Category: Income Tax

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Whether in an amalgamation, the companies shall be treated as separate entities for the period starting from effective date and ending on the date of order of the Court

Yes, for the purposes of this Act, the two or more companies amalgamated or merged in pursuance of an order of Court or of Tribunal or otherwise, shall be treated as distinct companies for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled with effect from the date of the said order.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability in case of amalgamation /merger of Companies: FAQ NO. 6)

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In case of an amalgamation, supplies effected for the period from effective date till the date of order of the Court between the companies inter-se is liable to tax

Yes. In terms of Section 87(1) of the CGST Act, 2017, the supplies between the
companies inter-se for the period starting from effective date and ending with the date of order of the Court is liable to tax and supply and receipt shall be included in the turnover of supply or receipt of the respective Companies.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability in case of amalgamation /merger of Companies : FAQ NO. 5)

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In case of transfer of business, the transferor will be liable for the payment of tax, interest and penalty

Yes, the transferor and the transferee shall be jointly and severally, be liable to wholly or to the extent of such transfer, to pay the tax, interest or penalty which was due for the period prior to the date of transfer. Such tax liability, interest and penalty may be determined either prior to the date of transfer or thereafter.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability in case of transfer of business : FAQ NO. 1)

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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