Source: http://aiftponline.org/journal/2015/may/supreme-court-4/
Timestamp: 2019-04-24 03:16:33+00:00

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C.I.T. v. Aggarwal and Company 56 ITR 20, C.I.T. v. TRC 166 ITR 1993 and Barendra Prasad Roy v. ITC 129 ITR 295.
(ii) Re S. 9(1)(vii): The principal provision is Clause (b) of section 9(1)(vii) of the Act. The said provision carves out an exception. The exception carved out in the latter part of clause (b) applies to a situation when fee is payable in respect of services utilized for business or profession carried out by an Indian payer outside India or for the purpose of making or earning of income by the Indian assessee i.e. the payer, from a source outside India.
(iii) Re “Source Rule” in s. 9(1)(vii): Clause (b) of section 9(1)(vii), it lays down the principle that is basically known as the “source rule”, that is, income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. The Clause further mandates and requires that the services should be utilized in India.
(iv) Re “Source Rule” vs. “Residence Rule”: The two principles, namely, “Situs of residence” and “Situs of source of income” have witnessed divergence and difference in the field of international taxation. The principle “Residence State Taxation” gives primacy to the country of the residency of the assessee. This principle postulates taxation of world-wide income and world-wide capital in the country of residence of the natural or juridical person. The “Source State Taxation” rule confers primacy to right to tax a particular income or transaction to the State/nation where the source of the said income is located. The second rule, as is understood, is transaction specific. To elaborate, the source State seeks to tax the transaction or capital within its territory even when the income benefit belongs to a non-residence person, that is, a person resident in another country. The aforesaid principle sometimes is given a different name, that is, the territorial principle. It is apt to state here that the residence based taxation is perceived as benefiting the developed or capital exporting countries whereas the source based taxation protects and is regarded as more beneficial to capital importing countries, that is, developing nations. Here comes the principle of nexus, for the nexus of the right to tax is in the source rule. It is founded on the right of a country to tax the income earned from a source located in the said State, irrespective of the country of residence of the recipient. It is well-settled that the source based taxation is accepted and applied in international taxation law.
(v) Re meaning of the expression, managerial, technical or consultancy service in s. 9(1)(vii): The expression “managerial, technical or consultancy service” have not been defined in the Act, and, therefore, it is obligatory on our part to examine how the said expressions are used and understood by the persons engaged in business. The general and common usage of the said words has to be understood at common parlance. Technical services, mean in this context services requiring expertise in technology. Consultancy services, mean in this context advisory services. The category of technical and consultancy services are to some extent overlapping because a consultancy service could also be technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in technology is required to perform it. The word “consultancy” has been defined in the dictionary as “the work or position of a consultant; a department of consultants.” “Consultant” itself has been defined, inter alia, as “a person who gives professional advice or services in a specialized field.” It is obvious that the word “consultant” is a derivative of the word “consult” which entails deliberations, consideration, conferring with someone, conferring about or upon a matter.
Court held that:(1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit.
(2) The predominant object test must be applied – the purpose of education should not be submerged by a profit making motive.
(3) A distinction must be drawn between the making of a surplus and an institution being carried on “for profit”. No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit.
(4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes.
(5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons.
(6) The correct tests which have been culled out in the three Supreme Court judgments, namely, Surat Art Silk Cloth 121 ITR 1 (SC), Aditanar Educational Institutional 224 ITR 310 (SC), and American Hotel and Lodging 301 ITR 86, would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit.
CIT v. Quuen’s Educational Society (2009) 319 ITR 160 (Uttarakhand)(HC) is reversed.
(i) A mere entry in the object clause showing a particular object would not be the determinative factor to arrive at a conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not.
(ii) Each case has to be looked at from a businessman’s point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. A thing can not by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. There is nothing to support the proposition that certain assets are commercial assets in their very nature.
Editorial: CIT v. Chennai Properties & Investments Ltd. (2004) 135 Taxman 509/ 186 CTR 680 (Mad.)(HC) & CIT v. Chennai Properties & Investments Ltd (2004) 266 ITR 685 (Mad.)(HC) is approved.
Manoj Kumar Samdaria v. CIT (2014) 223 Taxman 245 (Mag)(Delhi)(HC) is affirmed.
S. 37(1) : Business expenditure – Commission – Agreement – AO has to consider relevant facts and determine according to law – On facts the disallowance of commission was held to be justified, mere existence of agreement was not sufficient.
S. 80HHC : Export business – It is a prerequisite that there must be profits from the export business – If the exports business has suffered a loss, deduction cannot be allowed from domestic business.
(i) It stands settled, on the co-joint reading of IPCA (2004) 12 SCC 742 and A.M. Moosa (2007) 9 SCR 831, that where there are losses in the export of one type of goods (for example self-manufactured goods) and profits from the export of other type of goods (for example trading goods) then both are to be clubbed together to arrive at net profits or losses for the purpose of applying the provisions of section 80HHC of the Act. If the net result was loss from the export business, then the deduction under the aforesaid Act is not permissible. As a fortiori, if there is net profit from the export business, after adjusting the losses from one type of export business from other type of export business, the benefit of the said provision would be granted.
S. 80-IB (10) : Housing project – If the project is approved by local authority as housing project with convenience shopping the assessee is entitled to deduction – Prior to 1-4-2005 – Clause (d) inserted to Section 80-IB(10) with effect from 1-4-2005 is prospective and not retrospective and hence cannot be applied for the period prior to 1-4-2005.
All these special leave petitions are filed by the Revenue/ Department of Income Tax against the judgments rendered by various High Courts deciding identical issue which pertains to the deduction under section 80-IB(10) of the Income- tax Act, as applicable prior to 1-4-2005. We may mention at the outset that all the High Courts have taken identical view in all these cases holding that the deduction under the aforesaid provision would be admissible to a “housing project”.
a)	Up to 31-3-2005 (subject to fulfilling other conditions), deduction under section 80-IB(10) is allowable to housing projects approved by the local authority having residential units with commercial user to the extent permitted under DC Rules/ Regulations framed by the respective local authority.
b) In such a case, where the commercial user permitted by the local authority is within the limits prescribed under the DC Rules/Regulation, the deduction under Section 80-IB(10) up to 31-3-2005 would be allowable irrespective of the fact that the project is approved as ‘housing project’ or ‘residential plus commercial’.
c) In the absence of any provisions under the Income-tax Act, the Tribunal was not justified in holding that up to 31-3-2005 deduction under section 80-IB(10) would be allowable to the projects approved by the local authority having residential building with commercial user up to 10% of the total built-up area of the plot.
d) Since deductions under section 80-IB(10) is on the profits derived from the housing projects approved by the local authority as a whole, the Tribunal was not justified in restricting section 80-IB(10) deduction only to a part of the project. However, in the present case, since the assessee has accepted the decision of the Tribunal in allowing section 80-IB(10) deduction to a part of the project, we do not disturb the findings of the Tribunal in that behalf.
There was much debate on the answer given in para (b) above. It was argued by Mr. Gurukrishna Kumar, learned senior counsel, that a project which is cleared as “residential plus commercial” project cannot be treated as housing project and therefore, this direction is contrary to the provisions of section 80(I)(B)(10) of the Act. However, reading the direction in its entirety and particularly the first sentence thereof, we find that commercial user which is permitted is in the residential units and that too, as per DCR. Examples given before us by the learned counsel for the assessee was that such commercial user to some extent is permitted to the professionals like Doctors, Chartered Accountants, Advocates, etc., in the DCRs itself.
CIT v. Brahma Associates (2011) 333 ITR 289 (Bom.)(HC) is approved.
S. 143(1A) : Assessment – Additional tax – As the object of S. 143(1A) is to prevent tax evasion, it can apply only to tax evaders and not to honest assessees. The burden of proving that the assessee stated a lesser amount in the return in an attempt to evade tax is on the revenue – Retrospective clarificatory amendment was held to be valid.
(iii) Even on a reading of section 143 (1)(a) which is referred to in section 143 (1A), a loss is envisaged as being declared in a return made under section 139. It is clear, therefore, that the retrospective amendment made in 1993 would only be clarificatory of the position that existed in 1989 itself. All assessees were put on notice in 1989 itself that the expression “income” contained in section 143(1A) would be wide enough to include losses also.

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