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II. Direct Taxes Case Laws:
1. Agya Ram Vs. CIT, I.T.A. No. 290/291/292/293/2004, Date of Order: 01.08.2016, High Court of Delhi
Issue:
Whether
the income derived from licensing part of the premises can be assessed
under the head "Income from business" u/s 28 instead of “Income from
house property" u/s 22 of the Income Tax Act, 1961?
Held: Yes
Brief Facts:
Since AY 1982-83, the Assessee gave on license 91% of the factory
premises and was receiving license fees. The earning of license fees was
the only source of income and he had been filing regular returns from
AY 1982-83 onwards with the licensing income shown under head "Income
from business". The licensing deeds had clauses stating:- that the deed
was not to be confused with a tenancy agreement or lease, supervision
and control would be with licensor, it was a temporary arrangement,
licensee could not transfer his rights to anyone else and other clauses
differentiating the deed from a lease agreement. The AO was of the view
that the assessee was attempting to camouflage his rental income in form
of business income and thus claiming excess deduction. It was noted by
the CIT (A) that the AO mainly relied on the statement of Petitioner
made to one of the Inspectors “rent which is called license payment” and
didn’t have any other substantial reason to disallow and thus ruled in
the favor of the assessee, whereas the ITAT felt that the assessee is
exploiting the shed with an idea to generate a rental income for
security and merely the word 'license' has been used instead of
‘rent’and thus ruled against the assessee, ordering for this income to
be assessed under head “Income from House property”.
Held:
The Hon’ble High Court put emphasis on the fact that the return for
AY 1982-83 was picked up for scrutiny and an assessment order was passed
u/s 143(3) of the Act accepting the stand of the Assessee that the
license fee was in the nature of business income. This stand was
continued by the Assessee for all the AYs that followed, including the
AYs in question and stated that the ITAT has in the impugned order not
given any reason for disagreeing with the CIT (A). Thus, in light of the
specific clauses of the license deed, the Court is satisfied that the
income earned by the Assessee from the license fee could not be
characterised as rent. The Court is of the view that the AO and the ITAT
were in error in coming to a contrary conclusion. They appear to have
overlooked that the Assessee had consistently treated the licence fees
collected as business income since AY 1982-83. The appeals are allowed.
(Please click here for judgment)
2. Bolkunda
Pachwai & (S) C.S. Shop Vs. ITO, I.T.A Nos. 165 & 166/Kol/2014,
Date of Pronouncement:10.08.2016, ITAT - Kolkata
Issue:
Whether cash deposited directly in the bank of a wholesale
licensee for purchase of country spirit would fall under exception
provided in Rule 6DD of the Income Tax Rules?
Held: Yes
Brief Facts:
The assessee is a partnership firm engaged in the business of retail
trading of liquor under the name and style of M/s Bolkunda Pachwai &
(S) C.S.Shop. The ld AO observed that the assessee had made cash
payments in excess of Rs. 20,000/- to M/s Asansol Bottling &
Packaging Co. Pvt Ltd (ABPL in short) for purchase of country spirit by
way of cash deposits into the bank account of ABPL. The assessee
informed that the payment for purchase of country spirit had to be made
prior to delivery of the bottles of country spirit by M/s ABPL and the
amount is deposited in cash in the bank account of ABPL by the assessee.
It was argued that the payment is made to the wholesale licensee who is
an agent of the Government and hence the payment would fall under the
exception provided in Rule 6DD(k) of the IT Rules. The ld AO was not
convinced with this and proceeded to make disallowance u/s 40A(3) of the
Act in respect of cash purchases made by the assessee which was
confirmed by the ld CIT(A).
Held:
The ld AR argued that the wholesale licencee is an agent of the State
Government and is a link between retail vendor (assessee herein) and
the State Government. He argued that Rule 6(2) of Notification dated
29.08.2005 issued by the Excise Department, Government of West Bengal
mandates the retail vendor to deposit the monies directly into the bank
account of the wholesale licensee and not by any other mode. Reliance
was placed on the decision of Co-ordinate Bench of Bangalore Tribunal in
the case of Sri Renukeswara Rice Mills vs ITO reported in 93 ITD 263
(Bang Trib.) wherein it was held that the cash payment in the accounts
of the payee in a Bank is sufficient to get exemption in terms of Rule
6DD. It was further noted that if the entire purchases made in cash is
disallowed, then effectively the ld AO would be taxing the entire sale
proceeds as income of the assessee which would only result in an
anomalous situation & as much it is ensured that the payee and payee
alone receives the payment and the origin and conclusion of the
transaction is traceable thereby fulfilling the criterion for ensuring
the object of introduction of section 40A(3) of the Act applicable to
the facts of the instant case, Hence it was more relevant to get into
the intention of the legislature & the assessee was allowed the
exception provided in Rule 6DD of the Income Tax Rules.
(Please click here for judgment)
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