1.  EVEREADY INDUSTRIES INDIA LTD Vs COMMISSIONER OF INCOME-TAX, KOLKATA- II & ANR, ITA No.27 of 2003, Date of Order: 04/03/2011, HIGH COURT OF CALCUTTA

The dividend received by the assessee was tax free under Section 10(33). It appears that the assessee has utilized the said provision of the statute and as such, the same cannot be called as an abuse of the process of law. As pointed out by the Supreme Court, even if the transaction was a pre-planned one, there was nothing to impeach the genuineness of the transaction; as regards the observation of O. Chinnappa Reddy, J. in the case of McDowell & Co. Ltd. Vs. CTO,  it was pointed out by the Supreme Court in the later decision of the Supreme Court in the case of Union of India Vs. Azadi Bachao Andolan, that a citizen is free to carry on his business within the four corners of the law and that mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon. Thus, in a case arising before April 1, 2002, the losses pertaining to exempted income cannot be disallowed; the assessee is entitled to claim loss on the aforesaid transaction by answering the two questions framed by the Division Bench in favour of the assessee against the Revenue.

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2.  S K SAIFUDDIN Vs INCOME TAX OFFICER, ITA No.964 (Kol) of 2009, Date of Order: February 17, 2011, ITAT – Kolkata

Sec. 40(a)(ia) requires that unless tax is deducted according to section 194C on payment to contractors or sub-contractors, which includes supplier of labourers for carrying out any work, it will attract disallowance of expenditure. The Supreme Court in Birla Cement Works v, CBDT has laid down the conditions precedent for attracting the provisions of section 194C, namely, (i) there must be a contract between the person responsible for making payment to contractor, (ii) the contract must be for carrying out of any work, (iii) the work is to be carried through the contractor, (iv) the consideration for the contract should exceed Rs.10,000/-, i.e., the amount fixed by section 194C and (v) that the payment is made to the contractor for the work carried out by him. Therefore, section 40(a)(ia) cannot be read in isolation or to the exclusion of section 194C; in the instant case, the controversy was regarding the payments made for disbursement of labour charges to labour-heads. The assessee had specifically stated before the lower authorities that there was no contract between the assessee and the labour-heads. Whereas it is the case of the Revenue that the assessee’s case falls u/s. 194C(2) of the Act. Thus, revenue claims that there was existence of sub-contract and these labour heads are sub-contractors. It is also not clear from the records whether there is any contract existed on principal-to-principal basis between assessee and labour heads. Keeping in view the totality of the facts and circumstances of the case and the submissions of the parties, it is deemed proper to restore the issue of determination of existence of any contract between the assessee and the labour-heads to the file of the AO.

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