Law of Taxation – I

Case List

Charitable Trust

1. CIT v. Andhra Chamber of Commerce | Supreme Court

SC interpreted the term “general public utility” under the definition of “charitable
purpose” in S. 2(15). It is not necessary that the benefit must include all mankind. It is
sufficient if the intention be to benefit a section of the public as distinguished from
specified individuals.

2. Stock Exchange of Ahmedabad v. Assistant Commissioner of Income Tax (ACIT) |

ITAT Ahmedabad
Once registration under S. 12A has been allowed, exemption must be granted under S. 11.
It is beyond the province of the Assessing Officer to reject the claim of exemption by
stating that the objects of association are not charitable in nature.

3. CIT v. Baldeoji Maharaj Trust | Allahabad High Court

Trust didn’t file auditor’s report with their returns. They were allowed to file a revised
return and claim exemption under S. 12.
Section 139 (5) provides for filing of revised return.
Two conditions must be satisfied to enable an assessee to furnish a revised return:
a. that the original return must have been furnished under Sub-section (1) or Sub-
section (2) of Section 139, and
b. that the assessee discovers any omission or any wrong statement therein
Both were proved in this case. Report must be filed before the assessment is done.

4. CIT v. H.E.H. The Nizam’s Charitable Trust, 1981 | Andhra Pradesh High Court
Brief fact: Certain money was sanctioned for charitable purpose, but the actual payment
happened only in the subsequent assessment year. The IT department contended that there
was no “application” of money, while the respondent contended that the money had been
“applied”.
Ratio: The word “applied” in S. 11(1)(a) cannot be equated to the word “spent”. Where
the money has been sanctioned for a purpose and all that is to be done is the actual
 payment, it can be held that the money was “applied”. The actual payment is irrelevant
for finding out whether there has been an application of funds or not.

5. Gangabai Charities v. CIT

Where the property of the trust could be used for social, cultural and other allied purposes
at the sole discretion of the trustees, then such trust would not be eligible for wealth tax
exemption.

6. CIT v. Sarladevi Sarabhai Trust

Exemptions are granted because the state is benefited by the existence and activities of
the charitable organizations. This argument is based on the theory that the government is
compensated for the loss of revenue by its relief from financial burdens which would
otherwise have to be met by appropriations from public funds, and by the benefits
resulting from the promotion of the general welfare.

7. CIT v. Thanthi Trust

Business Income of trust is exempted if the business is incidental to the attainment of
objectives of the trust. In an event of ambiguity in the language employed, the provision
must me construed in a manner that benefits the assesse. Donations to other charitable
trusts is exempted under Section 11(1A).

8. CIT v. East India Charitable Trust

The exemption under Section 11(1A) is applicable on capital gains as well. This is
because all income is exempted under Section 11(1) and capital gains are income under S.
2(24).

9. CIT v. Framjee Cawasjee Institute

A trust can claim depreciation of assets even if the costs of assets has been fully allowed
as application of income under section 11 in the previous years.

10. CIT v. Institute of Banking Personnel Selection

A trust can claim depreciation on assets by transfer from another trust (for such assets it
had to incur no acquisition costs).
11. CIT v. Nagpur Hotel Owners Association
Rule 17: filing of form 10 before expiry of time under S. 139(1)
Held: rule is beyond the scope of Section 11 and application of accumulation can be made
even after completion of assessment at stage when the matter is pending before the
tribunal.
SC said Form 10 must be files with the Assessing Office before completion of the
assessment proceedings.

12. Escorts Ltd. v. UOI

The intention of the legislature is not to allow a double deduction (of 200%) in respect of
the same asset, once under section 35 and, again, by way of depreciation under section
32. If and to the extent that there is any anomaly or contrary view possible on a
construction of section 35, the court recommend that the law should be clarified to
provide that no depreciation under section 32 shall be allowable in respect of capital
expenditure for scientific research qualifying for deduction under section 35.

Salaries
1. Cowan v. Seymor
A sum paid to the secretary of a company who had acted as liquidator in the voluntary
winding-up without remuneration was not taxable income as the amount in question
having been paid to him by the shareholders after the winding-up as a tribute or
testimonial and not as payment for services.

2. Carter v. Great West Lumber Co.

Professional Service does not constitute an Employer employee relation. Therefore it is
not considered as salary.

3. CIT v. Shivcharan Mathur

MLA and MP’s Salary will be Charged under Section 56 (Other Sources) and not Section
15.

4. Lalu Prasad Yadav v. CIT

 Chief Minister, prime Minister and Presidents salary to be considered as salary.

5. Justice Deoki Nandan Agarwal v. UOI

Judges Income is not to considered as Salary.

6. CIT v. STC Ltd.

(Tip as Salary)

7. CIT v. T. Abdul Wahid & Co.

Commission paid is to be regarded as part of Salary and taxable accordingly.

8. Owen v. Pooke
Lord Pearce described ‘perquisite’ as “something that benefits a man by going into his
own pocket”.
(not necessary reimbursement)

9. David Mitchell v. CIT

Perquisites included only if from the employer.

Income from House Property

1. Chelmsford Club v. CIT | Supreme Court

Mutual Concern-AOP, who agree to contribute funds for some common purpose mutually
beneficial and receive back the surplus left out in the same capacity
income of a mutual concern is not assessable to tax, (ii) the charge of tax is on income
from property and not on the property itself, and (iii) No tax is chargeable on property not
capable of generating income.

2. CIT v. Premnath Motors Pvt. Ltd. | Delhi High Court

Building of land appurtenant thereto must be capable of being used by the assessee to be
taxable. An investment in an unfinished investment building cannot be taxed.

3. CIT v. Diwanchand
 Exemption under Section 23(2) is only with respect to natural persons. AOP, BOI, Co. do
not fall under its ambit.

4. Ghanshiyam das v. Debi Prasad

Brick Kiln is not a building. It is a mere pit in the ground without a roof.

5. ITO v. K.K Bhatnagar

Land or building is appertunant to a property if it is indivisible from it for its use and
enjoyment. This property should not be used for anything else. It should not yield a
separate income.

6. CIT v. R. Venugopala Reddiar, Srirangam

No distinction between properties situate within the taxable territory and properties
situate outside the taxable territory.

7. CIT v. Fazalbhoy Investment Co.

Income sought to be taxed should be from property consisting of building or lands
appurtenant thereto of which the assesse is the ‘owner’ and the onus entirely lies on the
Revenue to prove the same.

8. CIT v. Premnath Motors

Even if registration and stamp duty is necessary for a lease deed, such amount is not
permitted to be deducted from the rent received by the assesse in computing the annual
value.

PGBP
1. CIT v. Premji Gopal Bhai [Profit] –
It is now well settled that the burden lies on the revenue to establish that the profit earned
in a transaction is within the taxing provision and it would, therefore, be for the revenue
to show that the transaction is an adventure in the nature of trade.
In Topman Exports v. CIT [2012] 18 taxmann.com - The word 'profit' means the gross
proceeds of a business transaction less the costs of the transaction. 'Profits', therefore,
imply a comparison of the value of an asset when the asset is acquired with the value of
 the asset when the asset is transferred and the difference between the two values is the
amount of profit or gain made by a person. As DEPB has direct nexus with the cost of
imports for manufacturing an export product and, therefore, any amount realized by the
assessees over and above the DEPB on transfer of the DEPB would represent profit on
the transfer of DEPB.

2. Indian Molasses Co. (P.) Ltd. v. CIT | 1959, Supreme Court

'Expenditure' is equal to 'expense' and 'expense' is money laid out by calculation and
intention though in many uses of the word this element may not be present, as when one
speaks of a joke at another's expense. But the idea of 'spending' in the sense of 'paying out
or away' money is the primary meaning which is relevant. 'Expenditure' is, thus, what is
'paid out or away' and is something which has gone irretrievably.
Also, business loss and business expenditure are different.

3. Dr. T. A. Quereshi v. CIT

Income Tax authorities themselves have recorded a finding that the assessee was engaged
in manufacture and selling of heroin. The heroin seized was the assessee's stock in trade.
Any loss from such a business is a business loss. Allowed the assessee's claim of
deducting the loss of 5 kg of heroin whose value was assessed by the Tribunal at Rs. 2
lacs as a business loss.

4. Upper India Chamber of Commerce v. CIT | 1947 Allahabad High Court

Upon a proper construction of the words 'business' and 'vocation' in the context of the
Indian Income-tax Act, there must be some real, substantive and systematic course of
business or conduct, before it can be said that a business or vocation exists the profits of
which are taxable as such under the Act. Difference between profession and vocation not
significant.

5. Davenport and Co. v. CIT

The Income tax officer held that the transactions involving mere transfer of delivery notes
and not actual delivery of the goods were of a speculative character as contemplated in
explanation 2 to sec. 24(1) and the loss could be set off only against speculation profits,
and as there were no speculation profits is that year, he held that the loss would be carried
forward and set-off against speculation profits in the future.
6. Bengal and Assam Investors Limited v. CIT
If Regularly Dealing in Shares, the income from dividends will fall under PGBP.

7. CIT v. Vikram Cotton Mills

Whether a particular income is from business or from investment must be decided
according to the general commonsense view of those who deal with those matters in the
particular circumstances and conduct of the parties concerned.

8. M/s Kamla Muthaiyya v. CIT

The court held that the assessee's [maintaining and leasing horses for races] was a
business activity carried on for earning profits. Receipts from sale or lease were not one-
time receipts; there was a periodicity about the same over a period of years. It rejected the
argument about racing being a hobby.

9. Raghuvir Prasad Gupta v. CIT

Penalties are not losses but are obligations owed to an authority.

10. Hasimara Industries Ltd. v. CIT

Where the assesse was unable to recover the deposit made with the licensor under leave
and licence agreement to run cotton mills, the loss was capital loss since the deposit was
made for the purpose of acquiring profit making asset to carry on business in cotton.

11. CIT v. Sarvana Spinning Mills Pvt. Ltd.

Replacement of machines constituted substitution of an old asset by a new asset and,
therefore, the expenditure incurred did not constitute current repairs under Section 31(i).

Capital Gains

1. Arun Sunny v. CIT

The property transferred must be a capital Asset on the date of transfer and not necessary
that it should have been capital asset also on the date of acquisition by the assesse.
2. Kalyani Exports & Investments Ltd. v. CIT
Period of holding the capital asset will be calculated from the date of first acquisition.
The cost of acquisition will be the cost of purchase of asset on the said date and not its
fair market value on date of conversion.

3. Sita Nanda v. CIT

Expenditure having only some nexus with the transfer is not deductible. Such expenditure
should be wholly and exclusively connected with the transfer.

4. CIT v. P Ranjendran
Expenditure can be post transfer and expenses after passing of title can be deductible.
Also, expenses for enhancement of compensation will be included.

5. CIT v. Maithreyi Sai

Taxpayer may not claim a double deduction in respect of the same expenditure.

6. CIT v. Manjula J. Shah

Indexed cost of acquisition will be calculated from year in which asset held by previous
owner.

IFOS
1. S. G. Mercantile Corp. (p) Ltd. v. CIT
The residuary head of income can be resorted to only if none of the specific heads is
applicable to the income in question; it comes into operation only after the preceding
heads are excluded.

2. Roma Bose v. ITO

If an income cannot be charged to income-tax under any of the heads mentioned in
clauses A to E of Section 14 of the new Act the same shall be chargeable to income-tax
under the head " Income from other sources ", mentioned in Clause F of the said Section
14, under the express provision of Section 56(1) of the IT Act.
Thus under the IT Act money received by a person on account of profits or gains of a
profession which had been discontinued by him even prior to the year previous to that
 when he received the same would be chargeable to tax under the provisions of the IT Act
mentioned above.

3. Tuticorin Alkali Chemicals Ltd. v. ITO

If a company before commencement of business buys shares and gains dividend/interest
out of the same, the following income shall be taxable under s. 56 of the IT Act.