Section 256

Section 256 — the law in short

What the courts have decided on section 256, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v P.J. Chemicals Ltd Supreme CourtHelps taxpayerSuperseded by amendment
  I received a central or state capital subsidy worked out as a percentage of my plant cost. Must I reduce the actual cost by it before claiming depreciation?
  No, not a subsidy of that kind. The Supreme Court held that a government subsidy given as an incentive to set up industry in a backward area does not become a payment towards the cost of assets merely because it is quantified as a percentage of the fixed capital cost. The percentage is only a measure for working out the aid. Such a subsidy is therefore not met directly or indirectly towards the actual cost within section 43(1), and depreciation is allowed on the full cost. The Court preferred the view of the majority of the High Courts to that of Punjab and Haryana.
• Prakash Cotton Mills P Ltd v CIT Supreme CourtCuts both ways
  The AO disallowed a payment because the statute calls it a penalty. Does the label decide it?
  No. Where a statutory impost paid as damages, penalty or interest is claimed under s.37(1), the officer has to examine the scheme of the statute that imposed it and decide whether it is compensatory or penal in substance, whatever it is called. If it is purely compensatory the deduction must be allowed; if the impost is composite, the compensatory and penal parts have to be separated and only the compensatory part allowed.
• Radhasoami Satsang v CIT Supreme CourtHelps taxpayer
  The department accepted your position for years and has now reversed it. Can it?
  Not without a material change. Res judicata does not strictly apply between years, but where a fundamental aspect running through several years has been found as a fact and allowed to stand, it should not be changed in a later year.
• Kalyan Kumar Ray v CIT Supreme CourtHelps department
  My assessment order does not compute the tax — the figures are only on the ITNS-150. Does that make the assessment bad?
  No, and the argument runs the other way from how it is often quoted. A three-Judge Bench rejected the submission that Form ITNS-150 is not part of the assessment order. The form is itself a form for determination of tax payable, and when signed or initialled by the officer it is an order in writing determining the tax within the meaning of s.143(3), to be treated as part of the assessment order in the wider sense. The assessee lost.
• Jute Corporation of India Ltd v CIT Supreme CourtCuts both ways
  Can you raise a ground before the CIT(A) that you never raised before the officer?
  Yes, where the ground is raised bona fide and could not reasonably have been raised earlier. The appellate authority's powers are co-terminus with the officer's, and nothing in the Act restricts the right to raise an additional ground.
• CIT v H. Holck Larsen Supreme CourtHelps taxpayer
  I subscribed to rights issues in my own company and sold shares often to fund the calls. Does the frequency make me a dealer in shares rather than an investor?
  Not on these facts. The Supreme Court upheld the High Court's conclusion that the assessee remained an investor. Whether a man is a dealer or an investor is a mixed question of law and fact: the Tribunal's primary findings bind, but its inference can be reviewed if it misdirected itself in law or failed to consider relevant factors in their proper perspective. Here the Tribunal noted, but did not weigh, that rights shares depreciate the original holding, that the assessee was Chairman and his non-subscription would have hurt the market, and that he needed money for an overdraft and a house in Denmark. His conduct was that of a prudent investor, not a plunge into the waters of trade.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.