Section 4

Section 4 — the law in short

What the courts have decided on section 4, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• PCIT v Ramesh Chandra Rai Supreme CourtHelps taxpayer
  The AO has added my share of the syndicate's profit straight to my own return. Can he do that without assessing the syndicate?
  No. An association of persons is a separate person under s.2(31) and its income has to be assessed in its own hands. The Assessing Officer cannot bypass that and club the member's share, and the disallowances he thinks the syndicate should have suffered, into the member's individual assessment. Section 86 then decides what, if anything, the member includes.
• Secunderabad Club v CIT Supreme CourtHelps department
  Our club's surplus sits in fixed deposits with a bank that is itself a corporate member. Is the interest covered by mutuality?
  No. The Supreme Court held that the principle of mutuality does not apply to interest earned on fixed deposits made by a club with a bank, whether or not the bank is a corporate member of the club. The interest is ordinary income under s.2(24) and is taxed like any other income. The Court dealt in the same batch with income the clubs earned through their assets and resources from persons who are not members, and held that too is taxable.
• Mansarovar Commercial P Ltd v CIT Supreme CourtHelps department
  My company is registered outside the taxable territory but run from Delhi. Where is it resident?
  Where it is actually run. The Supreme Court held that the residence of a company turns on de facto control and management, not on the place of registration: five companies incorporated under the Registration of Companies (Sikkim) Act, 1961 were resident in India because the management and control of all five was wholly situated in Delhi, at the office of a chartered accountant. The appeals were dismissed and the Delhi High Court's decision affirmed.
• Yum! Restaurants (Marketing) Pvt Ltd v CIT Supreme CourtHelps department
  We pool advertising contributions from our franchisees in a group company that runs at no profit. Is the surplus exempt on the principle of mutuality?
  No, not on these facts. The Supreme Court dismissed the appeal and held the company was not a mutual concern, so the excess of income over expenditure for assessment year 2001-02 was taxable. Contributions were taken from Pepsi Foods Ltd, which was not a franchisee and had no franchise agreement, so members and non-members were dealt with in the same activity. The parent company had a sole and absolute discretion whether to contribute at all, controlled the board, and could take royalty benefit from the pooled funds. The franchisees had no right to a refund of surplus. Each limb of mutuality failed.
• CIT v Shree Rama Multi Tech Ltd Supreme CourtHelps taxpayerNo later treatment found
  We parked public issue share application money in the statutory bank account and it earned interest before allotment. Is that interest taxable as income from other sources?
  No. The Supreme Court dismissed the revenue's appeal and held that interest accrued on the deposit of share application money is not taxable income. The money was kept in a separate account because the law required it to be, not to earn a return, so the interest was incidental to the share issue and was rightly set off against share issue expenses rather than assessed under the residuary head.
• ITO v Venkatesh Premises Co-operative Society Ltd Supreme CourtHelps taxpayer
  The AO has taxed our society's transfer fees and non-occupancy charges. Is that right?
  No. The Supreme Court held that transfer charges, non-occupancy charges, common amenity fund charges and similar receipts collected by a co-operative society from its own members are covered by the principle of mutuality and are not income. On transfer charges the Court held that the amount is appropriated only after the transferee has been admitted to membership and is returned if admission is refused, so by the time it is retained the payer is a member.
• Bangalore Club v CIT Supreme CourtHelps department
  Our members' club keeps its surplus in fixed deposits with banks that are themselves corporate members — is the interest exempt on the principle of mutuality?
  No. The Supreme Court held on 14 January 2013 that interest earned by a members' club on fixed deposits with banks that happen to be corporate members is taxable. Once the money goes into a bank deposit the closed circuit breaks: the bank lends it on to outsiders at a higher rate, so the funds are expended on non-members before they come back. All three conditions of mutuality fail — complete identity of contributors and participators, application of the surplus in furtherance of the club's objects, and the impossibility of members profiting from their own contributions. The club deals with the bank as a customer, not as a member.
• Guffic Chem P Ltd v CIT Supreme CourtHelps taxpayer
  I was paid to stay out of the business. Is the non-compete money capital or income?
  Capital, for years before assessment year 2003-04. Compensation attributable to a negative or restrictive covenant is a capital receipt, unlike compensation for loss of agency, which is revenue. Section 28(va), which taxes non-compete receipts, is amendatory and cannot be pushed back to earlier years.
• GE India Technology Centre P Ltd v CIT Supreme CourtHelps taxpayer
  Must you deduct tax on every payment to a non-resident, just to be safe?
  No. The obligation under s.195 arises only where the sum paid is chargeable to tax under the Act. Mere remittance to a non-resident does not attract it, and you need not apply under s.195(2) where nothing is chargeable.
• CIT v Saurashtra Cement Ltd Supreme CourtHelps taxpayer
  My supplier paid me liquidated damages for delivering the plant late. Is that taxable as a trading receipt?
  No. The Supreme Court held that liquidated damages received from the supplier of a cement plant for delay in delivery are a capital receipt. The damages were fixed by the contract at 0.5 per cent of the price of the machinery delivered late for each month of delay, payable without proof of actual loss and capped at 5 per cent of the total price. That measure was tied to the price of the asset, not to any calculation of lost profit. The payment was directly and intimately linked with the procurement of a capital asset and compensated the assessee for sterilisation of the profit earning source, not for anything arising in the course of earning profits.
• CIT v Ponni Sugars & Chemicals Ltd Supreme CourtCuts both ways
  I got a government incentive that came to me as a higher free sale quota and an excise rebate, and I had to use it to repay my term loans. Is that taxable income?
  No, on those terms it is a capital receipt. The Supreme Court applied the purpose test: what decides the character of a subsidy is the object for which it is given, not when it is paid, where it comes from, or the mechanism through which it reaches you. Because the incentive was available only to new or substantially expanded units and had to be used to repay term loans taken to set up or expand the plant, it was capital, not a trade receipt. On the separate section 80P(2)(a)(i) claim the matters went back to the Tribunal.
• CIT v. Willamson Financial Services (Supreme Court) — a Chapter VI-A deduction on a tea company's composite income is allowed AFTER the Rule 8(1) sixty-forty apportionment, not against the whole composite income Supreme CourtHelps department
  Our tea company exports. Should the section 80HHC deduction be worked out on the whole composite income before Rule 8 splits it sixty-forty, or only on the forty per cent that is taxable?
  Only on the forty per cent. The Supreme Court held that the deduction under section 80HHC is required to be allowed AFTER the apportionment of income under Rule 8(1), and answered the issue in favour of the Department. The legal fiction in Rule 8(1) is confined to that rule: it assigns chargeability and computability only to the non-agricultural forty per cent, and it cannot be extended into section 80HHC(3)(a), because deductions under Chapter VI-A are made from gross total income and are not part of the computation of income under the head "Profits and gains of business".
• Sedco Forex International Drill Inc v CIT Supreme CourtHelps taxpayer
  My foreign employees work on rigs in India for a month and then spend a month on standby at home. Is the salary for the off period taxable in India for years before 2000-01?
  No. The Supreme Court held that salary paid for field breaks spent in the United Kingdom was not earned in India for assessment years 1992-93 and 1993-94. Under the Explanation to section 9(1)(ii) as it stood from 1979, only salary payable for service rendered in India was deemed earned in India, and these employees rendered no service here in the off period; they were training and standing by for work anywhere in the world. The Explanation substituted in 1999, which brings in rest and leave periods, takes effect from 1 April 2000 and does not reach back.
• CIT v P.V.A.L. Kulandagan Chettiar Supreme CourtHelps taxpayer
  I am resident in India but my rubber estate and my business are in Malaysia. The treaty says that income may be taxed there. Can India tax it as well?
  No, on this treaty. The Supreme Court dismissed the Revenue's appeals and held that neither the business income from the Malaysian rubber plantations nor the capital gain on the sale of the Malaysian property could be taxed in India. The property was in Malaysia, the permanent establishment was in Malaysia and there was none in India, so the closer personal and economic relations determined fiscal domicile and residence in India became irrelevant. Capital gains is income arising out of immovable property for the purposes of the Act, so Article 6 covered it. The Court declined to decide the semantic question whether may be taxed allocates the taxing power or merely permits it.
• CIT v Shelly Products Supreme CourtCuts both ways
  My assessment was annulled by the Tribunal and the department cannot make a fresh one. Do I get back everything I paid, including the tax on my own returned income?
  No, not everything. The Supreme Court held that liability to income tax under section 4(1) does not depend on an assessment being made, and that the return itself is an admission of the tax due on the income disclosed. So where an assessment is annulled or set aside and no fresh assessment can be made, the assessee gets a refund of everything paid in excess of the tax chargeable on the returned income, but the department may keep the tax referable to that returned income. Retaining it does not offend Article 265.
• Travancore Rubber and Tea Co Ltd v CIT Supreme CourtHelps taxpayerSuperseded by amendment
  A buyer defaulted and I forfeited his earnest money and advance on a sale of a capital asset that never went through. Is the forfeited money taxable income?
  No, on the law as it then stood. The Supreme Court held that money received as advance or earnest on the proposed sale of a capital asset is a capital receipt, and the cancellation of the sale is not a subsequent event that changes its character. Section 51 confirms this: advance or other money received and retained on an earlier negotiation for transfer is deducted from the cost of acquisition when the asset is eventually sold. The distinction between earnest money and advance loses its significance, because section 51 covers 'other money' as well. The appeals were allowed.
• Chelmsford Club v CIT Supreme CourtHelps taxpayer
  My members-only club owns its own club house and uses it for members. Can the Department tax the annual letting value of that building as income from house property?
  No. The Supreme Court held that the principle of mutuality covers the annual value of a club house used only for members and their guests. Two steps get there. Section 22 taxes income, not property: the levy is traceable to entry 82 of List I and the Act cannot tax anything but income, so what is charged is deemed income from the property. And section 2(24) recognises mutuality by excluding businesses governed by it, other than those in clause (vii). Since the club satisfied the three tests of mutuality, the deemed income from its property was outside the charge too.
• Transmission Corporation of A.P. Ltd v CIT Supreme CourtHelps department
  I am paying a foreign supplier for equipment and its erection. Most of the payment is cost, not profit. Must I deduct tax at source under section 195 at all?
  Yes. The Supreme Court held that any other sum chargeable under the provisions of this Act in section 195(1) is not confined to pure income profits. A sum is within the section if it is chargeable to tax, and that includes a sum in which income is hidden or embedded, such as a trading receipt of which only a fraction is taxable. The deduction is tentative, subject to regular assessment, and the payer's and recipient's protection lies in applying under section 195(2) or (3) or section 197 for a determination of the chargeable proportion or a lower or nil deduction.
• Union of India v. M.V. Valliappan — a five-Judge Bench upholds s.171(9), and holds that a partial partition after the cut-off has no significance even if an earlier assessment recognised it Supreme CourtHelps department
  The department is ignoring a partial partition my client's family made in April 1979, even though the Income-tax Officer recognised it and gave the family the benefit of it in that very assessment year. Is there any authority that the recognition once given must stand?
  No — the Supreme Court has held the opposite, and by a Constitution Bench. In Union of India v. M.V. Valliappan the Court allowed the Revenue's appeals, set aside the judgments of the Madras and Karnataka High Courts which had struck down s.171(9) of the Income-tax Act, 1961 and s.20A of the Wealth-tax Act, 1957, and dismissed the writ petitions challenging the sub-section. Dealing directly with the argument that a partial partition of 13 April 1979 had been recognised in the assessment year and the benefit given to the assessee, the Court held that this "has no significance in view of crystal clear language used in the sub-section that partial partition taking place after the cut off date is not to be inquired into and if inquired the findings would be null and void."
• CIT v Karnal Co-operative Sugar Mills Ltd Supreme CourtHelps taxpayer
  Before my plant started, I put money in the bank to open a letter of credit for the machinery and earned interest on it. Is that interest taxable income?
  No. The Supreme Court held that where the deposit is made to open a letter of credit for the purchase of plant and machinery under the agreement with the supplier, the deposit is directly linked with that purchase, and the interest earned on it is incidental to the acquisition of the assets. It is not a case of idle surplus share capital parked in a bank to earn interest. Tuticorin Alkali Chemicals therefore does not apply, and the case falls under Bokaro Steel. The Revenue's appeal was dismissed.
• Oberoi Hotel P Ltd v CIT Supreme CourtHelps taxpayer
  We were paid to give up our right of first refusal to buy and to keep operating a hotel we managed — is that a capital receipt?
  Yes. The Supreme Court held that Rs 29,47,500 received from the Receiver of the hotel owner was a capital receipt. The assessee gave up the right under Article XVIII of its operating agreement to have the hotel offered to it first if the owner wished to transfer or lease it, and gave up the operation of the hotel itself. That was the loss of a source of income and an injury to a capital asset, not the settlement of rights under a trading contract. The Calcutta High Court's order was set aside and the question answered in favour of the assessee.
• CIT v Bokaro Steel Ltd Supreme CourtHelps taxpayer
  While my plant is still being built I recover rent, hire charges and interest from my own contractors. Is that taxable income before the business starts?
  No, where the receipts are inextricably linked with setting up the plant. The Supreme Court held that rent charged to contractors for housing their workers, hire charges for plant and machinery lent to them, interest on advances made to keep their work moving, and royalty for stone excavated from the company's own land are all capital receipts that go to reduce the cost of construction. They arise from arrangements intrinsically connected with building the plant, not from any independent source. Tuticorin Alkali was distinguished: interest on surplus borrowed funds parked in short-term deposits is an independent source and remains taxable.
• Sahney Steel & Press Works Ltd v CIT Supreme CourtHelps department
  The State refunds my sales tax and subsidises my power for five years after I start production. Is that a capital receipt because the scheme was meant to encourage new industry?
  No. The Supreme Court held that these were operational subsidies and therefore revenue receipts. Nothing was paid towards setting up the industry: the incentives became available only once production had begun, ran for five years, and were tied to production - power subsidy only for power consumed for production, sales tax refunds only on taxes levied after production started. Their object was to give a newly set up unit a helping hand so it could run its business more profitably. The Court applied Viscount Simon's rule in Ostime that a subsidy from public funds paid to a trade is a trading receipt.
• Tuticorin Alkali Chemicals and Fertilizers Ltd v CIT Supreme CourtHelps department
  My company is still building its plant. It parked the unused part of its term loans in short-term bank deposits. Can I set the interest earned off against the interest I am paying, or must I pay tax on it?
  You must pay tax on it, under the head income from other sources. Interest earned on surplus borrowed funds parked in deposits before business commences is income the moment it accrues, and it cannot be adjusted against the interest payable on the term loans, because s.57 sets out exhaustively what may be deducted from income assessable under s.56 and interest on term loans taken to build the plant is not in that list.
• CIT v Bankipur Club Ltd Supreme CourtHelps taxpayer
  My members' club charges for drinks, rooms and subscriptions and ends the year with a surplus. Is that surplus taxable income?
  No, where the receipts come from members. The Supreme Court held that amounts realised from members for drinks, refreshments, letting of buildings, admission fees and periodical subscriptions were charges for the privileges, conveniences and amenities the members were entitled to under the club's rules, offered without profit motive and untainted with commerciality. That is not a trading activity, and the excess of receipts over expenditure arising from a mutual arrangement is not income under the Act. Income from extending facilities to non-members was not in issue in these appeals.
• ITO v Ch. Atchaiah Supreme CourtHelps department
  The Department assessed my share of a gain in my own hands years ago and has now issued a notice seeking to assess the same gain in the hands of the association. Has it not already exercised its option?
  There is no such option under the Income-tax Act, 1961. The Supreme Court held that unlike section 3 of the Indian Income-tax Act, 1922 — which expressly allowed the officer to charge either the association of persons or the members individually — section 4 read with section 2(31) of the 1961 Act contains no words giving any such choice, and that the officer 'can, and he must, tax the right person and the right person alone'. It follows that the fact that a wrong person has been taxed on an income does not preclude the Assessing Officer from taxing the right person on it, whichever course is more beneficial to the Revenue; the person wrongly taxed has his own remedies. Where Parliament intended to give a discretion under the 1961 Act it said so expressly — the Court pointed to section 183 as the example.
• CIT v Kamalini Khatau Supreme CourtHelps department
  A discretionary trust distributed income to me during the year and the trustees have already been assessed on it. Can the Assessing Officer also assess me?
  Yes — the Revenue has an option, and it can assess either the trustees or the beneficiary, but only in respect of income actually distributed to and received by the beneficiary during the accounting year. Section 164 is not a code in itself; it fixes only how tax is charged, while the liability to be assessed comes from s.161, and s.5 read with s.4 lets the beneficiary be taxed directly on what he actually received.
• Bhagwan Dass Jain v Union of India Supreme CourtHelps department
  I live in my own house and earn nothing from it. Can Parliament tax me on a notional annual value as income from house property?
  Yes. The Supreme Court refused leave and dismissed the petition, holding that including an amount computed under section 23(2) for a self-occupied house is within Parliament's power to tax income under Entry 82 of List I. Income in Entry 82 is not confined to money actually received. Even in its ordinary economic sense it includes not merely what comes in by exploiting property but what one saves by using it oneself, and what can be converted into income may reasonably be regarded as giving rise to income. The tax is on income from house property, computed in an artificial way, and not on the building.
• Reliance Jute & Industries Ltd v CIT Supreme CourtHelps departmentNo later treatment found
  When my loss arose, the law let me carry it forward indefinitely. The rule was later cut to eight years. Do I keep the old benefit as a vested right?
  No. The Supreme Court held that it is a cardinal principle of tax law that the law to be applied is that in force in the assessment year, unless otherwise provided expressly or by necessary implication. When the assessment for 1960-61 was made and the set-off provision invoked, it was the provision as it stood in that year - as amended in 1957 to allow only eight years - that governed. There was no question of a vested right under the earlier law. An assessment for one year is not, absent a contrary provision, affected by the law in force in another year, and a right claimed under the law of a particular year is ordinarily available only in a proceeding for that year.
• Surjit Lal Chhabda v CIT Supreme CourtHelps department
  I have no son. If I throw my self-acquired property into the family hotchpot, will its income be taxed as the income of a Hindu undivided family of myself, my wife and my daughter?
  No. The Supreme Court held that where property that was never joint family property is thrown into the hotchpot by a man who has no son, the income remains his own for tax. His wife and unmarried daughter are not coparceners: they had a right of maintenance out of the income before, and they have the same right and no more afterwards - neither a right by birth, nor a right to demand partition, nor any power to restrain an alienation. Since his personal law still regards him as the owner and the income as his, it is chargeable as his individual income.
• C. Krishna Prasad v. CIT — a single person is not a family: the sole surviving coparcener with no other member is assessed as an individual Supreme CourtHelps department
  My client took his share on a partition and is now the only member — unmarried, no wife, no children. He wants to file as an HUF because the property he received is ancestral. Can he?
  No. The Supreme Court held that a single person, male or female, does not constitute a family, and that an assessment in the status of a Hindu undivided family can be made only when there are two or more members. "Family" connotes a group of people related by blood or marriage; plurality of persons is an essential attribute of a family; and s.2(31) treats a Hindu undivided family as an entity distinct and different from an individual. The appeal was dismissed with costs and the assessee remained assessable as an individual.
• G. Murugesan & Bros v CIT Supreme CourtCuts both ways
  My brothers and I were gifted shares jointly and the dividends were collected together. The officer is assessing us as an association of persons. Are we one?
  Not on those facts alone. The Supreme Court held that an association of persons is formed only when two or more persons voluntarily combine for a common purpose of producing income, so volition is an essential ingredient. Where the income is dividends, there is no act of management, and the mere facts that shares are jointly owned and dividends jointly received do not show that the holders acted as an association. But for the two years in which the assessees had themselves returned as an association, that admission was important evidence and the assessment stood. For the later four years, in which they said they had ceased, they succeeded.
• Chowringhee Sales Bureau (P) Ltd v CIT Supreme CourtHelps department
  I collected sales tax from buyers and kept it in a separate account because I dispute the liability. Is that collection my income?
  Yes. The Supreme Court held that sales tax received by an auctioneer in its character as auctioneer forms part of its trading or business receipts, with a deduction available as and when the money is paid over to the State Government. Crediting the money to a separate sales tax collection account makes no difference: it is the true nature and quality of the receipt, and not the head under which it is entered in the books, that is decisive. If a receipt is a trading receipt, the fact that it is not shown as such in the accounts does not prevent the assessing authority from treating it as one.
• C.R. Nagappa v CIT Supreme CourtHelps department
  The trustees of my settlement are being assessed on the trust income. The department has now also included the same income in my own assessment under s.64. Does s.161(2) stop it?
  No. Section 161(2) does not deny the Assessing Officer the option to assess the person represented instead of the representative assessee; it only requires that when the representative assessee is the one assessed, he is assessed under Chapter XV and not under any other provision. But the same income cannot be charged twice — the Court recorded that the assessments already made on the minor beneficiaries would be annulled and any tax recovered refunded.
• Gowli Buddanna v CIT Supreme CourtHelps department
  My father died and I am now the only male member of our family, with my mother and unmarried sisters. Must the family income be assessed on me as an individual?
  No. The Supreme Court held that the income continued to be assessable in the status of a Hindu undivided family. What section 3 of the 1922 Act makes an assessable entity is a Hindu undivided family, not a coparcenary, and a joint family may consist of a single male member together with widows and other female members of deceased coparceners. Property of a joint family does not cease to belong to the family merely because it is represented for the time being by a single coparcener. The property here had belonged to the family in the father's lifetime and continued to do so.
• CIT v Kumbakonam Mutual Benefit Fund Ltd Supreme CourtHelps department
  My company lends and takes deposits only from its own shareholders and shares the surplus among them. Is that mutual trading, so that the surplus is not taxable?
  No. The Supreme Court held that mutuality requires complete identity between contributors and participators: every contributor to the common fund must be entitled to share in the surplus, and every participator in the surplus must be a contributor. Here a shareholder could take his dividend without ever making a deposit or taking a loan, so the surplus came back to him as a shareholder on his shares, not as a person who had put money in. That is a company making a profit out of its members as customers, which is taxable. The Madras High Court's test, that the right to contribute and the right to participate need only be open to an identical body, was held unsound.
• Gillanders Arbuthnot & Co Ltd v CIT Supreme CourtHelps department
  My principal cancelled one of my many agencies and paid me compensation worked out on the commission I would have earned. Is that a capital receipt?
  No, on these facts. The Supreme Court held the compensation was income. The company held agencies in a great many lines - paints, petroleum, cement, timber, metals, tea, engineering goods and much else - so acquiring agencies was a normal incident of its business and losing one did not impair its trading structure or cost it an enduring asset. The agency was terminable at will, the company had two years' notice, and the compensation was computed as a proportion of the commission on sales in its former territory. It merely lost a trading avenue and was free to carry on the rest of its business.
• K.A. Ramachar v CIT Supreme CourtHelps department
  A partner has assigned part of his share of firm profits to his wife and daughters by deed, and they draw the money straight from the firm. Is that his income or theirs?
  It remains his. Under the law of partnership it is the partner and the partner alone who is entitled to the profits, and a stranger, even an assignee, has no direct claim against the firm. What the deeds achieved was to make payment to the wife and daughters a valid discharge for the firm; what was paid was in law a portion of the partner's profits, taxable in his hands at the point of accrual.
• Provat Kumar Mitter v CIT Supreme CourtHelps department
  I assigned the dividends on my shares to my wife for her life but kept the shares. Is that dividend still my income?
  Yes. The Supreme Court held that the deed of 19 January 1953 was not a transfer of any existing property. The assessee kept the shares and so kept the right to participate in the company's profits; what he made was a contract to make over to his wife, during her life, every dividend that might in future be declared on those shares. The company could pay only the registered shareholder or on his orders, so the income continued to accrue to him and was afterwards paid over under the contract. That is an application of income after it accrues, not a diversion before it accrues.
• CIT v Sitaldas Tirathdas Supreme CourtHelps department
  A decree makes me pay maintenance out of my income every month. Can I deduct it before I am taxed?
  No, not on these facts. The test is where the obligation bites. If it fastens on the source, so that the amount never reaches the assessee as his income, that is diversion and the amount is not his to be taxed. If it fastens on income he has already earned, it is only an application of his own income, and paying it does not reduce what he is taxed on. A consent decree for maintenance that created no charge on any property fell on the second side of the line.
• CIT v Smt Indira Balkrishna Supreme CourtHelps taxpayer
  Several of us inherited property jointly and receive the dividends and interest together. Can the department assess us as an association of persons?
  No, not on mere joint receipt. The Supreme Court held that an association of persons under section 3 of the 1922 Act means two or more persons who join in a common purpose or common action, and because the words appear in a charging section, the object of the association must be to produce income, profits or gains. It must be a combination formed for the promotion of a joint enterprise. Three co-widows who inherited an estate as joint tenants, did not divide it, and simply received dividends and interest jointly were held not to be an association: they had done no act which helped to produce the income.
• CIT v Kalu Babu Lal Chand Supreme CourtHelps department
  Our karta is managing director of a company floated with family money. Is his remuneration his own income or the family's?
  The family's, on these facts. The Supreme Court held that as against the company the managing director is the individual appointed, and the company has nothing to do with his family. But as between him and his family the question is whether the remuneration was earned with the help of joint family assets. Here the family funds acquired the business, floated the company and financed it at every stage, the karta put in nothing of his own, and the articles named him as first managing director. Acquisition, floatation and appointment were inseparably linked, so the whole of Rs 61,282 was assessable in the family's hands.
• Punjab Distilling Industries Ltd v CIT Supreme CourtHelps department
  I collect a refundable deposit from customers on top of the price, and I keep whatever is not claimed back. Is that deposit taxable as a trading receipt when I collect it?
  Yes, on these facts. The Supreme Court held that sums the distiller collected from wholesalers as an 'empty bottles return security deposit', over and above the government-fixed price of the bottles, were trading receipts assessable under section 10 of the 1922 Act (now section 28). They were an integral part of each sale transaction and in substance an extra price for the bottles. They could not be security deposits because the wholesaler was under no obligation to return the bottles, so there was nothing to secure. The book entry in a separate ledger did not change their character.
• E.D. Sassoon and Company Ltd v CIT Supreme CourtCuts both ways
  I sold my managing agency part-way through the year. Is the year's commission split between me and the buyer, so that I am taxed on the months I actually worked?
  No. By a majority the Supreme Court answered the referred question — whether the managing agency commission was liable to be apportioned between the assignor and the assignee — in the negative. Under clause 2(d) of the agreements the commission was due yearly on 31 March and payable only after the shareholders passed the annual accounts, so the contract of service was entire and indivisible and nothing was payable for a broken period. Since no income had accrued to the Sassoons when they transferred the agencies, there was nothing to apportion. Jagannadhadas J dissented.
• CIT v A.W. Figgies & Co Supreme CourtHelps taxpayer
  Partners have come and gone over the years and a fresh deed was drawn up. Is my firm still the same assessable unit, or has a new firm come into existence?
  The same unit. The Supreme Court held that under the Income-tax Act a firm is a distinct assessable entity, separate from the partners who are themselves separately assessable, and that a mere change in the personnel of the partners is not a succession and does not bring a new assessable unit into existence. The business of tea broking had gone on in the same name, at the same place, from before 1918 until the limited company took it over in 1947, with no cesser and no division of assets. The reconstitution in 1945 did not make it a different unit, so the relief for a business charged under the 1918 Act was rightly allowed.
• Deepak Maratha v Union of India High CourtHelps taxpayerHigh Courts differ
  My demonetisation cash deposit was added for the year ended 31 March 2017 and taxed at 60% under section 115BBE. Can that rate reach income of that year?
  The Rajasthan High Court held that it cannot. The rate in section 115BBE was raised from 30% to 60% by the Taxation Laws (Second Amendment) Act, 2016, which received assent on 15 December 2016 and came into force at once - but the amendment to section 115BBE(1) was separately expressed to take effect from 1 April 2017. The law applicable to an assessment year is the law in force on the first day of that year, and a change made after a financial year has begun cannot govern the tax liability for that year unless it is expressly made retrospective. Nothing in the 2016 Act says section 115BBE is retrospective. Doubling a rate alters existing rights and is not a procedural or clarificatory change. So for the financial year 2016-17 the law in force on 1 April 2016 governs, at 30%, and the 60% rate applies from the financial year 2017-18 onwards; section 271AAC, which depends on section 115BBE, is prospective in the same way.
• Foseco India Ltd. Company v. Assistant Commissioner of Income Tax High CourtCuts both waysUnder appeal
  Can I still rely on Colorcon Asia to get the treaty rate on DDT, or has the Bombay High Court unsettled it?
  It has unsettled it, but has not overruled it. On 27 April 2026 a Division Bench of the Bombay High Court, hearing seven appeals of Foseco India Ltd., framed two questions for a Larger Bench: whether the Division Bench decision in Colorcon Asia Pvt. Ltd. lays down the correct position in law when it holds that DDT is a tax paid by the company on the dividend income of the shareholder, entitling the shareholder to the benefit of the India-UK treaty; and whether, considering the Supreme Court's decision in Godrej & Boyce, Colorcon Asia is per incuriam. The Registry was directed to place the proceedings before the Chief Justice for constitution of a Larger Bench.
• Colorcon Asia Pvt. Ltd. v. Joint Commissioner of Income Tax High CourtHelps taxpayerUnder appeal
  My Indian company paid DDT at over twenty per cent on dividend to its UK parent. Can I restrict it to the ten per cent treaty rate, and does the Special Bench decision stop me?
  A Division Bench of the Bombay High Court at Goa held that it can. It allowed the appeal, set aside the Board for Advance Rulings' ruling of 27 June 2024, and declared that Colorcon Asia Pvt. Ltd. is entitled to restrict the tax rate on dividends distributed by it to Colorcon Ltd, United Kingdom, at ten per cent under Article 11 of the India-UK tax treaty — on the reasoning that DDT paid by a distributing company is not an income tax on the profits or income of the company but a tax on the dividend, which is the income of the shareholder, charged in the company's hands only for administrative convenience, so that s.90(2) lets the lower treaty rate be applied.
• T. Rajkumar v Union of India High CourtHelps departmentNo later treatment found
  Can Parliament override a tax treaty by notifying the other country as a notified jurisdictional area, and is section 94A constitutionally valid?
  The Madras High Court upheld section 94A(1) and dismissed all nine writ petitions, holding that the challenge to its constitutional validity was without merit and that the notification of 1 November 2013 specifying Cyprus as a notified jurisdictional area was equally unassailable. The Court reasoned that where a treaty partner fails to provide information, it is that partner and not section 94A which dilutes section 90(1)(c), and that the phrase 'any country or territory' in section 94A(1) cannot be read as excluding countries with which India has a treaty.
• Vodafone India Services P Ltd v Union of India High CourtHelps taxpayer
  We issued shares to our foreign parent at a premium the Transfer Pricing Officer says is too low. Can he tax the shortfall as income under the transfer pricing provisions?
  No. The Bombay High Court held that the issue of equity shares at a premium by an Indian company to its non-resident holding company is a capital account transaction that gives rise to no income, so Chapter X cannot be applied at all. Chapter X is a machinery provision for arriving at the arm's length price; the charge must be found in sections 4 and 5 and in one of the heads of income. There being no charge, express or implied, on the premium not received, the reference to the Transfer Pricing Officer, his order, the draft assessment order and the Dispute Resolution Panel's order were quashed as without jurisdiction.
• Jagran Prakashan Ltd v DCIT (TDS) High CourtHelps taxpayer
  I publish a newspaper and allow accredited advertising agencies the standard 15 per cent trade discount. The TDS officer says that is commission under section 194H and has raised a demand on me. Is that right?
  No, on the reasoning available in this judgment. The Allahabad High Court held that section 194H applies only where the recipient acts on behalf of the payer, and here there was no agreement between the newspaper and the advertising agencies and no agency had ever been appointed. The Kerala decision in Director, Prasar Bharati, on which the department relied, turned on a written agency agreement containing an express clause about withholding tax, and was held to be inapplicable. The Delhi High Court had already decided the same question against the department in Living Media India, and the Supreme Court had dismissed the department's special leave petition against it on 11 December 2009.
• Commissioner of Income-tax v. Justice R.M. Datta (Calcutta High Court, 4 July 1989) — section 176(4) deems the receipt to be income but creates no further fiction bringing it under 'Profits and gains of business, profession or vocation', so arrears received after the profession ceased escape the charge High CourtHelps taxpayer
  I was an advocate on cash basis and stopped practising when I was appointed to the Bench. Fees for old work are still coming in. The Assessing Officer says section 176(4) makes them taxable. Is there an answer?
  There is, and this is it. The Calcutta High Court held that section 176(4) creates only two fictions — that the sum received after discontinuance is deemed to be the income of the recipient, and that it is charged to tax in the year of receipt — and does not create a third fiction deeming the receipt to be income of a business or profession carried on by the assessee in that year. Because the receipt is the fruit of professional activity it falls under the head 'Profits and gains of business, profession or vocation' and cannot be taken to the residuary head; and because the assessee carried on no profession in any part of the relevant previous year, it cannot be computed under sections 28 to 43A. The question referred was answered in the affirmative and in favour of the assessee.
• V. Parthasarathy v. Addl. Commissioner of Income-tax (Andhra Pradesh High Court, 11 September 1975) — 'discontinuance' in section 176(4) covers temporary and involuntary cessation, so an advocate elevated to the Bench has discontinued his profession High CourtHelps departmentNo later treatment found
  I stopped practising only because I was appointed a judge, and I went back to the Bar when I retired. Surely that is a suspension and not a discontinuance, so section 176(4) cannot apply to fees I received while I was on the Bench?
  That argument was run and rejected. The Andhra Pradesh High Court held that both 'discontinuance' and 'cessation' in section 176(4) take in temporary as well as permanent discontinuance, that the length of time for which the profession is stopped is not an element of the concept, and that the question whether the cessation was voluntary or involuntary has no bearing on the application of the sub-section. It also rejected the reading that the sub-section is confined to discontinuance by retirement or death, holding that the words 'on account of' govern cessation of the profession, retirement and death equally. The writ petition was dismissed.
• Ranjeet Singh v ITO, Ward-1(1), Bathinda ITATHelps taxpayer
  My land was taken under the National Highways Act, the award was announced in 2014 but the money reached me in 2015. The Assessing Officer says s.96 of the RFCTLARR Act does not apply. Is he right?
  The Tribunal held he was not, and deleted the addition. Where the award under s.3G of the National Highways Act, 1956 had been announced before 31 December 2014 but the compensation had not actually been paid by that date, the compensation falls to be paid in accordance with the First Schedule to the RFCTLARR Act, 2013, and is exempt under s.96 of that Act read with CBDT Circular No. 36/2016 dated 25 October 2016.
• Giesecke & Devrient (India) Pvt. Ltd. v. Addl. CIT ITATHelps taxpayer
  Is there any Tribunal authority, older than the recent High Court decisions, that DDT cannot exceed the treaty rate — and can I still cite it?
  Yes. The Delhi Tribunal held on 13 October 2020 that the tax rates specified in a double taxation avoidance agreement in respect of dividend must prevail over DDT, and that the DDT levied by the company should not exceed the rate specified in Article 10 of the India-Germany treaty. It allowed the additional ground on principle but restored the matter to the Assessing Officer for the limited purpose of verifying, under Article 10(4), whether the beneficial owner carried on business in India through a permanent establishment; the appeal was allowed in part for statistical purposes.
• Inno Real Private Limited and Inno Estates Private Limited v Deputy Commissioner of Income Tax ITATCuts both waysNo later treatment found
  My client was held to be an assessee in default for not deducting tax at thirty per cent on a remittance to a Cyprus company. Cyprus has since been removed from the notified list — does that help for a past year?
  The Chennai Tribunal set aside the orders and remitted both cases for de novo consideration in the light of CBDT Circular No. 15 of 2017 dated 21 April 2017, which clarifies that Notification No. 86/2013 notifying Cyprus was rescinded with effect from the date of its issue, thereby removing Cyprus as a notified jurisdictional area with retrospective effect from 1 November 2013. The Commissioner (Appeals) had held that the rescinding notifications of 14 and 16 December 2016 carried no retrospective effect and had sustained the section 201(1) demands; the circular, which post-dated his order, answered that.
• Statutory position — place of effective management under section 6(3)(ii) from AY 2017-18, and the CBDT Circular 6/2017 guidelines CBDT Circulars & InstructionsCuts both ways
  A foreign company in my client's group is run largely from India. From when can it be treated as resident here, and what test does the department actually apply?
  From assessment year 2017-18, a company is resident in India if it is an Indian company or if its place of effective management in that year is in India — 'the place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made'. CBDT Circular No. 6 of 2017 dated 24 January 2017 lays down the guidelines: a company 'engaged in active business outside India' is presumed to have its POEM outside India if the majority of its board meetings are held outside India, and only a company failing that test goes through the two-stage enquiry of identifying who actually makes the key management and commercial decisions and then where those decisions are in fact made.
• Statutory position — partial integration: agricultural income is exempt under the Income-tax Act but is aggregated for RATE purposes, and that aggregation is enacted by the annual Finance Act, not by the Income-tax Act CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client's agricultural income is exempt, so why has the system charged tax at a higher rate on his non-agricultural income, and where in the Act is that written?
  It is not written in the Income-tax Act at all, and that is the point. Section 10(1) excludes agricultural income from total income and the Income-tax Act contains no provision aggregating it; the aggregation is enacted afresh every year by section 2 of the annual Finance Act, which is the Central Act contemplated by section 4(1) of the Income-tax Act as fixing the rate. Sub-section (2) of that section applies where Paragraph A of Part I of the First Schedule applies and the assessee has, in the previous year, net agricultural income exceeding FIVE THOUSAND RUPEES in addition to total income, and the total income exceeds the basic exemption amount named in that sub-section. Where it applies, the net agricultural income is taken into account only for the purpose of charging income-tax on the total income, and the computation is: aggregate the total income and the net agricultural income and work out the tax on the aggregate at the Paragraph A rates; then increase the net agricultural income by the basic exemption sum and work out the tax on that figure at the same rates; the second amount is deducted from the first, and what is left is the tax on the total income.
• Statutory position — s.176: accelerated assessment on discontinuance, the fifteen-day notice in s.176(3), and the deeming of post-discontinuance receipts in s.176(3A) for a business and s.176(4) for a profession CBDT Circulars & InstructionsCuts both ways
  I shut my consultancy two years ago and money is still coming in for work I did before I closed. My accountant says section 176 taxes it. Which sub-section does that, what notice was I supposed to give when I closed, and how much time did I have?
  Two different sub-sections do the deeming and it matters which one you are in. Section 176(3A) covers a discontinued BUSINESS: any sum received after the discontinuance is deemed to be the income of the recipient and charged to tax in the year of receipt, if it would have been included in the total income of the person who carried on the business had it been received before the discontinuance. Section 176(4) covers a discontinued PROFESSION, but only where the discontinuance was on account of the cessation of the profession by, or the retirement or death of, the person carrying it on, and it deems the sum received after discontinuance to be the income of the recipient charged to tax in the year of receipt on the same 'would have been included' condition. Separately, s.176(3) requires any person discontinuing any business or profession to give the Assessing Officer notice of the discontinuance within fifteen days of it.
• Statutory position — s.5A: equal apportionment between spouses under the Portuguese Civil Code, and the one head of income it leaves alone CBDT Circulars & InstructionsCuts both ways
  We are a married couple in Goa governed by the communiao dos bens. The officer has assessed the whole of the rent and the business income on my husband. Is that right, and what happens to our salaries?
  It is not right. Section 5A applies where husband and wife are governed by the system of community of property known under the Portuguese Civil Code of 1860 as 'COMMUNIAO DOS BENS', in force in the State of Goa and in the Union territories of Dadra and Nagar Haveli and Daman and Diu. Sub-section (1) says that the income of the husband and of the wife under any head of income shall not be assessed as that of the community of property, whether treated as an association of persons or a body of individuals; that such income under each head of income other than under the head 'Salaries' shall be apportioned equally between the husband and the wife; and that the income so apportioned shall be included separately in the total income of each, the remaining provisions of the Act applying accordingly. Sub-section (2) carves salary out: where the husband or the wife has any income under the head 'Salaries', that income is to be included in the total income of the spouse who has actually earned it.
• DCIT v Total Oil India Pvt Ltd (Special Bench) ITATHelps departmentOverruled
  My company paid dividend distribution tax on dividend to a French shareholder. Can I pay at the lower treaty rate on dividends instead of the section 115-O rate?
  This question is now before the Supreme Court and must not be treated as closed. What follows is what this Special Bench decided in April 2023; for where the point stands today, read the validity note. No, on the reasoning of this Special Bench. It treated dividend distribution tax under section 115-O as a charge on the domestic company on its own distributed profits, not a tax paid on behalf of the shareholder, following the Bombay High Court in Godrej & Boyce that the company does not act as the shareholder's agent and the charge is not on dividend in the shareholder's hands. It held that Tata Tea, which upheld the constitutional validity of section 115-O, does not support the taxpayer, a precedent being an authority only for what it actually decides. On that footing the shareholder's treaty rate does not limit the section 115-O rate.

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.