Reduction in share of profit due to induction of partners vis a vis capital gains:
CIT v. P.N.Panjawani (Deceased) through LRS (2012) 80 DTR (Kar) 200
The assessee was a partner in a firm consisting of three equal partners. Subsequently, the firm was reconstituted admitting four more persons as new partners. The new partners contributed capital and the existing partners reduced their share of profit from one third to one-sixth. The existing partners also withdrew the amounts brought in by the new partners. The Assessing Officer treated the amount withdrawn by the partners as capital gain towards relinquishment of their 50% share in the firm. There was no retirement of partners and there was only reduction in share of existing partners. In spite of the fact that the firm owned immovable assets, it was held that there was no transfer between the existing partners and new partners. The court accordingly held that the transaction did not attract the provisions of section 2(47) as much as to levy tax on the same, as capital gains.
Agricultural land within 8 kms of municipal limit is not liable to tax unless it is covered by notification:
CIT v. Madhukumar.N (HUF) (2012) 78 DTR (Kar) 391
The assessee sold agricultural land which resulted in long-term capital gain of Rs.48.95 lakhs which was claimed as fully taxfree. The court held an agricultural land is not a capital asset but becomes a capital asset only when it is located within the limits of municipality or within such distance from the municipal limits as notified by the Central Government. When the distance from the municipal limit is not notified, it is not a capital asset and hence the capital gain is not chargeable to tax.
Bad debt disallowed could in the alternative be claimed as business loss:
Harshad J.Choksi v. CIT (2012) 349 ITR 250 (Bom)
The assessee claimed bad debts in respect of amounts not paid by three members of the Bombay Stock Exchange. The Assessing Officer held that the claim did not satisfy the conditions of section 36(2). Even the tribunal held that once a claim is made towards bad debt unless it satisfies the requirement of section 36(2), any relief under any other provision including the claim as business loss, could not be allowed. The court held that section 28 of the Act imposes a charge on the profits and gains of business or profession, which is to be understood in its ordinary commercial meaning. Only the net income is to be taxed after deducting expenses and losses incurred in carrying on of the business or profession. The court accordingly held that though the claim cannot be allowed as bad debt, it is eligible for deduction as business loss, if it is incidental to carrying on of a business. It also observed that the tribunal ought to have considered the assessee’s claim for deduction as business loss.
Premium on keyman insurance policy and impact of assignment of policy:
CIT v. Rajan Nanda (2012) 349 ITR 8 (Del)
The assessee an employee cum director in a company received keyman insurance policy assigned in his favour. The company had claimed the premium on such policy as business expenditure which the court held as allowable expenditure by citing Circular No.762 dated 18.02.1998.
It held that the assignment of policy in favour of keyman subsequently will not disentitle the deduction claimed previously. With regard to tax consequence in the hands of employee to whom the policy was assigned, the court held that section 17(3) (ii) will apply only in respect of ‘any sum received in a keyman insurance policy’ and therefore as no amount was received at the time of assignment, it is not taxable in the hands of the director. When the keyman insurance policy is assigned, the insurance company has clarified that it will get converted into an ordinary policy hence the amount received on maturity will also be taxfree.
In advertent error in belated e-return is also eligible for rectification:
Sanchit Software & Solutions (P) Ltd v. CIT (2012) 349 ITR 404 (Bom)
The assessee filed a belated e-return and committed mistake by including dividend income and long-term capital gain, which were not chargeable to tax. The return was processed under section 143(1) without eligible exemptions. Later, the assessee filed a revised return rectifying the error which was not responded as the original e-return was a belated return. Petition under section 154 and revision under section 264 were sought. The revision petition was of no avail to the assessee. The court cited the CBDT circular dated 11.04.1955 and set aside the order of revision passed under section 264. It directed the Assessing Officer to treat the rectification petition filed as filed on the date of receipt of the court order and dispose of the rectification application within six weeks. The writ petition helped the taxpayer with necessary relief.
Unabsorbed depreciation of wind mill eligible for section 80-IA deduction, set off against income of other non-eligible business:
CIT v. Swarnagiri Wire Insulations P Ltd (2012) 349 ITR 245 (Karn)
The assessee having income from wind mill claimed depreciation against such income and the balance of unabsorbed depreciation was set off against other business income. In the assessment, it was held that the unabsorbed depreciation of the business eligible for the benefits of section 80-IA could not be set off against other business income and such depreciation will have to be carried forward for set off against income from the same eligible business. The court held that section 80-IA(5) cannot override section 70(1) of the Act. Section 80-IA would become insignificant when there is no profit from the eligible business for claiming the deduction. Section 70(1) entitles the set off of loss from one source against income from another source under the same head of income.
Thus the court gave the benefit of set off of unabsorbed depreciation of eligible business against the profits of other business(es).
Inclusion of spouse name in reinvestment does not disqualify exemption under sections 54 and 54EC:
DIT (International Taxation) v. Mrs.Jennifer Bhide (2012) 349 ITR 80 (Karn)
The assessee a non-resident individual derived long-term capital gain from sale of house property. She acquired another residential house property and subscribed to capital gain bonds of REC with the joint name of spouse. The Assessing Officer disallowed the claim of exemption to the extent of 50 percent attributing it to the share of her spouse. The court held that though the property and bonds were acquired jointly, no amount was contributed by her spouse for the acquisition. As the entire consideration has fl own from the assessee, merely because in the sale deed or in the bond, her spouse name was mentioned, the claim of exemption cannot be restricted. Thus the decision was in favour of the assessee.
Reassessment is not possible on those issues for which information or explanation was given at the time of assessment:
Gujarat Power Corporation v. Asst. CIT (2012) 77 DTR (Guj) 89
The assessee at the time of assessment had furnished all the information with regard to claiming of exemption under section 10(23G) of the Act. Entire material was at the command of the Assessing Officer at the time of original assessment. The subsequent reopening of assessment was held as untenable since there was no omission in furnishing of information or explanation by the assessee and the Assessing Officer had applied his mind and formed an opinion with regard to the claim of exemption at the time of original assessment.
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