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V. K. Subramani

V. K. Subramani compiles a list of important tax decisions

WHERE the land is acquired earlier and construction is made thereafter, the sale price of such building can be bifurcated between land and building and accordingly capital gain can be computed separately (CIT vs Lakshmi B. Menon — 2003 264 ITR 76 Kerala); CIT vs Vimal Chand Golecha — 1993 201 ITR 442 (Raj); CIT vs Dr. D. L. Ramachandra Rao — 1999 236 ITR 51 Mad); CIT vs Citi Bank N. A. — 2003 261 ITR 570 Bom.)

However, the sale consideration towards land and building may be mentioned in the sale deed for ease in computation.

Even where depreciable assets are held for more than 36 months, the assessee can invest the net consideration in specified assets and claim deduction under Section 54 EA accordingly (CIT vs Assam Petroleum Industries P Ltd — 2003 262 ITR 587 Gau.); Also refer Ace Builders (76 ITD 389).

However the assessee cannot claim indexation benefit in respect of such assets (M. Raghavan vs Asst. CIT — 2004 266 ITR 145 Mad.).

Capital loss from transfer of capital assets to subsidiary of a subsidiary company is eligible for set-off. Sections 47 (iv) and (v) cannot be applied. Definition of holding company in the Companies Act is wider and cannot be applied for the purpose of the I-T Act (Kalindi Investment P Ltd vs CIT — 2002 256 ITR 713 Guj).

Where a firm undergoes change in constitution and the retiring partner is given a capital asset in settlement of his capital, Section 45(4) would be applicable to the firm.

The expression "or other wise" following the words "on dissolution" should be understood as distribution before dissolution as well as after dissolution (CIT vs A. N. Naik Associates — 2004 265 ITR 346 Bom.).

Where a partner retiring from the firm receives a sum more than the amount standing to his credit, such excess is taxable as capital gains (Bishanlal Kanodia vs CIT (2002 257 ITR 449 Del.).

Where upon reconstitution of firm the assets are revalued no capital gain would arise to the retiring partner for receiving his share based on the revalued networth of the firm (CIT vs Kunnamkulam Mill Board — 2002 257 ITR 544 Ker.).

Bonus shares sold by the assessee on or after April 1, 1995, would be liable to tax by taking the cost of acquisition as `nil'. If the assessee was allotted bonus shares before April 1, 1995, and has averaged the price of shares before April 1, 1995, for computing capital gains at that time, still upon sale of bonus shares after April 1, the cost of acquisition of those shares will be taken as `nil' (Santoshkumar Kejriwal vs Asst. CIT — 2004 89 ITD 172 Kol-trib).

Other incomes

Amount received by shareholder having substantial interest in the company as advance to be set off against future rent from the company is taxable as deemed dividend (CIT vs P. K. Abubucker — 2003 259 ITR 507 Mad.).

Where the employee embezzles money from the employer and constructs a building and subsequently the employee, by agreeing to repay the money to the employer, resolves the dispute, the amount embezzled is taxable as income of the employee.

The agreement to repay money cannot amount to treating the sum embezzled as loan (CIT vs Troilakya Chandra Bora — 2003 261 ITR 299 Gau.).

Chapter VI-A deductions

The apex court, in Pandian Chemicals Ltd vs CIT (2003 262 ITR 278 SC), held that profit "derived from" would mean as something which has direct or immediate nexus with the assessee's undertaking.

In IPCA Laboratory Ltd vs Dy. CIT (2004 266 ITR 521 SC), the apex court held that both profit and loss from export of manufactured and trading goods have to be set off and only on the resultant the deduction under Section 80 HHC must be computed.

Where the assessee has loss in export of manufactured goods and/or trading goods, whether the export incentives would be eligible for deduction under Section 80 HHC was discussed in Lalsons Enterprises vs Dy. CIT — 2004 89 ITD 25 Del-Trib (SB).

The tribunal held as below: i) The loss arising in either the export of manufactured goods or trading goods shall be set off against the profits arising in the other business; ii) in respect of export incentives, loss suffered by the assessee as per Section 80 HHC (3)(a),(b),(c) (loss from manufactured or trading goods or both) shall be ignored and the proviso to Section 80 HHC (3) shall alone stand for reckoning the deduction; iii) in respect of interest paid and received, only 90 per cent of the net interest income shall be considered and not 90 per cent of gross interest.

There is a contrary view expressed in the Mangalya Trading & Investment Ltd (ITA No.6354/Mum/98, AY 1995-96 dated April 23, 2004) case.

In the case of AOP, share of loss of the members cannot be set off against their other income (Birla Tyres vs JT. CIT — 2004 267 ITR (AT) 1 Kol-Trib).

Assessment and reassessment

Even where the assessment of the assessing officer is held as void ab initio the assessee cannot claim refund of the advance tax and self-assessment tax paid. However, excess tax paid by the assessee over the returned income is eligible for refund (CIT vs Shelly Products (2003) 261 ITR 367 SC).

Where the assessee files a return of loss within the time, in accordance with Section 139(3), then he can file a revised return in accordance with Section 139(5). The assessing officer cannot ignore the revised return (CIT vs Periyar District Co-op Milk Pro. Union (2004 266 ITR 705 Mad.).

Where an intimation under Section 143 (1)(a) is issued and subsequently notice under Section 143 (2) is also served, then the AO cannot make rectification of the order under Section 143(1)(a) as the order under Section 143(1)(a) merges with the regular assessment (C.E.S.C. Ltd vs Dy. CIT (2003) 262 ITR 243 Cal.; CIT vs Quilon Co-operative Spinning Mills Ltd (2003) 263 ITR 259 Ker.).

Where the assessing officer issues a notice under Section 148 calling upon the assessee to file return, the assessee, after filing the return, is entitled to seek the reasons for initiation of reassessment proceedings.

The AO is bound to furnish reasons. The assessee thereafter can furnish his objections, if any, to the reassessment proceedings.

The AO will have to make a speaking order for the objections of the assessee before proceeding with the reassessment proceedings (GKN Driveshafts (India) Ltd vs ITO (2003) 259 ITR 19 SC).

(Edited extracts from a paper presented at the CPE seminar on taxation held recently in Chennai.)

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