Referencer for Quick

Revision
Final Course Paper-7: Direct
Tax Laws and International
Taxation
A compendium of subject-wise capsules published in the
monthly journal “The Chartered Accountant Student”

Board of Studies
(Academic)
ICAI
INDEX
Page Edition of Students’
Topic
No. Journal
Overview of Select Significant Court
1-14 April 2021
Rulings
direct tax laws
CA FINAL - Paper 7 - DIRECT TAX LAWS
Decisions rendered by the Apex Court and High Courts constitute a significant component of income-tax law, since
they help in appreciating the interpretation of the various provisions of income-tax law by the judiciary. In this capsule,
an attempt has been made to capture select significant Supreme Court and High Court rulings in income-tax law
pronounced during the last decade. The capsule is divided chapter-wise to facilitate easy co-relation with the relevant
concepts discussed in the parallel chapter of the Study Material. For detailed reading of these cases, you may refer to the
November, 2020 edition of the Study Material of Final Paper 7 Direct Tax Laws and International Taxation, relevant for
May, 2021 and November, 2021 examinations.

Overview of Select Significant Court Rulings

Sl. No. Case Law
Chapter 1: Basic Concepts
1. CIT v. Saurashtra Cement Ltd. (2010) 325 ITR 422 (SC)
Issue Decision
What is the nature of liquidated The damages are directly and intimately linked with the procurement of a capital asset
damages received by a company i.e., the cement plant, which lead to delay in coming into existence of the profit-making
from the supplier of plant for failure apparatus. It was not a receipt in the course of profit earning process. Therefore, the
to supply machinery to the company amount received by the assessee towards compensation for sterilisation of the
within the stipulated time – a capital profit earning source, is not in the ordinary course of business, hence it is a
receipt or a revenue receipt? capital receipt in the hands of the assessee.
Chapter 3: Incomes which do not form part of Total Income
2 CIT v. HCL Technologies Limited (2018) 404 ITR 719 (SC)
Issue Decision
Can expenditure incurred in foreign Deduction u/s 10AA is based on the profit from export business, thus, expenses
exchange for provision of technical excluded from “export turnover” must also be excluded from “total turnover”, since
services outside India, which is one of the components of “total turnover” is export turnover. Expenses incurred
deductible for computing export in foreign exchange for providing technical services outside India are thus, to be
turnover, be excluded from total excluded from total turnover also.
turnover also for the purpose of If deductions in respect of freight, telecommunication charges and insurance
computing deduction u/s 10AA? attributable to delivery of articles, things etc. or expenditure incurred in foreign
exchange in rendering of services outside India are allowed only against export
turnover but not from the total turnover for computing deduction u/s 10AA, then,
it would give rise to inadvertent, unlawful, meaningless and illogical results causing
grave injustice, which could have never have been the intent of the Legislature. Hence,
such expenditure incurred in foreign exchange for providing technical services
outside India is deductible from total turnover also.
3 CIT v. Kribhco (2012) 349 ITR 0618 (Delhi)
Issue Decision
Is section 14A applicable in respect Deductions under Chapter VIA are different from the exclusions/exemptions
of deductions, which are permissible provided under Chapter III. Section 14A is applicable only if an income is not included
and allowed under Chapter VI-A? in the total income as per the provisions of Chapter III of the Income-tax Act, 1961.
Therefore, no disallowance can be made u/s 14A in respect of income included in
total income in respect of which deduction is allowable u/s 80C to 80U.
Chapter 4: Salaries
4 CIT v. Shankar Krishnan (2012) 349 ITR 0685 (Bom)
Issue Decision
Can notional interest on security The notional interest on the security deposit given by the employer to the
deposit given to the landlord in landlord cannot be included in valuation of the perquisite, since the perquisite
respect of residential premises value has to be computed as per Rule 3; and the said Rule does not require addition
taken on rent by the employer of such notional interest. Thus, the perquisite value of the residential accommodation
and provided to the employee, be provided by the employer would be the actual amount of lease rental paid or payable
included in the perquisite value of by the employer or 15% of salary, whichever is lower.
rent-free accommodation given to
the employee?

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 direct tax laws
Sl. No. Case Law
Chapter 5: Income from House Property
5 Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673 (SC);
Rayala Corporation (P) Ltd. v. Asstt. CIT (2016) 386 ITR 500 (SC); and
Raj Dadarkar and Associates v. ACIT (2017) 394 ITR 592 (SC)
Issue Decision
Would rental income from the In Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673, the Supreme
business of leasing out properties Court observed that holding of the properties and earning income by letting out
be taxable under the head “Income of these properties is the main objective of the company. Further, in the return of
from house property” or “Profits and income filed by the company and accepted by the Assessing Officer, the entire
gains from business or profession”? income of the company comprised of income from letting out of such properties.
The Supreme Court, accordingly, held that such income was taxable as business
income. Likewise, in Rayala Corporation (P) Ltd. v. Asst. CIT (2016) 386 ITR 500, the
Supreme Court noted that the assessee was engaged only in the business of renting
its properties and earning rental income therefrom and accordingly, held that such
income was taxable as business income. However, in Raj Dadarkar and Associates
v. ACIT (2017) 394 ITR 592, on account of lack of sufficient material to prove that
substantial income of the assessee was from letting out of property, the Supreme
Court held that the rental income has to be assessed as “Income from house property”.
6 CIT v. NDR Warehousing P Ltd (2015) 372 ITR 690 (Mad)
Issue Decision
Under what head of income should The assessee’s activity was not merely letting out of warehouses but storage of goods
income from letting out of godownswith provision of several auxiliary services such as pest control, rodent control and
and provision of warehousing fumigation service to prevent the goods stored from being affected by vagaries of
services be subject to tax - “Income
moisture and temperature. Further, service of security and protection was also
from house property” or “Profits and
provided to the goods stored.
gains of business or profession”? The objects clause of the memorandum of the assessee as also the individual
aspects of the business clearly point out that it was a case of warehousing
business, and, therefore, the income would fall under the head “Profits and gains
of business or profession”.
7 CIT v. Hariprasad Bhojnagarwala (2012) 342 ITR 69 (Guj) (Full Bench)
Issue Decision
Can benefit of self-occupation of HUF is a group of individuals related to each other i.e., a family comprising of a group
house property u/s 23(2) be denied of natural persons. The said family can reside in the house, which belongs to the HUF.
to a HUF on the ground that it, being Since a HUF cannot consist of artificial persons, it cannot be said to be a fictional
a fictional entity, cannot occupy a entity. Therefore, the HUF is entitled to claim benefit of self-occupation of house
house property? property u/s 23(2).
Chapter 6: Profits and Gains from Business or Profession
8 National Co-operative Development Corporation v. CIT (2020) 427 ITR 288 (SC)
Issue Decision
Is source of funds from which In case of an assessee carrying on business, it is relevant to see whether an outlay
expenditure is incurred for the constitutes an expenditure “for the purpose of business” as used in section 37(1), for
purpose of business relevant for the the purpose of claiming deduction thereunder. The source of funds from which the
purpose of allowability of deduction expenditure is made is not relevant. Every application of income towards the business
u/s 37(1)? objective of the assessee is a business expenditure. There can be an amount treated as a
capital receipt while the same amount expended may be a revenue expenditure.
9 I.C.D.S. Ltd. v. CIT (2013) 350 ITR 527 (SC)
Issue Decision
Can depreciation on leased vehicles Section 32 imposes a twin requirement of “ownership” and “usage for business”
be denied to the lessor on the ground as conditions for claim of depreciation thereunder. As far as usage of the asset is
that the vehicles are registered in the concerned, the section requires that the asset must be used in the course of business.
name of the lessee and that the lessor It does not mandate actual usage by the assessee itself. In this case, the assessee did
is not the actual user of the vehicles? use the vehicles in the course of its leasing business. Hence, this requirement of
section 32 has been fulfilled, notwithstanding the fact that the assessee was not
the actual user of the vehicles.
As long as the assessee-lessor has a right to retain the legal title against the rest of
the world, he would be the owner of the asset in the eyes of law. In this regard, the
following provisions of the lease agreement are noteworthy –
• The assessee is the exclusive owner of the vehicle at all points of time;
• The assessee is empowered to repossess the vehicle, in case the lessee committed a
default;
• At the end of the lease period, the lessee was obliged to return the vehicle to the
assessee;
• The assessee had a right of inspection of the vehicle at all times.
The proof of ownership lies in the lease agreement itself, which clearly points in favour
of the assessee. The assessee-lessor was, therefore, entitled to claim depreciation in
respect of vehicles leased out since it has satisfied both the requirements of section
32, namely, ownership of the vehicles and its usage in the course of business.

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direct tax laws
Sl. No. Case Law
10 Shasun Chemicals & Drugs Ltd v. CIT (2016) 388 ITR 1 (SC)
Issue Decision
In a case where bonus due to The embargo contained in section 43B(b) or section 40A(9) does not come in the way
employees is paid to a trust and such of the assessee’s claim, since the bonus is ultimately paid to the employees before the
amount is subsequently paid to the due date as per the statutory requirement. Therefore, the payment in respect of bonus
employees before the stipulated due is allowable as deduction.
date, would the same be allowable
u/s 36(1)(ii) while computing
business income?
11 Berger Paints India Ltd v. CIT (2017) 393 ITR 113 (SC)
Issue Decision
Whether “premium” on subscribed Share premium collected by the assessee on its subscribed share capital could not
share capital is “capital employed be part of “capital employed in the business of the company” for the purpose of
in the business of the company” u/s section 35D(3)(b). If it were the intention of the legislature to treat share premium
35D to be eligible for a deduction? as being “capital employed in the business of the company”, it would have been
explicitly mentioned. Moreover, Sl. No. IV(i) in Form MGT- 7 read with section 92
of the Companies Act, 2013 dealing with capital structure of the company provides
the break-up of “issued share capital” and “subscribed share capital” which does not
include share premium at the time of subscription. Hence, in the absence of the
reference in section 35D, share premium is not a part of the capital employed.
Also, section 52 of the Companies Act, 2013 requires a company to transfer the
premium amount to be kept in a separate account called “securities premium
account”. The assessee is, therefore, not entitled to claim deduction u/s 35D
in relation to the premium amount received from shareholders at the time of
share subscription.
12 Palam Gas Service v. CIT (2017) 394 ITR 300 (SC)
Issue Decision
Is section 40(a)(ia) attracted when The obligation to deduct tax at source is mandatory and applicable irrespective of
amount is not ‘payable’ to a sub- the method of accounting adopted. If the assessee follows the mercantile system of
contractor but has been actually accounting, then, the moment the amount was credited to the account of the payee on
paid? accrual of liability, tax was required to be deducted at source. If the assessee follows
cash system of accounting, then, tax is required to be deducted at source at the time
of making payment.
Accordingly, section 40(a)(ia) would be attracted for failure to deduct tax in
both cases i.e., when the amount is payable or when the amount is paid, as the
case may be, depending on the system of accounting followed by the assessee.
13 CIT v. BSES Yamuna Powers Ltd (2013) 358 ITR 47 (Delhi)
CIT v. Orient Ceramics and Industries Ltd. (2013) 358 ITR 0049 (Delhi)
Federal Bank Ltd. v. ACIT (2011) 332 ITR 319 (Kerala)
Issue Decision
What is the eligible rate of Computer accessories and peripherals such as printers, scanners and server etc.
depreciation in respect of computer form an integral part of the computer system and they cannot be used without
accessories, peripherals and UPS the computer. Since they are part of the computer system, they would be eligible for
under the Income-tax Act, 1961? depreciation at the higher rate of 40% applicable to computers including computer
software.
Depreciation on UPS is allowable@40%, being the eligible rate of depreciation on
computers including computer software, and not at the general rate of 15% applicable
to plant and machinery.
Can EPABX and mobile phones be EPABX and mobile phones are not computers and therefore, are not entitled to
treated as computers to be entitled higher depreciation@40%.
to higher depreciation?
14 CIT v. ITC Hotels Ltd. (2011) 334 ITR 109 (Kar.)
Issue Decision
Would the expenditure incurred on The expenditure incurred on the issue and collection of debentures would be treated
issue and collection of convertible as revenue expenditure even in case of convertible debentures, i.e., the debentures
debentures be treated as revenue which had to be converted into shares at a later date.
expenditure or capital expenditure?

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 direct tax laws
Sl. No. Case Law
15 CIT v. Priya Village Roadshows Ltd. (2011) 332 ITR 594 (Delhi)
Issue Decision
Would expenditure incurred Since the feasibility studies were conducted by the assessee for the existing business
on feasibility study conducted with a common administration and common fund and the studies were abandoned
for examining proposals for without creating a new asset, the expenses were of revenue nature.
technological advancement relating
to the existing business be classified
as a revenue expenditure, where
the project was abandoned without
creating a new asset?
16 Confederation of Indian Pharmaceutical Industry (SSI) v. CBDT (2013) 353 ITR 388 (H.P.)
Issue Decision
Is Circular No. 5/2012 dated The CBDT, considering the fact that the claim of any expense incurred in providing
01.08.2012 disallowing the freebies to medical practitioners is in violation of the provisions of Indian Medical
expenditure incurred on freebies Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, has, vide
provided by pharmaceutical Circular No.5/2012 dated 1.8.2012, clarified that the expenditure so incurred shall be
companies to medical practitioners, inadmissible u/s 37(1).
in line with Explanation to section As per Explanation to section 37(1), it is clear that any expenditure incurred by an
37(1), which disallows expenditure assessee for any purpose which is prohibited by law shall not be deemed to have
which is prohibited by law? been incurred for the purpose of business or profession. The sum and substance
of the circular is also the same. Therefore, the circular is totally in line with the
Explanation to section 37(1).
17 CIT v. Kap Scan and Diagnostic Centre P. Ltd. (2012) 344 ITR 476 (P&H)
Issue Decision
Can the commission paid to doctors As per the Indian Medical Council (Professional Conduct, Etiquette and Ethics)
by a diagnostic centre for referring Regulations, 2002, no physician shall give, solicit, receive, or offer to give, solicit
patients for diagnosis be allowed or receive, any gift, gratuity, commission or bonus in consideration of a return for
as a business expenditure u/s 37 referring any patient for medical treatment.
or would it be treated as illegal The demanding as well as paying of such commission is bad in law. It is not a fair
and against public policy to attract practice and is opposed to public policy and should be discouraged. Thus, the
disallowance? commission paid to doctors for referring patients for diagnosis is not allowable
as business expenditure.
18 Shanti Bhushan v. CIT (2011) 336 ITR 26 (Delhi)
Issue Decision
Can the expenditure incurred on Though the definition of “plant” as per the provisions of section 43(3) is inclusive
heart surgery of an assessee, being in nature, such plant must have been used as a business tool which is not true in
a lawyer by profession, be allowed case of heart. Therefore, the heart cannot be said to be plant for the business or
as business expenditure u/s 31, profession of the assessee. Therefore, the expenditure on heart surgery is not
by treating it as current repairs allowable as repairs to plant u/s 31.
considering heart as plant and Also, there is no direct nexus between the expenses incurred by the assessee
machinery, or u/s 37, by treating on the heart surgery and his efficiency in the professional field. Therefore, the
it as expenditure incurred wholly claim for allowing the said expenditure u/s 37 is also not tenable. Hence, the heart
and exclusively for the purpose of surgery expenses shall not be allowed as a business expenditure of the assessee under
business or profession? the Income-tax Act, 1961.
19 CIT v. Neelavathi & Others (2010) 322 ITR 643 (Karn)
Issue Decision
Can payment to police personnel Any payment made to the police illegally amounts to bribe and such illegal gratification
and gundas to keep away from the cannot be considered as an allowable deduction. Similarly, any payment to a gunda
cinema theatres run by the assessee as a precautionary measure so that he shall not cause any disturbance in the theatre
be allowed as deduction? run by the assessee is an illegal payment for which no deduction is allowable under
the Act.
20 Millennia Developers (P) Ltd. v. DCIT (2010) 322 ITR 401 (Karn)
Issue Decision
Is the amount paid by a construction The assessee, a private limited company carrying on business activity as a developer
company as regularization fee for and builder, claimed the amount paid by way of regularization fee for the deviations
violating building bye-laws allowable made while constructing a structure and for violating the plan sanctioned in terms of
as deduction? the building bye-laws, approved by the municipal authorities as per the provisions of
the Karnataka Municipal Corporations Act, 1976.
As per the provisions of the Karnataka Municipal Corporations Act, 1976, the
amount paid to compound an offence is obviously a penalty and hence, does not
qualify for deduction u/s 37. Merely describing the payment as a compounding fee
would not alter the character of the payment.

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direct tax laws
Sl. No. Case Law
21 CIT v. Maruti Suzuki India Limited (2018) 407 ITR 165 (Delhi)
Issue Decision
Can payments made by an assessee The non-resident agent who operated outside India did not have any income arising
to a non-resident agent who does in India. Accordingly, the commission earned by a non-resident agent who
not have any income assessable in was in the business of selling Indian goods abroad, did not accrue or arise in
India be disallowed u/s 40(a)(i) for India, and hence, no tax was deductible on such commission payment to a non-
non-deduction of tax at source on resident agent.
the ground that no application was Since the assessee has made payment to a non-resident agent and such income is not
made by the assessee u/s 195(2) for chargeable to tax in India, section 40(a)(i) could not be invoked to disallow deduction
making deduction of tax at source at of such payment for non-deduction of tax at source while computing the business
Nil rate? income of the assessee.
22 CIT v. Great City Manufacturing Co. (2013) 351 ITR 156 (All)
Issue Decision
Can remuneration paid to working Section 40(b)(v) prescribes the limit of remuneration to working partners, and
partners as per the partnership deed deduction is allowable up to such limit while computing the business income.
be considered as unreasonable and If the remuneration paid is within the ceiling limit provided u/s 40(b)(v), then,
excessive for attracting disallowance recourse to provisions of section 40A(2)(a) cannot be taken.
u/s 40A(2)(a), even though the The Assessing Officer is only required to ensure that the remuneration is paid to the
same is within the statutory limit working partners mentioned in the partnership deed, the terms and conditions of the
prescribed u/s 40(b)(v)? partnership deed provide for payment of remuneration to the working partners and
the remuneration is within the limits prescribed u/s 40(b)(v). If these conditions are
complied with, then, the Assessing Officer cannot disallow any part of the remuneration
on the ground that it is excessive by invoking the provisions of section 40A(2)(a).
Chapter 7: Capital Gains
23 Seshasayee Steels P. Ltd. v. ACIT (2020) 421 ITR 46 (SC)
Issue Decision
Can any transaction which enables Any transaction which has the effect of transferring or enabling the enjoyment of
the enjoyment of immovable any immovable property would come within the of purview u/s 2(47)(vi). Section
property be considered as enjoyment2(47)(vi) appears to be to bring within its tax net, a de facto transfer of any
as a purported owner thereof for immovable property. The expression 'enabling the enjoyment of' takes colour from
being treated as a “transfer” of the earlier expression 'transferring', so that it is clear that any transaction which
a capital asset u/s 2(47)(vi) and enables the enjoyment of immovable property must be enjoyment as a purported
owner thereof. The idea is to bring within the tax net, transactions, where, though title
levy of tax on capital gains arising
therefrom? may not be transferred in law, there is, in substance, a transfer of title in fact.
In this case, the assessee's rights in the immovable property were extinguished on
the receipt of the last cheque. Further, the compromise deed could be stated to be a
transaction which had the effect of transferring the immovable property in question
Accordingly, the transaction fell u/s 2(47)(ii) and (vi). Hence, it is a transfer in relation
to the capital asset and capital gains tax liability would be attracted.
24 Balakrishnan v. Union of India & Others (2017) 391 ITR 178 (SC)
Issue Decision
Would receipt of higher When proceedings were initiated under the Land Acquisition Act, 1894, even if the
compensation after notification compensation is negotiated and fixed, it would continue to remain as compulsory
of compulsory acquisition change acquisition. Merely because the compensation amount is agreed upon, the
the character of transaction into character of acquisition will not change from compulsory acquisition to a
a voluntary sale, so as to deny voluntary sale. The claim of exemption from capital gains u/s 10(37)(iii) is, therefore,
exemption u/s 10(37)(iii)? tenable in law.
25 CIT v. V.S. Dempo Company Ltd (2016) 387 ITR 354 (SC)
Issue Decision
In a case where a depreciable asset The assessee cannot be denied exemption u/s 54EC, because firstly, there is nothing in
(building) held for more than 24 section 50 to suggest that the fiction created therein is not restricted to only sections 48
months is transferred, can benefit of and 49. Secondly, fiction created by the legislature has to be confined for the purpose
exemption u/s 54EC be claimed, if for which is created. Thirdly, section 54EC does not make any distinction between
the capital gains on sale of such asset depreciable and non-depreciable asset for the purpose of re-investment of capital
are reinvested in long-term specified gains in long term specified assets for availing the exemption thereunder. Further,
assets within the specified time? section 54EC specifically provides that when the capital gain arising on the transfer a
long-term capital asset (being land or building or both) is invested or deposited in long-
term specified assets, the assessee shall not be subject to capital gains to that extent.
Therefore, the exemption u/s 54EC cannot be denied to the assessee on account of the
fiction created in section 50.

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Sl. No. Case Law
26 Fibre Boards (P) Ltd v. CIT (2015) 376 ITR 596 (SC)
Issue Decision
Can advance given for purchase of For the purpose of availing exemption, all that was required for the assessee is to
land, building, plant and machinery “utilise” the amount of capital gain for purchase and acquisition of new machinery or
tantamount to utilization of capital plant and building or land. Since the entire amount of capital gain, in this case, was
gain for purchase and acquisition of utilised by the assessee by way of advance for acquisition of land, building, plant
new machinery or plant and building and machinery, the assessee is entitled to avail exemption/deduction u/s 54G.
or land, for claim of exemption u/s
54G?
27 CIT v. Aditya Kumar Jajodia (2018) 407 ITR 107 (Cal)
Issue Decision
Can the amount incurred by the The assessee had inherited the immovable property under a will and the costs
assessee towards perfecting title of incurred by him for perfection of the title from perpetual leasehold rights to the
property acquired through will, for complete ownership had to be regarded as a cost of acquisition within the meaning
making further sale, be included in of sections 48 and 55, as the assessee was transferring the complete ownership rights
the cost of acquisition for computing to the transferee, and not the leasehold rights.
capital gains?
28 CIT v. Manjula J. Shah (2013) 355 ITR 474 (Bom)
Issue Decision
Would indexation benefit in respect The indexed cost of acquisition in case of gifted asset has to be computed with
of the gifted asset apply from the year reference to the year in which the previous owner first held the asset and not the
in which the asset was first held by the year in which the assessee became the owner of the asset.
assessee or from the year in which the
same was first acquired by the previous
owner?
29 CIT v. Gurnam Singh (2010) 327 ITR 278 (P&H)
Issue Decision
Can exemption u/s 54B be denied The agricultural land sold belonged to the assessee and the sale proceeds were also
solely on the ground that the new used for purchasing agricultural land. The possession of the said land was also taken
agricultural land purchased is not by the assessee. Merely because the assessee’s son was shown in the sale deed as
wholly owned by the assessee, as the co-owner, deduction u/s 54B cannot be denied. Therefore, the assessee was entitled
assessee’s son is a co-owner as per the to deduction u/s 54B.
sale deed?
30 CIT v. Kamal Wahal (2013) 351 ITR 4 (Delhi)
Issue Decision
Can exemption u/s 54F be denied For the purpose of section 54F, a new residential house need not necessarily be
solely on the ground that the new purchased by the assessee in his own name nor is it necessary that it should be
residential house is purchased by the purchased exclusively in his name.
assessee exclusively in the name of Having regard to the rule of purposive construction and the object of enactment
his wife? of section 54F, the assessee is entitled to claim exemption u/s 54F in respect of
utilisation of sale proceeds of capital asset for investment in residential house
property in the name of his wife.
31 CIT v. Ravinder Kumar Arora (2012) 342 ITR 38 (Delhi)
Issue Decision
In case of a house property registered The inclusion of his wife’s name in the sale deed was just to avoid any litigation after
in joint names, can exemption u/s his death. All the funds invested in the said house were provided by the assessee,
54F be allowed fully to the co-owner including the stamp duty and corporation tax paid at the time of the registration
who has paid whole of the purchase of the sale deed of the said house. This fact was also clearly evident from the bank
consideration of the house property statement of the assessee.
or will it be restricted to his share in Section 54F mandates that the house should be purchased by the assessee but
the house property? it does not stipulate that the house should be purchased only in the name of the
assessee. In this case, the house was purchased by the assessee in his name and his
wife's name was also included additionally. Therefore, the conditions stipulated in
section 54F stand fulfilled and the entire exemption claimed in respect of the purchase
price of the house property shall be allowed to the assessee.

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direct tax laws
Sl. No. Case Law
32 CIT v. Sambandam Udaykumar (2012) 345 ITR 389 (Karn)
Issue Decision
Can exemption u/s 54F be denied to The condition precedent for claiming the benefit u/s 54F is that capital gains realised
an assessee in respect of investment from sale of capital asset should have been invested either in purchasing a residential
made in construction of a residential house or in constructing a residential house within the stipulated period. If the assessee
house, on the ground that the has invested the money in the construction of a residential house, merely because the
construction was not completed construction was not completed in all respects and possession could not be taken within
within 3 years after the date on which the stipulated period, would not disentitle him from claiming exemption u/s 54F. In
transfer took place, on account of fact, in this case, the assessee has taken possession of the residential building and is
pendency of certain finishing work living in the said premises despite the pendency of flooring work, electricity work,
like flooring, electrical fittings, fitting of door and window shutters. Therefore, the assessee is entitled to exemption
fittings of door shutter etc.? u/s 54F in respect of the amount invested in construction within the prescribed period.
33 Hindustan Unilever Ltd. v. DCIT (2010) 325 ITR 102 (Bom)
Issue Decision
Can exemption u/s 54EC be denied In order to avail the exemption u/s 54EC, the capital gains have to be invested in
on account of the bonds being a long-term specified asset within a period of six months from the date of transfer.
Where the assessee has made the payment within the six month period, and the
issued after six months of the date of
transfer even though the payment for same is reflected in the bank account and a receipt has been issued as on that
the bonds was made by the assessee date, exemption u/s 54EC cannot be denied merely because the bond was issued
within the six-month period? after the expiry of the six month period or the date of allotment specified therein was
after the expiry of the six month period.
34 Principal CIT v. Gujarat State Fertilizers and Chemicals Limited (2018) 409 ITR 378 (Guj)
Issue Decision
Would sale of fertilizer bonds (issued Fertilizer subsidy given to an assessee to compensate the loss on sale of fertilisers
in lieu of government subsidy) at loss should be treated as business income of the assessee. Due to cash crunch, the
be treated as a business loss or a loss Government of India had discharged its dues of paying the subsidy by issue of fertiliser
under the head “Capital gains”? bonds. These bonds are saleable in the open market and the prices of such bonds are
varying. In this case also, the assessee received fertilizer bonds (in lieu of subsidy)
which were sold at a loss in the open market.
Since the subsidy would have been treated as business income, loss on sale of
fertiliser bonds issued is to be allowed as business loss.
Chapter 8: Income from Other Sources
35 CIT v. Sree Rama Multi Tech Ltd. (2018) 403 ITR 426 (SC)
Issue Decision
Is interest income from share The assessee-company was statutorily required to keep share application money
application money deposited in in a separate account till the allotment of shares was completed. Part of the share
bank eligible for set-off against application money would normally have to be returned to unsuccessful applicants, and
public issue expenses or should such
therefore, the entire share application money would not ultimately be appropriated by
the company. The interest earned was inextricably linked with the requirement of
interest be subject to tax under the
head ‘Income from Other Sources’? raising share capital.
Any surplus money deposited in the bank for the purpose of earning interest is
liable to be taxed as “Income from Other Sources”. Here, the share application
money was deposited with the bank not to make additional income but to comply
with the statute. The interest accrued on such deposit is merely incidental.
Moreover, the issue of shares relates to capital structure of the company and hence,
expenses incurred in connection with the issue of shares are to be capitalised.
Accordingly, the accrued interest is not liable to be taxed as “Income from
Other Sources”; the same is eligible to be set-off against public issue expenses.
36 Movaliya Bhikhubhai Balabhai v. ITO (TDS) (2016) 388 ITR 343 (Guj)
Issue Decision
Is interest on enhanced The assessee has received interest u/s 28 of the Land Acquisition Act, 1894
compensation u/s 28 of the Land which represents enhanced value of land and thus, partakes the character of
Acquisition Act, 1894 assessable compensation and not interest. Hence, interest u/s 28 is liable to be taxed under
as capital gains or as income from the head of ‘Capital Gains’ and not under ‘Income from Other Sources’. On the other
other sources? hand, interest u/s 34 of the Land Acquisition Act, 1894 is for the delay in making
payment after the compensation amount is determined. Such amount is liable to be
taxed under the head ‘Income from Other Sources’.
Note - The Land Acquisition Act, 1894 has now been repealed and replaced by the
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation
and Resettlement Act, 2013. Section 72 and section 80 of the new legislation have
similar provisions regarding award of interest.
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37 CIT v. Parle Plastics Ltd. (2011) 332 ITR 63 (Bom)
Issue Decision
What are the tests for determining U/s 2(22), “dividend” does not include, inter alia, any advance or loan made to a
“substantial part of business” of shareholder by a company in the ordinary course of its business, where the lending of
lending company for the purpose of money is a substantial part of the business of the company.
application of exclusion provision Percentage of turnover in relation to the whole as also the percentage of the
u/s 2(22)? profit in relation to the whole and sometimes even percentage of manpower
used for a particular part of the business in relation to the total manpower or
work force of the company would be required to be taken into consideration for
determining the substantial part of business. The capital employed for a specific
division of a company in comparison to total capital employed would also be
relevant to determine whether the part of the business constitutes a substantial
part.
38 CIT v. Ambassador Travels (P) Ltd. (2009) 318 ITR 376 (Delhi)
Issue Decision
Would the provisions of deemed U/s 2(22)(e), loans and advances made out of accumulated profits of a company
dividend u/s 2(22)(e) be attracted in which public are not substantially interested to a beneficial owner of shares holding
not less than 10% of the voting power or to a concern in which such shareholder
in respect of financial transactions
has substantial interest is deemed as dividend. However, this provision would
entered into in the normal course of
business? not apply in the case of advance made in the course of the assessee’s business as a
trading transaction.
The assessee was involved in booking of resorts for the customers of these
companies and entered into normal business transactions as a part of its
day-to-day business activities. Such financial transactions cannot under any
circumstances be treated as loans or advances received by the assessee from
these concerns for the purpose of application of section 2(22)(e).
39 CIT v. Manjoo and Co. (2011) 335 ITR 527 (Kerala)
Issue Decision
Can winnings of prize money on The receipt of the prize money is not in his capacity as a lottery distributor but as a
unsold lottery tickets held by the holder of the lottery ticket which won the prize. The Lottery Department also does
distributor of lottery tickets be not treat it as business income received by the distributor but instead treats it as prize
assessed as business income and be money paid on which tax is deducted at source.
subject to normal rates of tax instead Further, winnings from lotteries are assessable under the special provisions of
of the rates prescribed u/s 115BB? section 115BB, irrespective of the head under which such income falls.
Chapter 10: Set-off or Carry Forward and set off of Losses
40 Pramod Mittal v. CIT (2013) 356 ITR 456 (Delhi)
Issue Decision
Can the loss suffered by an erstwhile The partnership firm was dissolved and the takeover of the running business of
partnership firm, which was the firm by the erstwhile partner as a sole proprietor was not a case of succession
dissolved, be carried forward for by inheritance. Hence, the carry forward of losses of the firm by the sole
set-off by the individual partner proprietor for set-off against his income is not allowed.
who took over the business of the Note - In CIT v. Madhukant M. Mehta (2001) 247 ITR 805 (SC), the sole proprietor
firm as a sole proprietor, considering had expired and after his death, the heirs succeeded the business as a partnership
the succession as a succession by concern. Therefore, the losses suffered by the deceased proprietor was allowed to be set-
inheritance? off by the partnership firm since the case falls within the exception mentioned u/s 78(2),
i.e., a case of succession by inheritance.
Also, in Saroj Aggarwal v. CIT (1985) 156 ITR 497 (SC), upon death of a partner, his
legal heirs were inducted as partners in the partnership firm. The partnership firm was
not dissolved on the death of the partner. The partnership firm which suffered the losses
continued with induction of the legal heirs of the deceased partner. This, being a case
of succession by inheritance, the benefit of carry forward of losses was given to the re-
constituted partnership firm.
Chapter 11: Deductions from Gross Total Income
41 CIT v. Container Corporation of India Limited (2018) 404 ITR 397 (SC)
Issue Decision
Can Inland Container Depots (ICDs) Inland Container Depots function for the benefit of exporters and importers located
be treated as infrastructure facility, in industrial centres which are situated at distance from sea ports. The purpose of
for profits derived therefrom to be establishing them was to promote the export and import in the country as these
eligible for deduction u/s 80-IA? depots act as a facilitator and reduce inconvenience to the exporter or importer.
Section 80-IA provides for a deduction of profits derived from operation of an
infrastructure facility. The definition of “infrastructure facility” in Explanation to
section 80-IA(4)(i) includes an inland port. Considering the nature of work such as
custom clearance carried out at inland container depots, it can be considered as
an inland port within the meaning of section 80-IA(4).
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42 CIT v. Meghalaya Steels Ltd (2016) 383 ITR 217 (SC)
Issue Decision
Can transport subsidy, interest There is a direct nexus between profits and gains of the undertaking or business,
subsidy and power subsidy received and reimbursement of such subsidies. Transport subsidy, interest subsidy and power
from the Government be treated as subsidy from Government were revenue receipts which were reimbursed to the
profits “derived from” business or assessee for elements of cost relating to manufacture or sale of their products. Thus,
undertaking to qualify for deduction the subsidies were only in order to reimburse, wholly or partially, costs actually
u/s 80-IB? incurred by the assessee in the manufacturing and selling of its products.
Accordingly, these subsidies qualify for deduction u/s 80-IB.
43 CIT v. Orchev Pharma P. Ltd. (2013) 354 ITR 227 (SC) [Liberty India v. CIT (2009) 317 ITR 218 (SC) followed]
Issue Decision
Can Duty Drawback be treated as DEPB / Duty drawback are incentives which flow from the schemes framed by the
profit derived from the business Central Government or from section 75 of the Customs Act, 1962. Section 80-
of the industrial undertaking to be IB provides for the allowing of deduction in respect of profits and gains derived
eligible for deduction u/s 80-IB? from eligible business. However, incentive profits are not profits derived from
eligible business u/s 80-IB. They belong to the category of ancillary profits of such
undertaking. Profits derived by way of incentives such as DEPB/Duty drawback
cannot be credited against the cost of manufacture of goods debited in the statement
of profit and loss and they do not fall within the expression "profits derived from
industrial undertaking" u/s 80-IB. Hence, Duty drawback receipts and DEPB
benefits do not form part of the profits derived from the eligible business for the
purpose of deduction u/s 80-IB.
44 CIT v. Swarnagiri Wire Insulations Pvt. Ltd. (2012) 349 ITR 245 (Karn)
Issue Decision
Can unabsorbed depreciation The deeming provision contained in section 80-IA(5) cannot override the
of a business of an industrial provisions of section 70(1). The assessee had incurred loss in eligible business after
undertaking eligible for deduction claiming depreciation. Hence, section 80-IA becomes insignificant, since there is no
u/s 80-IA be set off against income profit from which this deduction can be claimed. It is thereafter that section 70(1)
of another non-eligible business of comes into play, whereby the assessee is entitled to set off the losses from one source
the assessee? against income from another source under the same head of income. Therefore, the
assessee was entitled to the benefit of set off of loss of eligible business against
the profits of non-eligible business. However, once set-off is allowed u/s 70(1)
against income from another source under the same head, a deduction to such extent
is not possible in any subsequent assessment year i.e., the loss (arising on account of
balance depreciation of eligible business) so set-off u/s 70(1) has to be first deducted
while computing profits eligible for deduction u/s 80-IA in the subsequent year.
45 CIT v. Sunil Vishwambharnath Tiwari (2016) 388 ITR 630 (Bom)
Issue Decision
Is the increase in gross total income The assessee is entitled to claim deduction u/s 80-IBA in respect of the enhanced
consequent to disallowance u/s gross total income as a consequence of disallowance of expenditure u/s 40(a)(ia).
40(a)(ia) eligible for profit-linked Note - The CBDT has, in its Circular No.37/2016 dated 2.11.2016, mentioned that
deduction under Chapter VI-A? the courts have generally held that if the expenditure disallowed is related to the
business activity against which the Chapter VI-A deduction has been claimed, the
deduction needs to be allowed on the enhanced profits. Thus, the settled position is
that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. and other
specific disallowances, relating to the business activity against which the Chapter VI-A
deduction has been claimed, result in enhancement of the profits of the eligible business,
and that deduction under Chapter VI-A is admissible on the profits so enhanced on
account of such disallowance.
46 CIT v. Nestor Pharmaceuticals Ltd. / Sidwal Refrigerations Ind Ltd. v. DCIT (2010) 322 ITR 631 (Delhi)
Issue Decision
Does the period of exemption The assessee had started trial production in March 1998 whereas commercial
u/s 80-IB commence from the production started only in April, 1998. With mere trial production, the manufacture
year of trial production or year of for the purpose of marketing the goods had not started which starts only with
commercial production? Would it commercial production, namely, when the final product to the satisfaction of the
make a difference if sale was effected manufacturer has been brought into existence and is fit for marketing. However, in
from out of the trial production? this case, since the assessee had effected sale in March 1998, it had crossed the stage of
trial production and the final saleable product had been manufactured and sold. The
quantum of commercial sale and the purpose of sale (namely, to obtain registration
of excise / sales-tax) is not material. With the sale of those articles, marketable
quality was established. Therefore, the conditions stipulated in section 80-IB were
fulfilled with the commercial sale of the two items in that assessment year, and hence
the five year period has to be reckoned from A.Y.1998-99.

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Chapter 15: Deduction, Collection and Recovery of Tax
47 ITC Ltd v. CIT (2016) 384 ITR 14 (SC)
Issue Decision
Whether “tips” received by the hotel- Section 15 applies when an employee has a vested right to claim any salary from an
company from its customers (who employer or former employer. However, in the case on hand, there is no vested right
made payment through credit card) on the part of the employee to claim any amount of tips from the employer, since tips
and distributed to the employees are purely voluntary amounts that may or may not be paid by customers for services
would fall within the meaning of rendered.
“Salaries” to attract tax deduction at The amount of tips paid by the employer to the employees had no reference
source u/s 192? to the contract of employment at all. Tips were received by the employer in a
fiduciary capacity as trustee for payments that were received from customers which
they disbursed to their employees for service rendered to the customer. There was,
therefore, no reference to the contract of employment when these amounts were paid
by the employer to the employee.
Therefore, the tips received by the employees could not be regarded as “profits
in lieu of salary” in terms of section 17(3). The payment by the employer of tips
collected from the customers to the employees would not be a payment made “by or
on behalf of ” an employer. Such payments would be outside the purview of section
15(b) of the Act.
The person who paid the tip was the customer and not the employer. Even though
the amounts were with the employer, he had no title to the money and it was held in a
fiduciary capacity as trustee for and on behalf of the employees.
Therefore, in such a case, no liability to deduct tax at source u/s 192 arises, and
hence, the assessee company cannot be treated as an assessee in default for non-
deduction of tax at source from the amount of tips collected and distributed to its
employees.
48 Japan Airlines Co. Ltd. v. CIT / CIT v. Singapore Airlines Ltd. (2015) 377 ITR 372 (SC)
Issue Decision
Are landing and parking charges paid The charges which are fixed by the AAI for landing and take-off services as well
by an airline company to Airports as for parking of aircrafts are not for the "use of the land". These charges are for
Authority of India in the nature services and facilities offered in connection with the aircraft operation at the airport
of rent to attract tax deduction at which include providing of air traffic services, ground safety services, aeronautical
source u/s 194-I? communication facilities, installation and maintenance of navigational aids and
meteorological services at the airport. Hence, the charges are not for use of the
land per se and, therefore, it cannot be treated as "rent" within the meaning of
section 194-I.
49 CIT v. Ahmedabad Stamp Vendors Association (2012) 348 ITR 378 (SC)
Issue Decision
Can discount given to stamp vendors Although the Government has imposed a number of restrictions on the licensed
on purchase of stamp papers be stamp vendors regarding the manner of carrying on the business, the stamp vendors
treated as ‘commission or brokerage’ are required to purchase the stamp papers on payment of price less discount on
to attract the provisions for tax “principal to principal” basis and there is no “contract of agency” at any point of time.
deduction u/s 194H? The definition of “commission or brokerage” under clause (i) of the Explanation to
section 194H indicates that the payment should be received, directly or indirectly,
by a person acting on behalf of another person, inter alia, for services in the course
of buying or selling goods. Therefore, the element of agency is required in case of
all services and transactions contemplated by the definition of “commission or
brokerage” under Explanation (i) to section 194H.
When the licensed stamp vendors take delivery of stamp papers on payment of
full price less discount and they sell such stamp papers to the retail customers,
neither of the two activities (namely, buying from the Government and selling
to the customers) can be termed as service in the course of buying and selling
of goods. The discount on purchase of stamp papers, therefore, does not fall
within the expression “commission or brokerage” to attract the provisions of tax
deduction at source u/s 194H.

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50 CIT v. Kotak Securities Ltd (2016) 383 ITR 1 (SC)
Issue Decision
Would transaction charges paid by The assessee company was engaged in the business of share broking, depositories,
the members of the stock exchange mobilisation of deposits and marketing public issues. Being a member of the BSE, it
for availing fully automated online
made payment to the Stock Exchange by way of transaction charges in respect of fully
trading facility, being a facilityautomated online trading facility and other facilities.
provided by the stock exchange • The services provided by the stock exchange are available to all members in respect
to all its members, constitute fees of every transaction that is entered into. There is nothing special, exclusive or
for technical services to attract thecustomized in the service that is rendered by the stock exchange.
provisions of tax deduction at source
• A member who wants to conduct his daily business in the stock exchange has no
u/s 194J? option but to avail such services. Each and every transaction by a member involves
the use of such services provided by the stock exchange for which the member is
required to pay transaction charge based on the transaction value besides charges
for the membership of the stock exchange.
• Technical services like managerial and consultancy service are in the nature of
specialised services made available by the service provider to cater to the special
needs of the customer-user as may be felt necessary. It is the above feature that
would distinguish or identify a service provider from a facility offered.
The service provided by the BSE for which transaction charges are paid failed to
satisfy the test of specialised, exclusive and individual requirement of the user or the
consumer who may approach the service provider for such assistance or service.
Therefore, the transaction charges paid to BSE by its members are not for technical
services but are in the nature of payments made for facilities provided by the
stock exchange. Such payments would, therefore, not attract the provisions of
tax deduction at source u/s 194J.
51 UCO Bank v. Dy. CIT (2014) 369 ITR 335 (Delhi)
Issue Decision
Is section 194A applicable in respect
The expression “payee” u/s 194A would mean the recipient of income whose account
of interest on fixed deposits in theis maintained by the person paying interest. The Registrar General is neither
name of Registrar General of High recipient of the amount credited to his account nor to interest accruing thereon.
Court? Therefore, he cannot be considered as a ‘payee’ for the purposes of section 194A.
In the absence of a payee, the machinery provisions for deduction of tax to his credit
are ineffective. The credit by the bank in the name of the Registrar General would,
thus, not attract the provisions of section 194A.
Note - The CBDT has accepted the aforesaid judgment and accordingly, vide Circular
No.23/2015 dated 28.12.2015, clarified that interest on FDRs made in the name of
Registrar General of the Court or the depositor of the fund on the directions of the
Court, will not be subject to TDS till the matter is decided by the Court. However, once
the Court decides the ownership of the money lying in the fixed deposit, the provisions
of section 194A will apply to the recipient of the income.
52 Vodafone Essar Cellular Ltd. v. ACIT (TDS) (2011) 332 ITR 255 (Kerala)
Issue Decision
Can discount given on supply of There is no sale of goods involved and the entire charges collected by the assessee-
SIM cards by a telecom company telecom company from the distributors at the time of delivery of SIM cards or
to its distributors be treated as recharge coupons were only for rendering services to ultimate subscribers. The
commission to attract the TDS assessee was accountable to the subscribers for failure to render prompt services
provisions u/s 194H? pursuant to connections given by the distributor. Therefore, the distributor only acted
as a middleman on behalf of the assessee for procuring and retaining customers and
consequently, the discount given to him was within the meaning of commission on
which tax was deductible u/s 194H.
53 Indus Towers Ltd v. CIT (2014) 364 ITR 114 (Delhi)
Issue Decision
Is payment made for use of passive The assessee owned a network of telecom towers and infrastructure services which
infrastructure facility such as mobile were let out to major telecom operators in the country. The infrastructure was given
towers subject to tax deduction u/s for the use of mobile operators. The towers were the neutral platform without which
194C or 194-I? the mobile operators could not operate. Each mobile operator has to carry out this
activity, by necessarily renting premises and installing the same equipment. The
dominant intention was the use of equipment or plant or machinery i.e., the
passive infrastructure, and the use of premises was only incidental. Hence, tax
has to be deducted@2% as per section 194-I(a), the rate applicable for payment
made for use of plant and machinery.

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54 CIT v. Senior Manager, SBI (2012) 206 Taxman 607 (All)
Issue Decision
In respect of a co-owned property, Since the share of each co-owner is definite and ascertainable, they cannot be assessed
would the threshold limit mentioned as an association of persons as per section 26. The income from such property is to be
in section 194-I for non-deduction assessed in the individual hands of the co-owners. Therefore, it is not necessary that
of tax at source apply for each there should be a physical division of the property by metes and bounds to attract the
co-owner separately or is it to be provisions of section 26.
considered for the complete amount In this case, since the payment of rent is made to each co-owner by way of separate
of rent paid to attract liability to cheque and their share is definite, the threshold limit mentioned in section 194-I has
deduct tax at source? to be seen separately for each co-owner.
55 CIT (TDS) v. Shree Mahalaxmi Transport Co. (2011) 339 ITR 484 (Guj)
Issue Decision
Can the payment made by an assessee Since the assessee had given contracts to the parties for the transportation of goods
engaged in transportation of building and not for renting out machinery and equipment, such payments could not be
material and transportation of goods termed as rent paid for the use of machinery. The provisions of section 194-I would,
to contractors for hiring dumpers, therefore, not be applicable. The transactions being in the nature of contracts
be treated as rent for machinery or for shifting of goods from one place to another would be covered under works
equipment to attract provisions of tax contracts, thereby attracting the provisions of section 194C.
deduction at source u/s 194-I?
56 CIT v. V.S. Dempo & Co P Ltd (2016) 381 ITR 303 (Bom) (Full Bench)
Issue Decision
Is tax is required to be deducted u/s
Since section 172 dealing with shipping business of non-residents contains a non-
195 on the demurrage charges paid obstante clause and applies both for the purpose of the levy and recovery of tax in the
to a foreign shipping company which case of any ship carrying passengers etc., belonging to or chartered by a non-resident
is governed by section 172 for the and shipping at a port in India, there would be no obligation on the payer-assessee
purpose of levy and recovery of tax?to deduct the tax at source u/s 195 on payment of demurrage charges to the non-
resident shipping company.
57 Sun Outsourcing Solutions Private Limited v. CIT (Appeals) (2018) 407 ITR 480 (T&AP)
Issue Decision
Is interest u/s 201(1A) attracted even The assessee is a private limited company engaged in the business of software
in a case where non-deduction of development with its office in Hyderabad and branch office in London. In the course
tax at source was under a bona fide of executing software projects in the U.K., the assessee had deputed some employees
belief that tax was not deductible from Hyderabad to London. The assessee did not deduct tax at source on the
and the default was not wilful? allowances paid to the staff deputed to the U. K.
Since the company had failed to deduct tax on the payments made to its employees,
being Indian residents deputed to work in the U.K., section 201(1A) is automatically
attracted; even if such non-deduction was due to the bona fide belief that tax is not
deductible in such case, the company is, nevertheless, liable to pay interest u/s
201(1A).
Chapter 18: Appeals and Revision
58 Genpact India Pvt. Ltd. v. DCIT & Ors (2019) 419 ITR 440 (SC)
Issue Decision
Is appellate remedy by way of appeal The situations referred to in section 246A(1)(a) of the Income-tax Act, 1961 are:
before Commissioner (Appeals) u/s (i) An order against the assessee, where the assessee denies his liability to be assessed
246A available to a company denying under the Act, or
its liability to pay additional income- (ii) An intimation u/s 143(1)/(1B), where the assessee objects to the making of
tax @ 20% on the distributed income adjustments, or
u/s 115QA? (iii) Any order of assessment u/s 143(3)/144, where the assessee objects to the amount
of income assessed, or to the amount of tax determined, or to the amount of loss
computed, or to the status under which he is assessed.
The contingencies detailed in (ii) and (iii) hereinabove arise out of assessment
proceedings but the first contingency is a standalone postulate and is not dependent
purely on the assessment proceedings either u/s 143 or section 144. The expression
"denies his liability to be assessed" is quite comprehensive to take within its fold every
case where the assessee denies his liability to be assessed under the Act.
Any determination u/s 115QA, be it regarding quantification of the liability or
the question whether such company is liable or not, would fall within the ambit
of the first postulate referred to hereinabove i.e., "an order against the assessee,
where the assessee denies his liability to be assessed under this Act". Accordingly,
an appeal u/s 246A to Commissioner (Appeals) would be maintainable against
the determination of liability u/s 115QA.

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59 CIT v. Pruthvi Brokers & Shareholders (2012) 349 ITR 336 (Bom)
Issue Decision
Can an assessee make an additional/ The appellate authorities have jurisdiction to permit additional claims before them,
new claim before an appellate however, the exercise of such jurisdiction is entirely the authorities’ discretion.
authority, which was not claimed by In case an additional ground was raised before the appellate authority which could not
the assessee in the return of income have been raised at the stage when the return was filed or when the assessment order
(though he was legally entitled to), was made, or the ground became available on account of change of circumstances or
otherwise than by way of filing a law, the appellate authority can allow the same.
revised return of income? Additional grounds can be raised before the Appellate Authority even otherwise than
by way of filing return of income. However, in case the claim has to be made before the
Assessing Officer, the same can only be made by way of filing a revised return of income.
60 CIT v. Earnest Exports Ltd. (2010) 323 ITR 577 (Bom)
Issue Decision
Does the Appellate Tribunal have The power u/s 254(2) is limited to rectification of a mistake apparent on record and
therefore, the Tribunal must restrict itself within those parameters. Section 254(2) is
the power to review or re-appreciate
not a carte blanche for the Tribunal to change its own view by substituting a view
the correctness of its earlier decision
u/s 254(2)? which it believes should have been taken in the first instance. Section 254(2) is not
a mandate to unsettle decisions taken after due reflection.
In this case, the Tribunal, while dealing with the application u/s 254(2), virtually
reconsidered the entire matter and came to a different conclusion. This amounted
to a reappreciation of the correctness of the earlier decision on merits, which is
beyond the scope of the power conferred u/s 254(2).
61 Lachman Dass Bhatia Hingwala (P) Ltd. v. ACIT (2011) 330 ITR 243 (Delhi)(Full Bench)
Issue Decision
Can the Tribunal exercise its power One of the important reasons for giving the power of rectification to the Tribunal
is to see that no prejudice is caused to either of the parties appearing before it by
of rectification u/s 254(2) to recall
its decision based on a mistake apparent from the record. When prejudice results
its order in entirety, where there is a
mistake apparent from record? from an order attributable to the Tribunal’s mistake, error or omission, then, it is the
duty of the Tribunal to set it right. In that case, the Tribunal had not considered the
material which was already on record while passing the judgment. The Apex Court in
another case law, took note of the fact that the Tribunal committed a mistake in not
considering material which was already on record and the Tribunal acknowledged its
mistake and accordingly, rectified its order.
Accordingly the High Court that the Tribunal, while exercising the power of
rectification u/s 254(2), can recall its order in entirety if it is satisfied that prejudice
has resulted to the party which is attributable to the Tribunal’s mistake, error or
omission and the error committed is apparent.
62 CIT v. Fortaleza Developers (2015) 374 ITR 510 (Bom)
Issue Decision
Can the Commissioner invoke When the order of the first appellate authority is complete and the appeal is
revisionary jurisdiction u/s pending before the Tribunal, the Commissioner is precluded from invoking
263, when the subject matter of section 263 for revision of the very same matter decided by the first appellate
revision (i.e., whether the manner authority since clause (c) of the Explanation 1 to section 263 debars the same.
of allocation of revenue amongst Accordingly, the High Court held that the order passed by the Assessing Officer got
the members of AOP would affect merged with the order of the first appellate authority. The very same issue cannot be
the allowability and/or quantum revised by invoking revisionary jurisdiction u/s 263.
of deduction u/s 80-IB) has been
decided by the Commissioner
(Appeals) and the same is pending
before the Tribunal?
63 Sunil Vasudeva & Others v. Sundar Gupta & Others (2019) 415 ITR 281 (SC)
Issue Decision
Does the High Court have the The High Court can review its own order, where the grounds for review were:
inherent power to review its own (i) discovery of new and important matter or evidence which, after the exercise of due
order to correct a mistake apparent diligence, was not within knowledge of the petitioner or could not be produced by
from the record? him;
(ii) mistake or error apparent on the face of the record;
(iii) any other sufficient reason.
A review will, however, not be maintainable in the following cases:
(i) repetition of old and overruled argument;
(ii) minor mistakes of inconsequential import.

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The following observations were also made by the Supreme Court in relation to
entertaining a review application:
(i) review proceedings cannot be equated with the original hearing of the case.
(ii) a review is not maintainable unless the material error, manifest on the face of the
order, undermines its soundness or results in miscarriage of justice.
(iii) a review is by no means an appeal in disguise whereby an erroneous decision is
reheard and corrected but lies only for patent error.
(iv) The mere possibility of two views on the subject cannot be a ground for review.
(v) The error apparent on the face of the record should not be an error which has to
be fished out and searched.
(vi) The appreciation of evidence on record is fully within the domain of the appellate
court, it cannot be permitted to be advanced in the review petition.
(vii) A review is not maintainable when the same relief sought at the time of arguing
the main matter had been negatived.
64 CIT v. Meghalaya Steels Ltd. (2015) 377 ITR 112 (SC)
Issue Decision
Does the High Court have an High Courts being courts of record under article 215 of the Constitution of India,
inherent power under the Income- the power of review would inhere in them. There is nothing in article 226 of the
tax Act, 1961 to review an earlier Constitution to preclude a High Court from exercising the power of review
order passed on merits? which inheres in every court of plenary jurisdiction to prevent miscarriage of
justice or to correct grave and palpable errors committed by it.
Section 260A(7) does not purport in any manner to curtail or restrict the application
of the provisions of the Code of Civil Procedure. Section 260A(7) only states that all
the provisions that would apply qua appeals in the Code of Civil Procedure would
apply to appeals u/s 260A. That does not in any manner suggest either that the other
provisions of the Code of Civil Procedure are necessarily excluded or that the High
Court's inherent jurisdiction is in any manner affected.
65 CIT v. A.A. Estate Pvt. Ltd. (2019) 413 ITR 438 (SC)
Issue Decision
Considering the procedure as There lies a distinction between the questions proposed by the appellant for admission
prescribed u/s 260A, is the High of the appeal to the High Court and the questions framed by the High Court. The
Court justified in not framing any substantial questions of law, which are proposed by the appellant fall u/s 260A(2)(c)
substantial question of law itself and whereas the substantial question of law is required to be framed by the High Court fall
adjudicating merely on the questions u/s 260A(3). U/s 260A(4), the appeal is heard on merits only on the substantial
put forth by the appellant? question of law framed by the High Court u/s 260A(3). If the High Court is of
the view that the appeal did not involve any substantial question of law, it should
have recorded a categorical finding to that effect saying that the questions proposed
by the appellant either do not arise in the case or/and are not substantial questions
of law so as to attract the rigour of section 260A for its admission and accordingly
should have dismissed the appeal in limine. However, this was not done. Instead, the
appeal was heard only on the questions urged by the appellant u/s 260A(2)(c),
which is not in line with the requirement contained in section 260A(4). The High
Court, therefore, did not decide the appeal in conformity with the mandatory
procedure prescribed in section 260A.
66 Spinacom India (P.) Ltd. v. CIT (2018) 258 Taxman 128 (SC)
Issue Decision
Can the delay in filing appeal u/s The Supreme Court rejected the question of invoking section 14 of the Limitation
260A be condoned where the stated Act, 1963 which allows condonation of delay on demonstration of sufficient cause.
reason for delay is the pursuance of The Supreme Court refused to accept the submission that the application before
an alternate remedy by way of filing the ITAT u/s 254(2) was an alternate remedy to filing of the application u/s 260A.
an application before the ITAT u/s The former is an application for rectifying a ‘mistake apparent from the record’
254(2) for rectification of mistake which is much narrower in scope than the latter. U/s 260A, an order of the ITAT
apparent on record? can be challenged on substantial questions of law. The Supreme Court stated
that the appellant had the option of filing an appeal u/s 260A while also mentioning
in the Memorandum of Appeal that its application u/s 254(2) was pending
before the ITAT. The time period for filing an appeal u/s 260A does not get
suspended on account of the pendency of an application before the ITAT u/s
254(2).

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