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II. Direct Taxes Case Laws:
1. Pr.
CIT Vs. M/s Quark Media House India Pvt. Ltd., I.T.A. No. 110/2016,
Date of Order: 24.01.2017, High Court of Punjab & Haryana
Issue:
Whether AO can invoke provisions of section 55A of the Income Tac
Act,1961 to determine FMV of the capital asset sold, for computing “Full
Value of Consideration” as mentioned u/s 48 of the Act?
Held: No
Brief Facts:
The assessee transferred a piece of land and the building constructed
thereon, for a consideration of Rs.25.10 crores by a sale deed dated
29.04.2005 to M/s Quark City India Pvt. Ltd., which is a part of the
same group of companies i.e. Quark group. The AO ascertain the fair
market value of the land and building at Rs.70.08 crore by appointing a
DVO u/s 55A of the act. The AO observed that the price mentioned in the
sale deed was not as per the market value and this was in view of the
relationship between the parties. Accordingly, the AO for calculating
capital gains, valued the property at Rs.70,08,70,000/- after
considering in detail the nature of the property and other expenses of
sale.
Held:
The Hon’ble High court held that Section 55A begins with expression
that “with a view to ascertaining the fair market value of a capital
asset”. In Other Words, the reference to the valuation officer u/s 55A
is for the object of ascertaining the FMV of the capital asset. It is
only when the AO is required to ascertain the FMV of the capital asset
that the provision of section 55A can be invoked. There may be certain
situations where AO is required to determine FMV. One of the situation
is indicated in section 45(4) of the Act. In such a situation, the
provision itself makes it clear that for section 48, the FMV of the
asset on the date of such transfer shall be deemed to be the full value
of consideration received or accruing as a result of the transfer.
Also,
relying upon the judgement of the Hon’ble Supreme court in the case of
Ms. McDowell & Co. Ltd. v. Commercial Tax Officer, (1985) 154 ITR
148 in which it was held that “For the purpose of Section 48, the full
value of the consideration received by or accruing to the assessee must
be taken into consideration for the purpose of computing the capital
gain and that the market price of the property is not relevant for this
purpose”.
Hence,
it was held that AO had failed to establish that the assessee had
received any consideration other than that stated in the sale deed and
he has no authority to substitute the fair market value of consideration
actually paid unless it is demonstrated that the assessee had received
more than what was declared by him. Therefore, there was no necessity
for computing the fair market value and the AO accordingly could not
have referred the matter to the D.V.O.
Therefore, the appeal of revenue is denied.
(Please click here for judgment)
2. DIT Vs. KLM Royal Dutch Airlines, I.T.A. No. 627/2016, Date of Order: 25.01.2017, High Court of Delhi
Issue:
Whether the profits of the assesses arise due to participation in a
pool, a joint business, is liable to tax in India under the Article
8(1) & 8(4) of DTAA between India and Germany & Article 8(1)
& 8(3) of DTAA between India and Netherlands?
Held: No
Brief of Facts:
Both the Assessees (“Lufthansa” and “KLM”) filed their returns of
income and claimed that the amounts received from various International
Airlines Technical Pool (“IATP” or the “Pool”) member airlines for the
above services rendered in India were not taxable in India. However, the
Assessing Officer believed such amounts received by them in India were
taxable and computed as business income in terms of provisions of the
DTAA, holding that these activities were not covered under the term “Air
Transport Services”, i.e., the services were given to other airlines by
the Assessees, the receipt from which was not recovered from their
passengers and was not part of the face value of the ticket. The AO
concluded that the Assessees rendered such services to other airlines by
exploiting their manpower when idle at the time when there were no
flights, and could not, therefore, be termed as “air transport
operation”. The AO's orders were challenged before the CIT (A) who ruled
that the profit derived from exploitation of excess capacity by
rendering services to other airlines was taxable in India and that
deduction of expenditure which the AO allowed was quite reasonable and
did not interfere with it.
The
assesse has preferred an appeal before the ITAT, which reversed those
findings. The Revenue argued that the ITAT's previous decision in the
case of British Airways Plc. vs. Dy. CIT (2001) 73 TTJ (Del) 519 Ed in a
similar factual background, was a relevant pattern, and that, since the
language of the Indo-UK, the Indo-German and Indo-Dutch DTAA was
similar, that pattern had to be followed. The ITAT disagreed and hold
that the appellant's profit due to participation in a pool was covered
under Article 8(4) of the DTAA between India & Germany and 8(3) of
the DTAA between India & Netherlands and such profit cannot be
brought to tax in India. ITAT, allow the ground of appeal and delete the
addition sustained by the CIT(A)." Both the Revenue and Tribunal argued
for the above disagreement. Counsel for the Revenue stated that it was
Article 5(1) of DTAA, which was applicable in the assessees case and
emphasized that the term "pool" is undefined in the DTAA. Therefore, the
IATP cannot be said to be the concerned pool referred to in the two
DTAAs. The Revenue’s counsel stressed that, exemption under the DTAA is
based on exchange between two members of the pool for obtaining the
facilities. Such exchange should be direct. But the Tribunal stands in
his arguments and therefore, the revenue is in appeal before the Hon’ble
High Court.
Held:
Having regard to these above facts, Court believes the extension of
the term ―operation of aircraft had the effect of limiting the nature of
activities that could be comprehended in the pool proposed in Article 8
(2). The expanded meaning of operation of aircraft included those
activities in Article 8(3) through the extended definition and no more.
There is no such limitation in the DTAAs in these cases. This
constituted the most significant difference between the two sets of
cases on the one hand, and British Airways (supra) on the other. For
these reasons, this Court rejects the Revenue’s contentions. Court
answers the questions of law, framed in both sets of appeals, against
the Revenue and in favour of the assesses.
Therefore, the appeals of revenue are dismissed.
(Please click here for judgment)
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