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II. Direct Taxes Case Laws:
1. Vatsala Shenoy Vs. JCIT, Civil Appeal No. 1234 to 1245 of 2012, Date of Judgment: 18.10.2016, Supreme Court of India
Issue:
Whether the capital gain tax will be paid by the partners of the dissolved partnership firm on the sale of its assets?
Held_Yes
Background of the case:
All the assessees in the present case were partners in the
partnership concern known as M/S Mangalore Ganesh Beedi Works, which was
sold to three partners as a going concern after the dissolution of the
partnership firm. The receipts from the same was treated as capital gain
by the Assessing Officer and the same order was confirmed by the
CIT(A), ITAT and thereafter also by the Hon’ble High Court of Karnataka.
Aggrieved by which, the assessees are in appeal before the Apex Court.
Contentions of the assessees:
The AR
of the assessee contended that the firm was sold as a going concern and
as such there could not be any capital gain on the sale of the going
concern. Therefore, it has to be treated as the slump sale under Section
2(42C) of the Income Tax Act, 1961. Moreover there was no provision
relating to computation and deduction at the time of the sale and the
relevant provisions were introduced w.e.f. 01.04.2000.
Contention of the Revenue:
It was
contented by the Revenue that the assets sold to the AOP-3 were those of
the dissolved partnership firm though as a going concern because
business was carried on by 7 partners as per the Interim Order of the
High Court. The income between the interim periods was assessed in the
hands of the AOP of 7 Partners and not in the hands of the dissolved
firm. Therefore, the assets of the firm in covered under the meaning of
‘Capital Asset’ u/s 2(14) of the Act. Also, the assets were sold after
the valuation which is contrary to the provisions of Section 2(42C) of
the Act containing the meaning of the Slump Sale. Therefore the Section
45 of the act would apply in the case of the assessees.
Held:
It was held that the argument of the assessee regarding the valuation
of the goodwill will not survive. Secondly, the income of the firm in
the Assessment Year 1995-96 would not be taxable in the hands of the
assessee and would be assessed in the hands of AOP-3. Thirdly, the order
of the Assessing Officer is upheld regarding the payment of the capital
gain tax by the assessee.
(Please click here for judgment)
2. Bombay
Suburban Electric Supply Ltd. Vs. CIT, Income Tax Reference No. 76 of
1998, Date of Order: 13.10.2016, High Court of Bombay
Issue:
Whether the assessee was entitled to claim the deduction under
Section 35B of the Income Tax Act, 1961 as a sub-contractor to the
Indian party exporting the Technical know–how to the foreign party?
Held_No
Brief Facts:
For the assessment year 1979-80, the assessee claimed weighted
deduction on expenditure incurred by it on the items listed in Section
35B of the Income Tax Act, 1961. The facts of the case are that the
assessee entered into agreement with the Electricity Corporation of
Saudi Arabia (ECSA) to provide, deliver at site, erect, set up, work,
test, hand over and maintain a turnkey project for an electrification
scheme. The assessee also entered into an agreement with Bharat Heavy
Electricals Ltd. (BHEL) for sub – contracting a portion of work to BHEL
i.e. laying down of transmission lines, overhead lines and distribution
lines. The assessee incurred expenditure for the execution of the sub –
contract in respect of rendering services in connection with provision
of technical know – how to a person outside India which is eligible for
weighted deduction u/s 35B(1)(a) of the Act. The AO contended that the
assessee was only a sub – contractor of BHEL and therefore, not eligible
for the deduction under the stated section. The order of the AO was
upheld by both the CIT(A) And ITAT. Aggrieved by which, the assessee
Held:
It was contended by the Revenue that the work done by the assessee is
not covered in the meaning of technical know-how as per the Section
80MM(2) of the Income Tax Act,, 1961. It was held that after the
introduction of the Sub – section (1A) to the Section 35B, it was
inserted that the assessee claiming deduction has to be an exporter of
goods or technical know-how and the expenditure should have been
incurred by him in connection with that business. In the present case,
the assessee was a sub-contractor and was responsible to supply goods
and services to BHEL.On a bare reading of this contract; it clearly
appears to be a subcontract where obligations are owed by the assessee
to the main contractor, namely, BHEL. The assessee has no
obligations to the person outside in India, namely, in this case,
ECSA. Also, the exporter of the know-how was the BHEL and the assessee
therefore, was not eligible to claim any deduction u/s 35B of the Act.
(Please click here for judgment)
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