Capital Gains Exemptions

Capital Gains Exemptions — the law in short

Every authority in this library on capital gains exemptions, with what each one decided.

• 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.
• Association of Old Settlers of Sikkim v Union of India Supreme CourtHelps taxpayer
  I am a Sikkimese woman who married a non-Sikkimese after April 2008, and the department says the Sikkim exemption is no longer available to me — is that right?
  No. The Supreme Court, hearing writ petitions under Article 32 on 13 January 2023, dealt with two exclusions from the section 10(26AAA) exemption: old Indian settlers left out of the Register of Sikkim Subjects, and Sikkimese women marrying a non-Sikkimese on or after 1 April 2008. On the second, Nagarathna J's concurring opinion holds the proviso inherently arbitrary and discriminatory, an unconstitutional distinction based on sex and race, and liable to be struck down; the Explanation's reference to "an individual" covers all genders. This entry does not state the operative order, so it does not give the directions on the first limb.
• State Bank of India v Assistant Commissioner of Income Tax Supreme CourtHelps department
  My client is an employer facing a s.201 order for not deducting on LTC where the employees' itineraries included a foreign leg but the reimbursement was limited to the domestic shortest-route fare. Is the bona fide estimate defence available?
  No. The Supreme Court held that the moment an employee undertakes travel with a foreign leg it is not travel within India and the payment is outside s.10(5), so the employer was bound to deduct under s.192(1) and was rightly held an assessee in default. It rejected the argument that the reimbursement having been confined to the shortest domestic route saved the exemption, and it rejected the bona fide mistake defence because the employer had the complete travel details before it when settling the bills.
• 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 HCL Technologies Ltd Supreme CourtHelps taxpayer
  The AO knocked freight and telecom charges out of my export turnover but left them in total turnover. Can he do that?
  No. What is excluded from export turnover must also come out of total turnover, because export turnover is a component of total turnover. Reading the exclusion into the numerator alone would make the s.10A formula produce an absurd result. The Court declined to construe the section in a way that would work an injustice on the assessee.
• 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.
• Union of India v Tata Tea Co Ltd Supreme CourtHelps department
  Sixty per cent of my tea company's income is agricultural and outside income tax. When I distribute dividend, is the distribution tax payable on the whole dividend or only on the taxable forty per cent?
  On the whole dividend. The Supreme Court upheld section 115-O as within Parliament's competence under Entry 82 of List I and set aside the Calcutta High Court's rider that additional tax could be charged only on 40 per cent of the dividend. Dividend declared and distributed is not impressed with the character of the profits out of which it is paid, so it does not become agricultural income in the shareholder's hands merely because the company's income was largely agricultural. Reading a 40 per cent limit into section 115-O would alter the provision, for which there is no warrant. The tea company's appeal was dismissed.
• Balakrishnan v Union of India Supreme CourtHelps taxpayer
  My land was notified and an award was made under the Land Acquisition Act, but I thought the award was too low, negotiated a higher figure and executed a sale deed. The Assessing Officer now says that was a voluntary sale and denies s.10(37). Is he right?
  No. Where the whole procedure under the Land Acquisition Act has been followed — notification under s.4, declaration under s.6 and an award under s.9 — the acquisition is a compulsory acquisition, and the fact that the amount of compensation was afterwards settled by negotiation and a sale deed executed does not convert it into a voluntary sale. The Supreme Court allowed the appeal and quashed the s.148 proceedings, and overruled the Kerala High Court's contrary decision in Info Park Kerala.
• M/s Fibre Boards (P) Ltd. v CIT, Bangalore Supreme CourtHelps taxpayer
  I am shifting my factory out of an urban area. I have paid advances for the new land, building and machinery but nothing is bought yet, and I have not deposited anything in the capital gains scheme. Is s.54G lost?
  No. The Supreme Court held that advances paid towards the purchase or acquisition of new machinery, plant, land or building amount to 'utilisation' of the capital gain for the purposes of s.54G, so the deposit machinery in s.54G(2) is not attracted and the assessee has the full three-year window in s.54G(1) in which to complete the purchases. The Court also held that the 1967 notification declaring Thane an urban area survived the omission of s.280ZA, so the section was workable.
• Queen's Educational Society v CIT Supreme CourtHelps taxpayerPartly overruled — read this first
  My school makes a surplus every year and puts it back into buildings and equipment. Does that mean it no longer exists solely for education?
  No. The Supreme Court held that a surplus ploughed back into the institution does not destroy the exemption. What matters is the predominant object: if the institution exists solely for education and not for profit, the fact that receipts exceed expenditure is beside the point. The Court set aside the Uttarakhand High Court's contrary judgment in Queen's Educational Society, approved the Punjab and Haryana, Delhi and Bombay High Court decisions, and restored the Tribunal's view. It reaffirmed Surat Art Silk Cloth, Aditanar and American Hotel and Lodging as the governing tests, while stressing that the thirteenth proviso requires the authorities to monitor actual application of income year by year. Read subject to a date, though: on 19 October 2022 the Supreme Court in New Noble Educational Society v Chief CIT disapproved the reasoning of this judgment and of American Hotel and Lodging so far as it pertains to the interpretation of 'solely', and held instead that all the objects of the institution must relate to imparting education, so the predominant-object test stated here is no longer the test for that word. New Noble para 78 directs that the law it declares operate prospectively.
• Sanjeev Lal v CIT Supreme CourtHelps taxpayer
  A court order delayed my sale deed. Does my s.54 exemption run from the agreement to sell?
  Yes. Executing the agreement to sell itself extinguished rights in the property and created rights in the vendee, which answers the definition of transfer in s.2(47), so that date governs. Section 54 relief could not be denied where a court restraint the assessee could not violate delayed the registered deed, and the new house had been bought within a year of the agreement.
• CIT v Dawoodi Bohara Jamat Supreme CourtCuts both ways
  The Commissioner has refused my trust registration under section 12AA because our objects are tied to one religious community — can he refuse registration on that ground?
  No, not at the registration stage on this reasoning. The Supreme Court held on 20 February 2014 that section 13 is an exception to sections 11 and 12, so whether it bites is examined when exemption is claimed, not when registration is decided. On the merits the Court corrected both sides. Section 13(1)(b) is not confined to trusts that are purely charitable; a composite religious and charitable trust is not outside it merely because it is composite. But on these objects — food served on community occasions, a madarsa, help to the needy — the benefit was not channelled to the Dawoodi Bohra community alone, so section 13(1)(b) was not attracted and the appeals were dismissed.
• 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.
• CIT v Walfort Share & Stock Brokers P Ltd Supreme CourtHelps taxpayer
  I bought mutual fund units just before the record date, took the tax-free dividend and sold them ex-dividend at a loss — can the department disallow that loss for a year before section 94(7) came in?
  No, not for a year before 1 April 2002. The Supreme Court held on 6 July 2010 that section 14A disallows expenditure incurred to earn exempt income and needs a proximate cause between the two. A pay-back or return of investment is not expenditure at all: it hits the balance sheet, not the profit and loss account, and is not a debit item allowable under sections 30 to 37. The loss on sale was genuine, there was a real sale at a real price, and using the exemption in section 10(33) is not an abuse of law. From 1 April 2002 section 94(7) applies, but it ignores the loss only to the extent of the dividend.
• CIT, Dibrugarh v Doom Dooma India Ltd Supreme CourtHelps taxpayer
  I grow and manufacture tea, so only part of my income is taxed under the Income-tax Act. When I carry the written down value forward, does the Assessing Officer deduct the whole year's depreciation or only the taxable proportion?
  Only the taxable proportion. Under s.10(1) read with rule 8 of the Income-tax Rules, 1962, 40 per cent of the income from the sale of tea grown and manufactured in India is the part liable to tax, and the Supreme Court held that in a rule 8 case the depreciation 'actually allowed' within s.43(6)(b) is the proportionate depreciation only. The Department's appeals, which sought to reduce the written down value by 100 per cent of the depreciation computed at the prescribed rate, were dismissed.
• Agricultural Produce Market Committee, Narela v CIT Supreme CourtHelps department
  Our market committee was always treated as a local authority and exempt under s.10(20). The Assessing Officer now says the Explanation inserted in 2002 has taken that away. Is he right?
  Yes. The Supreme Court held that the Explanation to s.10(20) inserted by the Finance Act 2002 with effect from 1 April 2003 is an exhaustive definition, not an inclusive one, and that an Agricultural Produce Market Committee is not within it. Parliament deliberately left out the words 'other authority' that appear in s.3(31) of the General Clauses Act, so the functional test built on R.C. Jain no longer decides who is a local authority for s.10(20).
• American Hotel & Lodging Association Educational Institute v CBDT Supreme CourtHelps taxpayerPartly overruled — read this first
  The prescribed authority has refused our s.10(23C)(vi) approval because we have not shown that income was applied the way the third proviso requires. Can it refuse on that ground at the approval stage?
  Not on that ground standing alone. The Supreme Court separated the threshold conditions in s.10(23C)(vi) — the actual existence of an educational institution existing solely for education and not for profit, plus approval by the prescribed authority — from the monitoring conditions in the provisos on application, accumulation and deployment of income, whose compliance depends on events that have not occurred when a first application is made. But this decision must now be read subject to New Noble Educational Society (SC, 19 October 2022), which overruled it on the meaning of 'solely' and held, at para 76(f), that its observations suggesting the Commissioner could not call for records apply only to newly set up charities, the proviso to s.10(23C) not being confined to newly set up trusts.
• ACIT v Surat City Gymkhana Supreme CourtHelps taxpayer
  My trust already has registration under section 12A. Can the Assessing Officer go behind it and re-examine whether the objects are charitable?
  The Supreme Court dismissed the Revenue's appeals against a Gujarat High Court order that answered no, but it did so on a narrow ground. The Tribunal had held that the club's objects fell within general public utility under section 2(15) and that registration under section 12A was a fait accompli preventing the Assessing Officer from probing the objects further. The High Court dismissed the Revenue's appeals in limine as covered by Hiralal Bhagwati v. CIT. The Supreme Court found that both questions were concluded by that decision, which the Revenue had never challenged and which had attained finality. The appeals were therefore dismissed with no costs.
• 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".
• CIT v Gujarat Maritime Board Supreme CourtHelps taxpayer
  My body is a statutory authority, not a trust under any public trust law. Can it still be registered as a charitable institution under section 12A?
  Yes. The Supreme Court dismissed the Revenue's appeal and held that the Gujarat Maritime Board was entitled to registration under section 12A. Its predominant purpose is the development of minor ports in Gujarat, its management and control lie essentially with the State Government, and sections 73 to 75 of its own statute show it has no profit motive and must apply its income to that purpose. That is an object of general public utility within section 2(15). Section 10(20) and section 11 operate in different spheres, so ceasing to be a local authority after the 2002 amendment did not preclude the claim. The Court was concerned with registration, not application of income.
• Adityapur Industrial Area Development Authority v Union of India Supreme CourtHelps department
  Section 10(20A) has been omitted and we are outside the new s.10(20) Explanation. Can we still say our income is the State's income and immune under Article 289?
  No. The Supreme Court held that where a development authority is constituted under a State Act with its own funds, its own assets and its own liabilities, the income is the authority's own income and not the income of the State, so Article 289(1) does not help. The withdrawal of s.10(20A) by the Finance Act 2002 and the narrowing of s.10(20) by the Explanation from 1 April 2003 were deliberate, and a benefit expressly taken away cannot be recovered through the Constitution.
• ACIT v Thanthi Trust Supreme CourtCuts both ways
  Our trust runs a business and puts the profit into its objects. Does s.11(4A) still deny the exemption?
  No, on this decision. The Supreme Court read the substituted s.11(4A), in force from 1 April 1992, as more beneficial to a trust than the sub-section it replaced, and held that a business whose income is used by the trust to achieve its objectives is a business incidental to the attainment of those objectives. The trust ran a newspaper, applied the income to education and relief of the poor, and kept separate books, and was held entitled to s.11 from assessment year 1992-93 onwards. Read the disposal whole: for the earlier years, decided under s.11(4A) as it stood before that substitution, the exemption for the newspaper income was refused.
• CIT v Nagpur Hotel Owners Association Supreme CourtHelps department
  My trust never filed the accumulation notice for the year. Can I file it now, after the assessment was completed, and still get the exemption?
  No. The Supreme Court held that the notice under section 11(2) must reach the Assessing Officer before he completes the assessment. The requirement is mandatory, and without the particulars the officer cannot know what income is being accumulated or for what purpose, so he cannot exclude it. Even if no valid time limit had been prescribed by the rules, it is reasonable to presume that compliance must come at some point before the assessment proceedings end. Allowing the notice afterwards would mean reopening the assessment, which the Act does not contemplate.
• CIT v Programme for Community Organisation Supreme CourtHelps taxpayer
  We spent most of our donations on our objects in the same year. The officer now says our 15 per cent accumulation is worked out on what was left over after that spending. Is it worked out on the receipts or on the balance?
  On the receipts. The Supreme Court dismissed the Revenue's appeal and left standing the Kerala High Court's answer: on the plain language of s.11(1)(a) the accumulation a trust is allowed is a percentage of its income derived from property held under trust, and the donations the trust received are that property. It is not a percentage of what survives after part of the income has been applied. The trust had received Rs 2,57,376 and applied Rs 1,70,369, leaving Rs 87,010. The Court held it could accumulate 25 per cent of Rs 2,57,376 and said it was unclear on what basis the Revenue contended for 25 per cent of Rs 87,010. The percentage is now 15, not 25.
• 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.
• K. Lakshmanan & Co v CIT Supreme CourtHelps department
  I grow mulberry, feed the leaves to silkworms and sell the cocoons. Is the whole income agricultural income and exempt?
  No. The Supreme Court held that income from rearing silkworms and selling cocoons is not agricultural income. The definition requires that what is taken to market and sold be the produce raised by the cultivator, processed only so far as to make it marketable. Mulberry leaves are the agricultural produce here; silkworms are not, and cocoons certainly are not. A process that alters the character of the produce into a different commodity takes the income outside the definition. That the leaves themselves had no market did not help the assessee. The appeals were dismissed.
• S.Rm.M.Ct.M. Tiruppani Trust v CIT Supreme CourtHelps taxpayer
  My trust filed Form 10 to accumulate income but then spent the money on a hospital building instead of buying government securities. Have I lost the exemption altogether?
  No. The Supreme Court held that a trust which fails the conditions of section 11(2) still keeps the whole of the exemption section 11(1)(a) gives it. Income actually applied to charitable purposes in India is exempt whether or not a declaration was filed, and buying a building to be used as a hospital is such an application. On top of that the trust may accumulate up to 25 per cent of its total income - the limit then in force - and claim exemption on that accumulation without investing it in government securities. Section 11(2) only lifts the ceiling; it does not cut down section 11(1).
• Thiru Arooran Sugars Ltd v CIT, Madras Supreme CourtHelps department
  I grow sugarcane and crush all of it in my own mill, so I never sell any cane. My cost of cultivation is higher than the market price. Can the Assessing Officer still deduct the market value of the cane under rule 7 instead of my actual costs?
  Yes. Rule 7(2)(a) applies wherever the agricultural produce is of a kind ordinarily sold in the market in its raw state, and sugarcane is such a produce, so the deduction from composite profits is the average price at which cane was sold during the previous year, not the assessee's cultivation expenses. The Supreme Court held that 'market' in rule 7 does not require an open market where buyers and sellers congregate, that the controlled price under the Sugarcane Control Order is the market price, and that it makes no difference that the assessee was the only buyer in its region.
• 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.
• Aditanar Educational Institution v Addl CIT Supreme CourtHelps taxpayer
  My society runs a college and ended the year with a surplus. Does that surplus mean we no longer exist solely for educational purposes and not for profit?
  No. The Supreme Court held that if a surplus results incidentally, after meeting expenditure, from an activity lawfully carried on by an educational institution, the institution does not cease to exist solely for educational purposes, because its object is not to make profit. The decisive test is whether, on an overall view, the object is to make profit. The Court also held that a society or trust running an educational institution solely for educational purposes and not for profit is itself an other educational institution, and rejected as unreal and hyper-technical the argument that such a body is merely a financing body.
• CIT v Kamla Town Trust Supreme CourtCuts both ways
  Our company trust builds quarters for our own workmen and staff. Is that a public charitable trust, and does a civil court decree rectifying the trust deed help for earlier years?
  It depends on the deed, and a rectification decree does not reach back. The Supreme Court held that under the 1945 rectified deed the trustees were obliged to build quarters in particular for the workmen, staff and other employees of the settlor company and its allied concerns, who may include the affluent. That made the reference to workmen in general illusory, so the object was not public charitable and the whole trust failed the wholly charitable test. Under the 1955 rectified deed the objects were wholly charitable. The second decree operated only from assessment year 1956-57. The assessing officer could not go behind the decree, but could construe the deed as rectified.
• CIT v G.R. Karthikeyan Supreme CourtHelps department
  I won prize money in a car rally that was a test of skill, not a lottery or a race. Is it taxable when it does not fit any sub-clause of section 2(24)?
  Yes. The Supreme Court held that section 2(24) is an inclusive definition, so a receipt can be income even though it falls under none of the sub-clauses. It is wrong to test a receipt against sub-clause (ix) and conclude, if it does not fit, that it is not income. The rally was a contest, the assessee entered it to win, and the prize was a return for his skill and endurance. If money not earned in the true sense is income, money earned by skill and toil is income too. It may be casual, but section 10(3) itself shows casual income is income.
• Bajaj Tempo Ltd v CIT Supreme CourtHelps taxpayer
  My new industrial undertaking runs from a leased building that was used for business before, and it took over a few old tools. Does that cost me the incentive deduction?
  No, not on these facts. The Supreme Court held that a provision granting an incentive to promote growth must be construed liberally, and so must the restriction on it, so as to advance the object rather than frustrate it. The disqualifying words are not formed by the transfer of a building, plant or machinery previously used in another business: the emphasis is on formation, not on use. Only a transfer without which the new undertaking could not have come into being takes it out of the section. A leased factory building and tools worth Rs 3,500 did not play a dominant part in forming this company.
• Union of India v Wood Papers Ltd Supreme CourtHelps department
  How is an exemption notification read when it is doubtful whether I am covered by it at all?
  Strictly at the entry, liberally afterwards. The Supreme Court held that whether a subject falls within an exemption is a question to be construed strictly and against the subject, because an exemption is in the nature of an exception. But once the doubt about applicability is lifted and the subject is found to be within the notification, full play is given to it and it is construed widely and liberally. Applying that, an existing paper factory that switched to packing and wrapping paper had not commenced production within the notification, and was exempt only to the extent attributable to its enlarged capacity.
• Addl CIT v Surat Art Silk Cloth Manufacturers Association Supreme CourtHelps taxpayerSuperseded by amendment
  Our trade association promotes commerce in our industry, but the work it does throws up a surplus every year. Does the surplus stop it being charitable?
  No, not by itself. A five-judge Bench of the Supreme Court held that the test is whether the predominant object of the activity carried on in advancing an object of general public utility is to subserve the charitable purpose or to earn profit. Profit-making must be the end to which the activity is directed; it is not enough that the activity in fact results in profit. Where the dominant object is the charitable purpose, the character of the purpose is not lost merely because some profit arises. The exclusionary clause does not require the activity to be run so that it yields no surplus.
• Textile Machinery Corporation Ltd v CIT Supreme CourtHelps taxpayer
  I set up a new foundry inside my existing engineering works and it mostly supplies my own divisions. The officer says it is only a reconstruction of my old business. Is he right?
  No. The Supreme Court held that the Steel Foundry Division and the Jute Mill Division were new industrial undertakings and not formed by reconstruction of the existing business. New plant, separate buildings, separate licences, separate books and substantial fresh capital made each a physically separate and identifiable unit that could exist on its own. That the bulk of what they produced was consumed by the assessee's own Boiler Division was not decisive. Reconstruction requires a transfer of the assets of the old business to the new undertaking; there was none here. The Calcutta High Court's contrary view was set aside.
• CIT v R.M. Chidambaram Pillai Supreme CourtHelps taxpayerSuperseded by amendment
  I draw a salary from my firm, which grows and manufactures tea. Only 40 per cent of the firm's income is taxable as business income - is my whole salary taxable, or only 40 per cent of it?
  Only the taxable proportion. The Supreme Court held that a firm is not a legal person, and since a contract of service needs two distinct persons there can be no contract of employment between a firm and its own partner. A salary agreed to a partner is therefore a special share of profits - profits under another name - and takes the character of the firm's income. Where the composite income from tea is apportioned so that 60 per cent is agricultural and beyond the Union's reach, 60 per cent of the partner's salary shares that character too. The position is different for a stranger who is not a partner.
• ITO v N. Takim Roy Rymbai Supreme CourtHelps department
  I am a Scheduled Tribe member living in a Sixth Schedule area but my salary is earned from an office outside it — is that income exempt under section 10(26)?
  No. The Supreme Court held that section 10(26) exempts a Scheduled Tribe member only on income accruing or arising from a source inside the specified area (or from dividends and interest on securities). Residence in the specified area alone is not enough; the source test in sub-clause (a) is a separate, mandatory condition. The Court reversed the Gauhati High Court, which had struck the sub-clause down under Article 14, and held the classification by source of income to be based on intelligible differentia and constitutionally valid.
• Ahmedabad Rana Caste Association v CIT Supreme CourtHelps taxpayer
  Our trust benefits one caste. Can that be a charitable purpose at all?
  Yes. It is not necessary that the object benefit the whole of mankind or all persons in a country; it is enough that a section of the public, as distinguished from specified individuals, is intended to be benefited. The Supreme Court held that the members of the Rana caste of Ahmedabad — whether natives or admitted to the caste under custom or usage — are united by a quality that is impersonal, so they form a section of the public and the trust's objects were charitable.
• CIT v Andhra Chamber of Commerce Supreme CourtHelps taxpayer
  My trade association only helps its own trade and its members get a benefit from it — can it still be charitable?
  Yes. The Supreme Court held that promotion and protection of trade, commerce and industry is an object of general public utility and therefore a charitable purpose, even though the members of the chamber benefit incidentally. An object need not benefit all mankind; it is enough that a section of the public, defined by some common quality of a public or impersonal nature, is intended to be benefited. Rental income from the chamber's building, held under a legal obligation to apply it to those objects, was exempt. The Revenue's appeals were dismissed with costs.
• 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.
• CIT v Raja Benoy Kumar Sahas Roy Supreme CourtHelps taxpayer
  I sell timber from forest land that we prune, weed and replant. Is that agricultural income?
  Only so far as basic operations were performed. Income is agricultural where operations on the land itself prior to germination — tilling, sowing, planting — have been carried out; subsequent operations such as weeding, pruning, tending and harvesting qualify only when performed as part of an integrated activity with those basic operations. Produce of spontaneous growth is not agricultural income, so a part-replanted forest has to be apportioned.
• Bacha F Guzdar v CIT Supreme CourtHelps department
  I hold shares in a tea company and 60 per cent of its income is exempt as agricultural income. Is 60 per cent of my dividend exempt too?
  No. The Supreme Court held that dividend from a tea company is not agricultural income in the shareholder's hands. Agricultural income means revenue received by direct association with land used for agricultural purposes; it does not extend to revenue that changes hands by way of distribution of dividends. In fact and truth the dividend is derived from the investment in shares and rests on the contractual relation between the company and the shareholder. The shareholder has no interest in the property of the company, which is a juristic person distinct from him, only a right to participate in profits.
• Public Political Party v Deputy Commissioner of Income Tax High CourtHelps departmentNo later treatment found
  My client's s.80GGC deduction has been disallowed because the recipient party is alleged to be an entry provider. Has any High Court decided what the party's own position is, and does that finding bind my client?
  Yes as to the party, no as to your client. The Delhi High Court dismissed the party's own appeals, holding that the Tribunal's finding that it issued bogus donation receipts to enable donors to claim deductions under s.80GGB and s.80GGC, and paid the money back to the persons from whom it was purportedly received, is a finding of fact not open to interference under s.260A. The party also lost its s.13A exemption for failing to file the report required by the second proviso to s.13A. The Court decided nothing about any identified donor: the finding is that this party issued bogus receipts and paid the money back, not that any particular donor received a refund.
• Hosur Bata Employees Union v Principal Chief Commissioner of Income Tax High CourtCuts both waysNo later treatment found
  My clients settled a wage dispute and took VRS and compensation for loss of future salary in two instalments. The company deducted TDS on the whole amount without giving s.89 relief. Can we make the employer refund it?
  No — not from the employer. The Madras High Court held that the employer cannot be found at fault for deducting tax at source in the absence of an application in Form 10E under Rule 21A, because s.192(2A) is what obliges the employer to compute and give s.89 relief and it operates only on the particulars the employee furnishes. The Court's remedy was to direct the employees to file returns under s.139(1) within thirty days and the Income Tax Officer to process them under s.143(1) and refund within two months.
• Swasth Foundation v CIT (Exemptions) High CourtHelps taxpayerNo later treatment found
  The Commissioner rejected my condonation application for late Form 9A for an old year. Was Form 9A even required then?
  Not before AY 2016-17. The Bombay High Court held that the requirement to file Form No. 9A to exercise the option under clause (2) of the Explanation to s.11(1) was introduced by the Finance Act 2015 with effect from 1 April 2016, so for AY 2015-16 there was no prescribed format and no delay capable of being condoned. Where the option had been exercised in time by stating it in the Form 10B audit report and in the return, the substantive requirement was met and the s.119(2)(b) rejection was quashed.
• Columbia Global Center in India v ITO (Exemptions), Ward-1(2), Mumbai High CourtHelps taxpayer
  My trust filed Form 10 only after the scrutiny notice came — 338 days after the due date. The Commissioner refused to condone under s.119(2)(b). Is that the end of the accumulation claim?
  No. Where the substantive conditions of s.11(2) are met — the accumulation is disclosed in the return, the Board resolution and the Form 10B audit report before the s.139(1) due date, the money is invested in a s.11(5) mode and is actually applied within the permitted period — the Bombay High Court held that a liberal view must be taken and the delay in filing Form 10 condoned. The refusal order under s.119(2)(b) was quashed and the delay condoned by the Court itself.
• People's Mobile Hospitals v CIT (Exemption) High CourtHelps taxpayer
  Form 10 was 51 days late because our accountant left mid-year, but it was on the file before the return was processed. The Commissioner still refused to condone. What now?
  The Bombay High Court quashed the refusal and condoned the delay itself. Where the delay is short, unexplained by any wilful default, and the Form was on record when the return was processed, refusing condonation is a pedantic rather than a justice-oriented approach and produces genuine hardship within the meaning of s.119(2)(b).
• PCIT-2 v EYGBS (India) Pvt Ltd High CourtHelps taxpayer
  Your client offered a transfer pricing adjustment itself because its APA required it. The officer says s.92C(4) bars the s.10AA exemption on that extra income. Is he right?
  No. Where the assessee computes the arm's length price itself pursuant to an APA entered into with the CBDT, none of the conditions in s.92C(3) is attracted, and s.92C(4) therefore never comes into operation at all. The bar in s.92C(4) is aimed at income by which the Assessing Officer enhances the declared total income, not at figures the assessee has itself declared in conformity with its APA. The Revenue's appeals were dismissed.
• Krishnagopal B Nangpal v DCIT High CourtHelps taxpayerSuperseded by amendment
  I put the whole capital gain from one flat into several houses. For years before assessment year 2015-16, does s.54 allow that?
  Yes. The Bombay High Court held that the words 'a residential house' in s.54(1) as it stood before 1 April 2015 were descriptive of the nature of the asset and did not restrict the number of houses that could be bought. The assessee sold a flat in Mumbai and invested the proceeds in seven row houses at Pune under a joint venture agreement, and the exemption was allowed against the entire capital gain of Rs. 1,08,30,625. The Court agreed with the Karnataka High Court in Arun K. Thiagarajan and the Madras High Court in Tilokchand and Sons, and reasoned that if the restriction to one house had already been in the unamended provision there would have been no need for the 2014 amendment to insert the word 'one'. That amendment took effect from 1 April 2015, and from assessment year 2015-16 the position is the opposite.
• Mukundbhai Manubhai Patel v ACIT High CourtHelps taxpayerNo later treatment found
  I bought mutual fund units, took the dividend the same day and booked a short-term loss. The department calls it fictitious and has reopened. Can it?
  Not on that material alone. The Gujarat High Court quashed a s.148A(d) order and s.148 notice where the reopening rested on an allegation that the fund house had manipulated its distributable surplus: purchasing units and earning dividend on the same day is not impermissible, and allegations against the fund manager cannot be extended to the investor without something showing he knowingly participated.
• PCIT-1, Chennai v M/s. British Agro Products (India) Pvt. Ltd. High CourtHelps departmentNo later treatment found
  I grow button mushrooms in trays under controlled temperature in a shed and claim the income as agricultural income under s.10(1). The Assessing Officer says it is business income. Where does that stand?
  Against you, in the Madras High Court. The Court held that income from the sale of white button mushrooms grown in a factory under controlled conditions does not fall within any of the three limbs of s.2(1A) and so is not exempt under s.10(1), allowed the Revenue's appeals and answered both substantial questions against the assessee. That result is squarely opposed to the Hyderabad Special Bench in DCIT v. Inventaa Industries Pvt. Ltd., which the Tribunal below had followed, and appeals against Inventaa were recorded as still pending before the Telangana High Court.
• CIT (E) v IILM Foundation High CourtHelps taxpayerNo later treatment found
  Our trust pays a salary to its chairperson, who is a trustee. Does that cost us the s.11 exemption?
  No, provided the salary is no more than what the services are reasonably worth. Section 13(2)(c) is not a bar on paying a specified person at all: it deems a salary to be application for that person's benefit only to the extent it is in excess of what may reasonably be paid for the services, so a payment that is reasonable for the service is not caught by s.13(1)(c) at all. The Delhi High Court answered both questions of law against the revenue and dismissed its appeals. Note what was not in issue: the reasonableness of the Rs 16,20,000 salary had been found below and was not contested before the High Court, which recorded that there was no cavil about it, so the decision is on the legal point and not a finding on the facts of this trust's remuneration.
• Anvar Ali Poolakkodan v ITO — interest on delayed compensation is an accrual to compensation, taxable as capital gains and covered by s.10(37) High CourtHelps taxpayerHigh Courts differ
  The Tribunal split my client's land acquisition interest into 9 per cent as capital gains and 15 per cent as income from other sources. Is that right?
  The Kerala High Court says no. It held that interest amounts received in respect of delayed payment of compensation under the Land Acquisition Act are treated as accruals to the principal compensation amount and are classified as capital gains, so that where the land compulsorily acquired is agricultural land the interest also gets the benefit of s.10(37). Because such interest is not interest as defined in s.2(28A), s.56 is not attracted at all.
• CIT (Exemptions) v Shree Sai Baba Sansthan Trust High CourtHelps taxpayer
  Our trust is religious and charitable and holds 80G approval. Can the officer tax our hundi collections under s.115BBC?
  No. Section 115BBC(2)(b) takes a trust created or established wholly for religious and charitable purposes out of the charge, except for a donation given with a specific direction that it is for a university or other educational institution or a hospital or other medical institution run by the trust. The Court held that whether the trust is religious and charitable is determined from the trust deed, and that s.80G registration is a separate and independent question which cannot be used to deny that character. Rs 159.12 crores of hundi collections out of Rs 228.25 crores of donations stayed outside s.115BBC(1).
• PCIT v Alchemist Ltd; PCIT v Uno Minda Ltd High CourtHelps taxpayerNo later treatment found
  The department says the Finance Act 2022 Explanation to s.14A is clarificatory and applies to my old years. Is it?
  The Delhi High Court held it is not. The Explanation was inserted with effect from 1 April 2022 and, following its own decision in Era Infrastructure, the Court held that calling a provision an Explanation or saying it is for the removal of doubts does not make it retrospective where it fundamentally alters the statutory position. The Court also upheld the rule that a disallowance, even computed under Rule 8D, cannot exceed the exempt income earned in the year.
• Paani Foundation v DCIT High CourtHelps taxpayerNo later treatment found
  The Assessing Officer has reopened an old year saying my trust could not claim provisioned expenditure as application because s.11 requires the sum to be actually paid. Does that rule apply to years before AY 2022-23?
  The Delhi High Court, at the notice stage, said it was prima facie unable to sustain the assumption of jurisdiction under s.148 on that reasoning, because the Explanation requiring a sum to be treated as applied in the previous year in which it is actually paid was inserted only by the Finance Act 2022 and would not govern AY 2017-18. This is an interim order in a writ petition that is still pending; there is no final adjudication.
• Sanjay Baweja v Dy CIT High CourtHelps taxpayerHigh Courts differ
  My employer paid me for the fall in value of options I never exercised. Is that a perquisite?
  No, on this decision. The Delhi High Court held that a one-time voluntary payment made to holders of unexercised stock options after a group disinvestment was not a perquisite under s.17(2)(vi), because the value of specified securities depends on the exercise of the option and no option had been exercised. The refusal of a nil-deduction certificate under s.197 was set aside.
• Bar Council of India v CIT (Exemption) High CourtHelps taxpayerNo later treatment found
  Our professional body has always claimed s.10(23A). We realised mid-assessment that we needed s.11 and filed Form 10 late. Can the Commissioner refuse to condone the delay?
  Not on the reasoning used here. The Delhi High Court set aside the Commissioner's refusal, holding that the explanation offered — that the body's officials had not noticed the amendments to ss.11 and 13 made by the Finance Act 2015 with effect from 1 April 2016 — was not one there was reason to disbelieve, and that no benefit could accrue to the body from delaying. The failure to claim accumulation in the return cannot itself be read as showing an intention not to file Form 10.
• L. Venkataramana Raju v. Union of India (Karnataka High Court) — where compensation is payable under the RFCTLARR Act, 2013, section 96 of that Act exempts it from income-tax and from TDS even though the land is not agricultural and section 10(37) cannot apply High CourtHelps taxpayer
  My client's commercial property was compulsorily acquired for a metro project and tax was deducted at source on the compensation. Section 10(37) does not help because the land is not agricultural. Is there anything else?
  Yes — section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, which provides that no income tax or stamp duty shall be levied on any award or agreement made under that Act except one under its section 46. The Karnataka High Court held that where the acquisition was initiated after 1 January 2014 the compensation had to be paid under the 2013 Act, and that on a conjoint reading of section 96 of that Act, CBDT Circular No. 36/2016 dated 25 October 2016, the second proviso to section 194LA of the Income-tax Act and section 10(37), such compensation is exempt both from income-tax and from tax deduction at source. The writ petitions were allowed, the awards and endorsements quashed, and a refund of the TDS with interest directed.

The 60 strongest entries are summarised here. The other 203 entries are listed in full below, and each has its own page.

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.