25 Best Income-tax Judgments in the year 2018
- Blog|Income Tax|
- 24 Min Read
- By Taxmann
- Last Updated on 19 October, 2022
1. SC upholds linking of Aadhaar number with PAN:
[Justice K.S. Puttaswamy (RETD.) v. Union of India  97 taxmann.com 585 (SC)] The Finance Act, 2017 inserted a new section 139AA in the Income-tax Act, 1961. With effect from July 1, 2017 this provision requires every eligible person to link the Aadhaar no. with PAN and quote the Aadhaar number in the Income-tax return. If any person does not possess the Aadhaar Number but he has applied for the Aadhaar card then he has to quote Enrolment ID of such Aadhaar application in the ITR. The Supreme Court had already upheld the validity of Section 139AA by repelling the contention raised on Articles 14 and 19 of the Constitution of India in the case of Binoy Viswam v. Union of India  82 taxmann.com 211 (SC). However, Section 139AA was not examined in the context of privacy rights enshrined in Article 21 of the Constitution. The Supreme Court in the case of K S Puttaswamy v. Union of India writ petition (civil) no 494 of 2012 held that, though privacy is a fundamental right, yet it is not an absolute right and is subject to certain limitations. The following are the triple tests which need to be satisfied for judging the permissible limits for invasion of privacy while testing the validity of any legislation: a) Existence of a law b) Legitimate State interest c) Test of Proportionality The first requirement stands satisfied as section 139AA is a statutory provision and, therefore, there is a backing of law. Insofar as requirement of ‘legitimate State interest’ is concerned, Section 139AA seeks to safeguard the following interest: “To prevent income tax evasion by requiring, through an amendment to the Income Tax Act, that the Aadhaar number be linked with the PAN.” Regarding the aspect of proportionality, there was specific discussion on that aspect in Binoy Viswam’s case (supra) as well. Therefore, the provision of Section 139AA has successfully met the triple test of right to privacy.
2. Discounts offered by Flipkart.com to buyers aren’t intangible assets: ITAT:
[Flipkart India Private Limited v. ACIT  92 taxmann.com 387 (Bangalore – Trib.)] The assessee-co., a wholesale dealer, acquired goods from various persons and immediately sold them to retail seller – WS Retail Services Pvt. Ltd. The retail seller ultimately sold those goods from e-commerce platform ‘Flipkart.Com’. To increase the volume of sale, assessee was purchasing goods, say, at Rs. 100 and selling them to the retailers at discount, say, at Rs. 80. The strategy to forego the profit had resulted in assessee-co. became a loss making company. The Assessing Officer held that the profits foregone by selling goods at less than cost price were to be regarded as expenditure incurred in creating intangibles/brand value or goodwill. Thus, only depreciation claim could be allowed on it. The Tribunal held in favour of assessee that one couldn’t proceed on the basis of presumption that the profit foregone would be deemed as expenditure to acquire an intangible asset, being brand value or goodwill. For creation of an intangible asset, i.e., goodwill, it is not possible to ascertain the cost of acquisition of goodwill. It was, therefore, not possible to say that profits foregone created goodwill or any other intangibles or brand value to assessee. Since assessee did not incur any expenditure in creating intangibles, being brand value or goodwill, discounts offered by selling goods at less than cost price were to be treated as revenue expenditures and, accordingly, deduction was allowable.
3. Gift received by an individual from HUF isn’t exempt: ITAT:
[Gyanchand M. Bardia v. ITO  93 taxmann.com 144 (Ahmedabad – Trib.)] The assessee claimed that gift of certain amount received from his Hindu undivided family (HUF) was exempt from tax under section 56(2)(vii). However, the Assessing Officer held that the term ‘relative’ in Explanation (e) to Section 56(2)(vii) does not include HUF as donor and, therefore, added the impugned amount to assessee’s income under Section 68. On further appeal, the Tribunal held in favour of revenue that as per Explanation to Section 56(2)(vii) members of an HUF are its relatives. Therefore, if HUF receives any sum from any of its member, such sum shall not be chargeable to tax. However, in vice-versa cases when member receives any sum from the HUF, same would be chargeable to tax as the term ‘relatives’ defined under said Explanation does not include HUF as a relative of such individual. The legislative intent is very clear that an HUF is not to be taken as a donor in case of an individual recipient. Thus, the assessee’s plea of having received a valid gift from his HUF was rightly declined and impugned addition was to be upheld.
4. Sec. 68 additions not tenable on grounds that relatives gave gift without any occasion: High Court:
[Pendurthi Chandrasekhar v. DCIT  91 taxmann.com 229 (Hyderabad)] In the Instant case, additions were made under section 68 on the grounds that assessee had failed to show why, without any occasion, Rs. 73 Lakhs had been gifted by the maternal aunt without any consideration. The appellate authorities also upheld the action of the Assessing Officer. On further apeal, the High Court held in favour of assessee that an occasion is not necessary to accept a gift from a relative. Section 56 does not envisage any occasion for a relative to give a gift, it was almost impermissible for any authority and even for the Court to import the concept of occasion and develop a theory based on such concept. The Court further held that when donor had given a confirmation letter that she had transferred Rs. 73 lakhs to her nephew as a gift out of natural love and affection, the AO should not have further doubted her. The donor in instant case was assessee’s own maternal aunt and was covered within the definition of ‘relative’ defined under explanation to section 56(2)(v). Therefore, unexplained addition under section 68 with respect to gift of Rs. 73 lakh received by assessee from his maternal aunt was to be deleted.
5. MasterCard shall have a PE in India and its fees for processing card payments taxable as business income: AAR:
[MasterCard Asia Pacific Pte. Ltd., In re.  94 taxmann.com 195 (AAR – New Delhi)] The Applicant, MasterCard Asia Pacific, is a Singaporean company engaged in processing of electronic payments. Customers are provided with a MasterCard Interface Processor (MIP) that connects to MasterCard’s Network and processing centres. Indian subsidiary owns and maintains MlPs placed at Customers’ locations in India. The applicant approached the AAR to decide if it had a PE in India The Authority for Advance Rulings held that MasterCard has a PE in India under provisions of Article 5 of India-Singapore DTAA in respect of services rendered with regard to use of a global network and infrastructure to process card payment for Customers in India. It was held that the applicant has fixed place PE, service PE and dependent agency PE in India. The applicant was held to have a PE in India because the MIPs in India play a crucial role while facilitating the authorization of payment. AAR concluded that the preliminary verification of payment request and transmission of data, which is crucial to authorization, happens in India through MIP. These initial verification and validation of details are important and are crucial functions in the context of overall functions performed by the applicant to facilitate authorization. These functions cannot be called preparatory or auxiliary in nature.
6. Market value of other business assets not relevant to determine FMV value of unlisted shares of a co.:
[Minda S M Technocast (P.) Ltd. v. ACIT  92 taxmann.com 29 (Delhi – Trib.)] The assessee-company was deriving its income under the head ‘rental and interest income’. It acquired shares of another entity at Rs. 5 per share. The value of such shares was derived on basis of book value of assets of issuing co. in accordance with Rule 11UA of the I-T Rules. Valuation Report from a CA firm was also produced in support of claim. The Assessing Officer was of the view that the fair market value (FMV) of the land as per the circle rate should be taken into consideration while determining the value of the shares of issuing co. Accordingly, he substituted the book value of the land with FMV of the land as per the circle rate and determined the value of shares at Rs. 45.72 per share. The Tribunal held in favour of assessee that Rule 11UA contains the provisions for determination of fair market value of a property, other than an immovable property. Rule 11UA provides that while valuing the shares the book value of the assets and liabilities declared by the issuing co. should be taken into consideration. There is no provision in Rule 11UA as to substitute the FMV of land with its book value while calculating the FMV of shares. Therefore, the share price calculated by the assessee of issuing co. at Rs. 5 per share had rightly been determined in accordance with the provisions of Rule 11UA.
7. Domain registration fee received by ‘GoDaddy’ is taxable as royalty: ITAT:
[Godaddy.com LLC v. ACIT  92 taxmann.com 241 (Delhi – Trib.)] The assessee-co. was engaged as accredited domain name registrar authorized by Internet Corporation for Assigned Names and Numbers. The assessee had income from domain registration fees which was claimed to be not taxable in India. However, the Assessing Officer assessed the same as royalty, which was confirmed by the Dispute Resolution Panel (DRP). The aggrieved-assessee filed the instant appeal before the ITAT. It was submitted by assessee that it merely facilitated getting domain registered in the name of the customer who paid for availing of such services. Hence, the receipt in respect of domain name registration was not in the nature of royalty under Explanation 2 to section 9. The ITAT ruled in favour of revenue on basis of a judgment delivered by the Apex Court in the case of Satyam Infoway Ltd. v. Siffynet Solutions (P.) Ltd. AIR 2004 SC 3540. In the instant case, the Supreme Court held that the domain name is a valuable commercial right and has all the characteristics of a trademark and, accordingly, domain names are subject to legal norms applicable to trademarks. Thus, the rendering of services for domain registration was equivalent to rendering of services in connection with the use of an intangible property which was similar to trademark. Therefore, charges received by the assessee for said services in respect of domain name was royalty as per Explanation 2 to section 9(1)(vi).
8. HC upheld additions on basis of ‘window-dressed’ financials prepared for bank loans:
[Binod Kumar Agarwala v. CIT  94 taxmann.com 422 (Calcutta)] The assessee approached a bank to obtain the credit facilities on basis of books of account prepared by a firm of Chartered Accountants. Subsequently, different financial statements were presented before Income-tax Dept. which were audited by another Chartered Accountants Firm. The financials for Income-tax purposes were not commensurate with what was reflected in the books of account presented before Bank. The Assessing Officer made additions due to difference in two audited balance sheets. The High Court held in favour of revenue that once assessee presents the financial statements, as certified by a Chartered Accountant, for obtaining bank loan, he can’t subsequently backtrack from such position at the time of filing annual accounts for purpose of taxation. The assessee can’t argue that that earlier accounts had been prepared on estimation basis for presentation thereof to bank. When financial statement of an assessee is accompanied by a certificate as to its fairness, it couldn’t be tailor-made to suit a particular purpose or window-dressed to make it attractive for bankers to rely thereupon. Thus, it was open to the Assessing Officer and income tax authorities to pin assessee down on basis of assessee’s representation contained in earlier balance-sheet and make additions.
9. ‘Sachin Tendulkar’ entitled to vacancy allowance as he failed to find tenant for vacant flat:
[Sachin R. Tendulkar v. DCIT  96 taxmann.com 253 (Mumbai – Trib.)] The Assessee, Mr. Sachin Tendulkar, owned two properties in Pune – Flat S and Flat T. Flat T was let out, however, Flat S was vacant for the whole year as suitable tenant couldn’t be found. He claimed that the said flat had remained vacant throughout the year despite his reasonable effort to let out the same. In this regard, he submitted three letters written to the builder. In first letter, he thanked the builder for identifying the tenant for the flat at Flat T and also requested to identify tenant for Flat S. Subsequently, the assessee had written second letter and after that third letter being reminders for identifying the tenant to let out Flat S. Therefore, he claimed vacancy allowance under Section 23(1)(c) for Flat S and declared nil income. During the course of assessment proceedings, the Assessing Officer made additions for the notional rental income from Flat S, which was also upheld by the CIT(A). The ITAT held in favour of assessee when same builder had helped the assessee to find tenant for another flat, it couldn’t be said that these letters to the same builder to help him identify one more tenant, to be considered as fake, defied logic. Therefore, if a property was held with an intention to let out in the relevant year coupled with efforts made for letting it out, the same would fall within the purview of section 23(1)(c).
10. Sum received on relinquishment of ‘right to sue’ is non-taxable capital receipt: ITAT:
[Bhojison Infrastructure (P.) Ltd. v. ITO  99 taxmann.com 26 (Ahmedabad – Trib.)] The assessee-company entered into a development agreement by virtue of which a right in land was created in its favour by owner of land. Assessee’s case was that despite development agreement entered into by landlord, the landlord had decided to sell said land to other parties. The assessee filed a suit in the Courts of law for specific performance of pre-emptive right to purchase the land. Later on, it received damages from the potential purchaser for relinquishment of ‘right to sue’ in the Courts of law for breach of development agreement. The assessee claimed that ‘right to sue’ was a personal right which would not fall within sweep of definition of ‘capital asset’ under section 2(14). Consequently, damages received from potential purchaser were treated as non-taxable capital receipts. The ITAT held in favour of assessee as under: The essence of long list of judicial pronouncements cited by assessee was that section 6 of the Transfer of Property Act which uses the same expression ‘property of any kind’ in the context of transferability makes an exception in the case of a mere right to sue. The decisions thereunder make it abundantly clear that the ‘right to sue’ for damages is not an actionable claim. It cannot be assigned. Transfer of such a right is opposed to public policy as it tantamount to gambling in litigation. Hence, such a ‘right to sue’ does not constitute a ‘capital asset ‘ which, in turn, has to be ‘an interest in property of any kind’. Despite the definition of expression ‘capital asset ‘ in the widest possible terms in Section 2(14), a right to a capital asset must fall within the expression ‘property of any kind’ subject to certain exclusions. Notwithstanding widest import assigned to the term ‘property’ which signifies every possible interest which a person can hold and enjoy, the ‘ right to sue’ was a right in personam and such right could certainly not be transferred. In order to attract the charge of tax on capital gains, the sine qua non is that the receipt must have originated in a ‘transfer ‘ within the meaning of section 45, read with section 2(47) of I-T Act. In the absence of its transferability, damages received by assessee couldn’t be assessed as capital gains.
11. AO should apprise counsel on all facts to avoid delays in disposal of cases: HC:
[PCIT v. Grasim Industries Ltd  94 taxmann.com 81 (Bombay)] The Bombay High Court held that it is primary duty of the Assessing Officer to apprise the Counsel about all facts involved in matter, more particularly facts which may have surfaced after passing of impugned order of Tribunal so as to avoid unnecessary delays in disposing of cases pending before Court. Officers of revenue should not believe that once matter is in Court, it is sole responsibility of revenues counsel to protect the interest of State. Thus, it is appropriate to suggest to CBDT to consider holding of a training programme, where leading advocates could address domain-expert on ethics, obligation and standard expected of advocates before they start representing State. It would ensure that revenue is properly represented to serve greater cause of justice and fair play.
12. Mushroom farming is an agricultural operation even if vertical space is used instead of horizontal space on soil:
[DCIT v. Inventaa Industries (P.) Ltd.  95 taxmann.com 162 (Hyderabad – Trib.)] The assessee-co. was engaged in business of manufacture of bulk drugs. It also derived income from growing mushroom and treated it as agriculture income exempt from tax under Section 10(1). The Assessing Officer disallowed the exemption on the contention that growing mushrooms is not an agriculture operation. He contended that mushrooms are produced under ‘controlled conditions’ in racks placed on shelves above land. Hence, the activity was not an agricultural activity. The assessee-co. raised the following issue before special bench of ITAT: ‘Whether income from production and sale of Mushrooms could be termed as ‘agricultural income’ if instead of horizontal use on soil, vertical space was used?’ The ITAT special bench held in favour of assessee as under: ‘Soil’ is a part of the land. Land is also part of earth. The upper strata of the land is soil and this is cultured and made fit for production of crops, vegetables and fruits, etc., by enriching the soil. When such soil is placed on trays, it does not cease to be land and when operations are carried out on this ‘soil’, it would be agricultural activity carried upon land itself. For the purpose of understanding the nexus between an agricultural operation and an agricultural land, what needs to be inferred from the term ‘land’ is that, the cultured top layer of the earth, which is fit for any sort of cultivation, is land for this purpose. Hence, the soil which was placed on the vertical space above the land in trays was also land and the income arising from the sale of Mushrooms was agricultural income exempt from tax.
13. Delhi HC directs I-T Dept. to allow filing of ITR without Aadhaar No.:
[Shreyasen, & Anr. v. Union of India & ORS  95 taxmann.com 256 (Delhi)] The petitioners filed a writ in the Delhi High Court to seek directions that I-T Dept. should allow filing of Income-tax return (ITR) without complying with the condition of providing Aadhaar Number. Section 139AA of the Income-tax, Act 1961 requires every eligible person to quote his Aadhaar number in the ITR. If any person does not possess the Aadhaar Number but has applied for the Aadhaar then he can quote Enrolment ID of Aadhaar application Form in the ITR. This provision also requires the linking of Aadhaar number with PAN of the taxpayer[ The CBDT vide order [f.no.225/270/2017/ita.ii], dated June 30, 2018, extended the last date for linking of Aadhaar number with PAN till March 31, 2019.]. Petitioners argued that, though CBDT had provided relief to taxpayers by deferring last date to link their Aadhaar number with PAN, yet no such relief was provided in case of filing of ITR. Quoting of Aadhaar number or Enrolment ID of Aadhaar application form in I-T return is mandatory to file ITR online. E-Filing portal of Income-tax dept. doesn’t accept any return if Aadhaar number isn’t mentioned in ITR. Various High Courts had also allowed taxpayers to file their Income-tax returns manually without furnishing the Aadhaar number or enrolment ID of Aadhaar application form. Thus, they should be permitted to file their returns for the Assessment Year 2018-19 without furnishing Aadhaar in ITR. Considering the issue, the Delhi HC issued directions to the CBDT to issue appropriate directions and to create a platform by amending the digital forms or substituting them properly to enable ‘opt out’ option from the mandatory requirement of furnishing Aadhaar Number for the duration till the exemption subsists, i.e., till 31-03-2019. Subsequent to the directions issued by the Delhi High Court, the Income-tax Dept. updated the ITR utilities and e-filing platform which enabled the taxpayer to file the return without furnishing the Aadhaar or Enrolment Id.
14. No capital gain tax on ‘Power of Attorney’ holder just because real owner didn’t file ITR: ITAT:
[Samir Trikambhai Patel v. ITO  96 taxmann.com 291 (Ahmedabad – Trib.)] During the assessment proceedings, the Assessing Officer noted that the assessee had sold immovable properties and earned long-term capital gains. The assessee submitted that he had only signed the documents by virtue of Power of Attorney (POA) executed by Mr. A and Mr. B, the original vendors of such sale transactions who were Non-resident Indian. The Assessing Officer concluded that as assessee failed to furnish the residential address of the vendors and vendors didn’t file returns of income, he shall be considered as owner of the properties. Accordingly, the assessee was held liable to be taxed on the capital gain arising from sale of these properties. On further appeal, the ITAT held in favour of assessee. It held that the copy of purchase agreement, power of attorney and sale deeds produced before AO, mentioned nowhere that the assessee was the real owner of the property or the consideration had been received by him. The residential address of the actual vendors was also mentioned in the Sale Deed as well as in the Power of Attorney. In spite of information about the residential address of real owner, the AO had not taken any initiative to make an enquiry with an intent to impose tax on capital gain upon them. Instead of doing so, he made the assessee liable for payment of tax. Therefore, as the properties didn’t belong to the assessee, capital gain arising from those properties couldn’t be taxed in his hands solely on the ground that the person being the real owners hadn’t filed their income-tax returns.
15. Brand promotion by ‘Shilpa Shetty’ not an international transaction in absence of prerequisite agreement:
[Shilpa Shetty v. ACIT  96 taxmann.com 443 (Mumbai – Trib.)] The assessee, Mrs. Shilpa Shetty, was resident of India and was engaged in film acting and had also acted as a brand ambassador for various products. A share purchase agreement (SPA) was signed by the shareholders of EMSHL, a Mauritian company, to transfer a portion of the shareholding to Kuki Investments Ltd. (Kuki) represented by Raj Kundra and under the same SPA, Kuki was also to subscribe additional shares to be issued by company EMSHL. Assessee was neither a buyer nor a seller of shares of EMSHL in SPA. However, under SPA, she undertook to provide brand ambassadorship services without charges to Jaipur IPL Cricket Private Limited (JICPL), an Indian Company that was a 100 per cent subsidiary of EMSHL, in relation to promotional activities of ‘Rajasthan Royals’, an IPL cricket team owned by JICPL. The AO held that there was a deemed ‘international transaction’ between assessee and JICPL, therefore, adjustment should made in assessee’s income on basis of ALP. The ITAT held in favour of assessee that Section 92B(2) deems a transaction between two non-AEs as ‘international transaction’ if there exists a prior agreement in relation to the relevant transaction between one of the non-AE’s and AE of an assessee. Section 92B(2) couldn’t be applied to hold that transaction between assessee and JICPL was an ‘International transaction’ as neither of the parties to the SPA was an AE of the assessee nor JICPL had entered into a prior agreement with AE of assessee (JICPL was not a party to SPA). Thus, in absence of a prior agreement between non-AE and AE of an assessee, no adjustments could be made.
16. Compensation received by ‘Jackie Shroff’ for withdrawing criminal case was capital receipt and not taxable:
[ACIT v. Jackie Shroff –  97 taxmann.com 277 (Mumbai – Trib.)] Shares held by the assessee, Mr. Jackie Shroff, in a company were sold due to forged signature by another person. Assessee filed a criminal complaint before the Economic Offences Wing. After filing of complaint, the accused came forward for amicable settlement of dispute and a settlement deed was executed in order to settle the dispute. As per the terms of settlement deed, assessee received Rs. 6.97 crores as compensation in lieu of withdrawing the criminal complaint. Assessee treated said compensation as capital in nature and did not offer it for taxation at the time of filing of return. However, during assessment proceedings, the Assessing Officer treated the compensation as income and added it to income of assessee. The Mumbai ITAT held in favour of assessee that the compensation received by the assessee was not for his professional activities but for settlement of dispute between him and some other party resulting in filing of a criminal complaint. The amount received towards compensation could not fit in to the definition of income as per section 2(24), read with section 4 of the Income-tax Act, 1961. The Bombay High Court in the case of CIT v. Amar Dye Chem Ltd.  74 Taxman 254 also held that the amount received towards compensation or damage for settlement of dispute was capital receipt which was not taxable. Thus, compensation received by assessee for withdrawing criminal complaint was a capital receipt and couldn’t be treated as income.
17. Reopening of cases of Rahul Gandhi and Sonia Gandhi is valid as they failed to disclose shares allotted in excess of FMV: HC:
[Sonia Gandhi v. ACIT  97 taxmann.com 150 (Delhi)] The assessees, Mr. Rahul Gandhi and Mrs. Sonia Gandhi, extended a loan to the National Herald to write off the accumulated debts and recommence the newspaper publication. The said loan was assigned by the assessee to a newly incorporated non-profit company ‘Young India’ (YI) and in lieu of that they were allotted shares of YI. However, in Income-tax returns, they failed to pay tax on the shares allotted by Young India. The assessees argued that the allotment of shares did not trigger any taxing event. It was also argued that since they were shareholders of a non-profit and charitable company, they were under no obligation to disclose the value of shares. The High Court held in favour of revenue that sub-clause (ii) of clause (c) of Section 56(2) provides that if certain shares or property are acquired at a price which is less than its aggregate fair market value by an amount exceeding Rs. 50,000, the fair market value as reduced by the considered paid shall be charged to tax. In the instant case, the assessee bought the shares at Rs. 100 per share which could not be deemed as its fair market value. The assesse had nowhere disclosed the fair market value of such shares and had not recorded the facts relating to above taxing event. Further, it couldn’t be held that the individual was exempted altogether from disclosing her or his interest in the acquisition of shares merely because shares were of not-for-profit Company. Therefore, the AO was justified in reopening the cases.
18. ITAT grants stay of demand for non-deduction of tax by ‘Uber’ from payment made to drivers:
[Uber India Systems (P.) Ltd. v. JCIT  98 taxmann.com 199 (Mumbai – Trib.)] The assessee, UBER India, was providing marketing and support services to a Dutch company, Uber BV. It was collecting payments on behalf of said company and making disbursements to driver-partners as per directions of Uber BV. A survey was conducted at the registered office of assessee-co. and it was observed that assessee had not complied with provisions of section 194C on pay-outs to Driver-Partners. Accordingly, the assessee was treated in-default and a demand notice of Rs. 24.92 crores and Rs. 84.13 crores for assessment years 2016-17 and 2017-18 were raised and penalty proceedings initiated. The assessee denied his liability to deduct TDS under section 194C on ground that it was not a ‘person responsible for making payment’ to Driver-Partners as contract was between Uber B.V. and Driver-Partners. It filed an application before ITAT for stay of demand. The Mumbai ITAT held in favour of assessee. The ITAT referred to the submission made by the assessee as to its modus operandi of collecting the payments on behalf of the Dutch company, which were made by way of debit or credit cards or collected by the Driver-Partners directly from the customers. It was stated that there were practical difficulties as it was not possible for the assessee to collect TDS on the cash payments received by the Driver-Partners directly. Since the assessee had proved that the facts of the case were not properly and thoroughly examined and verified by the lower authorities. Demand raised by the revenue had to be stayed subject to deposit of Rs. 20 Crore till the disposal of appeal by the tribunal so that the business of the assessee was not adversely impacted.
19. Excess share premium not taxable in hands of closely held co. if its shareholders are relatives: ITAT:
[Vaani Estates (P.) Ltd. v. ITO  98 taxmann.com 92 (Chennai – Trib.)] The assessee-company had only two shareholders ‘S’ and her husband. On passing away of husband, his shares devolved on their daughter ‘V’. The assessee proposed to acquire an immovable property at approximately Rs. 23.09 crores. ‘S’ brought in money into the company in lieu of allotment of fresh 10,100 shares with a share premium of Rs. 23.31 crores. The Assessing Officer opined that company had received excess price/share premium for the shares allotted to ‘S’ over and above the face value of shares. Accordingly, he brought Rs. 23.31 crores to tax in the hands of the company under Section 56(2)(viib). The ITAT held in favour of assessee as under: When ‘S’ introduced money into the company for allotment of shares at an exorbitant premium in contrast to its intrinsic value of just Rs. 10 per share, the benefit of such investment had only passed on to her daughter because there were only two shareholders in the company at that point of time. Had ‘S’ gifted the money to her daughter ‘V’ and thereafter if daughter had brought the same into the company for allotment of equity shares at face value, question of invoking of the provisions of section 56(2)(viib) would not have arisen. Provisions of section 56(2)(viib) couldn’t be invoked in the case of the assessee-co. because by virtue of introducing cash in the company by ‘S’ for allotment of equity shares with unrealistic premium the benefit had only passed on to her daughter ‘V’ and there was no scope in the Act to tax when cash or asset was transferred by a mother to her daughter.
20. No concealment penalty if assessee has bonafide belief that notional income isn’t taxable: ITAT:
[DCIT v. Shah Rukh Khan  93 taxmann.com 320 (Mumbai – Trib.)] The assessee, Mr. Shah Rukh Khan, had received a villa at Dubai as gift and offered an amount of Rs. 14 lakhs as the notional income of the villa for tax in his return of income for the year under consideration. During the course of assessment proceedings, assessee claimed that Article 6 of India-UAE tax treaty doesn’t expressly recognize the right of the resident State to tax the income from immovable property situated in the source State. Therefore, the notional income of the villa owned by him in Dubai could not be subjected to tax in India. The ITAT held that claim raised by the assessee being clearly backed up by a bonafide belief on his part that the notional income of the villa was not liable to be taxed in India, no penalty for concealment of income could be validly imposed on the assessee.
21. Australia has taxing rights under Australia-India DTAA even if there is no provision in its domestic law: Australian Court:
[Satyam Computer Services Ltd. (Now Tech Mahindra Limited) v. Commissioner of Taxation  98 taxmann.com 358 (FC-Australia)] The Applicant, Tech Mahindra, had offices in Sydney and Melbourne through which it provided software products and information technology services to entities in Australia. Payments received by applicant for the services provided in Australia by the employees located in India were treated as ‘Royalties’ as per Article 12(3)(g) of the Australia-India DTAA . Applicant argued that, though Australia was allocated the right to tax the ‘Royalties’ by the Indian Agreement but it could only exercise that right if it had the right to impose tax on those amounts under Australia’s domestic law. As of now, the domestic law does not give any right to Australia to tax such income. The Federal Court of Australia held as under: The language of Article 23 should be given effect to according to its terms and the context. Article 23 provides that that income derived by a resident of one contracting States may be deemed to be income from sources in other contracting state for purpose of law of that other State. Therefore, royalty income was to be included in the applicant’s assessable income because it was income from an Australian source by reason of Article 23 of the Australia-India DTAA. The Court rejected the argument that the tax treaties can only be used as shields not swords. It held that the tax treaties also provide standalone taxing power and independent imposing of tax to a particular income.
22. Madras HC quashes proceedings initiated under Black Money Act against Chidambaram family:
[Srinidhi Karti Chidambaram v. PCIT  99 taxmann.com 181 (Madras)] The Madras High Court held that the foreign assets in the instant case were acquired with money that was disclosed in the books of account of the assessee and that was remitted through banking channels. There was no allegation of black money or unaccounted money or money that had escaped tax or money that was remitted through illegal channels. It was not disputed by the Income-tax department that the source of investment was tax paid money remitted through banking channels in accordance with schemes approved by the RBI. Further, foreign assets were disclosed in Schedule FA in Original/Revised return of income. Therefore, the offence under section 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was not tenable.
23. Sum received by Sushmita Sen as compensation for being sexually harassed not taxable:
[Sushmita Sen v. ACIT  99 taxmann.com 252 (Mumbai – Trib.)] The assessee, Sushmita Sen, received a sum of Rs. 145 lakhs from Coca Cola India Limited. Out of total sum, she offered to pay tax only on Rs. 50 Lacs and claimed that balance Rs. 95 lakhs was capital receipt. She claimed that Rs. 95 lakhs represented the compensation received towards damages caused to her reputation. The Mumbai ITAT held that compensation received by the assessee was not income liable to tax. Though she had received total amount of Rs. 145 lacs in lieu of settlement for breach of terms of celebrity engagement contract, yet only an amount of Rs. 50 lakhs was due to assessee under the contractual terms, and additional amount of Rs. 95 lakhs did not arise out of exercise of profession. Rs. 95 lacs was received towards damages arising out of her being sexually harassed by CCIL employee, disparaging her professional reputation by false allegations and for the repudiatory breach of contract by CCIL. Such compensation could not be termed as any benefit, perquisite arising to assessee out of exercise of profession, hence, it couldn’t be construed to be assessee’s income either under section 2(24) or under section 28.
24. Payment of advance salary to defeat purpose of demonetisation won’t come under purview of benami transaction:
[G. Bahadur v. ACIT  100 taxmann.com 179 (PBPTA – AT)] The appellant was employed in a College run by a Trust. He received Rs. 50 thousand as advance salary from the said trust. The appellant deposited entire amount in his bank account, which was subsequently withdrawn by him and used for own purposes. The Initiating Officer (IO) assumed that Chairman of trust had forced employees to distribute, deposit and retain their own money in demonetized currency in guise of loan received, which had to be repaid after some time in new currency. Thus, IO held chairman of college as beneficial owner and appellant as benamidar and passed order provisionally attaching bank account of appellant. The Appellate Tribunal held in favour of appellant as under: Every cash transaction couldn’t be termed as a ‘benami’ transaction. As per section 2(9) of Benami Act, the following twin conditions are needed to be satisfied to construe any transaction as benami: (1) the property being held by a person who has not provided the consideration, (2) the property is held by that person for the immediate or future benefit, direct or indirect of the person who has provided the said consideration. The characteristic of a ‘benami’ transaction is that there must be a mere lending of name without any intention to benefit the person in whose name it is made, i.e., a mere name lender. The mischiefs sought to be punished by the Act are only such transactions which have a name lending element without deriving any benefit therein, i.e., ‘benami’ transactions. The transaction where cash was paid to person in lieu of a future promise couldn’t be a ‘benami’ transaction, as there was no lending of name. There could be no ‘benami’ transaction if the future benefit was due from the person who was also the holder of property. The impugned order was not sustainable as it intended to punish the appellants for wanting to defeat the purpose of demonetization and was beyond the purview of the Act.
25. Priyanka Chopra shall pay tax on car gifted to her by ‘Toyota’ for brand promotion: Mumbai ITAT:
[Priyanka Chopra v. DCIT  89 taxmann.com 286 (Mumbai – Trib.)] The assessee, Priyanka Chopra, had entered into agreement with NDTV for promoting the causes of environmental issues in association with Toyota. She was given a Toyota Prius hybrid luxury sedan car for being the brand ambassador of NDTV-Toyota Greenathon Campaign. The Assessing Officer taxed the market value of such car in the hands of assessee as business income under section 28(iv). However, the assessee contended that the remuneration received against her services as brand ambassador had been offered to tax in the year of receipt. Since she didn’t render any services to Toyota Company, the value of the car given to her for promotional purpose couldn’t be taxed in her hands. The Mumbai ITAT held in favour revenue that assessee had done the promotional activity by rendering the services as a brand ambassador of NDTV Toyota Greenathon Campaign, which had also promoted the brand of Toyota. Therefore, value of Toyota car in this connection had rightly been added in her hands under Section 28(iv). Further, the argument that there was no agreement between Toyota and the assessee was totally irrelevant and unsustainable.
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