Judicial Rulings that prompted amendments by the Finance Bill, 2015

I. Section 32(1)(iia): Allowance of balance 50% additional depreciation
Proposed Amendment	It is proposed to amend Section 32(1)(iia) to provide that balance 50% of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation, shall be allowed in the immediately succeeding previous year.
Judicial Precedents	Cases Affirmed The proposed amendment would confirm the following judgments of the Tribunals:  (a) Apollo Tyres Ltd. v. ACIT [2014] 45 taxmann.com 337 (Cochin - Trib.)  (b) DCIT v. Cosmo Films Ltd. [2012] 24 taxmann.com 189 (Delhi)  (c) ACIT v. SIL Investment Ltd.[2012] 26 taxmann.com 78 (Delhi) In these cases, it was held that where only 50 per cent of additional depreciation is allowed in year of purchase of machinery as it was put to use for less than 180 days during said year, balance 50 per cent of additional depreciation can be claimed in subsequent assessment year.
II. Section 194A: Payment of interest by co-op. banks to its members attracts TDS
Proposed Amendment	Current Provision: Section 194A, inter-alia, provides for exemption from deduction of tax in respect of following interest payments by a co-operative society:   (i) Interest on time deposit paid by co-op. bank if it exceedsRs. 10,000;  (ii) Interest paid by a co-op. society to its member or any other co-op. society; (iii) Interest on deposits paid by a primary agricultural credit society or primary credit society or co-op. land mortgage bank or co-op. land development bank; (iv) Interest on deposits other than time deposit by a co-op. society engaged in business of banking other than those mentioned above. Ambiguity in existing provision: As per provisions of sections 194A(3)(i) and 194A(3)(viia)(b), co-op. banks are required to deduct tax from interest payment on time deposits if the amount of such payment exceeds specified threshold of Rs.10,000. However, provisions of section 194A(3)(v) of the Act provide a general exemption from making tax deduction from payment of interest by all co-op. societies to its members, the co-op. banks avail of this exemption by making their depositors as members of different categories. This has led to dispute as to whether the co-op. banks, for which the specific provisions of tax deduction exist in section 194A(3)(i)(b) and section 194A(3)(viia)(b), can take the benefit of general exemption provided to all co-op.societies from deduction of tax on payment of interest to members? Proposed Amendment: To bring clarity, it is proposed to amend the provisions of the section 194A that the exemption provided from deduction of tax from payment of interest to members by a co-op. society under section 194A(3)(v) shall not apply to the payment of interest on time deposits by the co-op. banks to its members.
Judicial Precedents	Cases Affirmed   ■  BhaganiNiveditaSah. Bank Ltd. v. ACIT [2003] 87 ITD 569 (Pune) In this case, it was held by the tribunal that co-operative bank would be liable to deduct tax at source under section 194A(1) on interest on time deposits paid/credited to its members, if such interest amount exceeded the threshold limit prescribed in proviso to section 194A(3)(i) Cases Overcome   ■  Bagalkot District Central Co-op. Bank v. JCIT [2014] 48 taxmann.com 117 (Bangalore - Trib.)   ■  ACIT v. Ozer Merchant Co-operative Bank Ltd.[2014] 41 taxmann.com 110 (Pune - Trib.) In these cases, it was held that where assessee, a co-op. society, carrying on banking business, paid interest income to members on both time deposits and on deposits other than time deposits, it was not required to deduct tax at source under section 194A by virtue of exemption granted vide clause (v) of sub-section (3) of said section
III. Section 9: Interest paid by Indian PE to its Foreign HO Bank is taxable
Proposed Amendment	It is proposed that, in the case of a non-resident engaged in the business of banking, any interest payable by the PE in India of such non-resident to the head office or any PE or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the PE in India Further, the PE in India shall be deemed to be a person separate and independent of the non-resident person of which it is a PE and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery would apply. Accordingly, the PE in India shall be obligated to deduct tax at source on any interest payable to either the head office or any other branch or PE, etc., of the non-resident outside India. Non-deduction of tax would result in disallowance of interest claimed as expenditure by the PE and may also attract levy of interest and penalty in accordance with relevant provisions of the Act.
Judicial Precedents	Cases Overcome   ■  Sumitomo Mitsui Banking Corpn. v. Dy. DIT [2012] 19 taxmann.com 364 (Mum.) (SB)   ■  Bank of Tokyo Mitsubishi UFJ Ltd. v. ADIT [2014] 49 taxmann.com 441 (Delhi - Trib.)   ■  Deutche Bank AG v. Asst. DIT [2014] 47 taxmann.com 378 (Mumbai - Trib.)   ■  ADIT v. Mizuho Corporate Bank Ltd. [2014] 48 taxmann.com 104 (Mumbai - Trib.) In thesecases, it was held that under the provisions of the Income-tax Act the payment of interest by the Indian branch of foreign bank to its overseas head office is non-deductible, being payment to self. However, such interest is deductible due to computation mechanism provided under the DTAAs but it is not taxable in hands of foreign head office, being income generated from self. Since interest paid by PE to overseas branches was not chargeable to tax in India, it followed that provisions of section 195 could not be attracted and question of disallowance of said interest by invoking provisions of section 40(a)(i) would not arise at all. .
IV. Section 9: Indirect transfer of shares of an Indian Company
Proposed Amendment	The Finance Bill, 2015 proposes that a share or interest of a foreign entity shall be deemed to be deriving its value substantially from Indian assets (tangible or intangible) only if the value of Indian assets as on the specified date:  (a) Exceeds Rs. 10 Crores; and  (b) Represents at least 50% of the value of all the assets owned by the foreign entity. Accordingly, where the value of Indian assets either does not exceed Rs. 10 Crores or it is below 50% of value of total assets of the foreign company or entity, transfer of shares of such company or interest in such entity should not be chargeable to tax in India.
Judicial Precedents	Cases Affirmed   ■  DIT v. Copal Research Ltd., Mauritius [2014] 49 taxmann.com 125 (Delhi) In this case, it was held by the Delhi High Court that gains arising from sale of a shares of a company incorporated overseas, which derive less than 50 per cent of its value from assets situated in India would not be taxable under section 9(1)(i) read with Explanation 5 thereto.
V. Section 115JB: Exclusion of share of profit from AOP while computing MAT
Proposed Amendment	It is proposed that share of a member (being a company)in the income of the AOP, on which no income–tax is payable by virtue of Section 86, shall be excluded while computing MAT liability of such member under section 115JB of the Act.
Judicial Precedents	Cases overcome   ■  Asst. CIT v. B. Seenaiah& Co. Projects Ltd. [2013] 37 taxmann.com 241 (Hyderabad - Trib.)   ■  Goldgerg Finance (P.) Ltd. v. Asst. CIT [2015] 53 taxmann.com 40 (Mumbai - Trib.) In these cases,the tribunal held that where assessee had credited its share of income from AOP tothe P&L account, it would be included in computing book profit under section 115JB.
VI. Section 11: Submission of Form 10 to accumulate income by a trust
Proposed Amendment	Existing Provision: 85% of income can be accumulated by a trust for a period not exceeding 5 years if it submits Form 10 to the Assessing Officer in this regard and the money so accumulated or set apart is invested or deposited in the specified forms or modes.If accumulated income is not applied in accordance with these conditions, it is deemed to be taxable income of the trust. Ambiguity in existing provision: Income-tax Act does not specify any due date for submission of Form 10 to the Assessing Officer. Proposed Amendment: In order to remove the ambiguity regarding the period within which the assessee is required to file Form 10, and to ensure due compliance of the above conditions within time, it is proposed that the Form shall be filed before the due date of filing return of income specified under section 139. In case Form 10 is not submitted within given time frame, the benefit of accumulation would not be available and income would be taxable at the applicable rate. Further, benefit of accumulation would not be available if return of income is not furnished before due date of filing return of income.
Judicial Precedents	Cases Overcome   ■  Bagalkot Town Development Authority v. CIT [2014] 42 taxmann.com 582 (Bangalore - Trib.)   ■  (Delhi - Trib.)   ■  Kandla Dock Labour Board v. ITO [2011] 15 taxmann.com 47 (Rajkot   ■  Kerala Rural Employment & Welfare Society v. Asst. DIT [2009] 184 Taxman 93 (Ker.)   ■  CITv. Nagpur Hotel Owners' Association [2001] 114 Taxman 255 (SC) In above cases, it was held that assessee would be entitled to exemption under section 11 if it submitted Form No.10 before completion of assessment proceedings.
VII. Section 6: Resident status of ship crew members
Proposed Amendment	In the case of foreign bound ships where the destination of the voyage is outside India, there is uncertainty with regard to the manner and basis of determination of the period of stay in India for crew members of such ships who are Indian citizens. In view of the above, it is proposed to amend the Act to provide that in case of an Individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.
Judicial Precedents	Cases Referred to   ■  DIT v. PrahladVijendra Rao [2011] 198 Taxman 551 (Kar.) In this case, it was held by the Karnataka High Court that salary earned by assessee during his stay outside India for a period of 225 days during relevant assessment year, on account of work discharged by him on board of a ship which was outside shores of India, could not be said to be income accrued or arisen or was deemed to accrue or arise to him in India.   ■  MadhukarVinayakDhavale v. ITO [2011] 15 taxmann.com 36 (Pune) In this case, the assesse who was working as master of ship was claiming exemption in respect of salary received by him from his employer on the ground that he was a non-resident as entries in passport showed that his period of stay outside India was 201 day. However, certificate issued by employer of assessee showed that assessee had spent 158 days in foreign waters while being employed in ship. It was held that in order to cover under Explanation (a) to section 6, assessee had to establish that he was outside India as a member of the crew of an Indian ship or for the purposes of employment for a period of 182 days or more during the previous year relevant to the assessment year under consideration so as to qualify to be non-resident. The certificate issued by the employer of the assessee clearly depicted that the assessee was outside India for the purpose of employment only for 158 days. Since no material was furnished by assessee to show that his presence outside India beyond 158 days was as a member of crew of an Indian ship or for purpose of employment within meaning of the Explanation (a) to section 6, assessee would not qualify to be 'non-resident' and his income was to be assessed as that of a resident.
VIII. Section 271: Concealment penalty when tax is payable as per MAT
Proposed Amendment	Ambiguity: Under the existing provisions of Section 271(1)(c) penalty for concealment of income or furnishing inaccurate particulars of income is levied on the "amount of tax sought to be evaded. Problems have arisen in the computation of amount of tax sought to be evaded where concealment occurs under the general provisions and provisions of Sections 115JB or 115JC. The Courts have held that penalty under Section 271(1)(c) cannot be levied in cases where concealment of income occurs in income computed under general provisions, however, tax is paid under the provisions of sections 115JB or 115JC of the Act. Tax paid under the provisions of Sections 115JB or 115JC over and above the tax liability arising under the general provisions results in larger amount of such credit becoming available to assessee for set-off in future. Understatement of income and the tax liability thereon under general provisions result in higherMAT/AMT credit for set off in future years. Therefore, where concealment of income, as computed under the general provisions, has taken place, concealment penalty should be leviable even if the tax liability of the assessee for the year has been determined under provisions of sections 115JB or 115JC of the Act. Proposed Amendment: It is proposed to amend section 271 of the Act to provide that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the provisions of sections 115JB or 115JC. However, if amount of concealed income is considered both under the general provisions and provisions of sections 115JB or 115JC then such amount shall not be considered in computing tax sought to be evaded under provisions of sections 115JB or 115JC. Further, in a case where the provisions of sections 115JB or 115JC are not applicable, the computation of tax sought to be evaded under the provisions of sections 115JB or 115JC shall be ignored.
Judicial Precedents	Cases Overcome   ■  CIT v. Jindal Polyester & Steel Ltd. [2014] 52 taxmann.com 259 (Allahabad) The High Court held that book profit disclosed by assessee for purpose of tax liability under MAT provision was relevant and not income determined under provisions of the Income-tax Act. When concealment of income did not lead to tax evasion under MAT provisions, no penalty would be levied.   ■  Unison Hotels Ltd. v. Dy. CIT [2013] 40 taxmann.com 237 (Delhi) When taxable income is computed on book profits under section 115JB, there cannot be imposition of penalty under section 271(1)(c) for additions made under normal provisions.
IX. Section 6: Residential Status of a company
Proposed Amendment	Existing Provision: The existing provisions of Section 6 provides that a company is said to be resident in India in any previous year, if:  (a) It is an Indian company; or  (b) During that year, the control and management of its affairs is situated wholly in India. Ambiguity in existing provision: Due to the requirement that control and management should be situated in India and that too for whole of the year, the condition has been rendered to be practically inapplicable. A company can easily avoid becoming a resident by simply holding a board meeting outside India. This facilitates creation of shell companies which are incorporated outside India but are controlled from India. Proposed Amendment: Accordingly, it is proposed to amend the provisions of section 6 to provide that a person being a company shall be said to be resident in India in any previous year, if:  (a) It is an Indian company; or  (b) Its place of effective management, at any time in that year, is in India. Further, it is proposed to define the term 'place of effective management' to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.
Judicial Precedents	Cases overcome   ■  Radha Rani Holdings (P.) Ltd. v. ADIT [2007] 16 SOT 495 (Delhi) In this case, it was held by the ITAT that a foreign company, whose 99% of shares were held by a person resident in India, would be treated as non-resident in India if slightest control and management of the said company is exercised from outside India.   ■  Saraswati Holding Corpn. Inc. v. Dy. DIT [2007] 16 SOT 535 (Delhi) In this case, it was held by the ITAT that a Mauritian company who made investments in Indian capital market through its authorized representatives in India would not be treated as resident in India if decisions regarding investments were taken only by directors of the company, who were stationed outside India.
X. Section 263: Prejudicial to interest of revenue
Proposed Amendment	Existing Provision: The existing provisions of section 263 provide that if Principal CIT or CIT considers that any order passed by the Assessing Officer is erroneous, in so far as it is prejudicial to the interests of the Revenue, he may, after giving assessee an opportunity of being heard and after making an enquiry, pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. Ambiguity in existing provision: The interpretation of expression "erroneous in so far as it is prejudicial to the interests of the revenue" has been a contentious one. Proposed Amendment: It is proposed that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,:  (a) the order is passed without making inquiries or verification which, should have been made;  (b) the order is passed allowing any relief without inquiring into the claim;  (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or  (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
Judicial Precedents	Cases affirmed   ■  Sahara India Mutual Benefit Co. Ltd. v. ACIT [2002] 74 TTJ 67 (All.) In this case, it was held by the ITAT that an order of the Assessing Officer can be said to be erroneous so far as it is prejudicial to the interest of the revenue if such order has been passed in disregard to the legal provisions or as a result of "failure" to make enquiries". Cases overcome   ■  Saw Pipes Ltd. v. ACIT [2005] 3 SOT 237 (Delhi) In this case, it was held by the ITAT that an assessment order passed by Assessing Officer could not be said to erroneous and prejudicial to interest of revenue merely because proper enquiry was not conducted by the Assessing Officer before passing such order. Issue for consideration The issue which still remains unaddressed is whether an order passed by AO could be said to be erroneous when he passed the order by considering one out of two possible views on the subject matter? Trinity Charitable Trust v. ITO [2014] 51 taxmann.com 44 (Cochin - Trib.) It washeld by the ITAT that where two views were possible and Assessing Officer had taken one view with which Commissioner did not agree, it could not be treated as an order prejudicial to interests of revenue so as to revise such order under section 263.
XI. Section 234B: Levy of Interest in Settlement of Cases
Proposed Amendment	Ambiguity: In case an application is filed before the Settlement Commission under section 245C declaring an additional amount of income-tax, there is no specific provision in section 234B for charging interest on that additional amount. Proposed Amendment: It is proposed to insert a new sub-section (2A) so as to provide that the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional amount of income-tax referred to in that sub-section. Further, where as a result of an order of the Settlement Commission under section 245D(4), the amount of total income disclosed in the application under section 245C is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under Section 245C(1).
Judicial Precedents	Cases affirmed   ■  SahityaMudranalaya (P.) Ltd., In re [1995] 79 Taxmann 463 (ITSC)   ■  Akbar Travels of India (P.) Ltd. v. ITSC [2010] 192 Taxman 457 (Bom.) In both the cases, it was held that Settlement Commission could award interest under section 234B when it passed an order under section 245D. Cases overcome   ■  BrijLal v. CIT [2010] 194 Taxman 566 (SC) In this case, Hon'ble SC held that terminal point for levy of interest under section 234B would be up to date of order under section 245D(1) and not up to date of order of settlement under section 245D(4).
XII. Section 2(15):Residuary provision for meaning of 'charitable' purpose is re-defined
Proposed Amendment	It is proposed to amend the definition of charitable purpose to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves carrying on of any activity in the nature of trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity, unless:  (a) Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and  (b) Aggregate receipts from such activity or activities, during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year.
Judicial Precedents	Cases affirmed   ■  Indian Chamber of Commerce v. ITO [2014] 52 taxmann.com 52 (Kolkata - Trib.) Where an association was formed with object of advancement and development of trade, commerce and industry in India, its primary object being charitable in nature under section 2(15) being advancement of objects of general public utility, any income earned by it from incidental activities carried out to achieve its main object would also be eligible for exemption under section 11   ■  India Trade Promotion Organization v. Director General of Income-tax [2015] 53 taxmann.com 404 (Delhi)  (a) One shall examine whether there is an element of profit making or not to decide whether any activity is in nature of trade, commerce or business?  (b) If dominant and prime objective of institution is profit making, whether its activities are directly in nature of trade, commerce or business or indirectly in rendering of any service in relation to any trade, commerce or business, it would not be entitled to claim its object to be a 'charitable purpose'
XIII. Section 2(15): 'Yoga' included in definition of charitable purpose
Proposed Amendment	It is proposed to include 'yoga' in the definition of charitable purpose.
Judicial Precedents	Cases overcome   ■  Sivananda Yoga Vedanta DhanwantariAshramam v. Jt. CIT [2014] 51 taxmann.com 452 (Cochin - Trib.) The Tribunal held that Commissioner was justified in setting aside assessment order of AO where he allowed exemption of income earned from yoga, ayurvedic treatment, etc., without taking into consideration fact as to whether assessee's objects would fall under category of 'advancement of any other object of general public utility'. Cases affirmed   ■  DivyaYogMandir Trust v. Jt. CIT [2013] 37 taxmann.com 227 (Delhi - Trib.) In the above case, it was held by the Tribunal that imparting of yoga training through well-structured yoga camps would fall under category of imparting of education, which is one of charitable objects defined under section 2(15).
XIV. Section 153C: Assessment of person other than searched person
Proposed Amendment	Existing Provision Section 153C contains provision for undertaking block assessment in case of a person other than searched person. It provides that if AO, during the course of assessment proceedings, carried out against searched person under section 153A, comes to a finding that the assets, articles, or books of account, or document belong to a person other than searched person then he shall hand over such assets, etc., to the jurisdictional AO of such other person. Ambiguity in existing provision: Disputes have arisen as to the interpretation of the words "belongs to" in respect of a document. Existing section 153C could be invoked against such other person only when books of account, etc., belonged to him and not otherwise. Proposed Amendment: Section 153C is proposed to be amended to substitute the words 'belongs to' with 'relates to' which indicates that even if the books of account do not belong to the person who has not been searched under section 132, he can still be proceeded with for block assessment if the books found during search reveal any income which has a bearing on him.
Judicial Precedents	Cases overcome   ■  Tanvir Collections (P.) Ltd. v. Asst. CIT [2015] 54 taxmann.com 379 (Delhi - Trib.)   ■  Pepsico India Holdings (P.) Ltd. v. Asst. CIT [2014] 50 taxmann.com 299 (Delhi)   ■  Natural Products Bio Tech Ltd. v. Dy. CIT [2015] 53 taxmann.com 400 (Delhi - Trib.)   ■  Pepsi Foods (P.) Ltd. v. Asst. CIT [2014] 52 taxmann.com 220 (Delhi)   ■  CIT v. Meghmani Organics Ltd. [2013] 40 taxmann.com 31 (Gujarat) In above cases, it was held by the High Courts and Tribunals that recording of satisfaction by the Assessing Officer that articles or documents which are seized or requisitioned belong to a person other than person searched is the precondition for initiating assessment against such other person under section 153C.