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II. Direct Tax Case laws:
1. Income Tax Department vs. Shri Shailesh D. Shah, ITA No.7012/M/10, Date of Order: 11.12.2013, ITAT-Mumbai
S.
41(1): Liability outstanding for long period of time is assessable as
income (despite no write-back in A/cs) if assessee is unable to prove
genuineness of liability
It is
very improbable that payments to labour can remain outstanding for more
than three years. The assessee has not been able to produce the records
relating to the name, addresses and bills of the labour etc to prove
that the liability continues to exist. It is accordingly a case of
cessation of liability. The view that such sums shown as liability is
assessable to tax is sanctioned by Chipsoft Technology where the view
was taken that it would be illogical to say that a debtor or an
employer, holding on to unpaid dues, should be given the benefit of his
showing the amount as a liability, even though he would be entitled in
law to say that a claim for its recovery is time barred, and continue to
enjoy the amount. This view is not contrary to the view taken in
Vardhaman Overseas Ltd where the law was laid down that s. 41(1) does
not apply if the amount of liability is not written back in the
accounts. If both judgements are read in harmony, it can be observed
that the assessee cannot be allowed to show an amount as a liability
even though he has no intention to pay it back but to enjoy the same for
an unlimited period without being added to his income only on the
excuse that he has not written off the same in his books of accounts.
However, if the facts of the case establish that the liability has been
genuinely shown by the assessee and his subsequent conduct shows that he
has paid back the said credits and his intention was not to enjoy the
amount for unlimited period without any intention to pay back the same,
then it cannot be said to be a case of cessation of liability.
(Please click here to view the Judgment)
2.
Metro & Metro vs. Additional Commissioner of Income Tax, I.T.A. No.:
393/Agra/2012, Date of Order : 01.11.2013, ITAT-Agra.
When
no human intervention is involved in any services, such services cannot
be treated to be of nature which can be covered by scope of section
9(1)(vii)
As
regards assessee's submission that the provisions of section 9(1)(vii)
will not come into play in this case because the entire testing process
is automated, it is well settled that when no human intervention is
involved in any services, such services cannot be treated to be of the
nature which can be covered by the scope of section 9(1)(vii). It is
also undisputed that question is not of more or less of human
involvement. It is, the question of presence of or absence of human
involvement. Furthermore testing charges paid by assessee, a
manufacturer and exporter of leather goods, to a German company, could
not be regarded as fee for technical services prior to amendment in
section 9(1) by Finance Act 2010, it was not liable to deduct tax at
source while making payment of said charges in assessment year 2008-09
(Please click here to view the Judgment)
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