A cut from Union Budget 2012-13

• India’s GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent
• GDP is estimated to grow by 6.9 per cent in 2011-12, after having grown at 8.4 per cent in preceding two years
• Current account deficit at 3.6 per cent of GDP for 2011-12 and reduced net capital inflow in the 2nd and 3rd quarters put pressure on exchange rate
• Growth moderated and fiscal balance deteriorated due to tight monetary policy and expanded outlays.
• Deterioration in fiscal balance in 2011-12 due to slippages in direct tax revenue and increased subsidies
•  Endeavour to keep central subsidies under 2 per cent of GDP in 2012-13. Over next 3 year, to be further brought down to 1.75 per cent of GDP 
• Twelfth Five Year Plan to be launched with the aim of “faster, sustainable and more inclusive growth”. Five objectives identified to be addressed effectively in ensuing fiscal year.
• DTC Bill to be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee
• Drafting of model legislation for the Centre and State GST in concert with States is under progress & GST network to be set up as a National Information Utility and to become operational by August 2012
• For 2012-13, Rs. 30,000 crore to be raised through disinvestment. At least 51 per cent ownership and management control to remain with Government 
• Foreign Direct Investment- Efforts to arrive at a broad based consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail upto 51 per cent.
• External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects 
• Proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking under active consideration of the government 
• ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion
• Tax free bonds of Rs. 60,000 crore to be allowed for financing infrastructure projects in 2012-13
• National Manufacturing Policy announced with the objective of raising, within a decade, the share of manufacturing in GDP to 25 per cent and creating of 10 crore jobs
• Various proposals to address the shortage of housing for low income groups in major cities and towns including allowing ECB for low cost housing projects and setting up of a credit guarantee trust fund etc
• Government has announced a financial package of Rs.3,884 crore for waiver of loans of handloom weavers and their cooperative societies
• Rs.5,000 crore India Opportunities Venture Fund to be set up with SIDBI
• Target for agricultural credit raised by Rs.1,00,000 crore to Rs.5,75,000 crore in 2012-13
• Enrolment of 20 crore persons completed under UID mission. Adequate funds to be allocated to complete enrolment of another 40 crore persons
• Proposal to lay a White Paper on Black Money in current session of Parliament 

BUDGET ESTIMATES 2012-13

• Gross Tax Receipts estimated at Rs.10,77,612 crore
• Net Tax to Centre estimated at Rs.7,71,071 crore
• Non-tax Revenue Receipts estimated at Rs.1,64,614 crore.
• Non-debt Capital Receipts estimated at Rs.41,650 crore
• Total expenditure for 2012-13 budgeted at Rs.14,90,925 crore.
•  Plan expenditure for 2012-13 at Rs.5,21,025 crore is 18 per cent higher than Budeget Estimates of 2011-12. 
•  99 per cent of the total plan outlay met in the Eleventh Plan.
•  Non-plan expenditure estimated at Rs.9,69,900 crore.
•  Rs.3,65,216 crore estimated to be transferred to States including direct transfers to States and district level implementing agencies.
• Entire amount of subsidy is given in cash and not as bonds in lieu of subsidies. 
• Fiscal deficit at 5.9 per cent of GDP in RE 2011-12.
• Fiscal deficit at 5.1 per cent of GDP in BE 2012-13.
• Net market borrowing required to finance the deficit to be Rs.4.79 lakh crore in 2012-13.
• Central Government debt at 45.5 per cent of GDP in 2012-13 as compared to Thirteenth Finance Commission target of 50.5 per cent.
• Effective Revenue Deficit to be 1.8 per cent of GDP in 2012-13.

TAX REFORMS

[A] Direct Tax 

• Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs.1,80,000 to Rs.2,00,000 giving tax relief of Rs.2,000.
• Upper limit of 20 per cent tax slab proposed to be raised from Rs.8 lakh to Rs.10 lakh.
• Proposal to allow individual tax payers, a deduction of upto Rs.10,000 for interest from savings bank accounts.
• Proposal to allow deduction of upto Rs.5,000 for preventive health check up.
• Senior citizens not having income from business proposed to be exempted from payment of advance tax.
• To provide low cost funds to stressed infrastructure sectors, rate of withholding tax on interest payment on ECBs proposed to be reduced from 20 per cent to 5 per cent for 3 years for certain sectors.
• Restriction on Venture Capital Funds to invest only in 9 specified sectors proposed to be removed.
• Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15 per cent upto 31.3.2013.
• Investment link deduction of capital expenditure for certain businesses proposed to be provided at the enhanced rate of 150 per cent.
• New sectors to be added for the purposes of investment linked deduction.
• Proposal to extend weighted deduction of 200 per cent for R&D expenditure in an  inhouse facility for a further period of 5 years beyond March 31, 2012.
• Proposal to provide weighted deduction of 150 per cent on expenditure incurred for agri-extension services.
• Proposal to extend the sunset date for setting up power sector undertakings by one year for claiming 100 per cent deduction of profits for 10 years.
• Turnover limit for compulsory tax audit of account and presumptive taxation of SMEs to be raised from Rs. 60 lakhs to Rs. 1 crore.
• Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery.
• Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 per cent to new retail investors, who invest upto Rs.50,000 directly in equities and whose annual income is below Rs. 10 lakh to be introduced. 
• Proposal to provide weighted deduction at 150 per cent of expenditure incurred on skill development in manufacturing sector.
• Reduction in securities transaction tax by 20 per cent on cash delivery transactions.
• Proposal to extend the levy of Alternate Minimum Tax to all persons, other than  companies, claiming profit linked deductions.
• Proposal to introduce General Anti Avoidance Rule to counter aggressive tax avoidance scheme.
• Measures proposed to deter the generation and use of unaccounted money.
• A net revenue loss of Rs.4,500 crore estimated as a result of Direct Tax proposals

[A] Indirect Tax

[i] Service Tax

• All services barring 17 negative list services, now under Service Tax net Increase in Service Tax rate from 10% to 12%
• Exemption from service tax is proposed for some sectors. 
• Service tax law to be shorter by nearly 40 per cent.
• New scheme announced for simplification of refunds.
• Rules pertaining to point of taxation are being rationalised.
• Number of alignment made to harmonise Central Excise and Service Tax. A common simplified registration form and a common return comprising of one page are steps in this direction.
• Revision Application Authority and Settlement Commission being introduced in Service Tax for dispute resolution.
• Utilization of input tax credit permitted in number of services to reduce cascading of taxes
• Place of Supply Rules for determining the location of service to be put in public domain for stakeholders’ comments.
• Study team to examine the possibility of common tax code for Central Excise and Service Tax.
• Proposals from service tax expected to yield additional revenue of Rs.18,660 crore.

[ii] Other Indirect Taxes

• Standard rate of excise duty to be raised from 10 per cent to 12 per cent, merit rate from 5 per cent to 6 per cent and the lower merit rate from 1 per cent to 2 per cent with few exemptions.
• Excise duty on large cars also proposed to be enhanced.
• Proposal to increase basic customs duty on imports of gold and other precious metals
• No change proposed in the peak rate of customs duty of 10 per cent on nonagricultural goods.
• To stimulate investment relief proposals for specific sectors - especially those under stress.
• Proposals to increase excise duty on ‘demerit’ goods such as certain cigarettes, hand-rolled bidis, pan masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented tobacco.
• Levy of excise duty of 1 per cent on branded precious metal jewellery to be extended to include unbranded jewellery. Operations simplified and measures taken to minimise impact on small artisans and goldsmiths.
• Branded Silver jewellery exempted from excise duty.
• Duty-free allowances increased for eligible passengers and for children of upto10 years.
• Proposals relating to Customs and Central excise to result in net revenue gain of Rs.27,280 crore.
• Indirect taxes estimated to result in net revenue gain of Rs.45,940 crore.

 Net gain of Rs.41,440 crore in the Budget due to various taxation proposals.

Small Taxpyers and Senior Citizens free from IT Scrutiny: CBDT

Small Tax payers (Individuals and HUF's having Gross Total Income less than Rs.10 lakh) and Senior citizens, filing ITR-1 and ITR-2 shall not be scrutinzed by IT department for A.Y 2012-13 , unless the IT department is in posession of credible informatio


No.402/92/2006-MC (07 of 2011)
Government of India / Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
***
New Delhi dated the 14th March 2011
PRESS RELEASE
Streamlining procedure for scrutiny of income-tax returns
Scrutiny of income tax returns is an important mechanism for ensuring taxpayer
compliance and to counter tax-evasion. However, it has evoked some concern from small
taxpayers and senior citizens about prolonged enquiries. Concerns have also been raised about
selection of the same cases in scrutiny year after year.
Appreciating the concern of these taxpayers and with a view to mitigate their hardships,
Central Board of Direct Taxes has reviewed its scrutiny selection procedure. In order to redress
the grievance, it has been decided that during the financial year 2011-12, cases of senior citizens
and small taxpayers, filing income-tax returns in ITR-1 and ITR-2 will be subjected to scrutiny
only where the Income Tax department is in possession of credible information.
Senior citizens for this purpose would be individual taxpayers who are 60 years of age or
more. Small taxpayers would be individual and HUF taxpayers whose gross total income, before
availing deductions under Chapter VIA, does not exceed Rupees ten lakh.
***

Subsidiary Co. is not related to Holding Co. u/s 40(A)(2)(b) - CIT V/s VS Dempo & Co.(P) Ltd (2011) 244 CTR (Bom) 102

Facts of the case:


Assessee co: V.S. DEMPO & CO. (P) LTD [hereinafter referred to as "H"] 
Subsidirary Co: M/s Dempo Mining Corporation (P) Ltd  [hereinafter referred to as "S"]
Transaction : Purchase of  iron ore of particular quality for Rs. 8,66,75,390 by "H" from "S"
Transaction rate: Rs. 80/DLT of Lump oil and Rs. 85/ DLT for high grade lump iron ore.

Ld AO's  finding: One "M/s Orient Goa (P) Ltd" had purchased high grade iron ore at Rs. 62.30 and high grade lumpy ore at Rs. 59.64 per DLT

Ld AO's conclusion: The assessee had purchased the ore from its subsidiary were higher than the market rate and, therefore, the provisions of s. 40A(2) of the Act were attracted. Hence, the AO disallowed the expenditure to the extent of Rs. 49,30,488, under s.40A(2) of the Act. 

Assessee filed appeal with CIT(A) who allowed the appeal 

Revenue challenged CIT (A) order with ITAT, who also confirmed CIT (A) order 

Revenue further challenged ITAT order with Bombay High Court which held as under:



4. Clause (a) of sub-s. (2) of s. 40A of the income-tax provides that where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in cl. (b) of the sub-section and the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. Clause (b) of sub-s. (2) of s. 40A of the income-tax mentions the class of persons in respect of whom cl. (a) is attracted. Learned counsel for the respondent submits that M/s Dempo Mining Corporation (P) Ltd., (hereinafter referred to as "the subsidiary company") from which the assessee purchased the iron ore is not one of the persons mentioned in cl. (b) of sub-s. (2) of s. 40A and, therefore, sub-s. 2(a) was not attracted. In the alternative he submitted that the finding recorded by the CIT(A) as well as the Tribunal that the assessee had paid a little higher than the usual rate taking into consideration the fact that the assessee was assured a huge quantity of supply, as well as the quality of supply that it cannot be said that the rate was unjustified, was a finding of fact. In the absence of any perversity, the finding of fact recorded by the CIT(A) and confirmed by the Tribunal cannot be interfered with in an appeal under s. 260A of the Act. He further submitted that both the assessee, as well as the subsidiary were registered companies under the Companies Act, 1956 liable to pay the income-tax at the same rate. Therefore, there was no question of diversion of any funds. He invited our attention to the CBDT Circular No. 6-P dt. 6th July, 1968, which states that no disallowance is to be made under s. 40A(2) in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. He submitted that the CIT(A) as well as the Tribunal have also recorded a finding of fact that there was no attempt of evasion of tax and, therefore, in view of the CBDT circular dt. 6th July, 1968, s. 40A(2) was not attracted and should not have been applied by the AO. The circular is binding on the Department and on this ground also the appeal should be dismissed.
    The CIT(A), on appreciation of the material available before him, has come to the conclusion that the assessee, as an exporter, was exporting huge quantity of iron ore. It was assured of supply of huge quantity of iron ore as well as quality of iron ore by a reason of the fact that it had entered into a contract with its subsidiary. He has also held that both the assessee and its subsidiary were companies paying tax at the same rate and, therefore, there was no question of tax evasion. These findings are not open for challenge in this appeal.
     In our view, in a business of export consistency of supply as well as quality of supply is important. In order to assure a consistent supply of material of the same quality the purchaser of a commodity may pay to a seller bound under a contract a little higher than the current rate. Furthermore, in case of yearly contracts by agreeing to buy goods at a specified rate the exporter is insulated from vagaries of any seasonal rise in the market rate. Therefore,
unless the rate agreed is so very much excessive or unreasonable as to doubt the objective behind the agreement, it cannot be said that the rate, a little higher than the seasonal market rate is unjustified or amounts to diversion of profit. In this connection, the fact that the assessee as well as its subsidiary which is the seller are in the same tax bracket and pay same rate of tax is a fact which assumes importance. Admittedly, it is not a case of tax evasion in as much as if the rate would have been less, the assessee’s profit would have been more, but the profits of the seller would have been less and both being taxable at the same rate, there would be no difference in the aggregate tax payable by the assessee and its subsidiary.
        A decision of a Division Bench of this Court in CIT vs. Indo Saudi Services (Travel) (P) Ltd. (2008) 219 CTR (Bom) 562 : (2008) 12 DTR (Bom) 304 is a case in point. Therein the
assessee was a general sales agent of Saudi Arabian Airlines. The assessee earned commission at 12 per cent from Saudi Arabian Airlines. The assessee had appointed several agents, including its sister concern as sub-agents and was paying commission to each such sub-agent. While the assessee was paying a commission of 9 per cent to all its agents, it was paying additional 1/2 per cent to its sister concern which was also acting as a sub-agent. The AO disallowed the 1/2 per cent commission paid to the assessee’s sister concern under s. 40A(2) of the IT Act. The order was confirmed by the CIT(A) as well as by the Tribunal. On an appeal at the instance of the assessee, this Court noted that the sister concern to which the assessee was paying extra 1/2 per cent commission was also assessed to tax and was paying tax. Relying upon the Circular No. 6-P, dt. 6th July, 1968 of the CBDT, it is held
that no disallowance should be made under s. 40A(2) of the IT Act in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. This Court while allowing the appeal, set aside the addition made under s. 40A(2) of the Act.
         In our view, in the facts and circumstances of the case, the ratio of decision of this Court in Indo Saudi Services (Travel) (P) Ltd.’s case (supra) squarely applies to the facts
of the case at hand.



8. Ms. Dessai, learned counsel appearing for the Revenue, invited our attention to another decision of a Division Bench of this Court in CIT vs. Shatrunjay Diamonds (2003) 183 CTR (Bom) 86 : (2003) 261 ITR 258 (Bom), and to the observations made in paras 10 and 11 of the decision. She submitted that once it was held that the payment was made to a related person mentioned in cl. (b) of s. 40A(2) of the Act, the burden shifted on the assessee and it was the duty of the assessee to discharge the burden by leading proper evidence that the provisions of s. 40A(2) were not attracted to the assessee’s case. The basic requirement for the applicability of s. 40A(2) of the Act is that the payment must be made to a related person i.e., to a person referred to in cl. (b), of sub-s. (2) of s. 40A of the Act. In the facts and circumstances of the case, we are of the view that the payment in the case at hand was not
made to a person mentioned in cl. (b) of s. 40A(2) of the Act for the reasons indicated below.
9. Clause (a) of sub-s. (2) of s. 40A of the Act provides that where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in cl. (b) of the sub-section and the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the
assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable, shall not be allowed as a deduction. The object of s. 40A(2) is to prevent diversion of income. An assessee who has large income and is liable to pay tax at the highest rate prescribed under the Act often seeks to transfer a part of his income to a related person who is not liable to pay tax at all or liable to pay tax at a rate lower than the rate at which the assessee pays the tax. In order to curb such tendency of diversion of income and thereby reducing the tax liability by illegitimate means, s. 40A was added to the Act by an amendment made by the Finance Act, 1968. Clause (b) of s. 40A(2) gives the list of related persons.


       It is only where the payment is made by the assessee to the related persons mentioned in cl. (b) of s. 40A (2) of the Act that the AO gets jurisdiction to disallow the expenditure or a part of the expenditure which he considers excessive or unreasonable. Clause (b) of s. 40A(2) reads as under : "40A(2)(b)
The persons referred to in cl. (a) are the following, namely :
(i) where the assessee is an individual - any relative of the assessee; 
(ii) where the assessee is a company -any director of the company, partner of the firm firm, association of persons or Hindu or member of the association or family, or any undivided family relative of such director, partner or member;
(iii) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual;
(iv) a company, firm, AOP or HUF having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member;
(v) a company, firm, AOP or HUF of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member;
(vi) any person who carries on a business or profession,—
       (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or
       (B) where the assessee being a company, firm, AOP or HUF, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner, or member, has a substantial interest in the business or profession of that
person.
Explanation.—For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,—
(a) in a case where the business or profession is carried on by a company, such
person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profit) carrying not less than twenty per cent of the voting power; and
(b) in any other case, such person is, at any time during the previous year, beneficially
entitled to not less than twenty per cent of the profits of such business or profession."



10. Learned counsel for the appellant submitted that the present case falls under sub-cl. (ii) or sub-cl. (iv) of cl. (b) of s. 40A(2). Sub-cl. (ii) provides that where the assessee is a company, firm, AOP or HUF, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member would be a related person.


In the present case, the assessee is a company and the seller is its subsidiary
company. The seller i.e., the subsidiary company does not fall in any of the capacities mentioned under sub-cl. (ii) of cl. (b). Only a director of the company, partner of the firm, or member of the association or family or any relative of such director, partner or member is a related person, under sub-cl. (ii) of cl. (b) of subs. (2). Another company, even if it is a subsidiary of the assessee is not a related person within the meaning of sub-cl. (ii) of cl.(b) of s. 40A(2). Sub-cl. (iv) of cl. (b) of s. 40A(2) provides that in case of a company, firm, AOP or HUF having a ‘substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member is a related person.

Again a subsidiary company does not fall in any of the class of persons mentioned in sub-cl. (iv) of cl. (b) of s.40A(2). In law, a holding company is a member of subsidiary company and holds more than 50 per cent equity share capital of the subsidiary company (except in cases where it controls the composition of the board of directors without holding majority of the shares). While the holding company is a member of its subsidiary company, the subsidiary company is not a member of the holding company. As, the subsidiary company was not a member of the assessee, sub-cl. (iv) of cl. (b) of s. 40A(2) of the Act is also not attracted in the present case.

In Shatrunjay Diamonds (supra), the Division Bench of this Court held that the burden of proving that the case does not fall under s. 40A(2)(b) would shift on the assessee if the supplier of the goods is a related person as mentioned under cl. (b).


In the present case, as we have held that the subsidiary company is not a related person of the assessee within the meaning of cl. (b) of s. 40A(2) of the Act, the decision has no application to the facts of the present case.



For these reasons, there is no merit in the appeal which is hereby dismissed.

New service launced by IT Dept to request missed Intimation,Rectification orders and Refunds

The process of request for re-sending of CPC-Intimation u/s 143(1)/154 and refund is now available in 'Services' option on Income Tax E-filling portal.

The said service allows taxpayers to request resending by Department of Intimation u/s 143(1), Rectification order issued u/s 154 and Tax Refunds processed by CPC. This service is available for intimations/rectification orders and refunds for A.Y.2008-09 onwards and the same can be requested to be sent in Paper mode at PAN Address, ITR Address  or New Address or through Electronic mode via E-Mail. ECS of Tax refund can be requested to be made in Bank Account mentioned in Return filed.

CBDT allows TDS claims to be accepted even if not matching with Form 26AS

CBDT has issued  Instruction No. 01/2012 [F.NO.225/34/2011-ITA.II], dated 2-2-2012 allowing claim of TDS made by assessee even in cases where the same is not reflected/matched in Form 26 AS.

Instruction No. 01/2012 [F.NO.225/34/2011-ITA.II], dated 2-2-2012

The issue of processing of returns for the Asst. Year 2011-12 and giving credit for TDS has been considered by the Board. In order to clear backlog of returns, the following decisions have been taken:

(i) In all returns (ITR-1 to ITR-6), where the difference between the TDS claim and matching TDS amount reported in AS-26 data does not exceed Rs. One lac, the TDS claim may be accepted without verification.

(ii) Where there is zero TDS matching, TDS credit shall be allowed only after due verification. However, in case of returns of ITR-1 and ITR-2, credit may be allowed in full, even if there is zero matching, if the total TDS claimed is Rs. Five thousand or lower.

(iii) Where there are TDS claims with invalid TAN, TDS credit for such claims are not to be allowed.

(iv) In all other cases, TDS credit shall be allowed after due verification.

Compensation received from developer under Redevlopment agreement by member of Hsg. Society is not an Income Kushal K. Bangia vs. ITO (ITAT Mumbai)

I.T.A No.2349/ Mum/2011

Assessment year: 2007-08

Facts of the case:

• The assessee is member of Hsg Society "Vile Parle Ramesh CHS Ltd" 

• The said society along with its members has entered in redevelopment agreement wherein each member was to hand over vacant possession of their flats to developer
• The said developer was in turn to provide each members the following :-

            -  New flat with additional area  

            - Displacement compensation of Rs.34,000/- per month till members were given possession in new flat                                                 

            -Additional compensation referred to as Cash compensation Rs.11,75,000/- treating the same as Casual income 

• The Ld. AO, interalia made an addition  on account of :-  
• -Estimated  value of additional area of flat received
• -Additional compensation (cash compensation received) Rs.11,75,000 
• CIT (A) gave partial relief to assessee by deleting addition made by Ld AO on account of Estimates value of additional area of flat received and, upheld AO's addition of additional compensation Rs.11,75,000/-
• Aggrieved, assessee made further appeal to ITAT, Mumbai

Held as under;

In our considered view, it is only elementary that the connotation of income howsoever wide and exhaustive, take into account only such capital receipts are specifically taxable under the provisions of the Income tax Act. Section 2(24)(vi) provides that income includes “any capital gains chargeable under section 45”, and, thus, it is clear that a capital receipt simplicitor cannot be taken as income. Hon’ble Supreme Court in the case of Padmraje R. Kardambande vs CIT (195 ITR 877) has observed that “..,, we hold that the amounts received by the assessee during the financial years in question have to be regarded as capital receipts, and, therefore, (emphasis supplied by us), are not income within meaning of section 2(24) of the Income tax Act….” This clearly implies, as is the settled legal position in our understanding, that a capital receipt in principle is outside the scope of income chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of revenue receipt or is brought within the ambit of income by way of a specific provision in the Act. No matter how wide be the scope of income u/s.2(24) it cannot obliterate the distinction between capital receipt and revenue receipt. It is not even the case of the Assessing Officer that the compensation received by the assessee is in the revenue field, and rightly so because the residential flat owned by the assessee in society building is certainly a capital asset in the hands of the assessee and compensation is referable to the same. As held by Hon’ble Supreme Court, in the case of Dr. George Thomas K vs CIT(156 ITR 412), “the burden is on the revenue to establish that the receipt is of revenue nature” though “once the receipt is found to be of revenue character, whether it comes under exemption or not, it is for the assessee to establish”. The only defence put up by learned Departmental Representative is that cash compensation received by the assessee is nothing but his share in profits earned by the developer which are essentially revenue items in nature. This argument however proceeds on the fallacy that the nature of payment in the hands of payer also ends up determining it’s nature in the hands of the recipient. As observed by Hon’ble Supreme Court in the case of CIT vs. Kamal Behari Lal Singha (82 ITR 460), “it is now well settled that, in order to find out whether it is a capital receipt or revenue receipt, one has to see what it is in the hands of the receiver and not what it is in the hands of the payer”. The consideration for which the amount has been paid by the developer are, therefore, not really relevant in determining the nature of receipt in the hands of the assessee. In view of these discussion, in our considered view, the receipt of Rs.11,75,000 by the assessee cannot be said to be of revenue nature, and, accordingly, the same is outside the ambit of income under section 2(24) of the Act. However, in our considered opinion and as learned counsel for the assessee fairly agrees, the impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same will be taken into account as such, as and when occasion arises for computing capital gains in respect of the said asset. Subject to these observations, grievance of the assessee is upheld.

5. In the result, the appeal is allowed in the terms indicated above.

Tax Audit u/s 44AD, etc.. not included in considering overall limit of 45 Tax audis per CA - ICAI clarification

Click on the link below to read ICAI's clarification

http://www.icai.org/new_post.html?post_id=7943&c_id=219

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