25 Key Income-tax Ruling in Year 2020

Compiled by Taxmann’s Editorial Team

Every year Courts and Tribunals deliver thousands of judgments. Taxmann’s editorial board scrutinizes every judgement to select and report all those case laws which could help the professional and taxpayers to better interpret the law.

In the year 2020, we have been very diligent while selecting a case law for reporting. We have reported 4,350+ judgments on various laws including Income-tax, GST and IBC. In the Income-tax Act alone we have reported approx. 1,300 cases.

Out of these cases, we have shortlisted 25 cases which can be flagged as landmark rulings for future references and to decipher some aspects of the Income-tax Act, 1961. In one of the selected cases, the Bombay High Court has allowed the deduction of ‘Education Cess’ to assessee while computing income chargeable under PGBP. Wherein in another, the Karnataka High Court has upheld the Tribunal ruling wherein it has allowed a deduction of discount on issue of ESOPs.

The summary of the top 25 cases reported on Taxmann.com is given below:

1. 
   

   No section 194N TDS if cash withdrawn isn’t income of account holder: Madras HC

   Tirunelveli District Central Co-operative Bank Ltd. v. JCIT – [2020] 119 taxmann.com 21 (Madras)

   Income-tax Officer (ITO) conducted survey proceedings at the business premises of assessee and found that assessee was not deducting TDS under section 194N. Based on data gathered during the survey, show cause notices were issued to assessee. He called assessee to explain why an order should not be passed under section 201(1) and 201(1A) to recover the default amount with interest from them.Assessee contended that by reading section 194N along with section 201, one can safely conclude that if sum received by assessee will not be an income at his hands, question of deduction under section 194N will not arise.
   The Bombay HC in case of Rashmikant Shah v. Union of India [2019] 108 taxmann.com 181 (Bombay) has held that the provision of TDS is not a charging provision. It only makes deduction of tax at source on payment which is income in hands of payee. If the payee has no liability to pay tax on such income. Liability to deduct TDS in the hands of the payer cannot be fastened.On writ, Madras HC held that AO failed to take into account the entire scheme of the Act and proceeded at breakneck speed. Thus, the matter was remitted back to AO for issuing fresh notice to assessee. Assessee was, at liberty, to bring on record the returns filed by member societies who had withdrawn cash beyond the ceiling limit of Rs. 1 crore.It was open to assessee to establish before AO that the sums withdrawn by the member societies do not represent income at their hands. If AO was satisfied that the amount withdrawn did not represent income at their hands, he will drop further action. If he is not so satisfied, it was open to him to pass further orders in accordance with the law.

2. 
   

   No reassessment based on Supreme Court ruling reversing the legal position prevailing at time of regular assessment

   Calcutta Club Ltd. v. ITO [2020] 114 taxmann.com 560 (Calcutta)

   The petitioner had challenged the initiation of reassessment proceeding under the Income-tax Act, 1961. Notices were issued on the basis of a subsequent decision of the Supreme Court reversing the legal position existing at the time of passing of the regular assessment under section 143(3) of the Income-tax Act, 1961.The Calcutta High Court held that there was no whispering in the recorded reason that there was any omission or failure on the part of the assessee in disclosing fully and truly material facts for assessment.Assessing Officer (AO) could not establish that the information of alleged escaped income was not within his knowledge and was not considered at the time of passing of the assessment order under section 143(3) of the Income-tax Act, 1961.

   It came to his knowledge subsequent to the assessment order passed and that subsequent decision of the Supreme Court reversing the legal position prevailing at the time of regular assessment. Thus, it couldn’t be said that there was an omission or failure on the part of the assessee in disclosing fully and truly the material facts necessary for relevant assessment. Thus, reassessment notices liable to be quashed.

3. 
   

   Assessee had no legal right to compel CBDT to give clarifications on any TDS issue

   Quick Heal Technologies Ltd. v. Union of India [2020] 114 taxmann.com 315 (Bombay)

   Assessee by way of instant writ petition pleaded before High Court to direct the Central Board of Direct Taxes (CBDT) to issue direction that sale of shrink-wrapped-packaged software on CD/DVD was sale of goods and was not to be subjected to tax deduction at source under section 194J/194C by its customers.The Bombay High Court held that the prayer was in the nature of mandamus to the CBDT to deal with and dispose of the Petitioner’s application that it was not liable to suffer any tax deduction at source by its customers.Before any such directions could be issued, the Petitioner had to establish his legal rights to such a relief and a legal duty on the other party (to whom directions/ mandamus was sought) to perform/ do what was sought by the Petitioner.

   In the instant case, the obligation to deduct tax at source was on the Petitioner’s customers under section 194C/194J. The non-deduction of tax by the Petitioner’s customers would visit it with consequences under section 201 of the Act. Therefore, in such a case, the legal right if any was of the customer who was required to deduct tax at source. In any case, there was no legal right in the Petitioner and/or its customers to compel the CBDT to give a ruling on the issue of tax deduction at source.

   It is clear in terms of section 119(1) of the Act, there is no duty cast upon the CBDT to issue clarification and decide the matters which would be essentially in the realm of adjudication before the authorities under the Act.

   The CBDT was also be barred from issuing of instruction in respect of the Petitioner’s application by virtue of the proviso (a) to section 119(1) of the Act. Therefore, the instant writ was to be dismissed.

4. 
   

   HC allowed assessee to file ITR in paper form also as he was unable to claim set-off of losses through e-filing

   Samir Narain Bhojwani v. DCIT – [2020] 115 taxmann.com 70 (Bombay)

   The assessee was obliged to file his return of income (ITR) electronically with his digital signature. In the return which was filed electronically required columns were self-populated. The assessee was unable to change the figures to claim set-off under section 72 of the Income-tax Act. Consequently, the assessee was obliged to pay tax on income which was allowed to be set off against the carried forward losses of earlier years. The assessee contended that he should be allowed to file his return of income in paper form and the same was to be taken up for assessment. On writ petition, the High Court held that the purpose and object of e-filing is simplicity and uniformity in the procedure. However, the object cannot in its implementation result in an assessee not being entitled to make a claim of set-off which he feels he is entitled to. The allowability or dis-allowability of the claim is to be considered by the Assessing Officer (AO). The procedure of filing the return cannot bar an assessee from making a claim for which he is entitled to.

   It is true that in terms of Rule 12 of the Income-tax Rules, the returns are to be filed by the petitioner only electronically and he is bound by the Act and the Rules, thus cannot accept the paper return.

   However, CBDT is empowered under section 139D to make rules providing for filing of return in electronic form. This issue was to be brought to the notice of CBDT, which would issue necessary directions to cover this gap. In the meanwhile, assessee was required to file return in electronic form and also in paper form with Assessing Officer and return of income would be taken up for consideration only after decision of CBDT.

5. 
   

   Disbursement of income as per revenue-sharing agreement was the diversion of income by overriding title: ITAT

   Emmar MGF Construction (P.) Ltd. v. ACIT [2020] 113 taxmann.com 275 (Delhi – Trib.)

   Assessee-company was a special purpose vehicle (SPV) incorporated primarily to execute the Commonwealth Games Village (CGV) project at New Delhi for housing the athletes and officials participating in the CWG 2010.It was mutually agreed that holding company of assessee, i.e., M/s Emaar MGF Land Private Limited to provide entire finance and guarantees and in lieu thereof, it would take 25% of the revenue out of the sale proceeds of the project. AO held that such transfer of 25% of the gross revenue was nothing but sham and was arranged to reduce tax liability of the assessee.The Delhi Tribunal held that assessee was under the obligation to part away with the source of income to the holding company and it was not its volition alone, to give away the revenue that could have been otherwise accrued to them.

   The flats to be constructed, by the assessee were the source of income, and the holding company had created a lien over 25% for a quid pro quo thereof and therefore took away 25% shares from the sale proceeds.

   The assessee acts as a collector of revenue for the holding company of the receipt to the extent of 25% of the sale proceeds. The 25% belongs to the holding company by virtue of the contributions made and the agreement entered.

   Further, assessee was obligated by virtue of the agreement to divert the income at source and also for the contributions made by the holding company. Thus, the revenue sharing agreement entered with the holding company was diversion of income by overriding title. The revenue’s contention that the entire transaction was sham and aimed at only to divert the income to EMLL couldn’t be said to be correct.

6. 
   

   ‘Performance Bonus’ doesn’t form part of salary for calculation of ‘House Rent Allowance’

   Sudip Rungta v. DCIT – [2020] 113 taxmann.com 295 (Kolkata – Trib.)

   The assessee submitted Form 16 before the AO during the course of assessment proceedings. AO asked the details of rent paid and calculation of exemption claimed in respect of House Rent Allowance (HRA) under section 10(13A). The assessee submitted a written explanation before AO.AO held that the Income-tax Rules, 1962 read with section 10(13A) clearly stipulates that any commission or bonus linked with the turnover or performance to be treated as salary. ‘Performance Bonus’ received by the assessee cannot be comprehended as an allowance or perquisite as defined in Rule 2(h) of the Fourth Schedule to be excluded from the purview of ‘salary’.Thus, he denied the benefit of the exemption on the ground that the assessee’s salary inclusive of performance bonus comes to an amount, 10% of which exceeds the actual rent paid by the assessee.

   On further appeal, the ITAT held that Kerala High Court in the case of CIT v. B. Ghosal (125 ITR 444) held that the performance bonus doesn’t form part of the salary defined under rule 2A(h) for the purpose of section 10(13A). The basic salary for the purpose of computation of HRA exemption shall not include performance bonus. Thus, the AO was directed to computing HRA without including the amount of ‘performance bonus’ as part of basic salary.

7. 
   

   Deduction can be claimed for the first time in the return filed under section 153A

   PCIT v. JSW Steel Ltd. – [2020] 115 taxmann.com 165 (Bombay)

   The assessee-company filed return of income under section 139(1) declaring loss. Its case was selected for scrutiny under section 143(2). During the pendency of assessment proceedings, a search was conducted under section 132 and a notice was issued under 153A. In response to notice, assessee filed a return making a claim for treating gain on pre-payment of deferred VAT/sales tax as capital receipt.AO disallowed the assessee claim by holding that a new claim could not be raised while filing return under section 153A which was not raised in original return.The Bombay High Court held that section 153A provides that if any assessment proceedings relating to any assessment year falling within the period of 6 assessment years is pending, the same shall stand abated. Once assessment got abated, it is open for both the assessee as well as revenue to claim deduction etc.

   Therefore, assessee could lodge a claim which remained to be claimed in the earlier or regular return of income. The original return which had been filed losses its originality and subsequent return filed under section 153A took the place of original return. The return filed under section 153A would be construed to be one filed under section 139(1).

8. 
   

   Sum received from other partners for reduction in a profit-sharing ratio not taxable as capital gains

   Anik Industries Ltd. v. DCIT – [2020] 116 taxmann.com 385 (Mumbai – Trib.)

   The assessee was a partner in a partnership firm. It received a sum of Rs, 400 lakh on account of surrender of 5% share of profit and reduced said income from its income computation by submitting that the firm was reconstituted and right was created in favour of existing partners.AO opined that a business builds some reputation after it is continued for some time. It is a valuable asset and its value depends on personal reputation of the owner/ management/ peculiar advantage a firm has. At the time of reconstitution of the firm, one of the methods to compensate for the goodwill would be that new incoming partner agrees to make payment directly to the old partners without involving the firm. The said payment was nothing but consideration for intangible asset i.e. the loss of share of partner in the goodwill of the firm. Accordingly, AO made additions by treating it as capital gains. CIT(A) upheld the order passed by the AO.The ITAT held that during subsistence of partnership, a partner doesn’t possess an interest in any particular asset of the partnership. A partner has a right to obtain a profit share. On dissolution of a partnership or upon retirement, a partner is entitled to valuation of his share in the net assets of the partnership which remains after meeting the debts and liabilities. An amount paid to a partner upon retirement, after taking accounts and upon deduction of liabilities, did not involve an element of transfer within the meaning of Section 2(47). Thus, the compensation received by the assessee from existing partners for reduction in profit sharing ratio would not tantamount to capital gain.

9. 
   

   Bombay High Court allows deduction of ‘Education Cess’ while computing income chargeable under the head PGBP

   Sesa Goa Ltd. v. JCIT [2020] 117 taxmann.com 96 (Bombay)

   The Bombay High Court held that there is no reference of any ‘Cess’ in the text of the provisions of section 40(a)(ii). It has been provided that “any rate or tax levied” on “profits and gains of business or profession” shall not be deducted. Thus, it couldn’t be accepted that “cess” being in the nature of a “Tax” is equally not deductible.If legislature intended to prohibit deduction of amounts paid by towards say, “education cess” or any other “cess”, then, legislature could have easily included reference to “cess” in Section 40(a)(ii). Since it has not done, it means that the legislature did not intend to prevent the deduction of amounts paid towards the “cess”.Futher, the legislative history bears out that the Income-tax Bill, 1961, as introduced in the Parliament, had Section 40(a)(ii) which provided that ‘any sum paid on account of any cess, rate or tax levied on the profits business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains’.

   However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word “cess” from the aforesaid clause from the Income-tax Bill, 1961.

   Since the deletion of expression “cess” from the Income-tax Bill, 1961, was deliberate, there is no question of reintroducing the expression that the word “any rate or tax levied” include ‘cess’ also.

10. 
    

    No capital gain exemption to ‘Tiger Global’ on its sale of stake in Flipkart: AAR

    Tiger Global International II Holdings, In re [2020] 116 taxmann.com 878 (AAR – New Delhi)Applicant-Tiger Global International is a private company limited by shares incorporated under the laws of Mauritius. It held shares of Flipkart Private Limited, a private company limited by shares incorporated under the laws of Singapore. Flipkart-Singapore had invested in multiple companies in India. The applicant transferred certain shares of Flipkart-Singapore to Fit Holdings S.A.R.L, a company incorporated under the laws of Luxembourg. These transfers were undertaken as part of a broader transaction involving the majority acquisition of Singapore Co. by Walmart Inc. (USA incorporated Co.).Applicants approached the Authority for Advance Ruling (AAR) to seek clarification whether gain arising on sale of shares held by applicant in Flipkart-Singapore to Fit Holdings S.A.RL. would be chargeable to tax in India under the Income-tax Act, 1961 read with the Double Taxation Avoidance Agreement between India and Mauritius?AAR held that real management and control of applicant was not with their respective Board of Directors in Mauritius but with one US-based person, who was the beneficial owner of entire group structure. Applicant-company was only a ‘see-through entity’ to avail benefits of India-Mauritius DTAA.

    Though tax residency was stated to be established to take benefit of Mauritius tax treaty network with various countries and not just India, applicant had not made any other investment other than in shares of Flipkart. Thus, the real intention of applicant was to avail the benefit of the India-Mauritius treaty.

    Since capital gains had not been derived by the alienation of shares of any Indian company, rather capital gains arose on sale of shares of Singapore Company and entire arrangement was nothing but an arrangement for avoidance of tax in India, instant application was to be rejected.
11. 
    

    AO can’t make 100% disallowance under Section 40(A)(2(b) on payment made to related parties: Delhi ITAT

    Amit Mehra v. ITO – [2020] 116 taxmann.com 870 (Delhi – Trib.)

    Assessee paid interest to his mother and Amit Mehra (HUF). After going through bank accounts of the entities involved, AO held that loans received from these entities were amount given by the assessee himself. He held that the assessee transferred the funds from proprietary concern to his personal account. From his personal accounts fund were transferred to the firm in which assessee is a partner from where the amount was transferred to his HUF and his mother.AO disallowed the interest under section 40A(2)(b) on the ground that the loan were not given for genuine business purpose. CIT(A) confirmed the additions by holding that the HUF and assessee’s mother received the amount from the assessee himself in a circuitous route.On appeal, ITAT held that this was not a case where borrowed funds had been diverted to interest free advances without any commercial expediency. Section 40A(2)(b) provides disallowance if any expenditure is excessive and unreasonable having regard to its fair market value. In this case HUF and assessee’s mother received amount from the partnership firm. If any disallowance was to be made it had to be made in the hands of the partnership firm but not in the hands of the assessee.

    Further, section 40A(2)(b) does not envisage 100% disallowance unless expenditure is proved to be excessive or unreasonable having regard to fair market value. No such finding had been established by the revenue, thus, disallowance was to be deleted

12. 
    

    ITAT allowed PWC to claim FTC even if it is raised before AO subsequent to the filing of return

    Pricewaterhouse Coopers (P.) Ltd. v. ACIT – [2020] 117 taxmann.com 371 (Kolkata – Trib.)

    Assessee-Pricewaterhouse Coopers (P.) Ltd. raised claim of foreign tax credit (FTC) for the taxes paid in United States of America (USA) before AO by way of application. However, AO rejected assessee’s claim by contended that said claim was not be made at the time of filing of the Return of income.The Tribunal held that at the time of filing of income tax return in India for AY 2014-15, the assessee had not claimed foreign tax payable as credit as no tax for the year under consideration was determined and paid in USA at that time and also the tax return was not filed in USA. Hence, the assessee after payment of taxes in USA, raised the aforesaid claim of foreign tax credit (FTC) before the Ld. AO by way of application in accordance with Rule 128 of the Income-tax Rules, 1962.Therefore, assessee was entitled to get the credit of TDS. AO was directed to examine the correctness of the assessee`s claim for foreign tax credit (FTC), as per India USA-Treaty, and allow the claim of the assessee in accordance with law.

13. 
    

    Mother’s property cannot be attached for tax recovery if it was transferred through will before arising of demand
    

    Rajesh T. Shah v. Tax Recovery Officer – [2020] 117 taxmann.com 549 (Bombay)
    
    Issue before court was whether the revenue was entitled to attach the properties belonging to private trust for recovering dues of trustee being a director of company which had allegedly defaulted in paying tax dues. The revenue contended that the property being attached did not belong to trust but was a property of trustee’s late mother. Therefore, properties could be attached to the extent it devolved upon director of the defaulting company as her legal heir.Assessee contended that at the time of passing of order, will of his mother was not probated as there was an outstanding caveat pending in the court registry. A true copy of the letters of administration issued by court along with the will annexed thereto had been placed on record by an affidavit. Assessee further submitted that the properties were belonging to his mother and on her death have been inherited by the trust under will. Such properties were not standing in the name of the assessee and he did not have any right or interest in it.On writ, Bombay HC held that it was evident that the properties which belonged to the trust were settled by will of assessee’s mother before initiation of recovery proceedings by the revenue against assessee. Properties were not belonging to the assessee or his legal heir or representatives. There was no question of the said properties being diverted to the trust for evading payment of due tax as the trust was formed in 1978 and will be made in 1985. Thus, the order of attachment was set aside and quashed.

14. 
    

    ITAT confirms Rs 196 crores addition for deposits made in SWISS a/c as assessee didn’t sign ‘Consent Waiver’
    

    Renu T Tharani v. DCIT – [2020] 117 taxmann.com 804 (Mumbai – Trib.)
    

    Investigation wing of Income-tax department received a base note of assessee’s HSBC account as part of Swiss Leaks wherein it was revealed that assessee was sole discretionary beneficiary of a Family Trust which had an underlying company based in Cayman Islands and which operated HSBC Geneva bank account. Assessee had not disclosed Swiss account details in her return of income.Assessing Officer (AO) requested assessee to sign a ‘consent waiver’ to enable the income tax department to obtain all the necessary details from the HSBC Private Bank (Suisse) SA, Geneva. Assessee declined the request and thus, AO made addition of Rs. 196 crores peak amount as appearing in the base note of assessee’s HSBC account.On appeal, the Tribunal held it was also observed that assessee had declined to sign consent waiver to enable Income-tax Department to obtain all necessary details. Furthermore, within a short time of information about above account coming to possession of Government of India, this account was closed and whatever assets were being held in this bank account were transferred back to company based in Cayman Islands. A tax haven where it was almost impossible to find out about beneficial owners of a corporate entity and base note showed that assessee was beneficial owner or beneficiary of Cayman Islands company.

    Since the assessee had declined consent waiver, she couldn’t decline correctness of the details obtained from the HSBC Private Bank (Suisse) SA. Thus, addition in respect of assessee’s account with HSBC Geneva was justified.

15. 
    

    Losses already set off against profit from other business not to be reduced notionally while computing exemption under Section 80-IA

    DCIT v. Chhotabhai Jethabhai Patel & Co. – [2020] 117 taxmann.com 938 (Ahmedabad – ITAT)

    Assessee was engaged in generation of electricity through windmills which were eligible business to claim deduction under section 80-IA. Assessee claimed deduction without notional adjustment of losses and depreciation of the earlier years, arising from eligible business, which already stood set off from other steam of income.Assessing Officer (AO) denied assessee’s claim by invoking embargo placed by section 80-IA(5). AO made the adjustment on account of notionally carry forward losses and depreciation of earlier years from actual commencement of business. AO held that assessee was required to treat the eligible business as the only source of income of eligible undertaking. Provisions regarding set-off of losses as contained under section 70, 71 & 72 were required to be ignored for quantification of eligible profits for deduction.On appeal, ITAT held that the manner of determination of quantum of deduction as provided under section 80-IA(5) was clarified by the CBDT vide Circular No. 1, dated 15-2-2016 and is devoid of controversy any more. Having regard to the wide-ranging controversies, the Circular has given categorical interpretation on the exercise of option of choosing initial assessment year referred under section 80-IA(5) in favour of assessee. The CBDT has also clarified that embargo placed under section 80-IA(5) for quantification of deduction would apply from the assessment year immediately succeeding initial assessment years only.

    Thus, assessee was not required to notionally reduce losses arose from eligible business in the earlier years which were already set off against other business of assessee before exercise of option of initial assessment year. The losses arising in eligible business subsequent to earmarking of an initial assessment year shall continue to be governed by embargo placed in section 80-IA(5).

16. 
    

    An omitted provision is to be treated as never existed in law; ITAT quashed revisional proceedings

    Raipur Steel Casting India (P.) Ltd. v. PCIT – [2020] 117 taxmann.com 944 (Kolkata – Trib.)

    After passing of assessment order by Assessing Officer (AO) under section 143(3), Principal Commissioner of Income-tax (PCIT) examined the assessment records with reference to the evidence brought on record by AO during the assessment proceedings. During the examination of such records, it was observed from the Form 3CEB that the assessee had entered into specified domestic transactions which were required to be referred to TPO by AO after obtaining the approval of PCIT as per section 92CA but the same was not done by AO.PCIT took a view that the order passed by AO was erroneous in so far as it is prejudicial to the interest of revenue and initiated proceedings under 263. Notice under section 263 was issued on 20-11-2018 and order passed on 8-3-2019.Assessee contended that the clause (i) of section 92BA was “omitted” w.e.f 1-4-2017 and the effect of such omission without any saving clause of the general clause Act, means that the above provision was not in existence or never existed. Therefore, PCIT couldn’t exercise jurisdiction under section 263.

    The tribunal held that in a case where a particular provision in a statue is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings, then it can be reasonably inferred that the intention of the legislature is that the pending proceeding shall not continue but a fresh proceeding for the same purpose may be initiated under the new provision.

    Since clause (i) of section 92BA was unconditionally omitted without a saving clause in favour of pending proceedings, therefore PCIT ought not to have proceeded under section 263. Since the omission took place before 8-3-2019 and such omission in clause (i) of section 92BA is unconditional, it does not say those pending proceedings would continue in future, even after its omission on 1-4-2017. Therefore, PCIT erred in exercising his jurisdiction, so far clause (i) of section 92BA is concerned, reason being, in the eyes of law after omission of clause (i) of section 92BA, it would be treated as if it never existed in the Statute Book.

17. 
    

    Legal heir isn’t statutorily obliged to intimate death of assessee

    Savita Kapila v. ACIT – [2020] 118 taxmann.com 46 (Delhi)

    Assessing Officer (AO) received information that assessee’s father had deposits of Rs. 10 lakhs in his bank account, time deposits of Rs. 11,05,586 and receipts of Rs. 25,414 as per Form 26AS. It was noticed that no return was filed and thus the source of aforesaid deposits & receipts remained unexplained.Accordingly case was selected for income escaping assessment. However, assessee’s father was already expired. Notice for assessment was issued in the name of deceased and sent at his last known address known to department. Said notice could not and was never served upon assessee’s father.A show-cause notice was issued to deceased to explain why penalty under section 271(1)(b) should not be imposed for failure to comply with notice issued under section 142(1). Pursuant to another notice issued under section 133(6) to the banks of deceased, AO obtained the contact details of assessee. Assessee informed that her father had passed away and uploaded the death certificate confirming the same on Income-tax portal. AO passed an order imposing penalty upon deceased through legal heir for non-compliance of notice issued to deceased. Thereafter a show-cause notice was issued to assessee directing to file the return and produce relevant documents. Proceedings were transferred to PAN of assessee and on the same date, assessment order was passed in her name making additions.

    On writ, the Delhi HC held that in the absence of a statutory provision it was difficult to cast a duty upon legal representative to intimate the factum of death of assessee to the income tax department. Therefore, whether PAN record was updated or not or whether the Department was made aware by the legal representatives or not is irrelevant. Therefore, notice issued for assessment and all the consequential orders passed or proceedings initiated were liable to be quashed.

18. 
    

    Factual issue cannot be raised first time before ITAT if it was never raised before AO during assessment

    CIT v. Tarachanthini Services (P.) Ltd. – [2020] 118 taxmann.com 252 (Madras)

    Assessee filed return of income declaring losses and same was processed under section 143(1). Assessment was reopened under section 147 and notice was issued and served on assessee. Subsequently, a notice under section 142(1) was issued along with questionnaire. After issuing summons to certain persons, assessment was completed. Assessee being aggrieved by such order filed an appeal before CIT(A). Such appeal was dismissed.Assessee preferred an appeal before ITAT. Assessee for the first time raised a new ground before ITAT stating that since the name of assessee was struck off from the register of companies even before the assessment order was passed, the assessment itself was bad in law and nullity. ITAT remanded the matter to AO to investigate as to whether assessee was in existence at relevant time.On revenue’s appeal, the Madras HC held that assessee filed return of income for assessment year 2000-01 and assessment for same was reopened. Assessee fully participated in reassessment proceedings and thereafter assessment order had been passed. Therefore, reassessment order would take effect and be effective for the said assessment year. The striking of the name of company from the register of companies could not impact the said assessment. Further, where assessee had failed to raise the factual issue before AO at the first instance and consciously participated in the proceedings, it could not have been permitted to canvass such issue for the first time before ITAT.

19. 
    

    In case of compulsory acquisition of land, capital gain is chargeable to tax in the year of receipt of compensation

    Raj Pal Singh v. CIT– [2020] 118 taxmann.com 508 (SC)

    A land, which became property after its original owner migrated to Pakistan, was allotted to assessee’s father, who migrated to India, in lieu of a property left in Pakistan. A substantial part of said land had been given by the original owner on a lease for 20 years to a government college. Later on, the college moved the government for compulsory acquisition of said land. A notification was issued by the government on 15-05-1968 seeking to acquire said land for a public purpose. This was followed by a declaration dated 13-08-1969. Ultimately, the land acquisition collector proceeded to make the award on 29-09-1970.Assessee contended that at the time ‘of issuance of notification land was already in the possession of the college even after expiry of the lease. He contended that transfer took place on the date of preliminary notification. However, revenue contended that transfer reached its completion only on the date of award.The Supreme Court held that publication of preliminary notification of compulsory acquisition did not vest the property in the Government as it only informed about the intention of the Government to acquire the land for a public purpose.

    After the notification, the Land Acquisition Collector is required to examine the objection if any to the proposed acquisition. Thereafter Government issues declaration signifying its satisfaction that the land was indeed required for public purpose Thereafter, the Collector is to make his award, and after making the award, takes possession of the land under acquisition. Thereupon, the land vested in the Government free from all encumbrances.

    Thus, the land vested in the Government on the date of making of the award and not on the date of publication of notification. The right to receive compensation arises the moment Government takes possession of the property acquired.

    In the matters relating to compulsory acquisition of land under of the Land Acquisition Act, 1894, completion of transfer with the vesting of land in the Government correlates with taking over of possession of the land under acquisition by the Government.

    It couldn’t be said that immediately upon issuance of preliminary notification for compulsory acquisition of land, the possession of land transfer to Government. Thus, capital gains would have accrued upon taking over of possession after making of the award. Accordingly, capital gains to the assessee-appellant for the acquisition in question could not have accrued before the date of award, i.e., 29.09.1970.

20. 
    

    Discount on issue of ESOPs is deducible under Section 37 as it is an exp. to secure services of employee

    CIT v. Biocon Ltd. – [2020] 121 taxmann.com 351 (Karnataka)

    Assessee filed its return of income and case was selected for scrutiny. Assessing Officer (AO) held that assessee had floated a scheme viz., Employees Stock Option Plan (ESOP) and under the scheme, it had constituted a trust. Shares of the company were transferred to trust at the face value and employees of assessee were allowed to exercise the option to buy shares within the prescribed time. Assessee claimed the difference between the market price and allotment price as discount and claimed the same as an expenditure under Section 37. AO rejected assessee’s claim on the ground that assessee didn’t incur any expenditure and expenditure was contingent. Therefore assessee was not entitled to claim the difference between the market price and allotment price as expenditure under Section 37.On appeal, Karnataka HC held that it is well settled in law that if a business liability has arisen in the accounting year, the same is permissible as a deduction, even though, liability may have to quantify and discharged at a future date. On exercise of the option by an employee, the actual amount of benefit has to be determined is only a quantification of liability, which takes place at a future date.From the perusal of Section 37, it is evident that an assessee is entitled to claim deduction under aforesaid provision if the expenditure has been incurred. The expression ‘expenditure’ will also include a loss and therefore, issuance of shares at a discount where assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of section 37. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as a short receipt of capital. Therefore, incurring of the expenditure by the assessee entitles him for deduction under section 37 subject to fulfilment of the condition.

21. 
    

    Lapsed demand drafts, gift cheque kept in general reserve could not be treated as income of banking company
    

    CIT v. Canara Bank – [2020] 122 taxmann.com 86 (Karnataka)
    

    Assessee, Banking Company, credited a sum towards writing back of stale demand drafts as an income and said amount was claimed as a deduction in computation statement. Assessee’s case was selected for scrutiny. Assessing Officer (AO) concluded assessment under Section 143(3) allowing such deduction.CIT invoked revisional power under Section 263 by holding that the order passed by AO was erroneous and prejudicial to the interest of revenue. He held that there is no provision under the Income-tax Act to allow any deduction from the profit of business in respect of the amount accrued to the assessee on account of demand drafts and gift cheques, which have lost its validity. The aforesaid amount was credited in the books of account, therefore, it was a receipt from the business. He further held that money was received by the assessee in the course of its business and though it was treated as deposit and was capital in nature at the point of time when it was received, by efflux of time, the same became assessee’s own money. It was also observed that the assessee himself treated the money as his own and taken the amount in the profit and loss account.Aggrieved by the order of CIT, assessee preferred an appeal before ITAT. ITAT held that the Reserve Bank of India (RBI) vide its instructions directed that amounts in question are to be kept in general reserve account though routed through profit and loss account. The direction has been issued by Reserve Bank of India that assessee was under an obligation to meet the future claims out of general reserve so created. Further, the instruction issued by Reserve Bank of India is binding on the assessee. Thus, even though the said amount was routed through profit and loss account, it did not partake the character of income in the hands of the assessee and could not be subjected to tax.

    On revenue’s appeal, Karnataka HC held that in the light of statutory instructions issued by RBI, the assessee kept the said amount in general reserve account though routed through profit and loss account. Assessee was under an obligation to meet the future claims out of general reserve so created. Said amount could not be used by the assessee in the form of distribution of dividends. Therefore, it does not partake the character of the income in the hands of the assessee and cannot be subjected to tax.

22. 
    

    Deposit of cash exceeding limit prescribed under Section 40A(3) in supplier’s bank account attract disallowances
    

    Ajai Kumar Singh Khaldelial v. PCIT – [2020] 122 taxmann.com 103 (Allahabad)

    Assessee deposited cash of Rs. 3,40,000 on various dates in the bank account of the supplier. A notice under Section 148 was issued stating that cash payment made to supplier violated the provisions of Section 40A(3) and the same is liable to be disallowed. Assessee contended that amount deposited in the bank account of supplier would be covered under Rule 6DD(c)(v) as the same had been done by use of “electronic clearing system” through the Bank. Assessing Officer (AO), not being satisfied with assessee’s reply, disallowed said payment under Section 40A(3).On writ, Allahabad High Court held that the term “use of electronic clearing system through a bank account” would necessarily include the transaction of funds by electronic mode through the clearing system. Any transfer of funds through the use of electronic clearing system through a bank account would mean a transfer of funds through electronic mode of transfer i.e. RTGS, IMPS, NEFT etc., where the funds are transferred through the bank account of one individual into the bank account of the beneficiary through electronic means. When the funds are transferred through electronic clearing system then at least two banks or two branches of the same bank have to be involved then only the money is transferred through electronic clearing system between them.Transaction by depositing cash directly in the bank account of the beneficiary was not routed through any clearinghouse nor is the money sent through electronic mode and therefore such a transaction could not be covered by rule 6DD(c)(v). Therefore, the benefit of the provision could not be given to assessee. Assessee also could not lead any evidence to show that he had deposited the amount on the instructions of the supplier or due to any business exigency. In absence of such evidence, AO rightly denied the benefit of exemption to assessee.

23. 
    

    Trust receiving donations on behalf of beneficiaries treated as representative assessee and taxed as an individual
    

    CIT v. Shriram Ownership Trust –[2020] 122 taxmann.com 155 (Madras)

    Assessee, a private discretionary trust, filed its return of income declaring a certain amount in the balance sheet as “addition to corpus”. The income-tax authority on examining the factual position found that the trust had received the said amount as donations on behalf of its beneficiaries who were identified individuals. Thus, it adopted an ingenious method for the purpose of circumventing the provisions of the Act and acted as a conduit by accepting the gift on behalf of its beneficiaries. Accordingly, the income-tax authority treated the said amount as “income from other sources” and assessed the trust as an individual.On appeal, it was held by the Madras High Court that the trust had received the donations on behalf of its beneficiaries who were identified individuals. In terms of section 160(1)(iv) of the Income-tax Act, when a trustee receives income on behalf of or for the benefit of any one person, it is treated as representative assessee of such person. Thus, the trust was a representative assessee as it was representing the beneficiaries and, therefore, to be assessed as an “individual” only. Consequently, the sum received as corpus donation assessed as a gift under the head “income from other sources”.

24. 
    

    Forex loss can be capitalised as per Sec. 43A even if Indian currency loan is subsequently converted into forex loan
    

    CIT v. Continuum Wind Energy (india) (P.) Ltd. – [2020] 122 taxmann.com 118 (Madras)
    

    Assessee borrowed a loan from State bank of India for purchase of an asset in India. Subsequently, such loan was converted into a foreign currency loan. Assessee paid a premium for hedging foreign exchange fluctuations on such foreign currency loans and claimed the same as a deduction. Assessing Officer (AO) disallowed the deduction claimed by assessee by treating the said sum as capital in nature. CIT(A) upheld the order passed by AO.On appeal before ITAT, assessee alternatively claimed that if the said premium was a capital loss, it should go to increase the cost of the project and, hence, depreciation shall be allowed on the enhanced value of the asset. ITAT held that the premium paid by assessee was in the course of setting up a project. Therefore, the loss was on the capital field and could not be a revenue loss, the same was to be added to the cost of the capital assets on which depreciation should be allowed.Revenue contended that the decision of ITAT allowing depreciation was not a correct proposition because there is no provision under the Act which allows such expenses. Further, since the assets were purchased in India based on the loan taken in Indian Currency only and the premium paid on the forward contract was not even remotely connected with the cost of the asset, question of allowing depreciation did not arise.

    On further appeal, the Madras High Court held that it could not be said that the loan borrowed in foreign currency was not even remotely connected with the cost of the asset when it was an admitted position that the loan was borrowed for acquiring a capital asset. Therefore, the assessee cannot be put to disadvantage on both grounds. The loss suffered in Foreign Exchange Fluctuations would definitely increase the cost of the project to the extent of loss suffered by assessee. Therefore, the ITAT was right in allowing the plea of depreciation raised by assessee.

25. 
    

    AO couldn’t initiate reassessment on pretext that binding decision of Supreme Court was overlooked
    

    PCIT v. Moser Baer India Ltd.[2020] 114 taxmann.com 549 (SC)

    In course of assessment, AO allowed assessee’s claim for deduction under section 37(1) in respect of royalty paid for acquiring technical knowledge. However, later on, reassessment proceedings were initiated on-premise that scrutiny assessment originally completed was in ignorance of a binding decision of the Supreme Court.The Apex Court had dismissed the special leave petition (SLP) filed against the order of High Court wherein tribunal took a view that since in scrutiny assessment AO had gone into taxability of royalty payment, he could not initiate reassessment proceedings on the pretext that a binding decision of Supreme Court was overlooked at the time of assessment.

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