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II. Direct Taxes Case Laws:
1. M/s.
Berger Paints India Ltd. Vs. CIT, Civil Appeal No. 2162 & 2163 of
2007, Date of Order: 28.03.2017, Supreme Court of India
Issue:
Whether the share premium received by the company on is subscribed
share capital would constitute part of the capital employed in the
business of the company within the meaning of Section 35D of the Income
Tax Act, 1961 for calculating eligible amount of deduction therein?
Held_No
Brief Facts:
The assessee is a Limited Company engaged in the business of
manufacture and sale of various kinds of paints. The return of Income of
the assessee was processed by the AO u/s 143(1B) of the Income Tax Act,
1961 at an increased Income. A notice was issued to the assessee u/s
143(2) of the Act to seek explanation from the assessee about the claim
of a deduction under the head preliminary expenses u/s 35D of the Act,
being 2.5% of the capital employed in the business of the company. The
assessee contended that it had issued the shares on premium which
according to him was part of the capital employed, on that basis, it
claimed the said deduction and was therefore, entitled to claim the
deduction u/s 35D of the Act whereas the AO contended that share premium
account is not included in the capital employed in the business of the
company and therefore, not allowed deduction u/s 35D of the Act. The
assessee filed an appeal before the CIT(A). CIT(A) allowed the appeals
of the assessee stating that share premium a/c under head reserves was
in the nature of the capital base of the company. However, the order of
CIT(A) was reversed by the Tribunal. Admitting to the views of the
Tribunal, the appeal of the assessee was also dismissed by the Delhi
High Court. Aggrieved by which, the assessee had appealed before the
Hon’ble Supreme Court.
Held:
It was held that the share premium was indeed taken as a part of the
shareholders’ funds but it was not the part of the issued, subscribed
and paid up share capital of the Company. Also, the Explanation to
Section 35D of the Act does not include reserves and surplus of the
company as a part of the capital employed in the business of the
company. The capital employed is restricted only to the issued share
capital, debentures and long term borrowings. Therefore, the assessee
company was not entitled to claim any deduction in regard to the share
premium received from its shareholders. Also, the Form of Annual Return
provided by the Companies Act for furnishing the share capital of the
company every year does not include the share premium received by the
company in the column dealing with the details of the capital structure
of the company which clearly indicates that share premium does not form
part of capital structure unless specifically mentioned by the relevant
section. Also, Section 78 of the Companies Act does not mention that the
share premium be included in the capital employed by the company.
Therefore, the share premium should not be included in capital employed
of the business while computing eligible deduction u/s 35D of the Act.
The appeal of the assessee was dismissed.
(Please click here for judgment)
2. Kumudam
Publications Pvt. Ltd. Vs. Central Board of Direct Taxes and Ors., Writ
Petition (Civil) No. 11216/2016, Date of Pronouncement: 30.03.2017,
High Court of Delhi
Issue:
Whether the credit for Advance Tax paid should be granted to the
assessee on the income so declared under the Income Declaration Scheme,
2016 relative to the assessment years or periods for which it seeks
benefits under the scheme?
Held_Yes
Brief Facts:
The assessee company was incorporated under Companies Act,1956 and
has its registered office at Chennai. It had been filing its Income Tax
Return till AY 2009-10. Due some serious disputes between its
shareholders and directors in FY 2008-09, it was not able to appoint any
statutory auditor resulting in unaudited accounts and hence, Return was
not filed from AY 2010-11 till present. However, the assessee had paid
advance tax during that period. The assessee had applied u/s 119(2)(b)
of the income Tax Act, 1961 for permission to file Return of Income
based on unaudited accounts or in any other manner. But the application
of the assessee remained undecided. Later, the assessee made the
declaration of income for all the relevant assessment years under Income
Declaration Scheme, 2016 (IDS) in Form 1. The assessee duly disclosed
its income including tax and penalty on it and TDS deducted and advance
tax paid thereon. Regarding this, the assessee received an order from
PCIT demanding the total tax without giving benefit of the advance tax
already paid by the assessee.
The
assessee contended that the Circular No. 25 of 2016 clarified that the
credit for the TDS shall be given while calculating tax liability under
IDS and as such both TDS and Advance Tax are in the nature of the Tax
paid in Advance and therefore, credit should be allowed for both TDS as
well Advance Tax otherwise the income declared by the assessee would
account to double taxation. On the other hand, the Revenue contended the
provision of the Finance Act, 2016 (containing Sections regarding IDS)
override the provisions of the Income Tax Act, 1961 and other Finance
Acts and therefore, should operate independently. As per the circulars
and clarifications issued by Revenue, credit is to be allowed only for
TDS that also in special cases as specified. Also, there is no special
provisions in the Scheme to provide benefit for Advance Tax.
Held:
It was held that such schemes are indeed interpreted in a Stand-Alone
basis. The phrase “shall be paid on or before a date to be notified” in
respect of the tax and surcharge to be paid in regard to the income
declared under the scheme refer to all the payments irrespective of
either paid immediately before or in the proximity of the declaration
filed. The provisions of the scheme also state that the undefined words
would hold same meaning as per the Income Tax Act, 1961. Therefore, as
per the opinion of the court, there is no bar for an assessee or
declarant to claim credit of advance tax amounts paid previously
relative to the assessment years or periods for which it seeks benefits
under the scheme. Further, clarification regarding benefit of TDS to be
granted for calculation of tax liability cannot be concluded as that the
advance tax payments relative for the assessment years covered by the
declaration cannot be taken into consideration as payments under and for
purposes of availing the benefits of the scheme. Hence, the assessee
should be granted credit for the amounts paid as Advance Tax or TDS
while calculating tax liability on the income declared under the scheme.
Therefore, the appeal of the assessee is allowed.
(Please click here for judgment)
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