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20.08.2016 - Voice of CA presents - Updates
Saturday, August 20, 2016

I. Headlines Today    

  1. CBDT amends IDS rules: allows 'stamp duty valuation' to determine market value of property  (Click for detail)
  2. CBDT issues fifth set of FAQs on IDS  (Click for detail)
  3. Tax on Unaccounted Income Now Payable in Cash as Well  (Click for detail)
  4. Deduction benefit under section 35AC only till March 31  (Click for detail)
  5. Companies (Share Capital and Debentures) Fourth Amendment Rules 2016  (Click for detail)
  6. SBI merger: the winners and losers  (Click for detail)
  7. ICAI: Ind AS Transition Facilitation Group (ITFG) Clarification Bulletin 4  (Click for detail)
II.  Direct Taxes Case Laws: 

1.  Agya Ram Vs. CIT, I.T.A. No. 290/291/292/293/2004, Date of Order: 01.08.2016, High Court of Delhi


Whether the income derived from licensing part of the premises can be assessed under the head "Income from business" u/s 28 instead of “Income from house property" u/s 22 of the Income Tax Act, 1961?

Held: Yes

Brief Facts:
Since AY 1982-83, the Assessee gave on license 91% of the factory premises and was receiving license fees. The earning of license fees was the only source of income and he had been filing regular returns from AY 1982-83 onwards with the licensing income shown under head "Income from business". The licensing deeds had clauses stating:- that the deed was not to be confused with a tenancy agreement or lease, supervision and control would be with licensor, it was a temporary arrangement, licensee could not transfer his rights to anyone else and other clauses differentiating the deed from a lease agreement. The AO was of the view that the assessee was attempting to camouflage his rental income in form of business income and thus claiming excess deduction. It was noted by the CIT (A) that the AO mainly relied on the statement of Petitioner made to one of the Inspectors “rent which is called license payment” and didn’t have any other substantial reason to disallow and thus ruled in the favor of the assessee, whereas the ITAT felt that the assessee is exploiting the shed with an idea to generate a rental income for security and merely the word 'license' has been used instead of ‘rent’and thus ruled against the assessee, ordering for this income to be assessed under head “Income from House property”.

The Hon’ble High Court put emphasis on the fact that the return for AY 1982-83 was picked up for scrutiny and an assessment order was passed u/s 143(3) of the Act accepting the stand of the Assessee that the license fee was in the nature of business income. This stand was continued by the Assessee for all the AYs that followed, including the AYs in question and stated that the ITAT has in the impugned order not given any reason for disagreeing with the CIT (A). Thus, in light of the specific clauses of the license deed, the Court is satisfied that the income earned by the Assessee from the license fee could not be characterised as rent. The Court is of the view that the AO and the ITAT were in error in coming to a contrary conclusion. They appear to have overlooked that the Assessee had consistently treated the licence fees collected as business income since AY 1982-83. The appeals are allowed.

(Please click here for judgment)


2.  Bolkunda Pachwai & (S) C.S. Shop Vs. ITO, I.T.A Nos. 165 & 166/Kol/2014, Date of Pronouncement:10.08.2016, ITAT - Kolkata

Whether cash deposited directly in the bank of a wholesale licensee for purchase of country spirit would fall under exception provided in Rule 6DD of the Income Tax Rules?

Held: Yes

Brief Facts:
The assessee is a partnership firm engaged in the business of retail trading of liquor under the name and style of M/s Bolkunda Pachwai & (S) C.S.Shop. The ld AO observed that the assessee had made cash payments in excess of Rs. 20,000/- to M/s Asansol Bottling & Packaging Co. Pvt Ltd (ABPL in short) for purchase of country spirit by way of cash deposits into the bank account of ABPL. The assessee informed that the payment for purchase of country spirit had to be made prior to delivery of the bottles of country spirit by M/s ABPL and the amount is deposited in cash in the bank account of ABPL by the assessee. It was argued that the payment is made to the wholesale licensee who is an agent of the Government and hence the payment would fall under the exception provided in Rule 6DD(k) of the IT Rules. The ld AO was not convinced with this and proceeded to make disallowance u/s 40A(3) of the Act in respect of cash purchases made by the assessee which was confirmed by the ld CIT(A).

The ld AR argued that the wholesale licencee is an agent of the State Government and is a link between retail vendor (assessee herein) and the State Government. He argued that Rule 6(2) of Notification dated 29.08.2005 issued by the Excise Department, Government of West Bengal mandates the retail vendor to deposit the monies directly into the bank account of the wholesale licensee and not by any other mode. Reliance was placed on the decision of Co-ordinate Bench of Bangalore Tribunal in the case of Sri Renukeswara Rice Mills vs ITO reported in 93 ITD 263 (Bang Trib.) wherein it was held that the cash payment in the accounts of the payee in a Bank is sufficient to get exemption in terms of Rule 6DD. It was further noted that if the entire purchases made in cash is disallowed, then effectively the ld AO would be taxing the entire sale proceeds as income of the assessee which would only result in an anomalous situation & as much it is ensured that the payee and payee alone receives the payment and the origin and conclusion of the transaction is traceable thereby fulfilling the criterion for ensuring the object of introduction of section 40A(3) of the Act applicable to the facts of the instant case, Hence it was  more relevant to get into the intention of the legislature & the assessee was allowed the exception provided in Rule 6DD of the Income Tax Rules.

(Please click here for judgment)

III. A Useful Video:

1.  Video on GST impact & preparedness for Service sector 

(Please click here for detail)

(Contribution by CA. Bimal Jain and contributor is available at eMail-id:

Click below for Video on GST impact & preparedness for Service sector:


 Golden Rules:

  "The true test of character is not how much we know how to do,
but how we behave when we don't know what to do"


  Thanks & Regards


Voice of CA 

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