Income Tax department cannot dictate Assessee whether or not to incur expenditure. Arm’s length price of royalty expenditure not to be linked with profit/income resulting therefrom. Losses are not a valid ground to disallow royalty expenditure. CIT VS. EKL APPLIANCES LTD (Delhi HC)
SUMMARY OF MISTAKES IN THE CA FINAL NOVEMBER 2011 EXAMS CONDUCTED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (A BODY ESTABLISHED UNDER THE ACT OF PARLIAMENT) (Mistakes /Errors committed by respondent 2 while setting and evaluating the papers which would have a direct impact on the marks obtained by the students)
Whether when the assessee has significant interest in the business of the subsidiary and utilizes even borrowed money for furthering its business any disallowance can be made u/s 36(1)(iii).
Delhi High Court has recently in a batch of appeals filed by the Income Tax Department against Escorts Heart Institute & Research Centre Ltd and their employee directors held, inter alia, that the assignment of the Keyman insurance policies taken by the Company in respect of the Directors, at the surrender value fixed by the insurer did not give rise to a taxable benefit in the hands of the Directors. Hence the difference between the premium paid by the Company and the surrender value was not taxable in the hands of the Directors.
The term ‘slump sale’ has been defined to mean a transfer of a business undertaking or a business for a lumpsum consideration with all its assets and liabilities, without values being assigned to individual assets/liabilities. The said term has no other significance and we should not read into and understand that the word ‘sale’, used in the term ‘slump sale’, as a cause/reason to give a restrictive meaning to slump sale, i.e. it can only apply to sales in a narrow sense and not to transfers under Section 2(47).
Most of Paras 32 to 34 of the impugned CLB judgment in the instant case appear to have been physically lifted – the copy and paste disease – from a previous decision of the same member of the CLB which was taken up on appeal before the Delhi High Court which set aside the judgment and order.
It was improper for Commissioner of Income-tax (Appeals) to comment on the judgment of the Division Bench while disposing of the application expressing reservation about his powers to grant the interim order. Therefore, it has to be stated that the Appellate Authority has not proceeded to appreciate the points raised by the petitioners in support of his prayer for grant of interim order based on materials available before him, Instead, he has ventured into discussions which are irrelevant and impermissible having regard to the binding precedent in the form of a direction issued by the Division Bench.
The Commissioner of Income-tax (Appeals) and the Tribunal on analysis of the facts of the case have reached to the conclusion that section 50C has no application as it was a case of transfer of plots which was stock in trade. An income earned from such transaction is liable to be taxed as income from business activity.
The assessee has followed mercantile system of accountancy in regard to the expenditure incurred during that year and results were declared on actual receipt and this method is constantly followed by the assessee since last so many years, therefore, addition of the amount received in the next year in the month of April should not have been added in the previous year merely on the basis of bills issued and expenditure shown in the assessment year.
It is not in public interest to accept such a claim when there is no evidence of rendering any service by Blue Chip & Co to the assessee. The sole object of diverting funds to Blue Chip & Co was to facilitate passing of funds as interest free loan to Vijay Mallya and Samira Mallya.
