Wednesday 19 June 2013

Capital gain is not chargeable in case of consideration received on transfer of property under Adverse Possession.

Adverse Possession:-

Adverse possession is a doctrine under which a person in possession of land owned by someone else may acquire valid title to it, so long as certain common law requirements are met, and the adverse possessor is in possession for a sufficient period of time, as defined by a statue of limitation.

Assessee acquired property by virtue of adverse possession and there is no cost of acquisition. It was held consideration received on transfer of said property is not liable for capital gain tax.

CIT vs. Star Chemicals (Bom) Pvt. Ltd. ITA Nos. 1110 of 2009&1153 of 2009 (Bombay).  

Harsh Judgement For Builders:- Annual Value of the Unsold Flats Held as Stock in Trade.

Annual Value of the Unsold Flats Held as Stock in Trade.:-

It was held that the annual value of the unsold flats held as stock in trade is chargeable under the head Income From House Property.

CIT vs. Ansal Housing Finance & Leasing Co. Ltd. 213 Taxman 143 (Delhi.)

Thursday 30 May 2013

Whether the CBDT has the power u/s 119(2)(b) to condone the delay in filing ROI?



The assessee filed his ROI, which contains a claim for carry forward of losses, a day after the due date. The delay was due to the fact that the assessee didn’t reached the Income Tax Building on time because he was sent from one office to another and by the time he reached the office where his ROI was to be accepted, it was already 6:00 PM and he was told that return would not be accepted because the counter had been closed. These circumstances were recorded in letter along with the ROI delivered on very next day to the office of the Dy. Commissioner of Income Tax. Later on, CBDT rejected the request of the assessee for condonation of delay in filing the ROI u/s 119.


Whether the CBDT has the power u/s 119(2)(b) to condone the delay in filing ROI?


The High Court held that the Board has the power to condone the delay in case of ROI which was filed late and where a claim for carry forward of losses was made. The assessee had shown the sufficient reason for the delay of one day in filing of ROI. If the delay is not condoned, it would cause genuine hardship to the petitioner. Therefore, the Court held that the delay of one day in filing of ROI has to be condoned.

Lodhi Property Co. Ltd. V. Under Secretary, (ITA-II), Dept. of Revenue (2010) (Del.)

Thursday 16 May 2013

Carry Forward & Set Off of Business Loss, But Not Unabsorbed Depreciation In Case of Profit u/s 44AD of Income Tax Act, 1961.


Section 44AD overrides Section 28 to 43 C.

Set off & carry forward of depreciation is governed by Section 32. Since Section 44AD overrides Section 32, unabsorbed depreciation cannot be set off against profits u/s 44AD.

However, carry forward & set off of business loss is governed by Section 72. Accordingly, brought forward loss can be set off against profits declared  u/s 44AD.

Friday 19 April 2013

Service Tax Applicable @ 10% (Not 12%) in case of invoice issued prior to 01/04/2012 and amount revived post 01/04/2012(Receipt Basis).


Prior to 01/04/2012 the Point of Taxation (POT) in case of the “Chartered Accountants Service” was prescribed as the date of receipt of payment u/r. 7(c) of the POT Rules, 2011 and hence service tax was payable at the rate applicable on the date of receipt. However, pursuant to budget, 2012 (w.e.f. 01/04/2012) the rate of tax was increased change to 12% from 10% and the erstwhile Rule 7 of POT Rule was made applicable to the CA’s service w.e.f. 01/04/2012. An issue arouse in case of a CA who had provided services and issued invoices prior to 01/04/2012 but received the payment post 01/04/2012 – What could be the rate of service tax. To resolve this issue, Board issued 2 Circular Nos. 154/5/2012-S.T dated 28/03/2012 and 158/9/2012-S.T. dated 08/05/2012 and clarified that the POT in the present situation would be governed by the erstwhile rule 7 (c) of the POT Rules and service tax @ 12% would be payable on payment received post 01/04/2012. In a writ challenging the validity of these circulars, the High Court struck down the said circulars and observed as follows:

(i) Both the circulars were erroneous and contrary to the law since they refereed  to the erstwhile rule 7 (c) of the POT Rules which did not exist at the time of receipt of payment i.e. post 01/04/2012:
(ii) The present issue was squarely covered by Rule 4(a) (ii) of the POT rules which prescribes the POT of service in case of changes in the rate of tax as the date of issuance of invoice.

Hence, the rate of service tax applicable to the present case was held to be 10% i.e. the rate of service tax applicable as on the date of issuance of invoice.

[Delhi Chartered Accountant’s Society (Regd.) vs. UOI (2013) 29STR 461 (Del.)]

Tuesday 16 April 2013

Advertisement charges paid to Google & Yahoo is not chargeable to tax in India


The assessee, a florist, paid a sum of Rs. 30.44 lakhs to Google Ireland Ltd and Yahoo USA for online advertising. The AO held that the assessee ought to have deducted TDS and that as there was a failure, the expenditure was not allowable u/s 40(a)(i). This was deleted by the CIT(A) on the ground that Google and Yahoo did not have a PE in India. On appeal by the department to the Tribunal, HELD dismissing the appeal:

U/s 5(2)(b) income accruing or arising in India is chargeable to tax in India. A website does not constitute a ‘permanent establishment’ unless the servers on which websites are hosted are also located in the same jurisdiction. As the servers of Google and Yahoo are not located in India, there is no PE in India. As regards the second limb of s. 5(2)(b) of “income deemed to accrue or arise in India”, on heas to consider s. 9. S. 9(1)(i) does not apply as there is no “business connection” in India nor are the online advertising revenues generated in India serviced by any entity based in India. As regards s. 9(1)(vi), it is held in Yahoo and Pinstorm that the advertising revenues are not assessable as “royalty”. As regards s. 9(1)(vii), the services are not “managerial” or “consultancy” in nature as both these words involve a human element. Applying the rule of noscitur a sociis, even the word “technical” in Explanation 2 to s. 9 (1) (vii) would have to be construed as involving a human element. If there is no human intervention in a technical service, it cannot be treated as a technical service u/s 9(1)(vii). On facts, the service rendered by Google & Yahoo is generation of certain text on the search engine result page. This is a wholly automated process. In the services rendered by the search engines, which provide these advertising opportunities, there is no human touch at all. The results are completely automated. Consequently, the whole process of actual advertising service provided by Google & Yahoo, even if it be a technical service, is not covered by the limited scope of s. 9(1)(vii). Consequently, the receipts in respect of online advertising on Google and Yahoo cannot be brought to tax in India under the provisions of the Act or the India US and India Ireland tax treaty.

By ITO vs. Right Florists Pvt Ltd (ITAT Kolkata)