1. COMMISSIONER OF INCOME TAX VERSUS M/S EXCEL INDUSTRIES LTD., CIVIL APPEAL NO.125 OF 2013, 08.10.2013, SUPREME COURT OF INDIA.
Whether income has accrued must be considered from a realistic & practical angle.
Held Yes
The assessee accounted for the benefit of the entitlement to make
duty free imports in the year of export but claimed that the benefit was
not chargeable to income-tax in the year in which the exports were made
but it was chargeable to tax only in the year in which the imports were
availed of and the raw materials consumed. The AO rejected the
contention and held that as the assessee was following the mercantile
system of accounting, the right to receive the benefit accrued as soon
as the export obligation was fulfilled and it was chargeable to tax in
that year u/s 28(iv). On appeal, the CIT(A), Tribunal and High Court
upheld the assessee’s stand. On appeal by the department to the Supreme
Court, HELD dismissing the appeal:
(i) Three tests have been laid down by various decisions of the
Supreme Court to determine when income can be said to have accrued: (a)
whether the income is real or hypothetical; (b) whether there is a
corresponding liability of the other party to pay the amount to the
assessee & (c) the probability or improbability of realisation of
the income by the assessee has to be considered from a realistic and
practical point of view. Applying these tests, on facts, even if it is
assumed that the assessee was entitled to the benefits under the advance
licences as well as under the duty entitlement pass book, there was no
corresponding liability on the customs authorities to pass on the
benefit of duty free imports to the assessee until the goods are
actually imported and made available for clearance. The benefits
represent, at best, a hypothetical income which may or may not
materialise and its money value is therefore not the income of the
assessee. Also, from a realistic and practical point of view (the
assessee may not have made imports), no real income accrued to the
assessee in the year of exports and s. 28(iv) would be inapplicable.
Essentially, the AO is required to be pragmatic and not pedantic.
2. CAIRN UK HOLDINGS LTD. V. DIRECTOR OF INCOME-TAX, WRIT PETITION (CIVIL) NO. 6752 OF 2012, DATE OF ORDER: OCTOBER 7, 2013
Whether the assessee who avails benefits of the first proviso to
Section 48, is entitled to benefit of lower rate of taxunder the proviso
to Section 112(1) of the Act.
Held Yes
Proviso to section 112(1) doesn't deny benefit of lower tax rate of
10% on long-term capital gains from sale of listed securities to a
non-resident investor availing benefit of exchange rate neutralization
under first proviso to section 48. The said benefit of lower tax rate of
10% can't be denied on the ground that indexation benefit under 2nd
proviso is not applicable. It is incorrect to say that 10% rate under
proviso to section 112(1) applies only where indexation benefit under
2nd proviso to section 48 applies and still assessee opts to not avail
it.
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