Month: September 2017

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Case laws on agricultural use of land for exemption from capital asset definition u/s 2(14)(iii)

In Gemini Pictures Circuit (P.) Ltd. v. CIT [1981] 130 ITR 686/6 Taxman 42 (Mad.) it was held that onus is on the department to prove that land is non agricultural or that it forms part of business assets. Once the assessee proves that the land is raagricultul land the burden of proving that it is not agricultural land is on the revenue.

In case of Gordhanbhai Kahandas Dalwadi v. CIT [1981] 127 ITR 664 (Guj.), it was held that the correct test that has to be applied is whether on the date of sale the land was agricultural land or not. Just because after the sale the purchaser was going to put the land to non-agricultural use, it does not mean that the land had ceased to be agricultural land on the date of sale.

In case of CIT v. Borhat Tea Co. Ltd. [1982] 138 ITR 783/[1981] 7 Taxman 388 (Cal.), it was held that for the purpose of land being agricultural land, actual agricultural operations or cultivation or tilling of the land is not necessary. What is to be seen is whether such land is capable of agricultural operations being carried on.

In case of CIT v. Modhabhai H. Patel [1994] 208 ITR 638/77 Taxman 408 (Guj.), it was held that if a land is recorded as agricultural land in the revenue records and if till the date of its sale it is used and exploited as agricultural land, and if the owner of the land has not taken any step which would indicate his intention to exploit the land thereafter as non-agricultural land, then such a piece of land would have to be regarded as agricultural even though it was included within the municipal limits or it was sold on a per square yard basis and not acreage basis.

The purpose for which such a land is sold, though not relevant, will not have that much importance and weight as it would have in a case where the land has remained a spadatar or idle or is used for agricultural purposes only by way of a stop-gap arrangement.

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Since, suits/ disputes between assessee-contractor and contractee were pending, contractual income could not be said to be accrued when invoice raised by assessee had been rejected by contractee in view of its bankruptcy

Facts

Assessee , a closely held company in USA , entered into contract with Indian Companies. Contract could be executed partly only because contratee companies failed to pay the bils raised. The USA Company raised bill for work done and also for demobilization in winding up site operations. The bills were not offered for Income and assesse made a disclosure in this regard in his computation. AO made addition. CIT A deleted addition of bill for demobilization only saying that this bill was never accepted by contractee.

 

Held by ITAT Mumbai in Bechtel International Inc [2016] 71 taxmann.com 62 (Mumbai – Trib.)OCTOBER  30, 2015  that:

Supreme Court in the case of Excel industries Ltd had laid down three tests to determine when income can be said to have accrued :

(a) Whether the income is real or hypothetical;
(b) Whether there is a corresponding liability of the other party to pay the amount to the assessee;
(c) the probability or improbability of realisation of the income by the assessee has to be considered from a realistic and practical point of view.

Thus, probability or improbability of realization of the income has to be considered from practical point of view.

Also drew support from Eicher Ltd. [2010] 320 ITR 410/[2009] 185 Taxman 243

Further ITAT Mumbai held that As per Accounting Standard (‘AS’) – 9 i.e. Revenue recognition, if there is uncertainty with regard to the collection of amount then recognition of said amount should be deferred in the books of account. The assessee being company has to follow these accounting standards while maintaining its books of accounts Further, the CBDT has recently issued a Notification dated 31st March 2015 notifying the Income Computation and Disclosure Standards (‘ICDS’) to be followed by all income-tax assessee following the mercantile system of accounting for the purposes of computation of income chargeable to tax under the heads “Profit and gains of business or profession” or “Income from other sources”. As per ICDS – III (revenue recognition in the case of construction contracts) and IV (revenue recognition in other case) also ultimate recovery of amount is important criteria for the amount to be held as accrued during the year. Thus, revenue itself has now recognized ultimate recovery as important principal for accrual of income.

However ITAT directed to tax the amount in the year of receipt.

Other References:

  1. Motor Credit Co. P. Ltd. [1981] 127 ITR 572/6 Taxman 63 (Mad)
  2. SLP by the Department against the decision of Madras High Court in the case
  3. of Motor Credit Co. P. Ltd. (supra) [1983] (144 ITR(St) 50)
  4. CIT v. Ferozepur Finance (P.) Ltd. [1980] 124 ITR 619/4 Taxman 439 (Punj. & Har.)
  5. CIT v. Vasisth Chay Vyapar [2011] 330 ITR 440/[2011] 196 Taxman 169/[2010] 8 taxmann.com 145 (Delhi)
  6. D.R.D Tata v. ITO [1986] 17 ITD 0642 (Bom.)
  7. Malbros Investment Ltd. v. DCIT[1986] 17 ITD 0642 (Bom.)
  8. ITO v. Dyestuffs & Chemicals (P.) Ltd. [1983] 6 ITD 513 (Bom.)
  9. FGP Ltd. v. CIT (applying Supreme Court judgment in case ofGodhara Electricity v. CIT [1997] 225 ITR 746/91 Taxman 351[2010] 326 ITR 444/[2009] 177 Taxman 147 (Bom.)
  10. CIT v. Orissa State Financial Corpn. [1993] 201 ITR 595/[1992] 64 Taxman 473 (Orissa)
  11. UCO Bank v. CIT[2014] 43 taxmann.com 294/225 Taxman 136/360 ITR 567 (Cal.)

 

  1. Maruti Securities Ltd. v. ACITIT Appeal No. 468/Hvd/2009
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“There is no legal basis to assume, that to recognize the gift to be genuine, there should be any blood relationship, or any close relationship, between the donor and the donee

Rajasthan High Court in the case of CIT v. Padam Singh Chouhan [2009] 315 ITR 433 for the proposition that:— “There is no legal basis to assume, that to recognize the gift to be genuine, there should be any blood relationship, or any close relationship, between the donor and the donee. He further submitted that instances are not rare, when even strangers make gifts, out of very many considerations, including arising out of love, affection and sentiments.

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Assuming that another view was possible, that itself would be no ground to interfere with the order of the CIT(A) by ITAT unless it is shown that the appreciation of evidence by the CIT(A) was either perverse or untenable

While reversing the order of the CIT(A) the Tribunal is duty bound to examine and discuss the reasons given by the CIT(A) to hold one way or the other and then to dispel those reasons. If the Tribunal fails to make such an exercise the judgment will suffer from serious infirmity.[Para 15] Assuming that another view was possible, that itself would be no ground to interfere with the order of the CIT(A) by ITAT unless it is shown that the appreciation of evidence by the CIT(A) was either perverse or untenable and that in holding in favour of the assessee the CIT(A) either ignored material evidence or that the view taken by him was patently untenable.[Para 17 of Judgement] Prahlad Bhattacharya [2016] 71 taxmann.com 63 (Calcutta) MARCH 4, 2016

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A Court of appeal interferes not when the judgment under attack is not right but only when it is shown to be wrong

A Court of appeal interferes not when the judgment under attack is not right but only when it is shown to be wrong. (See Special Land Acquisition Officer, Bangalore v. T. Adinarayan Setty [1959 Supp 1 SCR 404 : AIR 1959 SC 429 : 1959 Cri LJ 526] ;Dattatraya Shankarbhat Ambalgi v. Collector of Sholapur [(1971) 3 SCC 43] and Dollar Company, Madras v.Collector of Madras [(1975) 2 SCC 730] .)

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“Reason to believe” cannot be read to mean that the Assessing Officer should have finally established beyond doubt that income chargeable to tax has escaped assessment

Apex Court in ITO v.Lakhmani Mewal Das [1976] 103 ITR 437 held that the expression “reason to believe” cannot be read to mean that the Assessing Officer should have finally established beyond doubt that income chargeable to tax has escaped assessment. It held that the only requirement to reopen an assessment is a reasonable belief on the part of the Assessing Officer issuing the reopening notice that income chargeable to tax has escaped assessment.

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Consideration of same material by AO can not result in reassessment

The Court will certainly interfere in 148 matters where the reason to believe that income has escaped assessment, is a clear case of change of opinion i.e. the same material was subject to consideration in regular assessment proceedings or where the reopening is being done only on suspicion and/or to carry out investigation or where the assessment is sought to be reopened after a period of more than four years from the end of the relevant assessment year and there has been no failure on the part of the assessee to truly and fully disclose all material facts necessary for assessment [para 6] Bright Star Syntex (P.) Ltd. [2016] 71 taxmann.com 64 (Bombay)

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Purpose of S.147 explained by SC in Phool Chand Bajrang Lal

Supreme Court in Phoolchand Bajranglal v. ITO [1993] 203 ITR 456/69 Taxman 627 – “One of the purposes of Section 147 appears to us to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn round and say “you accepted my lie, now your hands are tied and you can do nothing.”