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“Believe in your dreams and they may come true; believe in yourself and they will come true.”

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Recent case law Module of ICAI

S SS S iddharth J JJ J ain Email: [email protected] “Believe and act as if it were impossible to fail.”

Summary of Recent case laws of DT applicable for Nov., 2012 Exams

(A) Basic ConceptsS.No. Issue Decision Case law

1. What is the nature of exp. incurred ondemolition & re-erection of a cell room & exp.incurred on purchase of pumping set, monoblock pump & two transformers, which wereparts of a bigger plant – revenue or capital?

t was held that purchase of pumping set, monoblock pump with !" motors & two transformerswere concerned, the# were $% standalonee'uipment, but were part of the bigger plant.

herefore, it would be treated as replacement ofthose parts & exp. would be eligible fordeduction u/s 37( )!"e#enue .

( ). *odindustries +td

11/ 00 2345 6el./

. n case the s7capital is raised in a foreigncountr# & repatriated to ndia as $eed basisfrom time to time for approved uses, can thegain arising on the b7sheet date due tofluctuation in foreign exchange, in respect ofthat part of s7capital which is to be used asworking capital, be treated as a revenuereceipt?

he !igh court held that for determining the natureof receipt, due consideration shud be given to thesource of fund & $% to the ultimate use of thefunds. herefore, the entire gain $as to betreated as c/receipt as the source of fund in thiscase is capital in nature.

( ). 8agat9itndustries +td

11/ 005 2 16el./

0. n case thr is no possibilit# of recover# of loangiven b# a $:;(, which is an $"< as per 2:guidelines, can the intt. %n such loan betreated as income of the $:;(, followingmercantile s#stem of accounting?

herefore in this case, the !igh court held that thrwas $% real accrual of intt. ncome in the hands ofassesses & hence, it would N%& be c$argeable to&a' u/s .

6 ).:rahamputra(apital ;inancial=ervices +td 11/>0> 2 1 6el./

3. Would the refund of excise dut# & grant ofinterest subsid# under the incentive schemeformulated b# (@ for public interest, namel#,to accelerate industrial development,generate emplo#ment & create opportunit#for self-emplo#ment in state of 8&A be treatedas a revenue or a capital receipt?

he ribunal contended that excise dut# refund &grant of interest subsid# received were revenuereceipt on basis of various grounds but !igh courtoverruling it observed that incentives were providedto achieve a public purpose shud also be consideredto determine the nature of subsid# & !ence theaforesaid incentives are Capital receipt N%&liable to ta'ation.

=hree :ala9i 8&A/

>. What is the nature of incentives receivedunder the scheme formulated b# the (7@ forrecoupment of capital emplo#ed & repa#mentof loan taken for setting up7expansion of asugar factor# – capital or revenue?

he !igh court held that the main eligibilit# condt.;or the scheme was that the incentive had to beutiliBed for the repa#ment of loans taken b# theassesses to setup a new units or substantialexpansion of a existing unit. he subsid# receipt b#the assesses was, therefore $% in the course of atrade & hence, was of capital nature .

( ). Aisan=ahkari (hini *ills+td. 1 / 0

2 5

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(C) 2rofit and 5ains of Business or 2rofession1 . Would the phrase Dused for the purpose of

businessE in respect of discarded *7c includeuse of such asset in the earlier #ears for claimof depreciation u7s 0 ?

%n the issue, it was held that the discarded *7c ma#$% be actuall# used in the 2elevant "7F butdepreciation can be Clai0ed as long as it was usedfor the purpose of business in the earlier #earsprovided the block continues to exist in the 2elevant"7F.(Alread as*ed in CA +inal,s 6a - atte0pt)

Famaha *otorsndia "vt. +td. ).

( 1 / 0 25 6elhi/

11. s the assesses entitled to depreciation on thevalue of @oodwill considering it as Dotherbusiness or commercial right or similar natureEwithin the meaning of an intangible asset?

t was held that @7w paid was for ensuring retention& continued business in the hospital, it was forac'uiring a business & commercial right and it wascomparable with trade mark, franchise etc referred toin the first part of clause ii/ of sec. 0 1/ and so,5/w was covered b# the above provision of the 4:om./

15. (an the prov. %f sec. 31 1/ be invoked both inrespect of waiver of working capital loanutiliBed for da# to da# biB. %peration & inrespect of waiver of term loan taken forpurchase a capital asset?

he high courts held that loan were for circulatingcapital & not for fixed capital. herefore, the W7off ofthese loans on the cash credit account which wasreceived for carr#ing out the da# to da# operationamts. to remission of a trading liabilit# & hence, hasto be treated as inco0e in the hands of theassesses b# #irtue of sec. ; ( ) .

2ollatainers ltd. ).( 11/ 00 2>3 6el./

1 . (an a co. engaged in the biB. %f owing,running & managing hotels claim intt. %nborrowed funds, used b# it for investing in thee'uit# s7capital of a wholl# owned =ubsi. co.,as deduction where the subsi. (o. was formedfor exercising effective control of new hotelsac'uired b# the parent co. under its mgmt.?

he !igh court held that Gxp. incurred was for :iB."urpose & was thus allowable u/s 3

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1. (an the

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0>. (an the assesses claim exemption u7s >3;, onaccount of c7gin arising on t7f of depreciableasset held for more than 04 months i.e a longterm capital asset, though the same is deemedas capital gain arising on t7f of short term capitalgain b# virtue of sec. > ?

he !igh court held that sec. >3; being anindependent section will $% be bounded b# theprov. %f sec. > . herefore, the e'e0ption u/s

;+ on t7f of depreciable asset held for more than04 month CANN%& be denied on account of fictioncreated b# sec. > .

( ). 2a9iv =hukla11/ 003 2

10 6el./

04. Whether indexation benefit in respect of thegifted asset shall appl# from the #ear in whichthe asset was first held b# the assesses or fromthe #ear the same was first ac'uired b# theprevious owner?

he !igh court held that indexed (%< in case ofgifted asset has to be co0puted wit$ reference tothe #ear in which the pre#ious owner first $eld the asset & $% from the #ear in which the assessesbecome the owner of the asset.

( ). *an9ula 8.=hah 14 axmann3 :om./

05. (an exemption u7s >3: be denied solel# on thegrounds that the new agricultural land purchasedis not wholl# owned b# the assesses, as theassessesJs son is a co-owner as per sale deed?

he !igh court concurred with the tribunalJs viewthat merel# bcoB the assessesJs son was shown inthe sale deed as co-owner, it did $% make an#difference. herefore, the assesses was entitled todeduction u/s ;B .

( ). @urnam=ingh 1 / 0 5

2 5 "&!/

0 . n determining the "%! of c7asset received b# apartner on dissolution of firm, can the "%! of thec7asset b# the firm be taken into account?

he !igh court held that 2%1 of the asset b# theassesses in this case has to be rec*oned fro0 thedate of dissolution of the firm. =ince the assessessold the propert# within 0 da#s of ac'uiring thesame, the gain have to be treated as = (@.

". ". *enon ). (1 / 0 > 2

1 Aer./

0 . (an exemption u7s >3G( be denied on account ofthe bonds being issued after 4 month of the dateof t7f even though the pa#ment for the bond wasmade b# the assesses within the 4 monthperiod?

he !igh court, therefore, held that if such pa#mentis within a period of 4 month from the date of t7f,the assesses would be eligible to clai0 e'e0ptionu/s ; C .

!industan Cnilever+td ). 6(

1 / 0 > 21 :om./

3 . What would be the "%! to determine whetherthe c7gain on renunciation of right to subscribefor additional shares is short term = / or longterm + /?

%n this issue, the

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35. Would grant of transport subsid#,interest subsid# & refund of excisedut# 'ualif# for deduction under sec.

- :?

he !igh court held that there shud. be a direct nexusbetw. he generation of profits & gains

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>5. (an t7f fees received b# a co-operativehousing societ# from its incoming & outgoingmembers be exempt on the ground ofprincipal of mutualit#?

he !igh court held that t7f fee received is N%& liableto ta' on the ground of principal of mutualit#.

=ind co-operative!ousing =ociet#). % /015 2 35

:om./> . s it necessar# that there be a written

agreement betw. persons to prove the statusof association of persons, in a case whr theaccounts seiBed from the persons prove 9ointinvestment & sharing of profit in biB?

he !igh court held that the status of A%2 need N%& be pro#ed t$roug$ an agree0ent . he biB carried onb# the members together was proved through accountrecovered on search, which 9ustifies the assessment ofthe assesses in that status.

( ). . @eorge& *. =#ed . (an an

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( ) Appeal 9 "e#ision4 . (an the ( initiate revision proceeding

u7s 40 on the grounds that the ?

he !igh court held that in order to impose penalt#thr has to be concealment of particular of income ofassesses or the assesses must have furnishedinaccurate particulars of his income. !ere assessesCANN%& be $eld guilt of furnishing particulars.

( ). )i9a# Aumar8ain 1 / 0 > 205 (hhattisgarh/

5>. Would making an incorrect claim in the 2% perse amt. to concealment of particular of incomeor furnished inaccurate particulars forattracting the penal prov. u7s 51 1/ c/, whenno info. @iven in 2% is found to be incorrect?

he 2 > Aer./

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SSS S iddharth JJJ J ain Email: ursiddharthjain@gmail com

1. (an services rendered b# a hotel to itscustomer in providing hotel room with variousfacilities7amenities +ike house keeping, bankcounter, beaut# salon, car rental, etc/ amt. to

Dcarr#ing out an# workE to attract 6= u7s1 3(?

!owever, facilities or amenities made available b# ahotel to its customer do $% fall within themeaning of work u7s 1 3( & therefore &DS u/s

;C are N%& attracted .

Gast ndia !otels +td). (:6 1 / 0

2 > 4 :om./

. (an the ntt. u7s 03: & (, be levied on thebasis of intt. (alculation given in thecomputation sheet annexed to the assessmentorder, though the direction to charge such intt.is not mentioned in the assessment order?

he (ourt held that the le# of intt. 9 basis forarriving at the 'uantum thereof have beene'plicitl indicated in the co0putation s$eet &therefore, suc$ intt. $as to be paid .

( ). Aerala/

(N) Fealt$ &a'>. Whether the :est 9udgment

assessment order passed withoutgiving the assesses an opportunit# of

being heard is valid in a case whr thenotice u7s 14 3/ has alread# beengiven?

t was held that second prov. to sec. 14 >/ comes into operation &N% furt$er notice or opportunit to be heard is re= . to be givento the assesses.

(W ). *otor@eneral;inance +td

11/ 00 21 6el./

4. s wealth tax leviable on the value ofhouse under construction where theconstruction was still incomplete onthe relevant valuation date?

ncomplete building neither falls within the definition of a DbuildingE,as contemplated u7s ea/ of W 5 "&!/

Note@ ! 2efer to *odule of (< for more clarit#, itJs onl# meant for 'uick revision.%nce counter check each case lawJs decision at #our end too.

“All d Best & Gud Luck 4 ur ams..”
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dt case law 12

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