1.   M/S. VARDAN BUILDCON Vs. ASSTT. COMMISSIONER OF INCOME TAX, DATE OF DECISION: 24.02.2011, ITA NOS. 429/2011, 430/2011 AND 431/2011, DELHI HIGH COURT

Assessee was doing business of real estate developers, building, construction and sale and purchase of property or any other business, assessee in its return showed the business loss, and at the same time income from agriculture on the purchase and sale of the agriculture land. The Assessing Officer took a view that agriculture income, as shown by appellants, was in fact, business income, and accordingly, taxed the same as business income at the hands of the assessee.

Judgment

Whether the purchaser was a trader and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it - the assessee‟s firms had its objects of dealing in lands and thus it was the usual trade and business of the assessee; (ii) the nature and quantity of the commodity purchased and resold, the assessee has purchased several number of plots and spent expenditure for development and sold the same in a consolidated manner. The assessee has no other business or any act; (iii) any act subsequent to the purchase to improve the quality of the commodity purchased and thereby making it a more ready resalable – After purchases the lands were developed/fenced and consolidated. Assessee‟s had purchased the nearby plots, consolidate them and spent considerable amount which the assessee‟s claim to be on fencing job to secure the same. Thus, the activity considerably improved the quality of land & prospect of its purchase by a builder for development activity; (iv) any act prior to the purchase showing a design or purpose – all the three firms came into existence on the same day and operated the same office; partners were common and have a inter-dependent relationship; all the purchases were made through a common agent; a common person was authroised to act on behalf of the assessee and sale were made in a considerable manner to a one party; (v) the incident associated with the purchase and resale; the similarity of the transactions to operations usually associated with trade or business - The lands though classified as agriculture were located approximately 15 KM from Gurgaon Committee. Gurgaon falls in NCR. Purchase of land near by this area and its development is a common activity necessity of builders. Thus we find that the facts and circumstances in present cases do fulfill the criteria expounded by the Hon‟ble Apex court for treating the transaction as adventure in the nature of trade.

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2.   CIT Vs. WHIRPOOL OF INDIA LTD., HIGH COURT OF  DELHI, ITA 1154 OF 2009, JUDGEMENT DELIVERED ON 24.01.2011

The present appeal was admitted on the following two substantial questions of law:-

(a) Whether the ITAT was correct in law in deleting the addition of Rs. 3,09,42,798/- made by the Assessing Officer on account of disallowance of provision for warranty claims?

The assessee is required to make provision for all known liabilities, though to be discharged at the subsequent year.  If on earlier occasion the provision was made but if later on the provision so made is found short of the liability provided for, the assessee is entitled to review such provision from time to time and make provision for the additional liability or write back the liability if provision is no more required.  It is settled law that even though there is some difficulty in estimation, it would not convert the accrued liability into an additional one or a contingent liability.    Thus the ration laid down can help the case of the assessee in the sense that even if  the sales were affected in the past, the additional liability on the re-appreciation  of the material on hand will acquire the assessee to make provision for additional liability if the situation so demand and can be claimed as deduction.  purpose.  Thus the same cannot be disallowed by holding that either the liability pertained to the past years or that the liability will be discharged in the subsequent years. 

(b) Whether the ITAT was correct in law in deleting the addition of Rs. 70,66,000/- made by the Assessing Officer on account of disallowance of royalty?

The royalty of  70.66 lacs accrued in the last assessment year which was for the period from 1st March, 1995 to 31st March, 1995.  According to the assessee, however, it could not have been allowed in that year as tax at source was not deposited in that year which was deposited only on 10 th May, 1996 and, therefore, could be claimed only in this year in view of proviso to Section 40 (a) (i) of the Act.  It is not in dispute as per Section 40 (a) (i) payment of royalty which is payable outside India is not deductable if tax has not been paid or deduced under Chapter XVII-B of the Act.  Proviso to this clause reads as under:-

“Provided that where in respect of any sum, tax had been paid or deducted under Chapter XVII-B in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in  which such tax has been paid or deducted.”

“It is a settled canon of interpretation of law that wherever a provision uses plain and simple language free of ambiguity such provision should be given its plain meaning without addition or subtraction of any expression into the language of the provisions. The scope of Section  40 spells out what amounts are not deductible from the income charged to tax under the profits and gains of business or profession. Thus, the Section indicates what ought not to be excluded despite anything provided under Section 3 to 38 of the Act where in the case of an assessed any interest Royalty which is payable outside or in India to the non-residents and at which tax is deductible at source under Chapter XVII-B of the Act and if such tax is not deducted or after deduction has not being paid during the previous year or in the subsequent year before the expiry of the time prescribed under subSection (1) of Section  200 shall not be deducted.

The Section has three ingredients (a) Royalty which is payable outside India or in India to a nonresident; (b) the tax is deductible at source under Chapter XVII-B and has not being deducted; or (c) after deduction has not being paid during the period specified. In the Section it is a composite performance and a satisfaction of these ingredients which would deduct the amount indicated in the Section beyond the mischief of Section  40(a)(i). If language of these ingredients are not satisfied, the obvious result thereof would be that the specified amount  shall not be liable to be deducted”.

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• Income Tax Notification No. 7 - Fluorosis Research & Rural Development Foundation, Delhi approved for the purpose of clause (ii) of sub-section (1) of section 35 of the Income-tax Act  (Click for detail)

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