Case BriefsSupreme Court

Supreme Court: Dealing with the question as to whether disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 is confined/limited to the amount “payable” and not to the amount “already paid”, the bench of AM Khanwilkar and Dinesh Maheshwari, JJ held that the expression “payable” is descriptive of the payments which attract the liability for deducting tax at source and it has not been used in the provision in question to specify any particular class of default on the basis as to whether payment has been made or not. Stating that the term “payable” has been used in Section 40(a)(ia) of the Act only to indicate the type or nature of the payments by the assessees to the payees referred therein, the Court said that the argument that the expression “payable” be read in contradistinction to the expression “paid”, sans merit and could only be rejected.

Section 40(a)(ia) provides for the consequences of default in the case where tax is deductible at source on any interest, commission, brokerage or fees but had not been so deducted, or had not been paid after deduction (during the previous year or in the subsequent year before expiry of the prescribed time) in the manner that the amount of such interest, commission, brokerage or fees shall not be deducted in computing the income chargeable under “profits and gains of business or profession”.

The Court, further, said that

“Section 40(a)(ia) is not a stand-alone provision but provides one of those additional consequences as indicated in Section 201 of the Act for default by a person in compliance of the requirements of the provisions contained in Part B of Chapter XVII of the Act.”

Explaining the scheme of the Act, the Court said that Section 194C is placed in Chapter XVII of the Act on the subject “Collection and Recovery of Tax”; and specific provisions are made in the Act to ensure that the requirements of Section 194C are met and complied with, while also providing for the consequences of default. Section 200 specifically provides for the duties of the person deducting tax to deposit and submit the statement to that effect. The consequences of failure to deduct or pay the tax are then provided in Section 201 of the Act which puts such defaulting person in the category of “the assessee in default in respect of the tax” apart from other consequences which he or it may incur. Section 40 of the Act, and particularly the provision contained in sub-clause (ia) of clause (a) thereof, indeed provides for one of such consequences.

Hence, holding that when the obligation of Section 194C of the Act is the foundation of the consequence provided by Section 40(a)(ia) of the Act, reference to the former is inevitable in interpretation of the latter, the Court said that the scheme of these provisions makes it clear that the default in compliance of the requirements of the provisions contained in Part B of Chapter XVII of the Act (that carries Sections 194C, 200 and 201) leads, inter alia, to the consequence of Section 40(a)(ia) of the Act. Hence, the contours of Section 40(a)(ia) of the Act could be aptly defined only with reference to the requirements of the provisions contained in Part B of Chapter XVII of the Act, including Sections 194C, 200 and 201.

On the question whether sub-clause (ia) of Section 40(a) of the Act, as inserted by the Finance (No. 2) Act, 2004 with effect from 01.04.2005, is applicable only from the financial year 2005-2006 and not retrospectively, the Court said that

“It needs hardly any detailed discussion that in income tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication.”

As per Section 4 of the Act of 1961, the charge of income tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression “previous year” is defined in Section 3 of the Act to mean ‘the financial year immediately preceding the assessment year’; and the expression “assessment year” is defined in clause (9) of Section 2 of the Act to mean ‘the period of twelve months commencing on the 1st day of April every year’. The legislature consciously made the said sub-clause (ia) of Section 40(a) of the Act effective from 01.04.2005, meaning thereby that the same was to be applicable from and for the assessment year 2005-2006; and neither there had been express intendment nor any implication that it would apply only from the financial year 2005-2006.

The Court, hence, said

“We need not multiply on the case law on the subject as the principles aforesaid remain settled and unquestionable.”

 

[Shree Choudhary Transport Company v. Income Tax Officer, 2020 SCC OnLine SC 610 , decided on 29.07.2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), Mumbai: Explaining the law on disallowance u/s.40(a)(ia), the Tribunal has said that if the payees have included the subject mentioned transaction in their income tax returns, then the assessee payer should not be treated as assessee in default and disallowance u/s.40(a)(ia) of the Act should be deleted in its hands. It further stated,

“IF the subject mentioned transaction is not reflected in the income tax returns of the payees, then disallowance made in the hands of the assessee u/s 40(a)(ia) of the Act would remain in force.”

The Tribunal was dealing with a case pertaining to Tax Deduction at Sources and held that the advertisement charges paid to an agency which is a franchisee of a newspaper would attract TDS under Section 194 of the Income Tax Act, 1961.

The Tribunal held that any amount paid as a consideration for carrying out any work is liable for deduction of Tax at Source.

Background

The Assessee was in the business of import eye testing equipment mainly from M/s. Topcon Asia Pvt. Ltd., Singapore and selling them to eye doctors, eye hospitals, medical colleges etc., all over India. The Assessee also procured maintenance contracts, brake-down jobs, and other services to the customer through its engineers.

The Assessee made a one-time payment to the franchisee of “The Hindu” newspaper for advertising for hiring staff . It was argued that it was a one-time payment and no contract exist with the newspaper and accordingly, the provisions of Section 194C of the Act would not be applicable.

On Scrutiny, the Assession Officer disallowed the payment made u/s. 40(a)(ia) by the Assessee on account of advertisement expenses incurred without deduction of tax at source. The Order passed by the AO was upheld the CIT(A). Being aggrieved by the decision of the CIT(A) the Assessee preferred an Appeal before the ITAT.

Issue

Whether the CIT(A) was justified in confirming the disallowance made u/s 40(a)(ia) of the Act for an amount of Rs. 56,997/- on account of advertisement expenses without deduction of tax at source?

Finding

The ITAT was pleased to hold that the any Assessee who is responsible for paying any sum to any resident for carrying out any work in pursuance of a contract shall deduct tax at source thereon.

Further, in the present case the Assessee was responsible for paying the sum to the franchise as consideration for publishing the advertisement and therefore It was held that all the ingredients of Section 194C were fulfilled. Hence, it was held that the Assessee is liable for deduction of Tax at Source.

[Mehra Eyetech Pvt. Ltd. v. Add. Commissioner of Income Tax,  ITA No. 1760/Mum/2019,decided On 13.07.2020]

Case BriefsSupreme Court

Supreme Court: The 2-judge bench of AM Khanwilkar and Dinesh Maheshwari, JJ has held that for bringing any particular foreign exchange receipt within the ambit of Section 80-O of Income Tax Act for deduction, it must be a consideration attributable to information and service contemplated by Section 80-O; and in case of a contract involving multiple or manifold activities and obligations, every consideration received therein in foreign exchange will not ipso facto fall within the ambit of Section 80-O.

Factual Background

The appellants, who had been engaged in providing services to certain foreign buyers of frozen seafood and/or marine products and had received service charges from such foreign buyers/enterprises in foreign exchange, claimed deduction under Section 80-O of the Act of 1961, as applicable for the relevant assessment year/s. In both these cases, the respective Assessing Officer/s denied such claim for deduction essentially with the finding that the services rendered by respective assessees were the ‘services rendered in India’ and not the ‘services rendered from India’ and, therefore, the service charges received by the assessees from the foreign enterprises did not qualify for deduction in view of clause (iii) of the Explanation to Section 80-O of the Act of 1961.

ITAT Decision: As per the agreements with the referred foreign enterprises, the assessee had passed on the necessary information which were utilised by the foreign enterprises concerned to make a decision either to purchase or not to purchase; and hence, it were a service rendered from India

Kerala High Court Decision: Assessees were merely marine product procuring agents for the foreign enterprises, without any claim for expertise capable of being used abroad rather than in India and hence, the services rendered by them do not qualify as the ‘services rendered from India’, for the purpose of Section 80-O of the Act of 1961.

Supreme Court Ruling

Explaining the law on the issue the Court said that any foreign exchange receipt has to be attributable to the information or service contemplated by the provision and only that part of foreign exchange receipt, which is so attributable to the activity contemplated by Section 80-O, would qualify for claiming deduction. Such enquiry is required to be made by the Assessing Officer; and for the purpose of this imperative enquiry, requisite material ought to be placed by the assessee to co-relate the foreign exchange receipt with information/service referable to Section 80-O. Evidently, such an enquiry by the Assessing Officer could be made only if concrete material is placed on record to show the requisite correlation.

On the argument that Section 80-O of the Act is essentially an incentive provision and, therefore, needs to be interpreted and applied liberally, the Court said that that deductions, exemptions, rebates et cetera are the different species of incentives extended by the IT Act.

“Section 80-O is only one of the provisions in the Act of 1961 dealing with incentive; and even as regards the incentive for earning or saving foreign exchange, there are other provisions in the Act …”

Without expanding unnecessarily on variegated provisions dealing with different incentives, the Court said that it would be suffice to notice that the proposition that incentive provisions must receive “liberal interpretation” or to say, leaning in favour of grant of relief to the assessee is not an approach countenanced by this Court.

“at and until the stage of finding out eligibility to claim deduction, the ambit and scope of the provision for the purpose of its applicability cannot be expanded or widened and remains subject to strict interpretation but, once eligibility is decided in favour of the person claiming such deduction, it could be construed liberally in regard to other requirements, which may be formal or directory in nature.”

Applying the aforementioned principles, the Court noticed that, in the case at hand, all the clauses of the agreements read together make it absolutely clear that the appellant was merely a procuring agent and it was his responsibility to ensure that proper goods are supplied in proper packing to the satisfaction of the principal.

“Even if certain information was sent by the assessee to the principals, the information did not fall in the category of such professional services or information which could justify its claim for deduction under Section 80-O of the Act.”

The Court, hence, upheld the verdict of the High Court.

[Ramnath and Co. v. Commissioner of Income Tax, 2020 SCC OnLine SC 484 , decided on 05.06.2020]

Case BriefsSupreme Court

Supreme Court: In some relief to the financially stressed telecom giant Vodafone Idea, the bench of UU Lalit and Vineet Saran, JJ has directed a tax refund of Rs.733 Crores to the company within 4 weeks. The Court also directed the Income Tax department to conclude the proceedings initiated pursuant to notice under sub-section (2) of Section 143 of the Act in respect of AY 2016-17 and 2017-18 as early as possible.

Background of the case

Vodafone Idea had, however, sought Rs 4,759.07 crore in tax refund from for Assessment Years 2014-15, 2015-16, 2016-17 and 2017-18. The IT Department had, however, withheld the returns on account of multiple issues like Transfer Pricing Adjustment, Capitalization of Licence Fees, 3G Spectrum Fees, Asset Restoration Cost Obligation including the effect of amalgamation of group entities which required thorough scrutiny and determination. It had argued that processing any refunds, in light of pending special audit, scrutiny and tax demands of more than Rs 4,700 crore, will be prejudicial to the interest of the revenue department.

Vodafone Idea, on the hand, argued that after the lapse of the one-year period, by reason of second proviso to Section 143 (1), the right to claim refund is vested in any assessee. This is independent of the Revenue’s power to issue a scrutiny notice under Section 143 (2), for which the period of limitation is longer. However, if the Assessing Officer does not issue any notice, or intimation, if the assessee can claim refund, that right is a statutorily vested one if, within the said period of one year, a reasoned order is not made under Section 143 (1D) within the said one year period.

On relevance of non-obstante clause under Section 143 (1D)

The Court explained that the power under sub-section (1) of Section 143 of the Act is summary in nature designed to cause adjustments which are apparent from the return while that under sub-sections (2) and (3) is to scrutinize the return and cause deeper probe to arrive at the correct determination of the liability of the assessee. It further said that if the power under sub-section (2) of Section 143 of the Act is initiated in a manner known to law, there cannot be any insistence that the processing under sub-section (1) of Section 143 be completed and refund be made before the scrutiny pursuant to notice under sub-section (2) of Section 143 is over.

It, however, going into the legislative intent behind introduction of the non-obstate clause under Section 143 (1D), said that the intent to have the general principle emanating from subsection (1) of Section 143 overridden, in case where the proceedings are initiated pursuant to notice under sub-section (2) of the Act, gets more pronounced and emphasized by use of non-obstante clause in sub-section (1D).

It explained,

“irrespective of some change in the text of said provision which was sought to be introduced by Finance Act 2016 and not accepted by Finance Act, 2017, the legislative intent is clear from the expression, “… the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2)” and by use of non-obstante clause.”

The bench, further, said that though the period for which it would not be necessary to process the return was sought to be specified by Finance Act, 2016, mere absence of such period in the provision as it stands today, makes no difference.

“As against the general principle which mandates an action in a particular manner, when an exception is to be carved out, the relevant provisions stipulate “it shall not be necessary” to adhere to and follow the manner mandated by such general principle; and if the contingency contemplated by such exception arises, the general principle is to stand overridden.”

On whether separate intimation to the assessee is mandatory or not

On the issue whether any intimation is required to be given to the assessee that because of initiation of proceedings pursuant to notice under sub-section (2) of Section 143 of the Act processing of return in terms of sub-section (1) of Section 143 of the Act, would stand deferred, he bench held that a separate intimation was neither contemplated by the statute nor would it achieve any purpose. It said,

“the issuance of notice under sub-section (2) of Section 143 is enough to trigger the required consequence.”

The Court explained that the  processing of return in terms of subsection (1A) of Section 143 of the Act is to be done through centralized processing and the scope of processing under subsection (1) of Section 143 of the Act is purely summary in character. Once deeper scrutiny is undertaken and the matter is being considered from the perspective whether there is any avoidance of tax in any manner, issuance of notice under sub-section (2) itself is sufficient indication.

“Sub-section (1D) of Section 143 of the Act does not contemplate either issuance of any such intimation or further application of mind that the processing must be kept in abeyance. It would not, therefore, be proper to read into said provision the requirement to send a separate intimation.”

[Vodafone Idea Ltd. v. Assistant Commissioner, Income Tax Circle 26 (2), 2020 SCC OnLine SC 418 , decided on 29.04.2020]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of AM Khanwilkar, Hemant Gupta and Dinesh Maheshwari, JJ has the constitutional validity of clause (f) of Section 43B of the Income Tax Act, 1961 and said,

“clause (f) was enacted to remedy a particular mischief and the concerns of public good, employees’ welfare and prevention of fraud upon revenue is writ large in the said clause.”

On validity of Clause (f) of Section 43B of the IT Act

Clause (f) of Section 43B of the IT Act provides for a tax disincentive in cases of deductions claimed by the assessee from income tax in lieu of liability accrued under the leave encashment scheme but not actually discharged by the employer. This clause made the actual payment of liability to the employees as a condition precedent for extending the benefit of deduction under the 1961 Act.

The Court explained that Section 43B was enacted in 1983 to provide for deductions to be availed by the assessee in lieu of liabilities accruing in previous year without making actual payment to discharge the same.

With the passage of time, the legislature inserted more deductions to Section 43B including cess, bonus or commission payable by employer, interest on loans payable to financial institutions, scheduled banks etc., payment in lieu of leave encashment by the employer and repayment of dues to the railways. Thus understood, there is no oneness or uniformity in the nature of deductions included in Section 43B. It holds no merit to urge that this section only provides for deductions concerning statutory liabilities.

“Section 43B is a mix bag and new and dissimilar entries have been inserted therein from time to time to cater to different fiscal scenarios, which are best determined by the government of the day.  It is not unusual or abnormal for the legislature to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to override regulations or conditions.”

On legislature’s power to defeat the dictum of Supreme Court

Though the Court noticed that there cannot be any declaration of invalidating a judgment of the Court without altering the legal basis of the judgment ­ as a judgment is delivered with strict regard to the enactment as applicable at the relevant time, however, once the enactment itself stands corrected, the basic cause of adjudication stands altered and necessary effect follows the same.

The Court further explained that the legislative body is not supposed to be in possession of a heavenly wisdom so as to contemplate all possible exigencies of their enactment. As and when the legislature decides to solve a problem, it has multiple solutions on the table. At this stage, the Parliament exercises its legislative wisdom to shortlist the most desirable solution and enacts a law to that effect. It is in the nature of a ‘trial and error’ exercise and a law­making body, particularly in statutes of fiscal nature, is duly empowered to undertake such an exercise as long as the concern of legislative competence does not come into doubt.

Upon the law coming into force, it becomes operative in the public domain and opens itself to any review under Part III as and when it is found to be plagued with infirmities. Upon being invalidated by the Court, the legislature is free to diagnose such law and alter the invalid elements thereof. In doing so, the legislature is not declaring the opinion of the Court to be invalid.

Defeating the dictum in Bharat Earth Movers case

It was argued before the Court that by inserting clause (f) to Section 43B of IT Act, the legislature defeated the ruling of Supreme Court in Bharat Earth Movers v. Commissioner of Income Tax, Karnataka, (2000) 6 SCC 645. The said judgment, while dealing with the principles of accounting under Section 37, conclusively holds that if a business liability has arisen definitely, deduction may be claimed against the same in the previous year in which such liability has accrued, even if it has not been finally discharged. The Court further held that the liability in lieu of leave encashment scheme is a present and definite liability and not a contingent liability.

The Court, in the present case, noticed that the decision in Bharat Earth Movers was rendered in light of general dispensation of autonomy of the assessee to follow cash or mercantile system of accounting prevailing at the relevant time, in absence of an express statutory provision to do so differently. It is an authority on the nature of the liability of leave encashment in terms of the earlier dispensation. In absence of any such provision, the sole operative provision was Section 145(1) of the 1961 Act that allowed complete autonomy to the assessee to follow the mercantile system.

The Court further said that a limited change was brought about by the insertion of clause (f) in Section 43B and nothing more which applies prospectively.

“Merely because a liability has been held to be a present liability qualifying for instant deduction in terms of the applicable provisions at the relevant time does not ipso facto signify that deduction against such liability cannot be regulated by a law made by Parliament prospectively. In matter of statutory deductions, it is open to the legislature to withdraw the same prospectively.”

The Court, hence, held that insertion of clause (f) has not extinguished the autonomy of the assessee to follow the mercantile system. It merely defers the benefit of deduction to be availed by the assessee for the purpose of computing his taxable income and links it to the date of actual payment thereof to the employee concerned.  Thus, the only effect of the insertion of clause (f) is to regulate the stated deduction by putting it in a special provision.

[Union of India v. Exide Industries Limited, 2020 SCC OnLine SC 399 , decided on 24.04.2020]

Case BriefsSupreme Court

Supreme Court: IN a major for the NDTV Ltd, the bench of L. Nageswara Rao and Deepak Gupta, JJ has quashed the notice of the Income Tax department seeking to re-assess the income of the media house for financial year 2007-08. The Court said,

“the notice and reasons given thereafter do not conform to the principles of natural justice and the assessee did not get a proper and adequate opportunity to reply to the allegations which are now being relied upon by the revenue.”

Factual Background

The case relates to the re-assessment notice issued by the Income Tax department in March 2015 to NDTV after noting that Rs 642 crore had allegedly not been computed for the tax assessment purposes of NDTV for financial year 2007-2008.

  • NDTV Ltd. had submitted the return for the financial year 2007-2008 declaring a loss.
  • it later came to notice that step­up coupon bonds amounting to US$100 million were issued in July, 2007 through the Bank of New York for a period of 5 years by NDTV’s UK based subsidiary named NDTV Network PLC (NNPLC).
  • On 31.03.2015, the revenue sent a notice to the assessee wherein it was stated that the authority has reason to believe that net income chargeable to tax for the assessment year 2008­ 09 had escaped assessment within the meaning of Section 148 of the Act. This notice did not give any reasons.
  • The assessee then asked for reasons and thereafter on 04.08.2015 reasons were supplied.
  • Reason given: In the following assessment year i.e. assessment year 2009­10, the assessing officer had proposed a substantial addition of Rs.642 crores to the account of the assessee on account of monies raised by the assessee through its subsidiaries NDTV BV, The Netherlands, NDTV Networks BV, The Netherlands (NNBV), NDTV Networks International Holdings BV, The Netherlands (NNIH) and NNPLC.

“All these transactions with the subsidiary companies in Netherlands were sham and bogus transactions and that these transactions were done with a view to get the undisclosed income, for which tax had not been paid, back to India by this circuitous round tripping.”

Considering all the facts of the case and the material placed before the Court, it said that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts.  It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case.

Regarding the scope of the applicability of the second proviso of Section 147 of the Income Tax Act, 1961, the Court said that if the revenue is to rely upon the second proviso and wanted to urge that the limitation of 16 years would apply, then in the notice or at least in the reasons in support of the notice, the assessee should have been put to notice that the revenue relies upon the second proviso.

“The assessee could not be taken by surprise at the stage of rejection of its objections or at the stage of proceedings before the High Court that the notice is to be treated as a notice invoking provisions of the second proviso of Section 147 of the Act.”

If not in the first notice, at least at the time of furnishing the reasons the assessee should have been informed that the revenue relied upon the second proviso.  The assessee must be put to notice of all the provisions on which the revenue relies upon.

The Court, hence, held that the notice issued to the assessee shows sufficient reasons to believe on the part of the assessing officer to reopen the assessment but since the revenue has failed to show non­disclosure of facts the notice having been issued after a period of 4 years is required to be quashed.

[New Delhi Television Ltd. v. Deputy Commissioner of Income Tax,  2020 SCC OnLine SC 351, decided on 03.04.2020]

Legislation UpdatesRules & Regulations

G.S.R. 960(E).—In exercise of the powers conferred by Section 269SU read with Section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend Income-tax Rules, 1962, namely—

  1. Short title and commencement.—(1) These rules may be called the Income-tax (16th Amendment) Rules, 2019.

    (2) They shall come into force from 1st day of January, 2020.

  2. In the Income-tax Rules, 1962, after Rule 119A, the following rule shall be inserted, namely:—

    “119AA. Modes of payment for the purpose of Section 269SU- Every person, carrying on business, if his total sales, turnover or gross receipts, as the case may be, in business exceeds fifty crore rupees during the immediately preceding previous year shall provide facility for accepting payment through following electronic modes, in addition to the facility for other electronic modes of payment, if any, being provided by such person, namely:—

    1. (i)  Debit Card powered by RuPay;
    2. (ii)  Unified Payments Interface (UPI) (BHIM-UPI); and
    3. (iii)  Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code).”

Ministry of Finance

[Notification dt. 30-12-2019]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of UU Lalit, Indira Banerjee and MR Shah, JJ has held that mere mentioning of the new address in the return of income without specifically intimating the Assessing Officer with respect to change of address and without getting the PAN database changed, is not enough and sufficient.

The Court said that though merely by filing of return of income with the new address, it shall be enough for the assessee to discharge its legal responsibility for observing proper procedural steps as per the Companies Act and the Income Tax Act is concerned,

“In absence of any specific intimation to the Assessing Officer with respect to change in address and/or change in the name of the assessee, the Assessing Officer would be justified in sending the notice at the available address mentioned in the PAN database of the assessee, more particularly when the return has been filed under E­Module scheme.”

The Court further explained that the notices under Section 143(2) of the 1961 Act are issued on selection of case generated under automated system of the Department which picks up the address of the assessee from the database of the PAN.  Therefore, the change of address in the database of PAN is must, in case of change in the name of the company and/or any change in the registered office or the corporate office and the same has to be intimated to the Registrar of Companies in the prescribed format (Form 18) and after completing with the said requirement, the assessee is required to approach the Department with the copy of the said document and the assessee is also required to make an application for change of address in the departmental database of PAN.

[Principal Commissioner of Income Tax, Mumbai v.  I­Ven Interactive Limited, 2019 SCC OnLine SC 1369, decided on 18.10.2019]

Case BriefsSupreme Court

Supreme Court: On the question relating to assessment of the taxable income of a Co-operative Society engaged in the business of production of sugarcane and sale thereof, the 3-judge bench Dr. AK Sikri, SA Nazeer and MR Shah, JJ said that the entire amount of difference between the Statutory Minimum Price (SMP) and State Advisory Price (SAP) per se cannot be said to be an appropriation of profit.

The Court noticed that to the extent of the component of profit which will be a part of the final determination of the SAP and/or the final price/additional purchase price fixed under Clause 5A of the Sugarcane Control Order, 1966 would certainly be and/or said to be an appropriation of profit.

It further said:

“only that part/component of profit, while determining the final price worked out/SAP/additional purchase price would be and/or can be said to be an appropriation of profit and for that an exercise is to be done by the assessing officer by calling upon the assessee to produce the statement of accounts, balance sheet and the material supplied to the State Government for the purpose of deciding/fixing the final price/additional purchase price/SAP under Clause 5A of the Control Order, 1966.”

Mechanism of determining additional purchase price under Clause 5A

  • different prices may be fixed for different areas or different qualities or varieties of sugarcane. As per sub-clause 2 of Clause 3, no person shall sell or agree to sell sugarcane to a producer of sugar or his agent, and no such producer or agent shall purchase or agree to purchase sugarcane, at a price lower than that fixed under sub-clause 1 of Clause 3.
  • Clause 5A of the Control Order was inserted in the year 1974 on the basis of the recommendations made by the Bhargava Commission. The clause provides for an additional price to be paid for sugarcane purchased on or after 01.10.1974. Where a producer of sugar or his agent purchases 18 sugarcane, from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under Clause 3, pay to the sugarcane grower an additional price, if found due in accordance with the provisions of the Second Schedule annexed to the Control Order, 1966.
  • Bhargava Commission had recommended payment of additional price at the end of the season on 50:50 profit sharing basis between growers and factories, to be worked out in accordance with Second Schedule to the Control Order, 1966.
  • The additional price is fixed/determined under Clause 5A at the end of the season and as per Second Schedule to the Control Order, 1966. Therefore, at the time when the additional purchase price is determined/fixed under Clause 5A, the accounts are settled, and the particulars are provided by the concerned cooperative society what will be the expenditure; what can be the profit etc.
  • So far as the SMP determined under Clause 3 of the Control Order, 1966 by the Central Government is concerned, it is at the beginning of the season and while determining/fixing the SMP by the Central Government, the afore-stated things are required to be considered. Therefore, the difference of amount between the SMP determined under Clause 3 and the SAP/additional purchase price determined under Clause 5A has an element of profit and/or one of the components would be the profit.

The Court, hence, said:

“the assessing officer will have to take into account the manner in which the business works, the modalities and manner in which SAP/additional purchase price/final price are decided and to determine what amount would form part of the profit and after undertaking such an exercise whatever is the profit component is to be considered as sharing of profit/distribution of profit and the rest of the amount is to be considered as deductible as expenditure.”

[CIT Bombay v. Tasgaon Taluka SSK Ltd., 2019 SCC OnLine SC 318, decided on 05.03.2019]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Dr. AK Sikri, SA Nazeer and MR Shah, JJ decided an issue relating to interpretation of Section 80HH of the Income Tax Act, 1961 referred to it by a division bench in 2014 and that the decision of the Court in Motilal Pesticides (I) Pvt. Ltd. vs. Commissioner of Income Tax, Delhi-II, (2000) 9 SCC 63, was erroneous.

The issue before the Court was”

“while computing the deduction whether it is to be available out of ‘income’ as computed under the Income Tax Act, 1961 or out of ‘profits and gains’, without deducting therefrom ‘depreciation’ and ‘investment allowance’.”

The Court discussed the scheme of the Act at length and said:

“Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act.”

It said that the scheme itself draws distinction between the concept ‘income’ on the one hand and ‘profits and gains’ on the other hand. Below is the point-wise summary of how the Court explained the scheme of the Act in order to reach the abovementioned conclusion:

  • Insofar as computation of income under the head ‘profits and gains’ from business or profession is concerned, Section 28 of the Act mentions various kinds of incomes which are chargeable under this head.
  • Section 29 mentions the method of arriving at ‘income’ which is to be computed in accordance with the provisions contained in Sections 30-43D of the Act.
  • Sections 30-43D contain deductions of various kinds which are in the nature of expenditure or the like nature.
  • After providing the deductions admissible in these provisions, one arrives at the figure of net profits which would become the net income under the head ‘profits and gains of business or profession’.
  • Under Chapter VI-A of the Act certain deductions are given by way of incentives. Assessees may earn these deductions on fulfilling the eligibility conditions contained therein, even when they are not in the nature of any expenditure incurred by the assessee.
  • Section 80A of the Act provides that in computing the total income of assessee, there shall be allowed from his gross total income, in accordance with the subject of the provisions of this Chapter, the deductions specified in Sections 80C to 80U.
  • Section 80A itself uses the expression ‘from his gross total income’ as it states that deduction is to be allowed to an assessee ‘from his gross total income’.
  • Section 80HH specifically mentions that deduction @ 20% of ‘profits and gains’.

The Court, hence, overruled the verdict in Motilal Pesticides as it missed the marked difference in the terms ‘Income’ and ‘Gross Total Income’

[Vijay Industries v. Commissioner of Income Tax, 2019 SCC OnLine SC 299, decided on 01.03.2019]

Hot Off The PressNews

The head of a prominent organisation allegedly indulging in anti-national activities along with his associates were covered in a sensitive search action by the Income Tax Department on 27-02-2019. Search action has been conducted at 4 premises in the Valley and 3 in the national capital. The search action has yielded credible evidence of large scale undisclosed financial transactions carried out in the business of quarrying, hotels etc.

During the search, clinching evidence was also unearthed of huge unaccounted expenditure having been incurred in cash on the reconstruction and remodeling of the residential premises presently being used by the tax evader’s family. Despite carrying out large scale financial transactions, neither the main protagonist nor any member of his family has ever filed an income tax return. The evidence found in search action is robust enough to show a deliberate and willful attempt to evade tax.

In the search action, 3 hard discs have also been seized. The analysis of the information contained in the discs is likely to yield even more substantial evidence against the tax evader and his associates. This action is part of a concerted drive to trace illegal sources of funding that have financed the separatist elements and their activities in the Valley.

[Press Release dt. 27-02-2019]

Ministry of Finance

Case BriefsSupreme Court

Supreme Court: The 3-judge Bench of Dr. AK Sikri, Ashok Bhushan and SA Nazeer, JJ asked the Central Government to make necessary changes in Section 80DD of the Income Tax Act, 1961 after a differently abled person file a PIL before it, claiming that the said the provision violates the fundamental right of equality of the handicapped person enshrined in Article 14 of the Constitution as it denies:

“the benefit of the insurance to the handicapped persons to get annuity or lumpsum amount during the lifetime of the parent/guardian of such a handicapped person, whereas the beneficiaries of other life insurance policy are getting annuity during the lifetime of the person who has taken insurance policy. This, according to the petitioner, violates the fundamental right of equality of the handicapped person enshrined in Article 14 of the Constitution.”

Section 80DD(2)(a) of the IT Act provides for payment of annuity of lump sum amount for the benefit of a dependant, being a person with disability, in the event of the death of the individual or the member of the Hindu Undivided Family (HUF) in whose name subscription to the scheme stipulated in the said provision has been made.  The petitioner, however, argued that such benefit should not be deferred till the death of the assessee/life assured and it should be allowed to be utilised for the benefit of the disabled person even during the lifetime of the assessee as there could be harsh cases where handicapped persons may need the payment on annuity or lumpsum basis even during the lifetime of their parents/guardians.

Finding force in petitioner’s submission, the Court said that there can be such cases, for example:

“where guardian has become very old but is still alive, though he is not able to earn any longer or he may be a person who was in service and has retired from the said service and is not having any source of income. In such cases, it may be difficult for such a parent/guardian to take care of the medical needs of his/her disabled child. Even when he/she has paid full premium, the handicapped person is not able to receive any annuity only because the parent/guardian of such handicapped person is still alive.”

Stating that there may be many other such situations, the Court said that it is for the Legislature to take care of these aspects and to provide suitable provision by making necessary amendments in Section 80DD of the Act. Hence, it urged the Centre to have a relook into this provision by taking into consideration all the aspect. [Ravi Agrawal v. Union of India, 2019 SCC OnLine SC 5, decided on 03.01.2019]

Case BriefsHigh Courts

Bombay High Court: A Division Bench comprising of S.C. Dharmadhikari and B.P. Colabawalla, JJ. dismissed an appeal filed under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal wherein it was held that Section 194-LA was not applicable in case at hand.

The facts of the case were that the assessee Development Authority had acquired land from hutment dwellers and paid compensation for rehabilitation. The Assessing Officer passed an order under Sections 201(1) and 201(1-A). He was of firm opinion that there had been acquisition of immovable property and the assessee, while compensating the hutment dwellers, was liable to deduct tax at source (TDS) as per the provisions of Sections 194-L and 194-LA. The assessees carried the matter in appeal before the Commissioner of Income Tax (Appeals) who held that the said sections were not applicable in the instant case. The decision was affirmed by ITAT. Aggrieved thus, the Revenue had filed the instant appeal.

The High Court perused the record and found that the order impugned did not require any interfere. The Court was of the view that the subject land always vested in the State. The hutment dwellers were encroaching squatters who had built illegal hutments on State land, they were trespassers. This being the case, there was no question of land being acquired by the assessee. It was an encroachment which was removed by the assessee and the encroachers were rehabilitated. This being the case, the Court was of the view that Sections 194-L or 194-LA had no application to the facts and circumstances of the case. The appeal was accordingly dismissed. [CIT v. Mumbai Metropolitan Regional Development Authority,2018 SCC OnLine Bom 2374, dated 06-09-2018]

Legislation UpdatesRules & Regulations

G.S.R. 647(E).- In exercise of the powers conferred by Section 295 read with sub-section (1) of Section 245Q of the Income Tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income Tax Rules, 1962, namely:

1. Short title and commencement. – (1) These rules may be called the Income Tax (7th Amendment) Rules, 2018.

(2) They shall come into force from the date of their publication in the Official Gazette.

2. In the Income Tax Rules, 1962,-

(A) in Rule 44E, in sub-rule (1),-

(i) in clause (c), for the words, brackets and letters “sub-clause (iia) of clause (b)”, the words, brackets and letters “item (III) of sub-clause (A) of clause (b)” shall be substituted;

(ii) in clause (d), for the words, brackets and letter “sub-clause (iii) of clause (b)”, the words, brackets and letters “item (IV) of sub-clause (A) of clause (b)” shall be substituted;

(iii) in clause (e), for the words, brackets and letters “sub-clause (iiia) of clause (b)”, the words, brackets and letters “item (V) of sub-clause (A) of clause (b)” shall be substituted;

(B) in the Appendix II, –

(i) in Form 34C, –

(a) in the heading, for the words “Form of application”, the words “Form of application by a non-resident applicant” shall be substituted;

(b) after item 13, the following items shall be inserted, namely:

“14. Taxpayer Registration Number/Taxpayer Identification Number/Functional equivalent/any unique number used for identification by the Government of that country/specified territory of which applicant claims to be a resident.

15. Particulars of the Parent Company(-ies) of the applicant:
(a) Name of Immediate parent company of applicant
(b) Address of Immediate parent company of applicant
(c) Country of residence of Immediate parent company of applicant
(d) Permanent Account Number of Immediate parent company of applicant (if alloted)
(e) Taxpayer Registration Number/Taxpayer Identification Number/Functional equivalent/Any unique number used for identification of the Immediate parent company of applicant by the Government of that country/specified territory of which it claims to be a resident
(f) Name of Ultimate parent company of applicant
(g) Address of Ultimate parent company of applicant
(h) Country of residence of Ultimate parent company of applicant
(i) Permanent Account Number of Ultimate parent company of applicant (if alloted)
(j) Taxpayer Registration Number/Taxpayer Identification Number/Functional equivalent/Any unique number used for identification of the Ultimate parent company of applicant by the Government of that country/specified territory of which it claims to be a resident”;

(ii) in Form 34D, for item 5, the following item shall be substituted, namely:

“5. Particular(s) of the non-resident with whom the transaction is undertaken or proposed to be undertaken
(a) Name of the non-resident
(b) Address of the non-resident
(c) Telephone and Fax Number of the non-resident
(d) Permanent Account Number of the non-resident (if alloted)
(e) Taxpayer Registration Number/ Taxpayer Identification Number/Functional equivalent/ Any unique number used for identification of the non-resident by the Government of that country/specified territory of which it claims to be a resident.
(f) Name of Immediate parent company of the non-resident
(g) Address of Immediate parent company of the non-resident
(h) Country of residence of Immediate parent company of the non-resident
(i) Permanent Account Number of Immediate parent company of the non-resident (if alloted)
(j) Taxpayer Registration Number/Taxpayer Identification Number/Functional equivalent/ Any unique number used for identification of the Immediate parent company of the non-resident by the Government of that country/specified territory of which it claims to be a resident
(k) Name of Ultimate parent company of the non-resident
(l) Address of Ultimate parent company of the non-resident
(m) Country of residence of Ultimate parent company of the non-resident
(n) Permanent Account Number of Ultimate parent company of the non-resident (if alloted)
(o) Taxpayer Registration Number/Taxpayer Identification Number/Functional equivalent/Any unique number used for identification of the Ultimate parent company of the non-resident by the Government of that country/specified territory of which it claims to be a resident”;

(iii) in Form 34DA, in the heading, for the word, figures, brackets and letters “Section 245N(b)(iia)”, the word, figures, brackets and letters “Section 245N(b)(A)(III)” shall be substituted.

[Notification No. 31/2018/F.No. 370142/34/2016-TPL(Part)]

Note: The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, sub-section (ii) vide notification number S.O.969(E), dated the 26th March, 1962 and last amended vide notification number S.O. No. 2087(E), dated the 24th May, 2018.

[Notification No. 31/2018-Income Tax]

Central Board of Direct Taxes

 

Case BriefsHigh Courts

Delhi High Court: A Division Bench of the High Court comprising of S. Murlidhar and Pratibha M. Singh JJ, held that the ITAT cannot remand a matter to the Assessing Officer or Transfer Pricing Officer for determining the arm’s length price of the alleged international transaction involving advertisement marketing and promotion expenses, when the Revenue was unable to show that an international transaction between the assessee and it’s associated enterprises.

The assessee is a wholly owned subsidiary of Valvoline International inc. USA and Cummins India Ltd. The assessee filed a return for the relevant assessment year, declaring an income of Rs 1,34,82,35,760. Upon scrutiny, the AO noticed that there were international transactions undertaken by the assessee by way of import, export of materials and finished goods and provision of support services and payment of royalty. He then made a reference to the Transfer Pricing Officer for determining the arm’s length price of the said transactions with associated enterprises. Accordingly, the TPO and AO came with a different calculation for purposes of return.

The Court firstly categorically found that the ‘Bright Line Test’ is not an appropriate yardstick for determining the existence of an international transaction much less for calculating the ALP of such transactions based on Sony Ericsson Mobile Communications India Pvt. Ltd.  v. CIT, 2015 SCC OnLine Del 8083 : (2015) 374 ITR 118 (Del). The Court further held that since the AO and TPO were unable to prove international transactions to associated enterprises for tax evasion or transfer pricing purposes in the first place, the ITAT was not justified in remanding the matter to the AO/TPO for determining the ALP for alleged AMP expenses. The appeal was allowed. [Valvoline Cummins Pvt. Ltd. v. Dy. CIT, 2017 SCC OnLine Del 9484, decided on 31.07.2017]

Case BriefsHigh Courts

Karnataka High Court: While delivering the judgment in the writ appeal filed under Section 4 of the Karnataka High Court Act praying to set aside the order passed in Writ Petition No. 16380 of 2015, a two-Judge Bench comprising of Jayant Patel and N.K. Sudhindrarao, JJ. held that it is obligatory on the part of the Assessing Officer to dispose of the objections before invoking the re-assessment proceedings.

The Assessing Officer issued notice to the appellant under Section 148 of the IT Act for re-assessment for the year 2007-08. Appellant requested the Officer to furnish the reasons. Assessing Officer furnished the reasons for re-assessment. The appellant filed objections. The Assessing Officer, without disposing of the objections proceeded with the assessment and issued a demand notice. Aggrieved, the appellant filed a writ petition. The learned Single Judge dismissed the petition on the ground of availability of alternative remedy. Hence, this appeal.

The Court held that if the assessee desires to seek reasons for issuing the notice, the Assessing Officer is bound to furnish the same. And upon the receipt of such reasons, the assessee is entitled to file the objections, and the Assessing Officer thereafter is bound to dispose of the same by a speaking order. It is only thereafter that the assessment may proceed in accordance with law.

Under the circumstances of the case, the Court held that the mandatory procedure of disposal of objections by the Assessing Officer before proceeding with the assessment was not followed and exercise of power was vitiated, and assessment order cannot be sustained. It was further held that if the decision of the Assessing Officer is illegal in the face of it, it would fall in the exceptional category of making departure from the normal principle of self imposed limitation of not to interfere in a matter where there is existence of alternative remedy. Accordingly, the appeal was allowed and the impugned order passed by the learned Single Judge was set aside. [M/s. Deepak Extrusions Pvt. Ltd. v. The Deputy Commissioner of Income Tax, 2017 SCC OnLine Kar 1566, decided on 15.03.2017]

 

Case BriefsSupreme Court

Supreme Court: The bench of Dr. A.K. Sikri and Ashok Bhushan, JJ, upholding the validity of Section 139AA of Income Tax Act, 1961 that makes the linking of Aadhaar Card to the Permanent Account Number (PAN) mandatory, said that the provision is neither discriminatory nor it offends equality clause enshrined in Article 14 of the Constitution. The bench also said that Section 139AA is also not violative of Article 19(1)(g) of the Constitution insofar as it mandates giving of Aadhaar enrollment number for applying PAN cards in the income tax returns or notified Aadhaar enrollment number to the designated authorities.

Rejecting the contention that since enrollment under Aadhaar Act, 2016 is voluntary, it cannot be compulsory under the Income Tax Act, the Court said that in order to curb blackmoney, money laundering and tax evasion etc., if the Parliament chooses to make the provision mandatory under the Income Tax Act, the competence of the Parliament cannot be questioned on the ground that it is impermissible only because under Aadhaar Act, the provision is directory in nature. The Court also noticed that one of the main objectives of Aadhaar-PAN linkage is to de-duplicate PAN cards and to bring a situation where one person is not having more than one PAN card or a person is not able to get PAN cards in assumed/fictitious names and it is the prerogative of the Legislature to make penal provisions for violation of any law made by it.

The Court, however, clarified that the validity of the provision is upheld subject to the decision of the Constitution bench where the issue relating to Right to Privacy and data leakage due to Aadhaar-PAN linkage is under consideration. The Court said that till the said issue is decided there will be a partial stay on the operation of proviso to sub-section (2) of Section 139AA of the Act, that says that the PAN allotted to the person will be deemed to be invalid in case of failure to intimate the Aadhaar number.

Stating that the proviso to Section 139AA(2) cannot be read retrospectively, the Court said that if failure to intimate the Aadhaar number renders PAN void ab initio with the deeming provision that the PAN allotted would be invalid as if the person had not applied for allotment of PAN would have rippling effect of unsettling settled rights of the parties. It has the effect of undoing all the acts done by a person on the basis of such a PAN. It may have even the effect of incurring other penal consequences under the Act for earlier period on the ground that there was no PAN registration by a particular assessee. The Court also said that the Parliament may consider as to whether there is a need to tone down the effect of the said proviso by limiting the consequences.

As per the order of the Court, those who have already enrolled themselves under Aadhaar scheme would comply with the requirement of sub-section (2) of Section 139AA of the Act. Those who still want to enrol are free to do so. However, those assessees who are not Aadhaar card holders and do not comply with the provision of Section 139(2), their PAN cards be not treated as invalid for the time being. [Binoy Viswam v. Union of India, 2017 SCC OnLine SC 647, decided on 09.06.2017]

 

Case BriefsSupreme Court

Supreme Court: Answering the question as to whether the phrase “income which does not form part of total income under this Act” appearing in Section 14A of the Income Tax Act, 1961 includes within its scope dividend income on shares in respect of which tax is payable under Section 115-O of the Act, the Court held that Section 14A of the Act would apply to dividend income on which tax is payable under Section 115-O of the Act.

The Court said that the object behind the introduction of Section 14A of the Act by the Finance Act of 2001 was to check the claim of allowance of expenditure incurred towards earning exempted income in a situation where an assessee has both exempted and non-exempted income or includible or non-includible income. It was further said that a plain reading of Section 14A would show that the income must not be includible in the total income of the assessee. Once the said condition is satisfied, the expenditure incurred in earning the said income cannot be allowed to be deducted. The section does not contemplate a situation where even though the income is taxable in the hands of the dividend paying company the same to be treated as not includible in the total income of the recipient assessee, yet, the expenditure incurred to earn that income must be allowed on the basis that no tax on such income has been paid by the assessee.

With regard to the species of dividend income on which tax is payable under Section 115-O of the Act, the Court said that the earning of the said dividend is tax free in the hands of the assessee and not includible in the total income of the said assessee. The Court said that even if it is assumed that the additional income tax under Section 115-O is on the dividend and not on the distributed profits of the dividend paying company, no material difference to the applicability of Section 14A would arise. Sub-sections (4) and (5) of Section 115-O of the Act makes it very clear that the further benefit of such payments cannot be claimed either by the dividend paying company or by the recipient assessee. It was hence held that Section 14A of the Act would operate to disallow deduction of all expenditure incurred in earning the dividend income under Section 115-O which is not includible in the total income of the assessee. [Godrej & Boyce Manufacturing Company Ltd. v. Dy. Commissioner of Income Tax, 2017 SCC OnLine SC 549, decided on 08.05.2017]

 

Case BriefsSupreme Court

Supreme Court: Explaining the term ‘dividend’ under Section 2(22)(e) of the Income Tax Act, 1961, the Court said that the said provision gives an artificial definition of ‘dividend’ and creates a fiction, thereby bringing any amount paid otherwise than as a dividend into the net of dividend under certain circumstances. Stating that the dividend taken note of by this provision is a deemed dividend and not a real dividend, the Court explained that loan or payment made by the company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder.

The Court, however, clarified that for certain purposes, the Legislature has deemed such a loan or payment as ‘dividend’ and made it taxable at the hands of the said shareholder. The conditions required to be fulfilled to attract tax under the said clause are:

  • Payment is to be made by way of advance or loan to any concern in which such shareholder is a member or a partner.
  • In the said concern, such shareholder has a substantial interest.
  • Such advance or loan should have been made after the 31.05.1987.

The question that came before the bench of Dr. A.K. Sikri and Abhay Manohar Sapre, JJ was that whether in view of the settled principle that HUF cannot be a registered shareholder in a company and hence could not have been both registered and beneficial shareholder, loan/advances received by HUF could be deemed as dividend within the meaning of Section 2(22)(e) of the Income Tax Act, 1961 especially in view of the term “concern” as defined in the Section itself.

The Court noticed that, in the present case, the Karta is, undoubtedly, the member of HUF. He also has substantial interest in the assessee/HUF, being its Karta as he was entitled to not less than 20% of the income of HUF. Hence, it was held that the provisions of Section 2(22)(e) of the Act get attracted and it is not even necessary to determine as to whether HUF can, in law, be beneficial shareholder or registered shareholder in a Company. As per the provisions of Section 2(22)(e) of the Act, once the payment is received by the HUF and shareholder is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of Section 2(22) of the Act. [Gopal and Sons v. CIT, Kolkata, 2017 SCC OnLine SC 17, decided on 04.01.2017]

 

Case BriefsSupreme Court

Supreme Court: Deciding the question as to whether a former ‘ruler’ is entitled to get full benefit of the exemption granted to him under Section 10 (19A) of the Income Tax Act 1961 from payment of income-tax or it is confined only to that portion of palace which is in his actual occupation as residence and the rest which is in occupation of the tenant would be subjected to payment of tax, the Court held that the Legislature did not intend to tax portion of the “palace” by splitting it in parts. Even if the Ruler had let out the portion of his residential palace, yet he would continue to enjoy the exemption in respect of entire palace because it is not possible to split the exemption in two parts, i.e., the one in his occupation and the other in possession of the tenant.

Interpreting the related provisions, the Court said that in Section 10(19A) of the I.T. Act, the Legislature has used the expression “palace” for considering the grant of exemption to the Ruler whereas on the same subject, the Legislature has used different expression namely “any one building” in Section 5 (iii) of the Wealth Tax Act. No reliance could be placed on Section 5(iii) of the Wealth Tax Act while construing Section 10(19A) for the reason that the language employed in Section 5(iii) is not identical with the language of Section 10(19A) of the I.T. Act. If the Legislature intended to split the Palace in part(s), alike houses for taxing the subject, it would have said so by employing appropriate language in Section 10(19A) of the I.T. Act. Also, Section 23(2) and (3), uses the expression “house or part of a house”. Such expression does not find place in Section 10(19A) of the I.T. Act. Likewise, there is no such expression in Section 23, specifically dealing with the cases relating to “palace”.

In the present case which related to the ‘Umed Bhawan Palace’ used by the ‘ruler’ as his official residence and some part of which had been requisitioned to the Defence Ministry, the bench of Ranjan Gogoi and Abhay Manoher Sapre, JJ further said that if two Statutes dealing with the same subject use different language then it is not permissible to apply the language of one Statute to other while interpreting such Statutes. Similarly, once the assessee is able to fulfill the conditions specified in section for claiming exemption under the Act then provisions dealing with grant of exemption should be construed liberally because the exemptions are for the benefit of the assessee. [Maharao Bhim Singh of Kota v. Commissioner of Income Tax, 2016 SCC OnLine SC 1428, decided on 05.12.2016]