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LATEST CIRCULAR & NOTIFICATIONS


INCOME COMPUTATION AND DISCLOSURE STANDARDS ARE NOT APPLICABLE FOR NOV. 2016
EXAMINATIONS.
INCOME-TAX (SIXTH AMENDMENT) RULES, 2016 - INSERTION OF RULE 8AA
NOTIFICATION NO. 18/2016, DATED 17-3-2016
Section 47: The following transactions will not be regarded as transfers for the purposes of section 45
and therefore, no capital gains will arise:
(x)

Any transfer by way of conversion of bonds, or debentures or debenture stock or deposit


certificates of a company into the shares or debentures of that company.
KEY POINTS:
1. Section 49(2A): The cost of acquisition of the share or debenture so received on conversion
shall be cost of that part of the debenture, bond, debenture stock or deposit certificate,
which is so converted.
2. Rule 8AA Method of determination of period of holding of capital assets in certain cases
In the case of a capital asset, being a share or debenture of a company, which becomes the
property of the assessee in the circumstances mentioned in clause (x) of section 47 of the
Act, there shall be included the period for which the bond, debenture, debenture-stock or
deposit certificate, as the case may be, was held by the assessee prior to the conversion.

Illustration:
Mr. X purchased 400 Convertible bonds of Tisco on 1.01.2010 for ` 500 each. Part A of the bond of ` 100
each is to be converted into one equity share on 1.01.2016. Part B of the bond of ` 400 each is nonconvertible and is redeemable in June, 2017. Mr. X is allotted 400 shares of Tisco on 1.01.2016 when the
market value of share of Tisco is `350 per share. All shares and bonds are sold on 2.03.2017 for ` 430
per share and `380 per bond. Discuss the tax implications.
Answer:

Assessment Year 2016-17

No capital gains on conversion of Part A of Bonds into 400 shares, as per section 47.

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Assessment Year 2017-18


If equity shares are sold on stock exchange, then the long-term capital gains shall be exempt under
section 10(38). Assuming that shares are unlisted.
Capital Gains on shares
Period of holding
Sales Price
Cost of Acquisition as per section
49(2A)
Less: Indexed Cost of Acquisition
Long term Capital Gain
Capital Gains on Bonds
Period of holding
Sales Price
Less: Cost of Acquisition
Long term Capital Loss

(Long term)
` 1,72,000

:
:
:

1.1.2010 to 1.3.2017

` 40,000 x 1125/632

` 71,203
` 1,00,797

:
:
:

1.1.2010 to 1.3.2017

(Long term)
` 1,52,000
` 1,60,000
(` 8,000)

` 40,000

Total Income

` 92,797

INCOME-TAX (EIGHTH AMENDMENT) RULES, 2016 - AMENDMENT IN RULE 17C


NOTIFICATION NO. 21/2016, DATED 23-3-2016
Under section 11(5), a religious and charitable trust or institution can invest the money in Sovereign
Gold Bonds Scheme, 2015.

INCOME-TAX (FOURTH AMENDMENT) RULES, 2016 - AMENDMENT IN RATES OF


DEPRECIATION
NOTIFICATION NO. 13/2016, DATED 3-3-2016
Depreciation rate on oil wells is 15%.

SECTION 194C, READ WITH SECTION 194J, OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF
TAX AT SOURCE - CONTRACTORS/SUB-CONTRACTORS, PAYMENTS TO - TAX DEDUCTION AT
SOURCE (TDS) ON PAYMENTS BY BROADCASTERS OR TELEVISION CHANNELS TO PRODUCTION
HOUSES FOR PRODUCTION OF CONTENT OR PROGRAMME FOR TELECASTING
CIRCULAR NO.4/2016, DATED 29-2-2016
The issue of applicability of TDS provisions on payments made by broadcasters/telecasters to production
houses for production of content or programme for broadcasting/telecasting has been examined by
CBDT in view of representations received in this regard.
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2. It has been noted that disputes have arisen on the issue as to whether payments made by the
broadcaster/telecaster to production houses for production of content/programme are payments under
a 'work contract' or a contract for 'professional or technical services' and, therefore, liable for TDS u/s
194C or u/s 194J of the Income-tax Act, 1961.
3. While applying the relevant provision of TDS on a contract for content production, a distinction is
required to be made between (i) a payment for production of content/programme as per the
specifications of the broadcaster/telecaster and (ii) a payment for acquisition of
broadcasting/telecasting rights of the content already produced by the production house.
4. In the first situation where the content is produced as per the specifications provided by the
broadcaster/telecaster and the copyright of the content/programme also gets transferred to the
telecaster/broadcaster, it is hereby clarified that such contract is covered by the definition of the term
'work' in section 194C of the Act and, therefore, subject to TDS under that section. This position
clearly flows from the definition of 'work' given in clause (iv)(b) of the Explanation to section 194C.
5. However, in a case where the telecaster/broadcaster acquires only the telecasting/broadcasting
rights of the content already produced by the production house, there is no contract for 'carrying out
any work', as required in sub-section (1) of section 194C. Therefore, such payments are not liable for
TDS under section 194C. However, payments of this nature may be liable for TDS under other sections
under Chapter XVII-C of the Act.

SECTION 194H, READ WITH SECTION 194C, OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF
TAX AT SOURCE - COMMISSION OR BROKERAGE ETC. - TAX DEDUCTION AT SOURCE ON
PAYMENTS BY TELEVISION CHANNELS AND PUBLISHING HOUSES TO ADVERTISEMENT
COMPANIES FOR PROCURING OR CANVASSING FOR ADVERTISEMENTS
CIRCULAR NO.5/2016, DATED 29-2-2016
The issue of applicability of TDS provisions on payments made by television channels or media houses
publishing newspapers or magazines to advertising agencies for procuring and canvassing for
advertisements has been examined by the Board in view of representations received in this regard.
2. It is noted that there are two types of payments involved in the advertising business:
(i) Payment by client to the advertising agency, and
(ii) Payment by advertising agency to the television channel/newspaper company
It has been clarified that while TDS under section 194C (as work contract) will be applicable on the
first type of payment, there will be no TDS under section 194C on the second type of payment e.g.
payment by advertising agency to the media company.
3. However, another issue has been raised in various cases as to whether the fees/charges taken or
retained by advertising companies from media companies for canvasing/booking advertisements
(typically 15% of the billing) is 'commission' or 'discount'. It has been argued by the assessees that since
the relationship between the media company and the advertising company is on a principal-to-principal
basis, such payments are in the nature of trade discount and not commission and, therefore, outside the
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purview of TDS under section 194H. The Department, on the other hand, has taken the stand in some
cases that since the advertising agencies act on behalf of the media companies for procuring
advertisements, the margin retained by the former amounts to constructive payment of commission
and, accordingly, TDS under section 194H is attracted.
4. It is hereby clarified that no TDS is attracted on payments made by television channels/newspaper
companies to the advertising agency for booking or procuring of or canvassing for advertisements.
CIT v. Director, Prasar Bharti (Ker.) - OVERRULED
Whether retention of a percentage of advertising charges collected from customers by the advertising
agencies for payment to Doordarshan for telecasting advertisements would attract the provisions of
tax deduction at source under section 194H?
Prasar Bharti is a fully owned Government of India undertaking engaged in telecast of news, sports,
entertainment, cinema and other programmes. The major source of its revenue is from advertisements,
which were canvassed through agents appointed by Doordarshan under the agreement with them.
The advertisement charges were recovered from the customers by the advertisement agencies in
accordance with the tariff prescribed by Doordarshan and incorporated in the agreement between the
parties. There was a provision in the agreement permitting advertising agencies to retain 15% of the
advertising charges payable by them to Doordarshan towards commission from out of the charges
received for advertising services from customers.
The issue under consideration is whether retention of 15% of advertising charges by the advertising
agency is in the nature of commission to attract the provisions of tax deduction at source under section
194H.
It is clear from section 194H that tax has to be deducted at the time of credit of such sum to the
account of the payee or at the time of payment of such income in cash or by the issue of cheque or
draft or any other mode, whichever is earlier. When the agent pays 85% of the advertisement charges
collected from the customer, the agent simultaneously gets paid commission of 15%, which he is free
to appropriate as his income. TDS on commission charges of 15% has to be paid to the Income-tax
Department with reference to the date on which 85% of the advertisement charges are received from
the agent.

CIRCULAR NO. 4/2007, DATED 15-6-2007


DISTINCTION BETWEEN SHARES HELD AS STOCK-IN-TRADE OR INVESTMENT
Section 28(i) of the Income-tax Act, 1961 - Business income - Chargeable as - Distinction between
shares held as stock-in-trade and shares held as investments - Tests for such a distinction
1. The Income-tax Act, 1961 makes a distinction between a capital asset and a trading asset.

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2. Following principles should be kept in mind while deciding whether shares are capital assets or stockin-trade:
(a) Whether a particular holding of shares is by way of investment or forms part of the stock-intrade is a matter which is within the knowledge of the assessee who holds the shares and it
should, in normal circumstances, be in a position to produce evidence from its records as to
whether it has maintained any distinction between those shares which are its stock-in-trade
and those which are held by way of investment.
(b) Where a company purchases and sells shares, it must be shown that they were held as stockin-trade and that existence of the power to purchase and sell shares in the memorandum of
association is not decisive of the nature of transaction.
(c) The substantial nature of transactions, the manner of maintaining books of account, the
magnitude of purchases and sales and the ratio between purchases and sales and the holding
period would furnish a good guide to determine the nature of transactions;
(d) Ordinarily the purchase and sale of shares with the motive of earning a profit, would result in
the transaction being in the nature of trade/adventure in the nature of trade; but where the
object of the investment in shares of a company is to derive income by way of dividend, etc.,
then the profits accruing by change in such investment (by sale of shares) will yield capital
gain and not revenue receipt.
(e) We have to verify as to how the shares were valued/held in the books of account, i.e.,
whether they were valued as stock-in-trade at the end of the financial year for the purpose of
arriving at business income or held as investment in capital assets.
(f) where the object of the investment in shares of companies is to derive income by way of
dividends, etc., the transactions of purchases and sales of shares would yield capital gains and
not business profits.
(g) CBDT also wishes to emphasise that it is possible for a taxpayer to have two portfolios, i.e., an
investment portfolio comprising of securities which are to be treated as capital assets and a
trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where
an assessee has two portfolios, the assessee may have income under both heads, i.e., capital
gains as well as business income.
3. Assessing officers are advised that the above principles should guide them in determining whether, in
a given case, the shares are held by the assessee as investment (and therefore giving rise to capital
gains) or as stock-in-trade (and therefore giving rise to business profits). The Assessing Officers are
further advised that no single principle would be decisive and the total effect of all the principles should
be considered to determine whether, in a given case, the shares are held by the assessee as investment
or stock-in-trade.

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SECTION 45, READ WITH SECTION 28(i), OF THE INCOME-TAX ACT, 1961 - CAPITAL GAINS,
CHARGEABLE AS - ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHARES AND SECURITIES CAPITAL GAINS OR BUSINESS INCOME - INSTRUCTIONS IN ORDER TO REDUCE LITIGATION
CIRCULAR NO.6/2016, DATED 29-2-2016
Over the years, the courts have laid down different parameters to distinguish the shares held as
investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT') has also,
through Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the
Assessing Officer.
Disputes, however, continue to exist on the application of these principles to the facts of an individual
case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this
background, while recognizing that no universal principal in absolute terms can be laid down to decide
the character of income from sale of shares and securities (i.e. whether the same is in the nature of
capital gain or business income), CBDT realizing that major part of shares/securities transactions takes
place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in
partial modification to the aforesaid Circular, further instructs that the Assessing Officers in holding
whether the surplus generated from sale of listed shares or other securities would be treated as Capital
Gain or Business Income, shall take into account the following
(a)

Where the assessee itself, irrespective of the period of holding the listed shares and securities,
opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities
would be treated as its business income,

(b)

In respect of listed shares and securities held for a period of more than 12 months immediately
preceding the date of its transfer, if the assessee desires to treat the income arising from the
transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer.
However, this stand, once taken by the assessee in a particular Assessment Year, shall remain
applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt
a different/contrary stand in this regard in subsequent years;

(c)

In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain
or business income) shall continue to be decided keeping in view the aforesaid Circular issued
by the CBDT.

It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities
where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term
Capital Gain/Short Term Capital Loss or any other sham transactions.
It is reiterated that the above principles have been formulated with the sole objective of reducing
litigation and maintaining consistency in approach on the issue of treatment of income derived from
transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the
transactions involving transfer of shares and securities.

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SECTION 45, READ WITH SECTION 28(i), OF THE INCOME-TAX ACT, 1961 - CAPITAL GAINS,
CHARGEABLE AS - CONSISTENCY IN TAXABILITY OF INCOME/LOSS ARISING FROM TRANSFER
OF UNLISTED SHARES
LETTER F.NO.225/12/2016/ITA.II, DATED 2-5-2016
Regarding characterisation of income from transactions in listed shares and securities, Central Board of
Direct Taxes ('CBDT') had issued a clarificatory Circular no. 6/2016 dated 29th February, 2016, wherein
with a view to reduce litigation and maintain consistency in approach in assessments, it was instructed
that income arising from transfer of listed shares and securities, which are held for more than twelve
months would be taxed under the head 'Capital Gain' unless the taxpayer itself treats these as its stockin-trade and transfer thereof as its business income. It was further stated that in other situations, the
issue was to be decided on the basis of existing Circulars issued by the CBDT on this subject.
2. Similarly, for determining the tax-treatment of income arising from transfer of unlisted shares for
which no formal market exists for trading, a need has been felt to have a consistent view in assessments
pertaining to such income. It has, accordingly, been decided that the income arising from transfer of
unlisted shares would be considered under the head 'Capital Gain', irrespective of period of holding,
with a view to avoid disputes/litigation and to maintain uniform approach.
3. It is, however, clarified that the above would not be necessarily applied in the situations where:
i. the genuineness of transactions in unlisted shares itself is questionable; or
ii. the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil; or
iii. the transfer of unlisted shares is made along with the control and management of underlying
business and the Assessing Officer would take appropriate view in such situations.

SECTION 194A OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - INTEREST
OTHER THAN INTEREST ON SECURITIES - NOTIFIED INSTITUTION - TDS UNDER SECTION 194A
ON INTEREST ON FIXED DEPOSIT MADE ON DIRECTION OF COURTS
CIRCULAR NO.23/2015, DATED 28-12-2015
Section 194A of Income Tax Act, 1961 stipulates deductions of tax at source (TDS) on interest other than
interest on securities if the aggregate of amount of such interest credited or paid to the account of the
payee during the financial year exceeds the specified amount .
2. In the case of UCO Bank, the Hon'ble Delhi High Court has held that the provisions of section 194A do
not apply to fixed deposits made in the name of Registrar General of the Court on the directions of the
Court during the pendency of proceedings before the Court. In such cases, till the Court passes the
appropriate orders in the matter, it is not known who the beneficiary of the fixed deposits will be.
Amount and year of receipt is also unascertainable. The Hon'ble High Court thus held that the person
who is ultimately granted the funds would be determined by orders that are passed subsequently. At
that stage, undisputedly, tax would be required to be deducted at source to the credit of the recipient.
The High Court has also quashed Circular No. 8 of 2011.

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3. The Board has accepted the aforesaid judgment. Accordingly, it is clarified that interest on FDRs made
in the name of Registrar General of the Court or the depositor of the fund on the directions of the Court,
will not be subject to TDS till the matter is decided by the Court. However, once the Court decides the
ownership of the money lying in the fixed deposit, the provisions of section 194A will apply to the
recipient of the income.

TAX DEDUCTION AT SOURCE ON THE DEPOSITS IN BANKS IN THE NAME OF THE


REGISTRAR/PROTHONOTARY AND SENIOR MASTER ATTACHED TO THE SUPREME COURT/
HIGH COURT ETC. DURING THE PENDENCY OF LITIGATION OF CLAIM/COMPENSATION
CIRCULAR NO. 8/2011 DATED 14.10.2011
Section 194A of Income-tax Act, 1961 ("the Act") stipulates deduction of tax at source (TDS) on interest
other than interest on securities if the aggregate of amount of such interest credited or paid to the
account of the payee during the financial year exceeds the specified amount.
2. The Board has received references expressing difficulties in implementation of provisions of section
194A of the Act in a situation where in the course of the proceedings before Supreme Court/High Court/
any other court or tribunal (hereinafter "the court"), one or more than one litigant (hereinafter the
depositor) is directed by the court that a specified amount (hereinafter "deposit") be deposited in the
bank either directly or through the court in order to protect the interest of litigants. Such deposits
(usually time deposits) are kept in the bank in the names of Registrar/Prothonotary and Senior Master
or any other name as per the order of the court. Difficulties are faced in making TDS on the interest
periodically accruing on such deposits/time deposits and about the person(s) as deductee who is
entitled to TDS certificate in Form 16A.
3.1 The matter has been examined in the Board and it has been decided that, this circular shall be
applicable to cases where one or more than one litigant is directed by the court that a specified amount
be deposited in the bank directly or through the court. The bank shall in accordance with the provisions
of the Act, deduct tax at source on the interest accruing on the above mentioned deposit(s) as per
existing procedure and at the rates in force. The certificate of deduction of tax shall be issued by the
bank in the name of the depositor. If more than one person has been directed to deposit any specified
amount, the amount of TDS shall be corresponding to each such depositor for the portion of interest
accrued in its respective share in the total amount deposited and TDS certificates shall be accordingly
issued by the bank.
3.2 At the time of making deposit of the amount ordered by the court, the depositor(s) shall submit a
prescribed declaration with the court for record purpose and to facilitate the administration of TDS. The
Registrar/Prothonotary and Senior Master or any person authorized by the court will pass the
information furnished therein to the bank concerned for TDS properly in the name of the depositor(s) in
accordance with the provisions of the Act.
3.3 Some of the instances covered by this circular are:
a . In the course of appellate proceedings, the court directs an insurance company (the depositor) to
deposit a part of compensation awarded by Motor Accident Claims Tribunal. This amount is
deposited as Time Deposit in a bank in such name as per the directions of the court, the credit of

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TDS on interest accruing on such deposit will be allowed to the Insurance company which has made
the said deposit.
b . The Court while deciding the cases of land compensation directs the authority concerned (liable for
making payment of compensation) to deposit any sum in time deposit in any bank, the TDS on time
deposit shall be in the name of the authority making deposit, if such authority is an entity liable for
charge to Income-tax on its income. In case the deposit in the bank is by Central or State
Government no tax will be deducted.
c . The court adjudicating upon financial dispute during pendency of proceedings direct any party(ies)
to deposit any amount as security in time deposit, the TDS on interest accruing on such deposit will
be in name of the depositor irrespective of the fact that at the directions of the court such time
deposit has been drawn in the name of the officer of the court or joint name or any other name.

SECTION 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAINS FROM
INFRASTRUCTURE UNDERTAKINGS - CLARIFICATION OF TERM 'INITIAL ASSESSMENT YEAR' IN
SECTION 80-IA(5)
CIRCULAR NO.1/2016, DATED 15-2-2016
Section 80-IA of the Income-tax Act, 1961 provides for deduction of an amount equal to 100 % of the
profits and gains derived by an undertaking or enterprise from an eligible business in accordance with
the prescribed provisions. Sub-section (2) of section 80-IA further provides that the aforesaid deduction
can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen
years (twenty years in certain cases) beginning from the year in which the undertaking commences
operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of
section 80-IA further provides as under
"Notwithstanding anything contained in any other provision of this Act, the profits and gains of an
eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining
the quantum of deduction under that sub-section for the assessment year immediately succeeding the
initial assessment year or any subsequent assessment year, be computed as if such eligible business
were the only source of income of the assessee during the previous year relevant to the initial
assessment year and to every subsequent assessment year up to and including the assessment year for
which the determination is to be made".
In the above sub-section, which prescribes the manner of determining the quantum of deduction, a
reference has been made to the term 'initial assessment year'. It has been represented that some
Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible
business/ manufacturing activity had commenced and are considering such first year of
commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate
provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it
desires to claim deduction out of the applicable slab of fifteen (or twenty) years.
The matter has been examined by the Board. It is abundantly clear from sub-section (2) that an
assessee who is eligible to claim deduction u/s 80-IA has the option to choose the initial/ first year
from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or
twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial
assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80-IA
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for ten consecutive years beginning from the year in respect of which he has exercised such option
subject to the fulfilment of conditions prescribed in the section. Hence, the term 'initial assessment
year' would mean the first year opted for by the assessee for claiming deduction u/s 80-IA. However,
the total number of years for claiming deduction should not transgress the prescribed slab of fifteen
or twenty years, as the case may be and the period of claim should be availed in continuity.
The Assessing Officers are, therefore, directed to allow deduction u/s 80-IA in accordance with this
clarification.
Illustration:
Year
1
2
3
4
5
6 7 8
9 10 11 12 13 14 15
Profit/Loss
(` in lakhs) - 8 - 10 - 6 - 11 - 4 - 7 +8 +8 +10 +10 +12 +12 +14 +14 +16
Assessee chooses 5th year to be the initial Assessment Year. Therefore, deduction is available from 5 th
year to 14th year.
Now loss of 5th year and 6th year shall be considered and total loss of 11 lakhs shall be considered. In 7th
year profit is Nil after setting off the loss. In 8th year deduction shall be deduction shall be 100% of 5
lakhs. In 9th year 100% of 10 lakh and so on.

SECTION 269SS, READ WITH SECTIONS 271D AND 271E, OF THE INCOME-TAX ACT, 1961 LOANS/DEPOSITS - MODES OF TAKING OR ACCEPTING - LIMITATION FOR PENALTY
PROCEEDINGS UNDER SECTIONS 271D AND 271E
CIRCULAR NO.10/2016, DATED 26-4-2016
It is a settled position that the period of limitation of penalty proceedings under sections 271D and 271E
of the Act is governed by the provisions of section 275(1)(c) of the Act. Therefore, the limitation period
for the imposition of penalty under these provisions would be the expiry of the financial year in which
the proceedings, in the course of which action for the imposition of penalty has been initiated, are
completed, or six months from the end of the month in which action for imposition of penalty is
initiated, whichever period expires later. The limitation period is not dependent on the pendency of
appeal against the assessment or other order referred to in section 275(1)(a) of the Act.

SECTION 244A, READ WITH SECTION 195, OF THE INCOME-TAX ACT, 1961 - REFUNDS INTEREST ON - PAYMENT OF INTEREST ON REFUND OF EXCESS TDS DEPOSITED UNDER
SECTION 195
CIRCULAR NO.11/2016, DATED 26-4-2016
Where TDS is deducted under section 195 and later in appeal it is found that TDS was not to be
deducted, then Revenue shall refund the TDS and shall also pay interest under section 244A from the
date of granting of refund of TDS.
Therefore, if a resident deductor is entitled for the refund of tax deposited under section 195, then it
has to be refunded with interest under section 244A, from the date of payment of such tax.
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LATEST IN JUDICIARY
1. Commissioner of Income-tax v. Henkel Spic India Ltd. [2015] (Supreme Court)

Interest earned on application money deposited in bank is taxable in year of allotment of shares.

Assessee opened a public issue of shares in financial year 2011-12. Application money received from
intending subscribers were kept in bank upon which interest was accrued. Shares were allotted in
financial year 2012-13. Assessing Officer taxed interest income in financial year 2011-12 as money
was received in financial year 2011-12.

The assessee argued that interest had accrued to it only on the allotment of shares as before that
the amount was kept in trust by it which belonged to the applicants. Hence, interest income was
taxable in financial year 2012-13.
Held that the interest so earned, cannot be regarded as an amount which is fully available to the
company for its own use from the time the interest accrued, as that interest is an amount which
accrues on a fund which itself is held in trust until the allotment is completed and moneys are
returned to those to whom shares are not allotted. No part of this fund, either principal or interest
accrued thereon, can be utilized by the company until the allotment process is completed and
money repayable to those entitled to repayment has been repaid in full together with such interest
as may be prescribed having regard to the length of period of delay in the return of money to them.
It is only after the allotment process is completed and all moneys payable to those to whom moneys
are refundable are refunded together with interest wherever interest becomes payable, the balance
remaining out of the interest earned on the application money can be regarded as belonging to the
company.

It is not in dispute that in the year 2012-13, the assessee had shown the income on account of
interest received in the income tax returns and paid the tax thereupon.

It is held that the interest income has accrued only in assessment year 2013-14 and was taxable in
that year only and not in assessment year 2012-13.

2. Shyam Burlap Company Ltd. v. Commissioner of Income-tax [2015] (Calcutta)

Where rental income earned by assessee was taxable as business income, compensation paid to
existing tenants to obtain vacant possession of building so as to earn higher rental income by

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letting it out to new tenants, was to be regarded as business expenditure allowable under section
37(1).

The memorandum of assessee - company permitted it to carry on business of letting out properties
and 85% of income of assessee was by way of lease rentals.
During relevant year, assessee paid certain amount as compensation to two tenants for obtaining
vacant possession of space occupied by them. The assessee claimed deduction of said payment as
revenue expenditure.

It was held that the rental income was to be regarded as business income since the main object of
the company is to earn rental income. Since there was no question of acquiring a property, it cannot
be said that the payment made for eviction of tenants was for having a benefit of enduring nature.
Rather the compensation was paid to the existing tenants to have their portions vacated to have
new tenants with higher rent and thus to have a higher rental income which was a business activity
permitted by the Memorandum.
Therefore, compensation paid by assessee to existing tenants to obtain vacant possession of
building so as to earn higher rental income by letting out said premises to new tenants had arisen
out of business necessity and commercial expediency, which was to be allowed as revenue
expenditure.

3. Taparia Tools Ltd. v. Joint Commissioner of Income-tax [2015] (Supreme Court)

Where assessee-company issued debentures for 5 years and as per one of payment options, made
one-time upfront discounted interest payment instead of making payment of interest periodically,
entire amount so paid was to be allowed as deduction in year of payment itself.

Assessee-company issued debentures for a period of 5 years. Apart from option of half yearly
periodical interest, debenture holders were given another option to accept one-time upfront
discounted interest payment. Assessee was following mercantile system of accounting. It filed its
return claiming deduction of upfront interest charges paid during relevant year. However, said
amount was shown as deferred revenue expenditure in books of account to be written off over a
period of five years. Assessing Officer thus allowed only 1/5th of payment as deduction.

The Supreme Court observed that there were two methods of payment of interest stipulated in the
debenture issued. Debenture holder was entitled to receive periodical interest after every half year
at the rate of 18 per cent per annum for five years, or else, the debenture holder could opt for
upfront payment of Rs. 55 per debenture towards interest as onetime payment.
By allowing only 1/5th of the upfront payment, though the entire amount of interest is actually
incurred in the very first year, the Assessing Officer, in fact, treated both the methods of payment at
par, which was clearly unsustainable. By doing so, the Assessing Officer, in fact, tempered with the
terms of issue, which was beyond his domain. It is obvious that on exercise of the option of upfront
payment of interest by the subscriber in the very first year, the assessee paid that amount in terms
of the debenture issued and by doing so he was simply discharging the interest liability in that year
thereby saving the recurring liability of interest for the remaining life of the debentures because for
the remaining period the assessee was not required to pay interest on the borrowed amount.

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Held that since assessee made actual payment, and course of action adopted by assessee was in
consonance with provisions of Act, merely because a different treatment was given in books of
account could not be a factor which would deprive assessee from claiming entire expenditure as a
deduction. Hence, entire upfront payment of interest is allowed in the first year i.e., the year of
payment.

4. Fibre Boards (P.) Ltd. v. Commissioner of Income-tax [2015] (Supreme Court)

Advances paid for purpose of purchase and/or acquisition of plant/machinery, and land/building
amount to utilization by assessee of capital gains under section 54G.
Assessee claimed exemption on entire capital gain earned by it from sale proceeds of its erstwhile
industrial undertaking situated in Thane in view of advances so made being more than capital gain
made by it.

As the assessee intended to shift its industrial undertaking from an urban area to a non-urban area,
out of the capital gain so earned, the assessee paid by way of advances various amounts to different
persons for purchase of land, plant and machinery, construction of factory building etc. Assessee
claimed exemption under section 54G on entire capital gain since the advances made were more
than capital gains earned.

However, the Assessing Officer, due to assessee's failure to deposit capital gain in the Capital Gains
Deposit Account, imposed a tax on capital gains, refusing to grant exemption to appellant under
section 54G. The Assessing Officer contends that assessee should have deposited the capital gains in
Capital Gain Account Scheme since he has not purchased plant & machinery etc. by the due date of
filing of return. Although assessee has given the entire money as advances to suppliers by the due
date.

The assessee is given a period of three years after the date on which the transfer takes place to
purchase new machinery or plant and acquire building or land or construct building for the purpose
of his business in the said area. If the Assessing Officer is right, the assessee has to purchase and/or
acquire machinery, plant, land and building within the same assessment year in which the transfer
takes place. Further, the Assessing Officer has missed the key words 'not utilized' in sub-section (2)
which would show that it is enough that the capital gain made by the assessee should only be
'utilized' by him in the assessment year in question for all or any of the purposes aforesaid, that is
towards purchase and acquisition of plant and machinery, and land and building. If amount is not
utilized for purchase of plant and machinery etc. by the due date, then the assessee has to deposit
money under CGAS. Advances paid for the purpose of purchase and/or acquisition of the aforesaid
assets would certainly amount to utilization by the assessee of the capital gains made by him for the
purpose of purchasing and/or acquiring the aforesaid assets. Therefore, on this ground also, the
assessee is liable to succeed.
Thus advances so paid for purpose of purchase and/or acquisition of plant/machinery and
land/building, by the due date under section 139(1), would amount to utilization by assessee of
capital gains made by him for purpose of purchasing and/or acquiring aforesaid assets.
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5. Commissioner of Income-tax v. S.R.Jeyashankar [2015] (Madras)

Where assessee had entered into an agreement with builder for purchase of undivided share of
land and construction, date of allotment of undivided share in land was to be adopted as date of
acquisition for computing capital gain instead of date of sale deed.

The assessee had entered into an agreement dated 22-2-2005 for purchase of undivided share of
land as well as for construction of home by a project promoted by VHPL. The land was registered in
the name of the assessee on 4-8-2005. Thereafter, the assessee sold the entire unit by a sale deed
dated 10-4-2008 and claimed the difference between the cost of acquisition and sale consideration
as long term capital gains.
The Assessing Officer however, took a view that the undivided share of land was registered on 4-82005 and since the property was purchased in the month of August, 2005 and sold in April, 2008,
the capital gains arising from sale would be assessed as short term capital gains only and
accordingly, the Assessing Officer denied benefit of long term capital gains.

The High Court held that the allottee gets the title to the property on issuance of allotment letter
and the payment in instalments is only a consequential act upon which delivery of possession to the
property flows. Therefore, capital gains are long term and holding period shall be taken from 22-22005 i.e., date of issue of allotment letter.

6. Vipin Walia v. Income-tax Officer [2016] (Delhi)

Where department intended to proceed under section 147 against assessee when he was already
dead, it could have been done so by issuing a notice to legal representative of assessee within
period of limitation for issuance of notice.

Notice us 148 was issued to assessee on 27th March, 2015 for Assessment Year 2008-09 and the said
notice was returned unserved since the assessee has expired on 14 th March, 2015. Assessing Officer
issued a letter on 15-6-2015 to legal heir asking him the various details. Legal heir contends that the
proceeding under section 148 initiated through this letter were time barred.
ITO was to initiate proceedings under Section 147 of the Act against the deceased Assessee for
Assessment Year 2008-09. The limitation for issuance of the notice under Section 147/148 of the Act
was 31st March 2015. On 27th March 2015, when the notice was issued, the Assessee was already
dead. If the Department intended to proceed under Section 147 of the Act, it could have done so
prior to 31st March 2015 by issuing a notice to the Legal Representatives of the deceased. Beyond
that date it could not have proceeded in the matter even by issuing notice to the Legal
Representatives of the Assessee.
Notice under section 148 for relevant assessment year was issued upon original assessee when he
was already dead. However, department continued with proceedings under section 147 in name of
petitioner, as a legal heir of original assessee. Petitioner contended that proceedings initiated were
barred by limitation.

Held that if department intended to proceed under section 147, it could have been done so prior to
period of limitation by issuing a notice to legal representative of deceased assessee by 31 st March,
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2015 and beyond that date it could not have proceeded in matter even by issuing notice to Legal
Representatives of assessee. Therefore, subsequent proceedings under section 147 against
petitioner were wholly misconceived and were to be quashed.

7. Hyosung Corporation v. Authority for Advance Rulings [2016] (Delhi)

Words 'already pending' in section 245R should be interpreted to mean 'already pending as on
date of application and not with reference to any future date'.

AAR rejected said application holding that with the issue of notice under section 143(2), claims of
the assessee in the return were pending for adjudication before the Assessing Officer. Therefore,
the question raised in the application for advance ruling was pending adjudication before the
assessing authority and the bar created by section 245R(2) would operate.

Held that the words 'already pending' in section 245R should be interpreted to mean 'already
pending as on date of application and not with reference to any future date'. It is only if on date of
filing of application before AAR question raised therein was already subject matter of proceedings
before income tax authorities that bar in terms of proviso to section 245R(2) would apply. If such
application is not already pending on date of application, and is subject matter of a notice issued
thereafter by income tax authority, it cannot be said that such question is 'already pending before
such income tax authority'.

8. Commissioner of Income-tax v. Meghalaya Steels Ltd. [2016] (Supreme Court)

Where assessee received (a) transport subsidy; (b) interest subsidy; (c) power subsidy; and (d)
insurance subsidy which were reimbursements of manufacturing cost incurred by assessee,
deduction of said subsidies was allowed under sections 80-IB and 80-IC.
Where assessee received subsidy as reimbursement of cost of production, same would be
included under head "profits and gains of business or profession" and therefore could not be
included under head "income from other sources"

Deduction under Section 80-IB, and section 80-IC is available on Profits & Gains from Business or
Profession which includes such subsidy.

9. Commissioner of Income-tax v. Avenue Super Chits (P.) Ltd. [2015] (Karnataka)

Chit dividend paid by chit fund company to its members is not interest and, consequently, no
deduction of TDS under section 194A is required to be made.

The assessee-company was engaged in the business of chit fund. It paid amounts to its subscribers
who had participated in its chit scheme. The said amount was called as dividend. Under the scheme,
the unsuccessful members in the auction chit would earn dividend and the successful bidders would
be entitled to retain the face value till the stipulated period under the scheme. The Assessing Officer
held that the amount paid by assessee to its members by way of dividend was liable for deduction of
tax under section 194A.
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Held that the amount paid by way of dividend cannot be treated as interest. Further, section 194A
has no application to such dividends and, therefore, it was held that there is no obligation on the
part of the assessee to make any deductions under section 194A before such dividend is paid to
subscribers of the chit.

10. Commissioner of Income-tax v. Kotak Securities Ltd. [2016] 67 taxmann.com 356 (SC)

Service made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which
transaction charges are paid by members of BSE are common services that every member of Stock
Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange;
such services do not amount to 'technical services' provided by Stock Exchange, not being services
specifically sought for by user or consumer and, therefore, no TDS would be deductible under
section 194J on payments made for such services.
Only payment for services which are specialized, exclusive and according to individual requirements
of user or consumer who may approach service provider for such services would come within ambit
of 'fees for technical services so as to attract TDS under section 194J.
The service made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which
transaction charges are paid by members of BSE are common services that every member of Stock
Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange; such
services do not amount to 'technical services' provided by Stock Exchange, not being services
specifically sought for by user or consumer.

Therefore, transaction charges paid by members of BSE to BSE are in nature of payments made for
facilities provided by Stock Exchange and no TDS on such payments would be deductible under
section 194J.

11. Commissioner of Income-tax v. Bhagat Construction Co. (P.) Ltd. [2015] (Supreme Court)

Form I.T.N.S. 150 must be treated as part of assessment order in wider sense and when this Form
contained a calculation of interest payable on tax assessed, it could not be said that no direction
had been given in assessment order for charging of interest under section 234B.

Interest under sections 234A, 234B,, 234C shall be levied even if Assessing Officer has not given a
direction in order of assessment to charge the interest.

12. ITC Ltd. v. Commissioner of Income-tax (TDS) [2016] (Supreme Court)

Tips collected by Hotel from customers and paid to employees did not amount to salary from
employer and hence employer was not liable to deduct tax at source on such payments under
section 192.
Assessee was engaged in business of owning, operating, and managing hotels.

Held that since tips were received by employer in a fiduciary capacity as trustee for payments that
were received from customers which they disbursed to their employees for service rendered to
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customer, there was, therefore, no reference to contract of employment when these amounts were
paid by employer to employee.

Since contract of employment not being proximate cause for receipt of tips by employee from a
customer, same would be outside dragnet of sections 15 and 17. Thus, tips so disbursed to
employees couldn't be chargeable to tax as salary and thus employer was not liable to deduct tax at
source from such payments.

13. Commissioner of Income-tax v. Jyotsna Holdings (P.) Ltd. [2016] (Supreme Court)

Where amount refundable to assessee was not immediately refunded but adjusted against
demand for earlier assessment year, interest on said refund was to be allowed.

On completion of assessment, an amount was found refundable to assessee but was not
immediately refunded. Such amount was, later on, adjusted against demand for earlier assessment
year. Assessee claimed interest on refundable amount.
Held, amount refundable to assessee was utilized by department and, therefore, interest was
payable under section 244A(1A).

14. Commissioner of Income-tax v. Girish L. Ragha [2016] (Bombay)

Where assessee sold residential property and entered into an agreement with a builder for
purchasing flat for which he invested sale proceeds within prescribed period of two years, merely
because assessee got occupancy certificate after 4 years and such delay was beyond control of
assessee, assessee's claim for deduction under section 54 was to be allowed.
Assessee sold residential property. He entered into an agreement with a builder for purchase of a
flat and invested sale proceeds in it within prescribed period of two years. He was required to get
house and occupancy certificate within two years. After purchase of property, there was a civil suit
filed by other parties and assessee could not complete construction and licence for constructing
house was accordingly issued after 4 years. Assessing Officer disallowed the claim of assessee under
section 54 on the ground that the construction should be completed within stipulated time of three
years.

Held that since assessee had invested money within stipulated period and delay in obtaining
occupancy certificate was beyond control of assessee, assessee would be entitled for deduction
under section 54.

15. Commissioner of Income Tax v. Nicholas Piramal (India) Ltd. [2016] (Bombay)

Where assessee-company carrying on business of manufacturing drugs at different units, had to


close down one of its unit on account of statutory compulsion, expenditure incurred on shifting of
manufacturing activity of said unit to other units was to be allowed as deduction under section
37(1).

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Assessee-company carried on business of manufacturing drugs at different units as a single business.


Assessee had to close down one of its unit on account of statutory compulsion and manufacturing
activity of said unit was shifted to other units.

Held that expenditure incurred on shifting of manufacturing activities was to be allowed as


deduction under section 37(1).

16. Regen Infrastructure & Services (P.) Ltd. v. Central Board of Direct Taxes [2016] (Madras)

Where delay of a day in filing return was only due to technical snags of website of department on
last date of filing return, such delay was to be condoned; claim of carry forward of losses could
not be denied.

Assessee filed its return of income late by a day. Assessee's claim of carry forward loss was not
granted by department. Assessee approached CBDT and sought for condonation of delay in filing of
return and explained that due to last hour rush on last day of filing of return, there were technical
snags in website of department and, thus, return could not be uploaded; it could only be uploaded
in midnight and, hence, date of filing had been reckoned by department as next day. CBDT rejected
petitioner's contention.
Held that since petitioner had not gained anything from delay and had satisfactorily explained
reason for delay in filing return, CBDT should have condoned delay of one day in filing return by
assessee; mere delay should not defeat claim of assessee.

17. Commissioner of Income-tax v. Society for Promn. of Edn., Allahabad [2016] (Supreme Court)

Assessee-society filed an application under section 12A for grant of registration on 24-2-2003 and
same was not responded to within six months. The assessee contended that as per the provisions of
the Act, registration of application was to be deemed to have taken effect from 24-8-2003.
However, Assessing Officer rejected the contention of the assessee.

Held that once an application is filed under section 12A for grant of registration and same was not
responded to within stipulated period of six months, application for registration was to be deemed
to have been allowed.

18. Commissioner of Income-tax v. Parrys (Eastern) (P.) Ltd. [2016] (Bombay)

Where deemed short-term capital gain arose on account of sale of depreciable assets that was
held for a period to which long-term capital gain would apply, said gain would be set-off against
brought forward long-term capital losses and unabsorbed depreciation

Held where deemed short-term capital gain arose out of sale of depreciable assets that was held for
a period to which long-term capital gain apply, assessee was entitled to claim set off said gain
against brought forward long-term capital losses and unabsorbed depreciation; for purposes of
section 74, deemed short-term capital gain would continue to be long-term capital gain.

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