Supreme Court Rulings GIST:

  

1.  DCIT vs Shri Satpuda Tapi Parisar SSK Ltd.-SC : Diversion of Income at source versus application of income & Real Income Theory principles applied to adjudicate on allowability of tax expense:

“The applicability of Section 40A(2) of the Income Tax Act, 1961 [`Act', for short] is linked to computation under Section 28 and Section 37 of the Act. It is the case of the Department in all these cases that the State Advised Price [S.A.P.] is determined on the basis of the price recommended by the assessee(s) after the finalisation of accounts and, therefore, the differential amount between S.A.P. and S.M.P. would constitute appropriation of profits and not expenditure/expense under Section 37 of the Act. On the other hand, it is the case of the assessee(s) that they are bound to pay to the cane growers the final cane price as per the S.A.P. fixed by the State Government and the mere fact that S.A.P. fixed by the State Government is based on the price recommended by the assessee(s) after finalisation of accounts would not constitute appropriation of profits because appropriation would arise only after the profits are determined and profits can be determined only after all the expenses incurred for the business are deducted from the gross income. On the above contentions, two questions were required to be considered by the Department, which are as follows:

  

"Whether the above-mentioned differential payment made by the assessee(s) to the cane growers after the close of the financial year or after the balance-sheet date would constitute an expenditure under Section 37 of the Income Tax Act, 1961; and whether such differential payment would, applying the real income theory, constitute an expenditure or distribution of profits?"

  

In deciding the above questions, the Assessing Officer will take into account the manner in which the business works, resolutions of the State Government, the modalities and the manner in which S.A.P. and S.M.P. are decided, the timing difference which will arise on account of the difference in the accounting years, etc. In a given case, if the assessee has made a provision in its accounts, then the Assessing Officer shall enquire whether such provision is made out of profits or from gross receipts and whether such differential payment is relatable to the cost of the sugarcane or whether it is relatable to the division of profits amongst the members of the Society? One of the points which will also arise for determination by the Assessing Officer will be on the theory of over-riding title in the matter of accrual or application of income. Therefore, in each of these cases, the Assessing Officer will decide the question as to whether the obligation is attached to income or to its source. None of these questions have been examined by the Authorities below. These questions are required to be examined because, in these case, we are not only concerned with the applicability of Section 40A(2) of the Act but we are primarily required to consider whether the said differential payment constitutes an expense or distribution of profits?”

(Click here for judgment)

    

2.  CIT vs M/s Emptee Poly Yarn Pvt. Ltd.-SC: Manufacture for section 80IA/80IB: Polyster Yarn

The short question which arises for determination in this batch of Civil Appeals is: Whether twisting and texturising of partially oriented yarn ('POY' for short) amounts to 'manufacture' in terms of Section 80IA of the Income Tax Act, 1961? 

 

“Held: Applying the above test to the facts of this case, it is clear that POY simplicitor is not fit for being used in the manufacture of a fabric. It becomes usable only after it undergoes the operation/process which is called as thermo mechanical process which converts POY into texturised yarn, which, in turn, is used for the manufacture of fabric. One more point needs to be mentioned. Under the Income Tax Act, as amended in  the test given by this Court in M/s. Oracle Software's case (supra) has been recognised when the definition of the word 'manufacture' is made explicit by Finance Act No.2/2009 which states that 'manufacture' shall, inter alia, mean a change in bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. Applying this definition to the facts of the present case, it may be mentioned that the above thermo mechanical process also bring about a structural change in the yarn itself, which is one of the important tests to be seen while judging whether the process is manufacture or not. The structure, the character, the use and the name of the product are indicia to be taken into account while deciding the question whether the process is a manufacture or not..”

(Click here for judgment)  

   

3.  CIT vs  Hemant V Joshi: SLP Notice Issued by SC on question:

“Issue notice limited to the question as to whether Settlement Commission was right in ordering re-opening of the assessments for the Assessment Years 1993-1994, 1994-1995 and 1995-1996.”

(Click here for judgment) 

 

 

 

What's New 

       

a.   Balanced growth oriented budget likely: Anagram Research (Click for detail)

b.   Haryana VAT on goods in Entry 102 in Sch C remains 4% (Click for detail)

c.   RBI stands by end-March inflation forecast (Click for detail)

d.   Computerization of Commercial Taxes Administrations of States/Union Territories (Click for detail)

e.   PMEAC pushes for single Cenvat rate above 8% (Click for detail)    0

 

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Thanks for your valuable time

"Voice of CA"

CA. Sanjay Kumar Agarwal, Founder - Voice of CA

Member - Central Council ICAI  (Former Chairman - NIRC)

Mob : 9811080342, agarwal.s.ca@gmail.com

CA. Kapil Goel, Moderator-Direct Taxes, Mob:9910272806, cakapilgoel@gmail.com

CA. Sidharth Jain, Co-Moderator, sidhjasso@yahoo.com

CA. Mukesh K Bansal, Co-Moderator-FEMA, mkak@rediffmail.com