Section 261

Section 261 — the law in short

What the courts have decided on section 261, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Berger Paints India Ltd v. CIT, Calcutta (SC, 17 February 2004) — where the Revenue has accepted a High Court's statement of the law in one assessee's case it cannot challenge it in another without just cause Supreme CourtHelps taxpayer
  The department accepted a High Court decision in someone else's case and never appealed it, and is now arguing the opposite against my client. Can it?
  Not without just cause. The Supreme Court held that if the Revenue has not challenged the correctness of the law laid down by a High Court and has accepted it in the case of one assessee, it is not open to the Revenue to challenge its correctness in the case of other assessees, without just cause. The Gujarat High Court in Lakhanpal National Ltd had held that the whole of the excise and customs duty actually paid in a year is deductible under section 43B irrespective of how much of it is embedded in closing stock; that decision was never challenged, was followed by the Bombay and Madras High Courts and by a Special Bench of the Tribunal, and none of those was challenged either. The Court found no just cause for a departure, held that the Commissioner, the Tribunal and the Calcutta High Court had erred in permitting the Revenue to contend to the contrary, set aside the Calcutta High Court's judgments for all three assessment years and answered the questions in favour of the assessee.
• Kunhayammed v State of Kerala Supreme CourtHelps department
  The department's SLP against a High Court judgment in my favour was dismissed. Is that judgment now a Supreme Court decision?
  No. Refusal of special leave, whether by a non-speaking order or a speaking one, is not an exercise of appellate jurisdiction and does not attract the doctrine of merger - the High Court's order remains the operative order. If the refusal gives reasons, those reasons are a declaration of law under Article 141 and bind the courts below, but the High Court judgment does not become a Supreme Court judgment. It is only once leave is granted and the appeal is decided that the order below merges in the Supreme Court's order.
• CIT v Subhulaxmi Mills Ltd Supreme CourtHelps taxpayer
  The officer has invoked s.79 after a change in our shareholding and struck out everything brought forward, including unabsorbed depreciation. Does s.79 reach unabsorbed depreciation?
  No. The Supreme Court agreed with the Gujarat High Court that when s.79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. Only the brought forward business loss is at risk under s.79; unabsorbed depreciation continues to be governed by s.32(2).
• Pushpa Devi v. CIT — the right to blend is limited to coparceners, so a Hindu female who is not a coparcener cannot throw her separate property into the family stock Supreme CourtHelps department
  A lady member of a Hindu undivided family made a sworn declaration throwing her own money and her share in a business into the family stock, and the family has been offering the income ever since. The Assessing Officer says the income is still hers. Who is right?
  On these facts the Assessing Officer. The Supreme Court held that the true rule of blending is that the right to blend is limited to coparceners: it is the coparcener who alone can blend his separate property with joint family property, and the right is not available to a female who, though a member of the joint family, is not a coparcener — and it makes no difference whether the separate property is her absolute property or one in which she has a limited estate. The income was therefore not assessable in the hands of the family on the footing of blending. The Court nevertheless allowed the appeal in part on the second question: the declaration was held to amount to a gift by the appellant to the undivided family, and the income of the property so gifted was directed to be brought to tax consistently with that finding and in accordance with law.
• Sir Chunilal V. Mehta and Sons Ltd v Century Spinning and Manufacturing Co Ltd Supreme CourtCuts both ways
  The High Court says my appeal raises no substantial question of law because the principles are settled and only their application is in dispute. What actually makes a question of law substantial?
  The test the Supreme Court laid down is whether the question is of general public importance, or directly and substantially affects the rights of the parties, and if so whether it is an open question in the sense that it has not been finally settled by the Supreme Court, the Privy Council or the Federal Court, or is not free from difficulty, or calls for discussion of alternative views. A question settled by the highest court, or one where settled general principles have merely to be applied, or a plea that is palpably absurd, is not substantial. This is a contract case, not a tax case.
• Statutory position — s.275 as substituted: penalty limitation now runs from the end of the QUARTER CBDT Circulars & InstructionsCuts both ways
  I am checking whether a penalty order is out of time. Is the old six-months-from-the-end-of-the-month rule still the test?
  No. Section 275 has been substituted, and under the substituted provision no penalty order under Chapter XXI may be passed after the expiry of six months from the end of the QUARTER in which the triggering event occurs, with five separate triggers in clauses (a) to (e). The financial-year limb and the month-end limb of the old sub-section (1), and the old proviso giving one year from the end of the financial year in which the appellate order was received, are gone.

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.