Receipt of power subsidy based on actual power consumption is a revenue receipt:
In CIT v. Rassi Cements Ltd (2013) 351 ITR 169 (AP)
The assessee based on the G.O. issued by the Government of Andhra Pradesh became eligible to receive a sum of Rs.35.58 lakhs by way of power subsidy which was transferred to a reserve account in the books of account of the assessee. The assessee claimed that the amount received by way of power subsidy was to encourage setting up of new industry or to those going in for substantial expansion of the existing industries. It was argued by the assessee that the subsidy was received for setting up industry in backward area and merely because quantification of subsidy was based on power consumption it would not change the character of receipt from capital receipt to revenue receipt. The court held that a capital receipt as per the legal principles is exempt unless it is expressly taxable and a revenue receipt is normally taxable unless it is expressly exempt in law. It held that the nature of receipt always has to be decided as a question of fact. It held that the power subsidy was given after commencement of production and it was linked to production, hence a revenue receipt. Assistance by way of subsidy is given for the purpose of carrying on of business by the assessee.
The decision hence was in favour of revenue.
Revision under section 264 cannot be made when appeal has been dismissed by CIT (Appeals):
In K.H. Traders v. CIT (2013) 351 ITR 1 (Ker)
the assessee filed an appeal against the order of assessment long after the end of the prescribed time. The CIT (Appeals) declined to condone the delay in filing of appeal and hence dismissed the appeal. The assessee subsequently sought revision under section 264 before Commissioner of Income-tax. The Commissioner rejected the application on the ground that that in view of section 264(4), the revision sought by the assessee as not maintainable. The court held that the order dismissing the appeal passed by CIT (Appeals) implies that the assessee did not waive his right of appeal and consequently the eligibility for seeking revision under section 264 was also lost. Thus the revision petition of the assessee rejected by the Commissioner was held as valid in law.
Proximity of relationship and genuineness of transaction provides relief from penalty under section 271D:
In CIT v. Smt. M.Yesodha (2013) 351 ITR 265 (Mad)
the assessee received Rs.20.99 lakhs from her father in law for purchase of property. Penalty for contravention of the provisions of section 269SS was initiated and the assessee claimed that the amounts received represent gift and not loan so as to attract the penal provision. The Assessing Officer however held that the amount was received as loan not as gift based on the disclosure in the balance sheet of the assessee. The CIT (Appeals) confirmed the levy of penalty. The tribunal held that the transaction was between father-in-law and daughter-in- law and the genuineness of the transaction was not disputed and hence the cash taken by the assessee could not be subjected to penalty under section 271D. The court held that the source for the payment had been disclosed in the assessment proceedings vis a vis the genuineness of transaction. Since it was a genuine bona fide transaction with reasonable cause shown by the assessee for accepting the amounts, it was held that the authority vested with the power to levy penalty can also exercise the discretion to, not to levy penalty. Hence, the decision of the tribunal in favour of the taxpayer was upheld by the court.
Depreciation and higher depreciation on leased assets to the lessor:
In ICDS Ltd v. CIT (2013) 350 ITR 527 (SC)
the assessee leased vehicles and claimed depreciation on those vehicles though the registration of those vehicles were in the name of customers (lessees). The claim of depreciation was rejected for the reason that the vehicles were registered in the name of lessees and the usage of such vehicles could not be termed as usage of assets ‘for the purpose of business’ by the assessee. The court held that the expression ‘used for the purpose of business’ does not necessarily require usage of the asset by the assessee itself. The court held that the assessee did use the vehicles in the course of its leasing business.
The assessee had a right to retain legal title of the vehicles which made it the owner and the agreement envisaged transfer of ownership to the lessee after the end of the lease period at a nominal value viz not exceeding one percent of the original cost of the vehicle. Yet another significant fact was that the lessees have claimed lease rent payment as expenditure and did not claim depreciation on those assets. The court also upheld the claim of higher rate of depreciation on the reasoning that the vehicles were used in the business of running them on hire.
Interest from deposits held with member banks ruptures the principle of mutuality:
In Bangalore Club v. CIT (2013) 29 taxmann. com 29 (SC)
the assessee kept its surplus money by way of fixed deposits with certain banks who were its corporate members. Such interest income whether taxable was the issue before the court.
The court held that three cumulative conditions are to be satisfied for applying the mutuality principle. Firstly, the identity of the contributors and the recipients from the fund must be the same. This condition was not satisfied when member banks engaged in commercial operations with third parties accepted funds of the club thus rupturing the ‘privity of mutuality’; secondly, treatment of excess funds must be in furtherance of the objects of the club, which was not the case here as the surplus funds were not used for any specific service, infrastructure, maintenance or any other direct benefit to the members of the club; finally, the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves which stood violated when the funds were kept with banks who accepted deposits and lent the same at a higher rate of interest to third parties and by such commercial reasons the link of mutuality got snapped. The court accordingly held that interest on deposits with member banks would result in taxation of such interest income in the hands of the club.
Sale consideration received in kind but later converted into cash is also eligible for capital gains exemption:
In CIT v. Smt. Padmavathy (2013) 82 DTR (Kar) 369
the assessee transferred land and entered into a joint development agreement with the builder by which she became eligible for six flats to be constructed by the builder. Out of six flats received, she sold three flats and deposited the sale proceeds in eligible investments to avail exemption from capital gains. The court held that the assessee having converted the non-cash consideration into cash and deposited the same within the specified time has satisfied the conditions for capital gain exemption. The contention of the revenue that long-term capital gains chargeable to tax had arisen at the time of sale of land and the deposit of sale consideration subsequently cannot go to bestow tax exemption on the taxpayer was rejected by the court. Readers may note that the assessee sought exemption by reinvestment in section 54EA deposit which is presently not in vogue. Nevertheless, the essence of the decision could be applied even now for availing tax exemption under certain other exemption provisions.
Amount spent for obtaining ISO 9001 certificate is a revenue expenditure:
In CIT v. Infosys Technologies Ltd (2012) 349 ITR 582 (Karn)
the assessee incurred about Rs.12 lakhs towards obtaining ISO certificate and claimed the same as revenue expenditure. The claim of the assessee was negatived by the Assessing Officer. The court relied on CIT v. Perot Systems TSI (India) Ltd (2012) 349 ITR 563 (Del) to hold that the ISO certificate granted is after the inspection of procedures followed, the quality maintained in the production of products by the assessee. The certificate would only certify the quality maintained in the manufacturing process and guarantees the same and does not confer any benefit of enduring credibility. Accordingly, the court held that the decision of the tribunal upholding the claim of the assessee does not call for any interference.
Disclosure of income means the income disclosed in a valid return and not mere payment of advance tax or deduction of tax at source on those incomes:
In Asst. CIT v. A. R. Enterprises (2013) 350 ITR 489 (SC)
the precise issue before the apex court was whether payment of advance tax based on the estimated total income of the respective financial year is to be taken as disclosed income when the return of income was not filed before the date of search. The court held that it would be difficult to accept the plea of the assessee that payment of advance tax would tantamount to disclosure of income or that it indicated the intention to disclose the income. If the assessee had not filed its return by the due date, the Assessing Officer is correct in assuming that the assessee would not have disclosed its total income but for the search. With regard to tax deduction at source in respect of incomes of the assessee a similar conclusion was drawn.
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