How Tax Law Is Read

How Tax Law Is Read — the law in short

Every authority in this library on how tax law is read, with what each one decided.

• DIT (International Taxation) v Star Cruises (India) P Ltd Supreme CourtHelps taxpayer
  My client is the Indian agent of a foreign cruise ship that sails round trips out of Mumbai. The Assessing Officer says a cruise is entertainment and hospitality, not carriage of passengers, so s.44B does not apply and he wants the s.195 withholding worked out on 25% of the fare instead of 7.5%. Can he do that?
  It depends on the findings of fact, and on these facts he could not. The Supreme Court refused to confine 'carriage' in s.44B to movement from one port to a different port, and held that ancillary services provided on a voyage do not take the activity outside the section. The concurrent findings of the CIT(A), the Tribunal and the Bombay High Court that the non-resident ship owner was carrying passengers were left undisturbed, so the deduction under s.195 stood on the statutory presumptive rate of 7.5% of gross cruise fare receipts and not on the 25% the Assessing Officer had estimated. The Revenue's appeals were dismissed.
• Sanand Properties P Ltd v Jt CIT Supreme CourtHelps department
  My company is a member of an AOP and takes 35% of the AOP's gross sale proceeds under the AOP deed. We showed it as an exempt share of the AOP's profit. After a survey the AO reopened two years and now says it is revenue. Can he reopen, and is the money taxable in my hands?
  No on the reopening challenge and no on the exemption. Where the assessment order shows the Assessing Officer never applied his mind to the character of the receipt at all, there is no opinion to change, and material coming out of a s.133A survey that reveals the true nature of the receipt is tangible material for s.147. On the merits the Court read Clause 7 of the AOP deed itself and held that a member's entitlement to 35% of gross sale proceeds, taken upfront and untouched by the AOP's expenses, is not a share of profit but a diversion of the AOP's receipts by overriding title, taxable in the member's hands as a business receipt. Two Revenue appeals were allowed and the assessee's appeal dismissed.
• L.K. Trust v CIT Supreme CourtHelps taxpayer
  I borrowed from a bank to buy shares, but the money passed through a group company before the shares were bought. The department says the borrowing was not for my business. Can it disallow my interest under s.36(1)(iii)?
  No, not on the reasoning the High Court gave. The Supreme Court set aside a Karnataka High Court order that had disallowed interest because the borrowed money was ultimately used for the benefit of the assessee's subsidiary rather than for the assessee's own business, and held that the borrowed funds must be looked at from the point of view of commercial expediency. It declared the assessee entitled to deduct the interest paid on the capital of Rs 3,80,00,000 borrowed from the Corporation Bank, and agreed with the Tribunal's interpretation of s.36(1)(iii).
• Aspinwall and Co Ltd v Inspecting Assistant Commissioner Supreme CourtHelps department
  My company absorbed a loss-making company under a court-sanctioned scheme of amalgamation, and the scheme says the transferor's losses are to be treated as mine. Can I set those accumulated losses off against my own income under the Kerala Agricultural Income Tax Act, 1991?
  No. The Kerala Agricultural Income Tax Act, 1991 contains no provision answering to s.72A of the Income-tax Act, 1961, and counsel could point to none under which the losses of the amalgamating company may be set off against the income of the amalgamated company. A clause in the scheme of amalgamation saying the transferor's losses shall be deemed to be the transferee's does not supply the missing statutory right, and Dalmia Power does not help where the State of Kerala was never noticed in the amalgamation proceedings. The five appeals were dismissed.
• Jindal Equipment Leasing Consultancy Services Ltd v CIT Supreme CourtCuts both ways
  My client held shares of the amalgamating company as stock-in-trade and received shares of the amalgamated company under the court-sanctioned scheme. Is there business income at that point, or only when those shares are sold?
  It depends. Section 28 does not require a sale, an exchange or a transfer - business profit can be realised in kind - so the substitution of shares on an amalgamation can be charged as business income where shares held as stock-in-trade are replaced by shares that are freely realisable and capable of definite valuation. It is not automatic: the Court laid down a fact-sensitive test of commercial realisability, put the burden of establishing it on the Revenue, and held that the charge is attracted only on allotment of the new shares and not on the appointed date or the date the scheme is sanctioned. The Delhi High Court's judgment was affirmed and the matter remitted to the Tribunal to decide, on the facts, whether the shares were stock-in-trade at all and whether what was received was freely realisable.
• Sharp Business System v CIT-III Supreme CourtHelps taxpayerValidity unconfirmed
  Is a lump sum non-compete fee paid to keep a former partner out of the market capital expenditure, or is it deductible as revenue expenditure under s.37(1)?
  On these facts it was revenue expenditure and deductible under s.37(1). Because the payment was held to be on revenue account, the alternative claim for depreciation on a non-compete right as an intangible asset did not arise and was left undecided.
• DIT (IT)-I, Mumbai v American Express Bank Ltd Supreme CourtHelps departmentValidity unconfirmed
  Does the section 44C ceiling bite only on head office expenditure shared with other branches, or also on expenditure the head office incurred exclusively for the Indian branch?
  It bites on both. The Explanation to s.44C defines head office expenditure by two things only: that it is incurred outside India, and that it is executive and general administrative expenditure of the kind listed. Nothing in it says the expenditure must be common or shared. The Bombay High Court's contrary view in Emirates Commercial Bank was held to be wrong.
• National Cooperative Development Corporation v ACIT Supreme CourtHelps departmentValidity unconfirmed
  Is dividend income, interest on short-term bank deposits and monitoring service charges part of the profits 'derived from' the business of providing long-term finance for s.36(1)(viii)?
  No. 'Derived from' requires a direct and proximate connection — a first-degree nexus — between the receipt and the business of providing long-term finance. Income that is incidental or ancillary to that business, however closely connected in a commercial sense, does not qualify. Section 36(1)(viii) is a ring-fenced deduction, not a general exemption for the whole of a finance corporation's income.
• Pride Foramer S.A. v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  A non-resident had no contract in India for several years but kept trying for one. Had its business ceased, so that expenditure and unabsorbed depreciation fall away?
  No. A business going through a lean period which could be revived if circumstances permitted is a lull in business, not a cessation. The test is the assessee's conduct judged as a prudent businessman would judge it, not whether a contract was actually obtained. Expenditure of the lull years remained deductible and could be set off, and unabsorbed depreciation carried forward.
• Sarla Holdings P Ltd v PCIT Supreme CourtHelps department
  I did not tick s.115BAA in the return and filed Form 10-IC late. Can I still get the concessional rate?
  No, if the return itself did not opt. Section 115BAA(5) requires the option to be exercised in the prescribed manner on or before the s.139(1) due date, and Circular 6/2022 condones only a late Form 10-IC where the option was in fact exercised in the return. A company that marked 'None of the above' cannot claim the benefit later, and s.115JB applies.
• Shital Fibers Ltd v CIT Supreme CourtHelps taxpayer
  Where a deduction has been allowed under s.80-IA, does s.80-IA(9) require the other Chapter VI-A deduction, such as s.80-HHC, to be computed on a reduced profit?
  No. Section 80-IA(9) operates at the stage of allowance, not computation. The s.80-HHC deduction is still computed on the profits of the business without first reducing them by the s.80-IA deduction; what s.80-IA(9) prevents is the aggregate of the deductions under heading C exceeding the profits of the eligible business. A three-Judge Bench answered a reference to this effect, approving the Bombay High Court's view in Associated Capsules.
• AO v Nestle SA Supreme CourtHelps department
  My protocol has an MFN clause and I applied the lower rate India later agreed with an OECD member. Was I entitled to?
  No, on both counts. A notification under s.90(1) is a mandatory condition before any court, authority or tribunal can give effect to a treaty or to a protocol that alters the existing provisions of law, so an MFN clause does not import a later treaty's rate or scope by itself. And where the clause is triggered by India's treaty with a third state 'which is a member of the OECD', that state must have been an OECD member when it entered the treaty with India, not merely by the time the benefit is claimed.
• 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.
• Godrej Sara Lee Ltd v Excise and Taxation Officer Supreme CourtHelps taxpayer
  The High Court dismissed my writ saying an appeal was available. Was it entitled to do that without looking at the point?
  It depends, and the Supreme Court drew the distinction that matters. Maintainability goes to the root — it decides whether the court can receive the case at all. Entertainability is discretion. The mere availability of an appeal or revision that the petitioner has not pursued does not oust the High Court's jurisdiction or make the writ petition 'not maintainable', and where the challenge is to the very jurisdiction of the authority, or is a pure question of law, the petition deserves consideration on merits.
• CIT v Mansukh Dyeing and Printing Mills Supreme CourtHelps departmentSuperseded by amendment
  The firm revalued its land and credited the surplus to the partners' capital accounts. Is that taxable?
  Under the old s.45(4), yes. The Supreme Court held that crediting a revaluation surplus to partners' capital accounts on a reconstitution is in effect a distribution of the assets to the partners and a transfer chargeable to capital gains, because the enhanced balances were immediately available for withdrawal — and two partners did withdraw.
• DIT v Samsung Heavy Industries Co Ltd Supreme CourtHelps taxpayer
  My foreign company opened a project office in India to coordinate an EPC contract. Has the department made it a permanent establishment, and can it tax a slice of my offshore revenue?
  No, not on those facts. The Supreme Court held that a fixed place is a permanent establishment under Article 5(1) of the India-Korea treaty only if the core business of the foreign enterprise is carried on through it. Samsung's Mumbai project office had two non-technical employees, its accounts showed no expenditure on executing the contract, and it did liaison and coordination work only — preparatory or auxiliary activity excluded by Article 5(4)(e). The Court also held the burden of proving a permanent establishment is initially on the Revenue, and that an ad hoc attribution of 25 per cent of gross offshore revenue had no foundation.
• 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.
• Internet and Mobile Association of India v RBI Supreme CourtCuts both ways
  The AO's position is that dealing in crypto was illegal in the years under assessment. Is there Supreme Court authority the other way?
  Yes, on the regulatory question. The Supreme Court set aside the RBI's April 2018 circular that had barred regulated entities from providing services to persons dealing in virtual currencies, holding the measure disproportionate, and recorded that RBI itself had not banned virtual currencies. The judgment also records that courts in different jurisdictions have placed virtual currencies in categories ranging from property to commodity. It decides nothing about the Income-tax Act.
• Seshasayee Steels P Ltd v ACIT Supreme CourtHelps department
  I signed a development agreement and a power of attorney years ago and let the builder start construction. The Department says my capital gain arose only later, when the settlement money came in. Which year is right?
  The later year. The Supreme Court dismissed the assessee's appeal and held the transfer took place in assessment year 2004-05. Permission to a builder to enter and construct is a licence, not possession under section 53A of the Transfer of Property Act, so section 2(47)(v) was not attracted on the 1998 agreement to sell. Nor was section 2(47)(vi), because on that date the owner's rights were intact both in ownership and in possession. What effected the transfer was the memorandum of compromise of July 2003, under which the whole consideration was received and the owner's rights were extinguished on encashment of the last cheque.
• Snowtex Investment Ltd v PCIT Supreme CourtHelps department
  Can I set my share trading loss off against my F&O profits?
  No, for years up to AY 2014-15. Where a company's principal business is dealing in shares, the Explanation to s.73 deems that loss to be speculative, while derivatives profits on a recognised exchange are non-speculative under s.43(5)(d) — so the two cannot be set off. The 2014 amendment to the Explanation is prospective and does not help earlier years.
• Vijay Industries v CIT Supreme CourtHelps taxpayer
  Is my section 80HH deduction 20 per cent of the undertaking's gross profits and gains, or of the income left after depreciation?
  Of gross profits and gains, for the years before section 80AB applied. A three judge bench of the Supreme Court held that section 80HH allows a deduction of 20 per cent of profits and gains, and that profits and gains is conceptually different from income; read with section 80A the deduction is of gross profits and gains, before computing income under sections 30 to 43D, so depreciation and investment allowance are not first deducted. Motilal Pesticides, which had equated the language of section 80HH with that of section 80M, was held erroneous and overruled. Section 80AB is prospective from 1 April 1981 and did not apply to assessment years 1979-80 and 1980-81.
• Principal CIT v Aarham Softronics Supreme CourtHelps taxpayer
  My Himachal unit took the 100 per cent deduction under section 80-IC for five years and then I put in substantial expansion. Do I drop to 25 per cent, or can I go back to 100 per cent?
  You go back to 100 per cent. A three-judge bench of the Supreme Court held that the definition of initial assessment year in section 80-IC(8)(v) includes the year in which substantial expansion is completed, so there can be more than one initial assessment year within the ten year window. From the year of substantial expansion the unit is entitled to 100 per cent deduction again under section 80-IC(3)(ii). The ceiling in sub-section (6) is on the number of years, not on quantum. The Court held that its own earlier judgment in Classic Binding Industries, which had said otherwise, does not lay down the correct law.
• Ravi Agrawal v Union of India Supreme CourtHelps departmentSuperseded by amendment
  My client took a Jeevan Aadhar policy for his disabled child and claimed s.80DD, but the policy pays nothing while he is alive. Is that condition open to challenge?
  The Supreme Court held it is not. Section 80DD(2)(a), which allowed the deduction only where the scheme provided for payment of the annuity or lump sum on the death of the subscriber, was held to rest on a reasonable classification with a rational objective and could not be struck down under Article 14; the Court said it cannot direct Parliament to amend a provision in a specified manner. It disposed of the writ petition by urging the Union to have a relook and explore suitable amendments — and Parliament then did amend the section.
• Commissioner of Customs v Dilip Kumar & Co Supreme CourtHelps department
  Does the two-views rule also apply when you claim an exemption?
  No — it reverses. An exemption notification is construed strictly, the burden is on you to fall squarely within it, and any ambiguity goes to the revenue. The contrary rule in Sun Export was overruled.
• National Travel Services v CIT Supreme CourtHelps departmentValidity unconfirmed
  Our firm is not on the company's register of members — our partners are. Can s.2(22)(e) still reach a loan to the firm?
  A two-Judge Bench of the Supreme Court said it prima facie can, and doubted the High Court line that a 'shareholder' must be both registered and beneficial owner. It did not decide the point. It referred the correctness of the Delhi High Court's Ankitech judgment to a three-Judge Bench, and that reference is the state of play.
• CIT v Vasisth Chay Vyapar Ltd Supreme CourtHelps taxpayer
  We are an NBFC. The AO wants interest on a non-performing loan taxed on accrual even though we have not recognised it. Can he do that?
  No. The Supreme Court agreed with the Delhi High Court that where the assessee is a non-banking financial company governed by the Reserve Bank of India Act, interest on an advance classified as non-performing cannot be said to have accrued, having regard to s.45Q of that Act and the prudential norms issued under it. It is an application of the real-income principle: income that has not really arisen is not taxed because the books are kept on the mercantile basis.
• 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.
• Berger Paints India Ltd v CIT Supreme CourtHelps department
  My s.35D claim is capped at 5% of capital employed. Does the share premium I collected count as capital employed?
  No. Capital employed in the business of the company for s.35D(3)(b) is the aggregate of three things only — issued share capital, debentures and long-term borrowings. Share premium is none of them, and the Supreme Court held that if Parliament had meant to include it, it would have said so in the Explanation. The ceiling is therefore computed on the face value subscribed, not on what the subscribers actually paid.
• DIT v A.P. Moller Maersk A/S Supreme CourtHelps taxpayerValidity unconfirmed
  Our Indian agents pay the foreign principal a pro-rata share of the cost of its global booking and communication system — is that fees for technical services taxable in India?
  No. The Supreme Court held that the payments the Indian agents made to a Danish shipping line for using its Maersk Net system were reimbursement of a proportionate share of cost, not fees for technical services. The system was an integral part of the shipping business and was a common facility available to all agents worldwide, not a service catering to any agent's special needs. Once the character of a payment is reimbursement of expenses, it cannot be income chargeable to tax; and since freight income was exempt under the India-Denmark treaty shipping article, the expenses of earning it could not be split off. The Revenue's appeals were dismissed.
• Shabina Abraham v Collector of Central Excise & Customs Supreme CourtHelps taxpayer
  The sole proprietor died while a demand was pending. Can the department carry on the assessment against his widow and daughters?
  Not under the Central Excises and Salt Act 1944. The Supreme Court held that assessment proceedings against a dead person's legal representatives cannot continue where the statute contains no machinery provision for it, and that Act, unlike the Income-tax Act, has none. Section 11 deals only with modes of recovery of sums already payable and says nothing about dead persons. Equitable or moral considerations, including unlawful enrichment, have no place in construing a taxing statute. The Kerala High Court's Division Bench judgment was set aside and the Single Judge's order quashing the proceedings restored.
• CIT v Sarkar Builders Supreme CourtHelps taxpayer
  My housing project was sanctioned before April 2005 but finished afterwards, and the shops exceed the 5 per cent limit. Does the new clause (d) apply to me?
  No. The Supreme Court held that clause (d) of section 80-IB(10), which caps the built-up area of shops and commercial establishments and took effect on 1 April 2005, does not apply to a housing project approved before 31 March 2005, even if construction was completed and profits offered to tax afterwards. The condition is inextricably linked to the approval and construction of the project, and an assessee cannot be required to satisfy a condition that was not on the statute book when the local authority sanctioned the plans. The Revenue's appeals from several High Courts were all dismissed.
• Chennai Properties and Investments Ltd v CIT Supreme CourtHelps taxpayer
  My company's whole business is acquiring properties and letting them. Is the rent business income or house property income?
  Business income, on these facts. Where the company's main object is to acquire and hold properties and let them out, and that is the activity it actually carries on, the rent is assessable under s.28 and not under s.22. The Court warned that the object clause is not by itself determinative - what matters is what the company in fact does.
• CIT v Vatika Township P Ltd Supreme CourtHelps taxpayer
  An amendment adds a new levy. Does it reach back to earlier years?
  Not unless the statute says so. Legislation is presumed not to operate retrospectively, and that presumption applies with full force where the amendment imposes a new burden. Only clarificatory or beneficial amendments may be read back.
• Chironjilal Sharma HUF v Union of India Supreme CourtHelps taxpayerSuperseded by amendment
  Cash seized in a search was appropriated against a tax liability that the Tribunal later knocked out. The Department has paid me interest from the date of the assessment to the date of refund. Am I entitled to anything for the years before the assessment?
  Yes. The Supreme Court held that section 132B(4) governs the pre-assessment period in search and seizure matters while sections 240 and 244A govern the post-assessment period as per the order in appeal, and that there is no conflict between them — so interest for the pre-assessment period under section 132B(4) is payable in addition to, and not in substitution for, the interest already paid on the refund. On the provision as it then stood the assessee was held entitled to simple interest at 15 per cent per annum from the day after six months from the section 132(5) order to the date of the last regular assessment.
• CIT v Excel Industries Ltd Supreme CourtHelps taxpayer
  The AO has taxed my advance licence and DEPB benefits in the year I exported. Is that the right year?
  No. The benefit accrues only when the imports are actually made, because until then the customs authorities are under no corresponding obligation to give anything up. Income tax is a levy on real income, and until the import happens the entitlement is at best a hypothetical income that may or may not materialise. The Court also declined to let the department reopen a position it had accepted for earlier years without any change in facts or law.
• CIT v Chhabil Dass Agarwal Supreme CourtHelps department
  Can I go straight to the High Court against an income-tax order instead of filing the statutory appeal?
  Ordinarily no. The Supreme Court held that the Income-tax Act supplies a complete machinery for assessment and reassessment, and an assessee cannot abandon that machinery and invoke Article 226. The exceptions are narrow and have to be pleaded and made out — an order passed otherwise than in accordance with the enactment, in defiance of fundamental principles of judicial procedure, under repealed provisions, or in total violation of natural justice.
• Columbia Sportswear Company v DIT Supreme CourtHelps taxpayer
  The Authority for Advance Rulings has ruled against me and section 245S says the ruling is binding. Is there anything I can do about it?
  Yes. The Supreme Court held that the Authority for Advance Rulings is a tribunal within Articles 136 and 227, exercising judicial power, so its rulings can be challenged in the High Court under Articles 226 and 227 and, in this Court's discretion, under Article 136. Section 245S making a ruling binding on the applicant and the income tax authorities cannot oust a jurisdiction conferred by the Constitution. But the Court will ordinarily send the applicant to the High Court unless a substantial question of general importance arises. Such a writ petition should be heard directly by a Division Bench and decided as expeditiously as possible.
• Catholic Syrian Bank Ltd v CIT Supreme CourtHelps taxpayer
  My bank has a section 36(1)(viia) provision for rural advances. Does that provision cut down my deduction for urban bad debts actually written off under section 36(1)(vii)?
  No. The Supreme Court held that the deduction under section 36(1)(viia) for a provision against rural advances is distinct and independent of the deduction under section 36(1)(vii) for a bad debt actually written off. The proviso to clause (vii), which limits the write-off deduction to the excess over the credit balance in the clause (viia) account, exists only to prevent double deduction, and can operate only where that risk exists - that is, in respect of rural advances. Where the debts written off arise out of urban advances, the allowance is not affected by the proviso at all. The banks' appeals were allowed and the Revenue's dismissed.
• Suraj Lamp & Industries (P) Ltd v State of Haryana Supreme CourtCuts both waysValidity unconfirmed
  I bought a property on an agreement to sell plus a general power of attorney and a will, with possession and full payment. Do I own it?
  No. A three-judge bench of the Supreme Court held that a sale agreement, a general power of attorney and a will - singly or together - convey no title and create no interest in immovable property. Immovable property can be transferred only by a registered deed of conveyance. A power of attorney creates an agency, not a transfer, and even an irrevocable one does not pass title; a will operates only on death and is revocable until then. The purchaser is left with the agreement, which can support specific performance and the limited protection of section 53A of the Transfer of Property Act.
• 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.
• CIT v Tulsyan NEC Ltd Supreme CourtHelps taxpayer
  The Assessing Officer computed interest under s.234B and s.234C first and only then gave me credit for MAT under s.115JAA. My refund has turned into a demand. Is that the right order?
  No. MAT credit admissible under s.115JAA must be set off against the tax payable before interest under s.234B and s.234C is calculated, not after. The right to the set-off crystallises when the tax under s.115JA (now s.115JB) is paid and does not depend on any determination by the Assessing Officer, so an assessee may take the credit into account even when estimating advance tax on its current income.
• Ajanta Pharma Ltd v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  When I reduce export profits from book profit under section 115JB, do I take the full section 80HHC(3) figure or only the 80 per cent the phase-out allows?
  The full figure. The Supreme Court held that clause (iv) of the Explanation to section 115JB reduces book profit by the amount of profits eligible for deduction under section 80HHC as computed under sub-section (3) or (3A), and the phased percentages in section 80HHC(1B) do not cut it down. Section 80HHC(1) governs eligibility and sub-section (3) the computation, while sub-section (1B) deals only with the extent of the deduction. Section 115JB is a self-contained code taxing deemed income and operates in a different sphere. So on export profits of Rs 100 crore the downward adjustment is Rs 100 crore, not Rs 80 crore.
• Dynamic Orthopedics P Ltd v CIT Supreme CourtHelps departmentValidity unconfirmed
  For book profit under section 115J, do I provide depreciation at Income Tax Rules rates or at Schedule XIV rates - and does it matter that I am a private limited company?
  It depends, and the Supreme Court did not settle it here. This is a reference order, not a decision. A two-judge bench held that its own earlier ruling in Malayala Manorama - that a private company outside sections 349, 350 and 355 of the Companies Act may provide depreciation at Income Tax Rules rates for book profit - needs reconsideration. Its view was that section 115J incorporates only Parts II and III of Schedule VI, not sections 205, 350 or 355, and draws no distinction between public and private companies. It directed the Registry to place the appeal before the Chief Justice for a larger bench.
• Southern Technologies Ltd v Joint CIT Supreme CourtHelps departmentValidity unconfirmed
  My NBFC has to debit a provision for non-performing assets to the profit and loss account under the RBI norms. Can the officer add it back when computing my taxable income?
  Yes. The Supreme Court held that a provision for non-performing assets made by a non-banking financial company under the RBI's Prudential Norms Directions 1998 must be added back in computing total income. The Directions are prudential and disclosure norms; they govern income recognition and how the provision is presented in the balance sheet, and have nothing to do with computation of taxable income. The provision is not a write-off, so section 36(1)(vii) is not satisfied, and because the Explanation to section 36(1)(vii) expressly puts a provision for doubtful debt outside that clause, section 37(1) cannot be used instead. The constitutional challenge to sections 36(1)(viia) and 43D also failed.
• Liberty India v CIT Supreme CourtHelps department
  Can I count DEPB credits and duty drawback in the profits for my 80-IB deduction?
  No. 'Derived from' is narrower than 'attributable to' and confines eligible profits to sources not beyond the first degree. DEPB and drawback flow from Government schemes rather than from the manufacturing activity, so they are ancillary profits outside the deduction.
• CIT v Sri Mangayarkarasi Mills (P) Ltd Supreme CourtHelps departmentValidity unconfirmed
  I replaced worn out machines in my spinning mill. Is that current repairs or at least revenue expenditure, since the mill is one integrated plant?
  Neither. The Supreme Court held that each machine in a textile mill is an independent and separate asset with its own function, notwithstanding that all of them form part of one integrated manufacturing process. Replacing an old machine with a new one therefore brings a new asset into existence rather than preserving or maintaining an existing one, so it is not current repairs under section 31. It also gives the assessee an enduring benefit of better and more efficient production, so it is capital and not deductible under section 37. The claim of Rs 61,28,150 for assessment year 1995-96 was disallowed and the Assessing Officer's order restored.
• CIT v HCL Comnet Systems & Services Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  The officer added back my provision for doubtful debts in computing book profit, calling it a provision for an unascertained liability. Is that right?
  No, on the Explanation as it then stood. The Supreme Court dismissed the Revenue's appeal and held that clause (c) of the Explanation to section 115JA was not attracted to a provision for doubtful debts of Rs 92,15,187. Clause (c) covers amounts set aside as provision for meeting liabilities other than ascertained liabilities, and every ingredient must be satisfied. A debt receivable is an asset, not a liability: a provision against its irrecoverability covers a probable diminution in the value of an asset, and no liability is fastened on the assessee even if the debt is never recovered. The Assessing Officer was therefore not justified in adding it back.
• ACIT v Saurashtra Kutch Stock Exchange Ltd Supreme CourtHelps taxpayer
  A binding decision that covers my point was never considered when my order was passed. Is that a mistake apparent from the record?
  Yes. The Supreme Court held that non-consideration of a decision of the jurisdictional High Court or of the Supreme Court can be a mistake apparent from the record, and upheld the Tribunal recalling its own order on that ground. The section actually applied was s.254(2); the same test - patent, manifest and self-evident - is the one used under s.154.
• CIT v Gold Coin Health Food Pvt Ltd Supreme CourtHelps department
  The addition only reduced my returned loss and I still have no tax to pay for the year. Can the Assessing Officer levy concealment penalty for a year before 2003-04?
  Yes. A three-judge Bench of the Supreme Court held that Explanation 4 to section 271(1)(c) as amended by the Finance Act 2002 is clarificatory, not substantive, so penalty was leviable even between 1 April 1976 and 1 April 2003 where the addition of concealed income merely reduced a returned loss and the assessed figure remained a loss. The contrary view in Virtual Soft Systems Ltd v CIT was held to be not correct. Income in section 2(24) includes losses, which are negative profit, so there is nothing in a loss year that puts the assessee outside the penalty.
• CIT v Gold Coin Health Food P Ltd Supreme CourtHelps department
  My return declared a loss and even after the addition the assessed figure is still a loss. Can concealment penalty under section 271(1)(c) be levied when no tax is payable?
  Yes. A three-judge bench of the Supreme Court held that Explanation 4 to section 271(1)(c) is clarificatory and not substantive, so penalty was leviable even between 1 April 1976 and 1 April 2003 where the addition of concealed income merely reduced a returned loss and the assessed figure remained negative. Income in section 2(24) includes losses, as Harprasad had held, so the returned loss is no answer. The contrary view of a two-judge bench in Virtual Soft Systems Ltd v CIT was held not to be correct. The two assessees before the Court were spared, the Solicitor General having said the Department would not demand penalty from them.
• Malayala Manorama Co Ltd v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  I have always charged depreciation in my books at Income Tax Rules rates. Can the Assessing Officer rework my book profit under section 115J using Schedule XIV rates instead?
  No. The Supreme Court allowed the company's appeals and set aside the Kerala High Court. Following the three-Judge Bench in Apollo Tyres, it held the controversy was no longer res integra: for section 115J the Assessing Officer may only check that the accounts are certified as properly maintained under the Companies Act, and then make the increases and reductions the Explanation allows. He has no jurisdiction to go behind the net profit shown in the profit and loss account. So where a company has consistently charged depreciation at Income Tax Rules rates in accounts audited, approved in general meeting and filed with the Registrar without objection, the book profit cannot be reworked at Schedule XIV rates.
• CIT v Bilahari Investment Pvt Ltd Supreme CourtHelps taxpayer
  The AO wants to substitute my method of accounting for one that suits him better. What does he have to establish first?
  That the method you follow distorts profits. The Supreme Court held that recognition of income is achievable by more than one method, that an assessee is entitled to arrange its affairs and follow the method the department has accepted in earlier years, and that only where the department records a finding of distortion can it insist on substitution. The case arose on chit discount and the completed contract method over assessment years 1991-92 to 1997-98.
• Ishikawajima-Harima Heavy Industries Ltd v DIT Supreme CourtHelps taxpayerSuperseded by amendment
  Our turnkey contract has offshore supply and offshore services alongside Indian work. Is the whole contract taxable in India?
  No — a composite turnkey contract can be split. Profits on equipment supplied and paid for outside India, where title passes outside India, are outside the Indian charge, because the contract being signed in India is immaterial and there must be a sufficient territorial nexus. On offshore services the Court read s.9(1)(vii) as requiring the services to be both utilised in India and rendered in India; that second requirement has since been removed retrospectively by statute, so only the offshore supply holding survives on the domestic law side.
• Arun Kumar v Union of India Supreme CourtHelps taxpayerSuperseded by amendment
  The officer has valued my company flat under Rule 3 and added the difference to my salary. I pay the licence fee my employer charges everybody. Must he first prove I actually got a concession in rent?
  On the law as the Supreme Court found it in 2006, yes: 'concession' in s.17(2)(ii) is a jurisdictional fact, and Rule 3 is only a machinery provision that cannot be reached until the officer has first found as a fact that a concession was given. That space was closed almost at once — the Finance Act 2007 inserted the very deeming provision the Court said the Act did not contain, with retrospective effect from 1 April 2002, so from AY 2002-03 a concession is deemed wherever the value computed under Rule 3 exceeds the rent recovered.
• 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 D.P. Sandu Bros. Chembur (P) Ltd Supreme CourtHelps taxpayerSuperseded by amendment
  The landlord paid my company to give up its tenancy. Is that taxable, and if it cannot be computed as a capital gain can the officer tax it as a casual receipt instead?
  No — he cannot move it to another head. A tenancy right is a capital asset and its surrender is a transfer, so s.45 is the only head that can reach the consideration. For assessment year 1987-88 the Court held the receipt escaped tax altogether because the cost of acquiring the tenancy could not be ascertained and s.48 therefore could not be worked, and it refused to let the department bring the same receipt back under s.10(3) read with s.56. Section 55(2) was amended with effect from 1 April 1995 to supply a cost of acquisition for a tenancy right, so the computation gap this case turned on is closed for later years — the head-of-income holding is what survives.
• Tata Consultancy Services v State of Andhra Pradesh Supreme CourtHelps department
  Is off-the-shelf software supplied on a disc 'goods' that can be taxed as a sale?
  Yes. A five-judge Bench of the Supreme Court held that branded software on floppies, discs or CD-ROMs is 'goods' within the Andhra Pradesh General Sales Tax Act, 1957 and Article 366(12) of the Constitution. The term covers all kinds of movable property, tangible or intangible. The test is not tangibility: it is whether the item is capable of abstraction, consumption and use, and whether it can be transmitted, transferred, delivered, stored and possessed. Software has all of those attributes. Copyright may stay with the author of the programme, but once copies are made and marketed they are goods. The appeals were dismissed.
• IPCA Laboratory Ltd v Deputy CIT Supreme CourtHelps departmentValidity unconfirmed
  I made a profit on exporting my own manufactured goods and a bigger loss on exporting trading goods. Can I claim the deduction on the profit and ignore the loss?
  No. The Supreme Court dismissed the appeal and held that where an assessee exports both self manufactured goods and trading goods, section 80HHC(3)(c) requires the profits of both to be counted, and a loss in one must be set against the profit in the other. Profit throughout section 80HHC means positive profit arrived at after taking losses into account. Section 80AB overrides the sections in Chapter VI-A, including section 80HHC, and requires income to be computed in accordance with the Act, which brings in losses as well as profits. Against a profit of Rs 3.78 crore and a loss of Rs 6.86 crore there was a net loss, so no deduction survived.
• Union of India v Azadi Bachao Andolan Supreme CourtHelps taxpayerValidity unconfirmed
  My investor is a Mauritius company held by people in a third country. Can the Department refuse it the treaty benefit on the ground that this is treaty shopping?
  No, not on that ground alone. The Supreme Court held that a resident of a third state taking advantage of a treaty between two others is not by itself illegal. If the treaty carries no limitation of benefits clause, there is no disabling condition to be read into it, and the motive with which the entity was incorporated is irrelevant. The Court also rejected the argument that avoidance of double taxation requires tax actually to be paid in one of the two states: an exemption agreed in a treaty operates whether or not the other state taxes. The Court declined to lift the corporate veil where the treaty had been made applicable by section 90.
• Pandian Chemicals Ltd v CIT Supreme CourtHelps department
  I had to place a deposit with the electricity board before it would supply power to my factory. Is the interest on that deposit profit derived from my industrial undertaking?
  No. The Supreme Court held that derived from requires a direct or immediate nexus with the industrial undertaking. Electricity may be essential and the deposit may be a statutory precondition of supply, but the deposit is a step removed from the business of the undertaking, and interest on it does not flow directly from the undertaking itself. The Court applied Cambay Electric Supply, where derived from was held narrower than attributable to, and the Privy Council's rule that the enquiry into the genealogy of a receipt stops as soon as the effective source is found. Section 80HH relief was refused.

The 60 strongest entries are summarised here. The other 193 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.