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Taxation

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Sec.271 of INCOME TAX ACT = The AO has to initiate penalty proceedings when he found difference between the reported and assessed income – No separate reasons not necessary to record whether to intiate proceedings or not – but the burden lies on the assessee to give suffcient reasons for show cause notice and the burden shift on the Ao then he has to given reasons for imposing penalty = MAK Data P. Ltd. … Appellant Versus Commissioner of Income Tax-II … Respondent = http://judis.nic.in/supremecourt/filename=40925

Sec.271 of INCOME TAX ACT = The AO has to initiate penalty proceedings when he found     difference between the reported and assessed income – No separate reasons not necessary to record whether to intiate proceedings or not – but the burden lies on the assessee to give suffcient reasons for show cause notice and the burden … Continue reading

Income Tax Act, 1961: ss. 80P(2)(a)(i) and (iii) r/w ss.56 and 2(24)(i) – Deduction in respect of income of co-operative societies – `Profit and gains from business’ – Co- operative Society providing credit facilities to its members and marketing their agricultural produce – Surplus funds invested by Society in short term deposits – Interest earned thereon – HELD: Does not fall within the meaning of expression `profit and gains from business’ – Such interest income cannot be said to be attributable to the activities of the Society – The words `the whole of the amount of profits and gains of business’ attributable to one of the activities specified in s. 80)(2)(a) emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society – Therefore, the interest earned by the Society on short-term deposits of surplus cannot be said to be `income from business’, but is `income from other sources’ liable to tax u/s 56 and not entitled to deduction u/s 80P(2)(a). ss.148 and 151 – Issue of notice where income has escaped assessment – Sanction for – HELD: Tribunal being the final fact finding authority under the Act, having recorded a finding of fact that approval/sanction for re- opening of assessment in terms of s.148 r/w s.151 existed even prior to 31.5.2001, though written communication of sanction was received by Assessing Officer on 8.6.2001, there is no reason to interfere with the said finding given by Tribunal. ss.56 and 57 – `Income from other sources’ – Deductions towards cost of funds and proportionate administrative and other expenses, in respect of income by way of interest on deposits held with Scheduled Banks, bonds and other securities – HELD: The question involves applicability of ss. 56 and 57, but as it remained unanswered by authorities below, the question is remitted to High Court for consideration in accordance with law. The assessee, a co-operative society, engaged in the business of providing credit facilities to its members and marketing their agricultural produce, invested the surplus funds in short-term deposits with the Banks and in Government securities, and earned interest thereon. The assessee showed the said interest income under the Head “Income from business” but the Assessing Officer assessed it as “income from other sources” u/s 56 and held that the assessee would not be entitled to deduction u/s 80 P(2)(a) of the Income Tax Act. In the instant appeal filed by the assessee, the question for consideration before the Court was: Whether the interest income earned by the assessee- Society on surplus funds invested in short-term deposits would qualify for deduction as business income u/s 80P(2)(a) of the Income Tax Act, 1961? =Dismissing the appeals, the Court HELD: 1.1. An income which is attributable to any of the activities specified in s.80 P(2) of the Income Tax Act, 1961 would be eligible for deduction. In the instant case, the interest held not eligible for deduction u/s 80P(2)(a) is not the interest received from the business of the Society, namely, providing credit facilities to its members or marketing their agricultural produce. What is sought to be taxed u/s 56 of the Act is the interest income arising on the surplus, which surplus was not required for business purposes, and was invested in specified securities as `investment’. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. Such interest income would come in the category of “Income from other sources” and, therefore, would be taxable u/s 56 of the Act, as rightly held by the Assessing Officer. [Para 10] [507-E; 506-G-H; 507-A-C] 1.2. The word “income” has been defined u/s 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically “business profits” into the definition of the word “income”. Therefore, the Court is required to give a precise meaning to the words “profits and gains of business” mentioned in s.80P (2) of the Act. In the instant case, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression “profits and gains of business”. [Para 10] [507-E-G] 1.3. Further, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this “retained amount” which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in s. 80P(2)(a)(i) or in s.80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of the case, the Assessing Officer was right in taxing the said interest income, u/s 56 of the Act. [Para 10] [508-B-E] 1.4. To say that the source of income is not relevant for deciding the applicability of s. 80P of the Act would not be correct because weightage needs be given to the words “the whole of the amount of profits and gains of business” attributable to one of the activities specified in s.80P(2)(a) of the Act. The words “the whole of the amount of profits and gains of business” emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the Society. [Para 11] [509-C-E] 2. As regards validity of the notice u/s148 of the Act to re-open the assessment, it essentially concerns factual aspect. The Tribunal is the final fact finding Authority under the Act. It has given a finding of fact that though the written communication of the sanction, which has no prescribed format, was received by the Assessing Officer on 8th June, 2001 but, the approval/sanction for re-opening of assessment in terms of s. 148 of the Act read with s.151 existed even prior to 31st May, 2001. There is no reason to interfere with this finding of fact given by the Tribunal. [Para 13] [510-F-G] 3. In the instant matter, the question “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income by way of interest on deposits held with scheduled banks, bonds and other securities was chargeable to tax u/s 56 under the head `Income from other sources’ without allowing any deduction in respect of cost of funds and proportionate administrative and other expenses u/s 57”? advanced by the assessee(s) before the authorities below has remained un-answered. Since it involves interpretation of ss. 56 and 57 of the Act and applicability of the said sections to the facts of the instant case, the question is remitted to the High Court for consideration in accordance with law. [Para 14 and 15] [511-A-D] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1622 of 2010. From the Judgment & Order dated 30.9.2008 of the High Court of Karnataka Circuit Bench at Dharwad in ITA No. 1568 of 2005. WITH C.A. Nos. 1623, 1624, 1625, 1625, 1626, 1627, 1628 and 1629 of 2010. S. Ganesh, K.K. Chytanya, S. Sukumaran, Anand Sukmar and Meera Mathur for the Petitioner. Parag P. Tripathi, ASG, Naresh Kaushik, Kunal Bahrai, Arti Gupta, Mohd. Mannan and B.V. Balaram Das for the Respondent.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.1622 OF 2010 (Arising out of S.L.P. (C) No.7572 of 2009) M/s. The Totgars’ Cooperative Sale Society Limited …Appellant(s) Versus Income Tax Officer, Karnataka …Respondent(s) W I T H Civil Appeal No.1623/2010 @ S.L.P. (C) No.10489 of 2009 Civil Appeal No.1624/2010 @ S.L.P. … Continue reading

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