assessment was done by the assessing officer but later on he interpreted the facts in the different mode.
The facts were already provided during the assessment proceeding under section 143(3) and no new
information was available to the assessing officer subsequently. The Assessing Officer wanted to reassess the
income as per Section 147

CONCLUSION

The honourable court held that the assessing officer has power to reassess under Section 147 and not power
to review. If the assessing officer is allowed to reassess income merely because of the fact that he changed
his opinion, with regard to the interpretation of law differently on the facts that were well within his
knowledge even at the time of assessment, this would mean the power to review which not the intent of the
law is. Thus, Assessing Officer cannot be allowed to reopen the assessment if there is no new information
available on which the assessing officer relies to form a reason to believe that the income has escaped
assessment.

RKSD Tax Classes: 9313445966, 9811459593; CA. Ranjeet Kunwar