10 Landmark Income Tax Case Laws

Editorial Team

Taxmann’s editorial team has selected 10 landmark rulings of the Year 2022 on the Income-tax, which were trending among the tax community, on which experts shared their invaluable opinions to explain the real impact or which explained the finest concepts of the Income-tax Act.

The gist of these cases is mentioned below.

1. Supreme Court upholds validity of Section 148 notices issued after 31-03-21 under old provisions

Case Details: Union of India v. Ashish Agarwal  
Citation: [2022] 138 taxmann.com 64 (SC)

Judiciary and Counsel Details

• M. R. Shah & B. V. Nagarathna, JJ.
• N. Venkataraman, ASG, Santosh Kumar,Praneet Pranav, Advs. & Raj Bahadur Yadav, AOR for the Appellant.
• C.A. Sundaram, Sr. Adv., Ms Kavita Jha, AOR, Vaibhav Kulkarni, Anant Mann, Udit Naresh, Advs., Nishit Agrawal, AOR, Harsh Mishra, Ms Upasna Agrawal, Mohit Kumar Bansal, Ms Shubhakriti Gaur, Dr Rakesh Gupta, Somil Agarwal, Advs., Ambhoj Kumar Sinha, AOR, Kapil Goel, Sandeep Goel, Advs., Dhananjay Garg, AOR, D.K. Garg, Abhishek Garg, Divyanshu Agrawal, Advs., Vaibhav Niti, AOR, Ms Madhavi Agrawal, Adv., Abhinav Agrawal, AOR, Gaurav Jain, Ms Akshita Goyal, Shubham Gupta, Advs, Ms Archana Sahadeva, Subodh S. Patil, AORS, Abhinav Merhotra, Adv., Kush Chaturvedi, AOR, Ms Priyashree SharmaPH& Syed Faraz Alam, Advs. for the Respondent.

Reassessment notice if issued on or after 1-4-2021 under unamended section 148, needs to be set aside; however, same being a bona fide mistake, notice should not be set aside, rather deemed to have been issued under substituted section 148A.

Facts of the Case

Revenue had preferred an appeal before the Supreme Court against the order of High Courts wherein several reassessment notices issued under old provisions of Section 148 were quashed. The notices were set-aside on the ground that the same was bad in law in view of the amendment made by the Finance Act, 2021.

Supreme Court Held

The Supreme Court has held that the respective High Courts had rightly held that the benefit of new provisions shall be made available if reassessment notice under Section 148 were issued on or after 01-04-2021. The Supreme Court is in complete agreement with the view taken by the various High Courts in holding so.

The Court further held that these judgments would result in no reassessment proceedings at all. Thus some leeway must be shown in that regard which the High Courts could have done so. The Revenue cannot be made remediless, and the object and purpose of reassessment proceedings cannot be frustrated.

Accordingly, the Supreme Court has proposed to modify the judgments and orders passed by the respective High Courts as under:

• Section 148 notices issued by the Assessing Officers shall be deemed to be treated as show­cause notices in terms of Section 148A(b);
• The Assessing Officers shall, within 30 days from 04-05-2022, provide the information and material relied upon so that the assessees can reply to the notices within two weeks thereafter;
• The requirement of conducting any enquiry with the prior approval of the specified authority under Section 148A(a) be dispensed with as a one­time measure vis­à­vis those notices which have been issued under the old provisions from 01-04-2021 till date, including those which have been quashed by the High Courts;
• Thereafter, the Assessing Officers shall pass an order in terms of Section 148A(d) after following the due procedure as required under Section 148A(b) in respect of each of the concerned assessees;
• All the defences available to the assessee under Section 149, available under the Finance Act, 2021 and in law, and whatever rights are available to the AO are kept open and shall continue to be available.

The Supreme Court has said that this order will strike a balance between the rights of the Revenue and the respective assessees. The Revenue may not suffer due to the bonafide belief of the AOs in issuing approximately 90,000 notices as ultimately it is the public exchequer which would suffer.

This order of the Supreme Court shall apply to pan India. Accordingly, all orders passed by different High Courts, wherein reassessment notices issued after 01-04-2021 were set aside, shall be governed by the present order and shall stand modified to the aforesaid extent.

The Supreme Court has passed this order in exercise of powers under Article 142 of the Constitution of India to avoid any further appeals on the very issue by challenging similar judgments and orders.

2. ‘Solely’ in Section 10(23C)(vi) means ‘exclusively’; Profit-oriented institutions can’t claim exemption: SC

Case Details: New Noble Educational Society v. Chief Commissioner of Income-tax  
Citation: [2022] 143 taxmann.com 276 (SC)

Judiciary and Counsel Details

• Uday Umesh Lalit, CJI, S. Ravindra Bhat& Pamidighantam Sri Narasimha, JJ.
• Sidharth Dave, Sr. Adv. (A.C), K. Parameshwar, Adv (A.C), Ms A. Sregurupriya, M.V. Mukunda, Ms Arti Gupta, Advs., Mrs Prabha Swami, AOR, Nikhil Swami, Ms Divya Swami, MsDaisy Hannah, Ms Oindrila Sen, Advs., Shekhar Kumar, AOR, Venkataraman, ASG, Rupesh Kumar, Ms Gargi Khanna, Ms Alka Aggarwal, Ms C. Bharti, Ms Amrita, Ms Renu, Advs. & Raj Bahadur Yadav, AOR for the Appearing Parties.

Requirement for educational charitable institution, society or trust seeking approval under section 10(23C) is to ‘solely’ engage itself in education or educational activities and not engage in any activity of profit which are unrelated to education

While considering applications for approval under section 10(23C), Commissioner is not bound to examine only objects of institutions, to ascertain genuineness he is also free to call for audited accounts or other such documents for recording satisfaction where society, trust or institution genuinely seeks to achieve object which it professes

Registration of trust or charities is obligatory under state or local laws and concerned trust, society, other institution etc. seeking approval under section 10(23C) should also comply with provisions of such state laws, this would enable Commissioner or concerned authority to ascertain genuineness of trust, society etc.

Facts of the Case

The subject matter of appeal in the instant case was the rejection of the appellant’s claim for registration as an institution/trust set up for the charitable purpose of education under the Income-tax Act. The Andhra Pradesh High Court held that the appellant was not created ‘solely’ for the purpose of education. It had other objects, which means that it ceased to be an institution existing ‘solely’ for educational purposes.

The appellant relied upon the ruling of American Hotel and Lodging Association v Central Board of Direct Taxes (2008) 170 Taxman 306 (SC) and Queen’s Education Society v. CIT (2015) 55 taxmann.com 255 (SC). It was submitted that the test for determination was whether the ‘principal’ or ‘main’ activity was education or not. Whether some profits were incidentally earned?

Supreme Court Held

The Supreme Court held that the interpretation adopted by the judgments in American Hotel as well as Queens Education Society as to the meaning of the expression ‘solely’ are erroneous.

The decisions in American Hotel and Queens Education Society did not explore the true meaning of the expression ‘solely’ in the context of educational institutions. The word “Solely” in Section 10(23C)(vi) means only/exclusively and not primarily.

The requirement of the charitable institution, society or trust, etc., to ‘solely’ engage itself in education or educational activities and not engage in any activity of profit means that such institutions cannot have objects unrelated to education. In other words, all objects of society, trust, etc., must relate to imparting education or be with educational activities.

Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C). At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities.

The seventh proviso to Section 10(23C), as well as Section 11(4A), refers to profits that may be ‘incidentally’ generated or earned by the charitable institution. The same applies only to those institutions which impart education or are engaged in activities connected to education.

The reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) merely means that the profits of a business which is ‘incidental’ to the educational activity. In relation to education, it is the sale of textbooks, providing school bus facilities, hostel facilities, etc.

Thus, a trust, university or other institution imparting education should necessarily have all its objects aimed at imparting or facilitating education. Regarding the plain and unambiguous terms of the statute and the substantive provisions which deal with exemption, there cannot be any other interpretation.

3. Apex Court interprets the definition of ‘Charitable Purpose’ used in Section 2(15) for tax exemption

Case Details: Assistant Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority
Citation: [2022] 143 taxmann.com 278 (SC)

Judiciary and Counsel Details

• Uday Umesh Lalit, CJI, S. Ravindra Bhat & Pamidighantam Sri Narasimha, JJ.

SC ruling brings much clarity in ‘charity’ for tax exemption purposes by interpreting the definition of ‘charitable purpose’ in section 2(15) of the Act

An assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration (“cess, or fee, or any other consideration”);

However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected (“actual carrying out…” inserted w.e.f. 1-4-2016) to the achievement of its objects of GPU; and (ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 1-4-2009; then Rs. 25 lakhs w.e.f. 1-4-2012; and now 20% of total receipts of the previous year, w.e.f. 1-4-2016);

Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto.

It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”.

Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental.

The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached.

Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 1-4-2009), reaffirm this interpretation and bring uniformity across the statutory provisions.

The assessing authorities must on a yearly basis, scrutinize the record to discern whether the nature of the assessee’s activities amount to “trade, commerce or business” based on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher).

If it is found that they are in the nature of “trade, commerce or business”, then it must be examined whether the quantified limit (as amended from time to time) in proviso to Section 2(15), has been breached, thus disentitling them to exemption.

Facts of the Case

The primary question before the Supreme Court was the correct interpretation of the proviso to Section 2(15), which defines ‘Charitable purpose’.

Supreme Court Held

The Supreme Court has clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce, or business or provide service in relation thereto for any consideration.

However, in the course of achieving the object of General Public Utility (GPU), the concerned organisation can carry on trade, commerce, or business or provide services in relation thereto for consideration, provided that:

• The activities of trade, commerce, or business are connected to the achievement of its objects of GPU; and
• The receipt from such business or commercial activity or service in relation thereto does not exceed the quantified limit of 20% of total receipts of the previous year.

Charging of any amount towards consideration for such an activity (advancing general public utility), which is on a cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto.

It is only when the charges are significantly above the cost incurred by the assessee, they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”.

Further, Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities should be conducted in the course of achieving the GPU object, and the income, profit, or surplus or gains must, therefore, be incidental.

The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15) has not been breached.

The assessing authorities must, every year, scrutinise the record to discern whether the nature of the assessee’s activities amounts to “trade, commerce or business” based on its receipts and income (i.e., whether the amounts charged are on a cost-basis or significantly higher).

If it is found that they are in the nature of “trade, commerce or business”, then it must be examined whether the quantified limit (as amended from time to time) in the proviso to Section 2(15), has been breached, thus disentitling them to exemption.

4. TDS under Section 194H apply on additional sum charged by agents over and above the airfare: SC

Case Details: Singapore Airlines Ltd. v. Commissioner of Income-tax
Citation: [2022] 144 taxmann.com 221 (SC)

Judiciary and Counsel Details

• Surya Kant & M. M. Sundresh, JJ.
• C.S. Agarwal, Sr. Adv., Bhargava V. Desai, AOR, Anil Makhija, Ms Charu Modi, Umashankar, Jagmohan, Advs., Vikramjit Banerjee, ASG, Arijit Prasad, Sr. Adv., Rupesh Kumar, Ms Gargi Khanna, Shashank Bajpai, Udai Khanna, Santosh Kumar Advs. and Mrs Anil Katiyar, AOR Vinay Garg, AOR, Vishal Kalra, Ms Snigdha Gautam, Advs. & Raj Bahadur Yadav, AOR for the Appearing Parties.

Assessee-airlines executed passenger sales agency (PSA) agreements with travel agents in terms of which they would pay commission to travel agents on published fare of tickets sold by them on behalf of airlines, additional amount over and above net fare charged by agents from customers i.e., supplementary commission being incidental to transaction by which flight tickets were sold on behalf of air carriers and was for their benefit, assessee would be liable to deduct TDS under section 194H on same

Travel agents had already paid income tax on supplementary commission, there could be no further recovery of shortfall in TDS owed by assessees-airlines, however, interest would be levied under section 201(1A)

There were contradictory pronouncements by different High Court in respect of section 194H being applied to payment of supplementary commission to agents by airlines, there was reasonable cause for assessee-air carriers to have not deducted TDS on said supplementary commission and thus penalty proceedings against airlines under section 271C were to be quashed

Facts of the Case

The Supreme Court has given a significant ruling on the applicability of Section 194H TDS on commission income. The Court has held that Section 194H applies to the additional amount, over and above net airfare, charged by agents from customers.

The lack of control that the assessee has over the actual airfare charged by the agents over and above the net airfare cannot form the legal basis for the assessee to avoid its liability to deduct tax under Section 194H.

Assessee-company engaged in the business of air transport services. The business mechanism of the assessee involves booking tickets through travel agents. International Air Transport Association (IATA) sets the base fare for air tickets. However, the airlines may sell their tickets for a net fare lower than the base fare but not higher.

Travel agents act on behalf of airlines to market and sell tickets and are entitled to a commission on the basic fare of the ticket fixed by the IATA.

Further, airlines have no control over the actual fare at which the agents sell tickets, and the agents are at liberty to set a price lower than the base fare fixed by IATA but still higher than the net fare demanded by the airline.

The additional amount charged by travel agents over and above the net fare quoted by airlines was retained by the agents as their own income.

The issue before the Supreme Court was:

“Whether the amount retained by the agents, over and above the net fare of air tickets, were to be treated as commission for deduction of tax at source under Section 194H?”

Supreme Court Held

The Supreme Court held that there is a distinction between a contract of agency and a contract of sale. A contract of sale is executed when the seller transfers the title of the goods to the buyer.

As per the agreement between the airline and the agent, the agent would sell the ticket as per the directions of the airline, and in case of any loss incurred by the agent, he would be indemnified by the airline.

There was no contract of sale between the assessee and the travel agent. The airline retains title over the travel tickets and is responsible for the actual services provided to the final consumer.

Further, as per the agreement, “all monies” collected by the agents on the sale of air tickets will be held by them in a fiduciary capacity. Accordingly, there was a contract of agency and not a contract of sale.

Further, the arrangement between the purchaser of the ticket and the agent is merely a part of the agency agreement and not a separate agreement. The extra benefit gained by the agent on the sale of tickets is due to the agency agreement entered with the airline.

The lack of control that the airlines have over the actual fare charged by the travel agents over and above the net fare cannot form the legal basis for the assessee to avoid its liability to deduct tax under Section 194H.

Thus, these amounts were incidental to the transaction by which the air tickets were sold on behalf of airlines and were for the benefit of agents. Such incidental benefit must come under the ambit of the principal-agent relationship.

The commission under Section 194H includes any payment received directly or indirectly by the agent on behalf of the principal. It does not distinguish the payment based on the source of such receipt.

Therefore, the amount retained by the agents on the sale of air tickets was a supplementary commission, liable for tax deduction under Section 194H.

5. Jurisdiction of the High Court is determined by the situs of the AO who has passed the order: Supreme Court

Case Details: Principal Commissioner of Income-tax v. ABC Papers Ltd.
Citation: [2022] 141 taxmann.com 332 (SC)

Judiciary and Counsel Details

• Uday Umesh Lalit, S. Ravindra Bhat & Pamidighantam Sri Narasimha, JJ.
• Anil Katiyar for the Appellant.
• Kavita Jha for the Respondent.

Even if case of an assessee was transferred in exercise of power under section 127, High Court within whose jurisdiction AO passed assessment order would continue to exercise jurisdiction of appeal

Facts of the Case

In the instant case, the question that arose for consideration before Supreme Court was:

“Whether the jurisdiction of the High Court consequent upon administrative order of transfer of a ‘case’ under Section 127 from one Assessing Authority to another Assessing Officer located in a different State.”

There were diversified views of different High Court on this matter. The Delhi High Court in Sahara India Financial Corporation Ltd. [2007] 162 Taxman 357 (Delhi) and Aar Bee Industries Ltd. [2013] 36 taxmann.com 308 (Delhi) held that an administrative order of transfer of cases would also have the consequence of transferring the jurisdiction of the High Court.

Supreme Court Held

The Supreme Court held that the reasoning adopted by the Delhi High Court in the Sahara case was based only on the meaning attributed to the expression ‘cases’ in the Explanation to Section 127(4). The Delhi High Court was of the view that ‘cases’ must include within its sweep not only the cases pending before the Authorities but also the proceedings before the ITAT as well as a High Court.

The power of transfer exercisable under Section 127 is relatable only to the jurisdiction of the Income Tax Authorities. It has no bearing on the ITAT, much less on a High Court. If this submission is accepted, it will mean that the executive has the power to determine the jurisdiction of a High Court. This can never be the intention of the Parliament.

The jurisdiction of a High Court stands on its own footing by virtue of Section 260A, read with Section 269. While interpreting a judicial remedy, a Constitutional Court should not adopt an approach where the identity of the appellate forum would be contingent upon or vacillates subject to the exercise of some other power. Such an interpretation will clearly be against the interest of justice.

The Supreme Court held that appeals against every decision of the ITAT shall lie only before the High Court within whose jurisdiction the Assessing Officer who passed the assessment order is situated.

Even if the case or cases of an assessee are transferred in the exercise of power under Section 127, the High Court within whose jurisdiction the Assessing Officer has passed the order shall continue to exercise the jurisdiction of the appeal. This principle is applicable even if the transfer is under Section 127 for the same assessment year.

6. No Equalisation Levy if, person running ads on ‘Google’ and target audience, both located outside India: ITAT

Case Details: Deputy Commissioner of Income-tax v. Prakash Chandra Mishra
Citation: [2022] 143 taxmann.com 121 (Jaipur-Trib.)

Judiciary and Counsel Details

• Dr S. Seethalakshmi, Judicial Member & Rathod Kamlesh Jayantbhai, Accountant Member
• P.R. Meena(CIT) for the Appellant.
• Rajeev Sogani& Rohan Sogani, CA’s for the Respondent.

Assessee engaged in business of providing support services of online advertisement and digital marketing was merely acting as conduit and no part of advertising services were utilised in India and person running ad, target audience and person displaying ad were all located outside India, assessee would not be liable to deduct equalization levy on advertisement charges paid by him on behalf of his clients located abroad to a non-resident

Facts of the Case

Assessee was an individual operating the business of providing support services for online ads, Digital Marketing and Web Designing. The assessee was an agent of Google Singapore.

Assessee carried out an online advertising campaign for his clients for availing of Google Singapore services.  During the relevant year, assessee had made payment to Google Singapore towards online advertisement on behalf of his clients.

During scrutiny, the Assessing Officer (AO) made addition under section 40(a)(ib) for non-charging of Equalization levy (EL) as the conditions prescribed under section 165 of the Finance Act, 2016 are fulfilled.

On appeal, the CIT(A) reversed the order of the AO. The matter reached the Jaipur Tribunal.

ITAT Held

The Jaipur Tribunal has held the assessee was acting only as an agent of Google Singapore. On approaching the assessee, the assessee’s client gets login credentials, generated by the assessee on the website of Google. Through such credentials, the person on their own runs advertisements on Google.

Such a person decides where the advertisement is to be run in which geographical location, who would be the targeted audience, and for how much duration such advertisement is to run. All such aspects are decided by the person advertising and not by the assessee. The assessee was merely a conduit for getting the advertisement run on Google.

Thus, when the intention of the levy was related to the targeted audience and the party paying the online advertisement had no relation in India, EL is not attracted. 

7. Section 56(2)(viib) applies to the conversion of Compulsorily Convertible Debentures (CCDs) into equity shares: ITAT

Case Details: Milk Mantra Dairy (P.) Ltd. v. Deputy Commissioner of Income-tax
Citation: [2022] 140 taxmann.com 163 (Kolkata-Trib.)

Judiciary and Counsel Details

• Aby T. Varkey, Judicial Member & Girish Agrawal, Accountant Member
• Rajib Sharma & Jai Somani, ARs. for the Appellant. 
• Sudipta Guha, CIT, DR for the Respondent.

Assessee converted CCDs into equity shares in relevant assessement year and claimed that entire consideration was received at time of issuance of CCDs, since subsequent conversion entailed receipt of certain consideration by assessee in form of discharge of interest obligation, etc., section 56(2)(viib) would be applicable in instant case as said section envisages wider outlook to receipt of any consideration which could not be limited to receipt of money

Section 56(2)(viib) would not be applicable with respect to share premium amount received from non-resident angel investors for issuance of equity shares

Assessee adopted DCF method for valuation of equity shares, Assessing Officer was not empowered to disregard DCF valuation as carried out by valuer and such action of rejecting valuation report and thereby making an addition under section 56(2)(viib) could not be upheld

Facts of the Case

The issue before the Kolkata Tribunal was the applicability of section 56(2)(viib) on the transaction of conversion of Compulsorily Convertible Debentures (CCDs) into Equity Shares of the assessee.

The assessee was a private limited company engaged in the manufacturing and selling of dairy products. The assessee had issued Compulsorily Convertible Debentures (CCDs) during AYs 2011-12 and 2012-13, which had been converted into equity shares during the relevant year.

The assessee contended that the assessee received the entire consideration at the time of issuance of CCDs. Conversion of CCDs by issuing equity shares did not entail any further payment of money. Thus, the provisions of Section 56(2)(viib) cannot be applied in the year of allotment of shares.

ITAT Held

The Kolkata Tribunal held that Section 56(2)(viib) contains the words “receives any consideration”. The term “consideration” is a term of wider import when compared with the words “amounts” or “money”. Thus, Section 56(2)(viib) encompasses consideration in all forms and is not limited to only receipt of money.

Receipt of money is one of the several modes for having a consideration in a transaction. It could be said that the assessee receives consideration for converting CCDs into equity shares which subsequently form part of the capital base of the assessee.

Here is a list of some of the considerations the assessee “receives” on the conversion of its CCDs into equity shares:

• The debt obligation on the assessee to repay is extinguished;
• The charge created on the assets/properties of the assessee to secure the debt obligation is released;
• The cost of servicing the debt obligation by paying periodic interest is mitigated;
• The capital-based in the form of own fund gets widened to leverage on the capital/stock markets;
• The debt-equity ratio becomes favourable to various stakeholders of the assessee making it more investor attractive/lucrative; and
• The risk of getting into the claim of insolvency resolution from the debt creditors in case of default in servicing their debt obligation is mitigated, and so forth.

Section 56(2)(viib) envisages a much wider outlook to the “receipt of any consideration” which cannot be limited to the receipt of money only.

Thus, the conversion of CCDs into equity shares entails receipt of consideration by the assessee, which is translated into the total issue price of shares, including share premium. Accordingly, the provisions of Section 56(2)(viib) apply in the present case. 

8. Air India is not to be treated as ‘assessee-in-default’ for lesser deduction of tax if the payee furnishes Form 26A: ITAT

Case Details: Air India Ltd. v. Commissioner of Income-tax
Citation: [2022] 143 taxmann.com 52 (Mumbai-Trib.)

 Judiciary and Counsel Details

• Baskaran B.R., Accountant Member & Kavitha Rajagopal, Judicial Member
• Rajnish Aggarwal for the Appellant.
• Manoj Sinha for the Respondent.

Assessee made payment to AIESL, its wholly owned subsidiary, for repairs/maintenance of aircrafts and stated that it was liable to deduct TDS under provisions of section 194C instead of section 194J as alleged by Assessing Officer and AIESL had offered these payments as its income and assessee had agreed to furnish a certificate from an accountant in order to avail benefit of proviso to section 201(1), alternative submission of assessee that benefit of proviso to section 201(1) may kindly be given, was to be accepted

Facts of the Case

In an interesting Ruling, the Mumbai Tribunal has allowed the benefit of the proviso to Section 201(1) on lower deduction of tax at source (TDS). It should be noted that said proviso provides relief only when the assessee does not deduct tax or, after deduction, fail to pay same to the credit of Govt.

The assessee (Air India Ltd.) was in the business of transportation of passengers and cargo by air, mail, parcel, etc. Its wholly-owned subsidiary company (Air India Engineering Services Ltd (AIESL)) was approved by DGCA for aircraft repairs and maintenance.

During a survey, it was found that the assessee had paid a certain sum to AIESL for repairs/maintenance on which tax was deducted at source (TDS) at the rate of 2% under Section 194C.

The Assessing Officer concluded that the said services were in the nature of “fees for technical services” liable for TDS at the rate of 10% under Section 194J. Thus, he determined the amount of shortfall of TDS along with interest under Section 201(1A).

ITAT Held

The Tribunal held that as per the assessee’s contention, it shall be given the benefit of proviso to Section 201(1) as AIESL had duly offered payments as its income. Proviso to Section 201(1) provides that the assessee shall not be treated as an ‘assessee-in-default’ if it complies with certain conditions, namely:

• Payee has furnished his return of income under Section 139;
• Payee has taken into account such sum for computing income;
• Payee has paid the tax due on the income declared by him in such return of income; and
• Payer furnishes a certificate to this effect from an accountant in Form 26A.

When the Tribunal pointed out that the assessee is required to furnish a certificate from an accountant to avail the benefit of the proviso, the assessee submitted that it shall submit the same before the AO.

Accordingly, it was held that in the interest of natural justice, the contention of the assessee might be accepted. However, the claim of the assessee requires verification at the end of the AO. Thus, the order passed by CIT(A) was set aside and restored the matter before AO.

9. ITAT to apply the decision of a larger bench if there are conflicting decisions of non-jurisdictional High Courts: ITAT

Case Details: Wockhardt Ltd. v. Deputy Commissioner of Income-tax
Citation: [2022] 144 taxmann.com 27 (Mumbai-Trib.)

Judiciary and Counsel Details

• Pramod Kumar, Vice President & Sandeep S Karhail, Judicial Member
• Ronak Doshi& Jinal Jain for the Appellant.
• Vatsala Jha for the Respondent.

Procedure of issuing draft assessment order under section 144C would come into play in respect of proceedings initiated after 1-10-2009

Facts of the Case

The issue before the Mumbai Tribunal was in what manner and to what extent the decisions of Hon’ble non-jurisdictional High Courts bind the lower judicial forums outside their jurisdiction.

ITAT Held

The Mumbai Tribunal held that when there are conflicting decisions of non-jurisdictional High Courts and no decision of a jurisdictional High Court on an issue, the ITAT should not follow the rule to apply the favourable view to the assessee. It’s a conscious call that must be taken for the question of whether the non-jurisdictional High Court is required to be followed on the facts of a particular situation.

For Tribunal, it is a compulsion by law to follow a jurisdictional High Court decision. However, following a non-jurisdictional High Court is a call for judicial propriety. The decisions of the non-jurisdictional High Court are followed in letter and spirit if there is no contrary decision by the jurisdictional High Court.

Difficulties arise when there are conflicting views of the non-jurisdictional High Courts. Tribunal can’t choose the views of one of the High Courts based on its perceptions.

In the given case, there was one decision of the division bench consisting of two Hon’ble judges and another decision of a single judge bench consisting of only one Hon’ble judge.

The Tribunal has much simpler and more objective criteria readily available, which is the strength of the bench of the Hon’ble non-jurisdictional High Court which has rendered the judgment.

The plurality in the decision-making process makes the decisions of benches with a larger number of Hon’ble judges being placed on a higher pedestal than the decisions of the benches with fewer Hon’ble judges.

Between a division bench decision of a non-jurisdictional High Court and a single judge bench of a non-jurisdictional High Court, a simple objective criterion of choice is the division bench decision to be preferred over the single judge bench decision. 

10. CA not expected to check genuineness of documents submitted by client while issuing Form 15CB: Madras HC

Case Details: Murali Krishna Chakrala v. Deputy Director, Directorate of Enforcement
Citation: [2022] 145 taxmann.com 248 (Madras)

Judiciary and Counsel Details

• P.N. Prakash & G. Chandrasekharan, Jj.
• Nithyaesh Natraj & Vaibhav R. Venkatesh for the Petitioner.
• N. Ramesh, Special Public Prosecutor (ED) for the Respondent.

CA can’t be prosecuted under PMLA for certificate issued in Form 15CB based on non-genuine documents submitted by client

Facts of the Case

Petitioner, a Chartered Accountant, was approached by his client for the issuance of Form 15CB. The client was required to make payments for imports. The petitioner issued Form 15CB on his client’s request after going through all the required information.

Subsequently, an investigation was carried out on the client and found that it was involved in money laundering. The allegations indicated opening fictitious bank accounts, forged bills of entry, parking huge funds in the bank account and transferring funds to various overseas parties. During the investigation, the Enforcement Directorate (ED) discovered the petitioner’s involvement as Form 15CB was filed in his name and overseas payments were made through bank accounts using such forms.

After the investigation, the Enforcement Directorate filed a supplementary complaint on the petitioner, contending his involvement in the generation of proceeds of crime.

Aggrieved by the order of the Enforcement Directorate, a petition was filed before the trial court but with no success. Thereafter, a petition was filed before the Madras High Court.

High Court Held

The Madras High Court held that petitioner being a Chartered Accountant, in the course of his professional duties, gave Form 15CB after scrutinizing the documents that were presented by his client. Petitioner didn’t have any reason to suspect the genuineness of the import transaction made by his client. He has only received the remuneration for issuance of such Form 15CB and nothing more.

Further, a Chartered Accountant is only required to examine the nature of remittance and nothing beyond that. There is no requirement to dig deep into the genuineness of the documents submitted by his clients.

Since the petitioner issued Form 15CB after scrutinising the documents furnished to him by the client, he discharged his duties following the professional behaviour expected from him. Therefore, the Court discharged the petitioner from the prosecution and enlisted him as a witness.

Also Read:
25 Key Income-tax Case Laws of the Year 2021 | Taxmann.com