Regarding Condonation of Delay:
Venkatadri Traders Ltd.v.Commissioner of Income-tax
[2001] 118 Taxman 622 (Madras)/248 ITR 681 (Madras)
R. JAYASIMHA BABU, J.
The delay, which the assessee was required to explain, is indeed the period from the expiry of period of one year from the date on which the order sought to be revised was made.While considering the question of condonation, the revisional authority is not to altogether exclude from consideration the merits of the revision petition. If the cause of justice requires that a liberal view be taken, then a liberal view would indeed be warranted while considering the question of condoning the delay. The case of the assessee that the same receipt has been taxed twice over once by way of accrued interest and for the second time by way of capital gain has not been found to be incorrect even prima facie. In matters where refunds are involved and the assessee's right to such refund is beyond any reasonable doubt, a liberal view of the conditionalities subject to which the relief can be granted is warranted. It is not the policy of the Act to enable the State to collect monies from citizens and retain the same even when the money is not required to be paid as tax. The fact that the payment had been made erroneously cannot by itself be allowed to stand in the way of the relief being granted to the assessee, if relief is permissible by the exercise of a discretionary power vested in the statutory authorities. The discretion so vested is required to be exercised in a manner which would protect and promote the just interest of the assessee. The position of the assessee vis-a-vis the revenue is not strictly adversarial, although more often than not, that is the manner in which the two parties perceive their role. The revenue is not to be regarded as interested in scoring points against the assessee, but only in the just enforcement of the provisions of the Act. The discretion of the authority, therefore, on the facts of this case, was required to be exercised by bearing the aforementioned considerations in mind.
Regarding Powers of ITAT:
Commissioner of Income-tax v. Ramnath Goenka
R. JAYASIMHA BABU AND K. GNANAPRAKASAM, JJ.
[2002] 121 Taxman 470 (Madras) / [2001] 252 ITR 653 (Madras)
1. All that the Tribunal has done is to provide relief which was consequential and flowed from its own finding in the appeal. The fact that such relief was provided does not in any way make that order of the Tribunal defective.
2. The Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 has held that it is open to the Tribunal to allow a new ground to be raised even if such ground had not been raised in the proceedings before the authorities below that of the Tribunal, in order to correctly assess the tax liability of the assessee, provided the facts required for deciding the question raised are available in the assessment proceedings.
3. There is no dispute that all the facts required for granting the consequential relief were part of the record of the assessment proceedings There. The Tribunal in its elaborate order rightly referred to the earlier decision of the Supreme Court in the case of Shivdeo Singh v. State of Punjab AIR 1963 SC 1909 and CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 while holding that the Tribunal had primary jurisdiction to prevent miscarriage of justice or to correct grave and palpable errors committed by it and further that the Tribunal is duty-bound to grant relief to which the assessee is entitled even though there was no plea in that regard. The Tribunal has also rightly pointed out that while the revenue can resort to section 147, read with section 153(3) of the Income-tax Act, 1961 to review the assessment and assess the escaped income, there is no corresponding provision requiring the revenue to amend the assessment and to grant consequential relief on the basis of the findings given in the appeal.
4. The Tribunal in this case has found that the investment made by the assessee was out of the borrowed capital and, therefore, interest on such capital could not be deducted while computing the income from the business. In the miscellaneous petition, it has been rightly held that such interest is to be taken into account while computing the income from other sources.
Exemptions to a Charitable Institution
Commissioner of Income-tax v. 21st Society of Immaculate Conception
(2000) 241 ITR 193 (Mad)
R. JAYASIMHA BABU AND MRS. A. SUBBULAKSHMY, JJ.
The nuns working in a convent, who rendered service, who have taken a vow of poverty and are only maintained by the society which looks after their bare minimal needs and who make over to the society all the income they receive for the services rendered as teachers in a school which is in part funded by the State, so far as salaries to teachers are concerned, are regarded as the cause for denying the benefit of the exemption under section 11 of the Income-tax Act, 1961 (‘the Act’) to the charitable institution. All the authorities below, except the Assessing Officer, have rightly rejected such a view. The approach of the revenue ignores the reality and focuses merely on the form of the account…………
2. It is undisputed that the assessee-society is a charitable institution, which is otherwise, eligible to claim the benefit of section 11 and that the sisters, who are members of the society, are required not to possess any worldly wealth, and are required to lead a life of poverty and austerity. In order that they continue to render services while being bound by such vows, their bare minimal needs must be taken care of. Instead of their spending money from out of the salary, which they receive for the work done by them in the educational institution as teachers, they had made over all their earnings to the society and the society incurred expenditure required for their maintenance. Their monetary contribution to the society was obviously the difference between the amount of the salary and other payments, which they received for their work as teachers minus the amount expended on them for their maintenance. The ITO sought to deny the benefit of section 11 to the society on the ground that section 13 had been violated. Sections 12, 13(3)(b) as also section 13(1)(c) could not possibly be invoked in this case, as the reality and the substance of the matter is that the amount made over by the nuns to the society was only the amount which was available for use by the society for purposes other than their maintenance. The amounts spent on their maintenance had for the purpose of convenience been spent through the society instead of each one of the sisters paying their own bills separately. The expenditure so incurred was not out of other donations made to the society, but out of the monies which the nuns themselves had earned and for the purpose of convenience made over to the society instead of first deducting from such donations the amount required for their own maintenance. The form in which this has been done has been misunderstood by the Assessing Officer. The very sacrifice made by the nuns has been held against them by treating them as beneficiaries of their own donations. Seen in the proper perspective, the donation which they made was the donation of what was available for purposes other than their maintenance. That amount was not in excess of any provision of the law, which would come in the way of denial of exemptions to the society. No part of the amount so ascertained was spent on their maintenance.
3. Even in matters of taxation, the form is not always conclusive. There are cases where the substance must be looked at in order to ascertain the real nature of the transaction. Even while it is permissible to pierce the corporate veil in certain circumstances, while dealing with charities, it is necessary to similarly ascertain the substance of the transaction rather than merely look at the form for the purpose of withholding from a charity the exemptions which have been provided under the law.
Director of Income-tax (Exemption) v Abul Kalam Azad Islamic Awakening
(2013) 84 CCH 0091 (Delhi) / /[2013] 215 Taxman 148 (Delhi)(MAG.)
BADAR DURREZ AHMED & R. V. EASWAR, JJ.
In our view the assessee's charitable objects include spreading education and opening of schools; investment even in commercial property assets remains charitable purposes so long as the income generated by it is applied to charitable objects. It has not been demonstrated that the assessee applied rent received from these properties to any non- charitable purposes. Besides, it has not been demonstrated that the assessee's intention was to enter in business of purchase and sale of commercial property inasmuch as we are in year 2012, the property was purchased in FY 2004-05 and the Trust still retains this property. In these circumstances, we are unable to hold that the assessee's investment can be held non-charitable in nature.
Valuation
(1983] 15 Taxman 384 (Madras)/[1985] 155 ITR 303 (Madras)
Commissioner of Income-tax v. Apsara Talkies
V. BALASUBRAHMANYAN AND S. PADMANABHAN, JJ.
On appeal by the assessee, the Tribunal cancelled the penalty. They held that it was not proper to infer a finding of concealment of income merely on the score that the department's estimate of the cost of the theatre exceeded the construction expenses in the assessee's accounts. The Tribunal held out the applicability of the Explanation to section 271(1)(c), holding that the difference between the assessment and the assessee's return arose because of the addition based on the estimated cost of construction of the theatre and not because of any fraud or wilful neglect on the part of the assessee in making its return of income.
We agree with the reasoning and conclusion of the Tribunal. The whole basis for rejecting the assessee's return was the departmental valuer's estimate of the cost of construction of the theatre. We, however, fail to see how a finding of concealment of income, can be founded on a valuer's estimate. It is jocularly said that a valuer is one who, if you have forgotten your telephone number, will estimate it for you. The truth behind this utterance is that a valuation is, even in the most expert hands, an inexact instrument of measurement. It is only an estimate, and no two valuers will agree on the same subject. In this very case, there were as many as three different valuation reports. One was by an executive engineer of the Public Works Department. His estimate of the theatre was at Rs. 2,64,557. There was another estimate by an approved valuer, it put the cost at Rs. 3,10,541. As earlier mentioned, the departmental valuer put the figure at Rs. 5,67,300. As if these were not enough, the ITO himself put his valuation at Rs. 5,55,580. In this welter of estimates, there is no scope whatever for drawing the inference that the assessee's book figure of cost at Rs. 4,41,280 was not only an understatement but it involved an actual concealment of income.
Commercial Prudence:
N.M. Rayaloo Iyer & Sons v. Commissioner of Income-tax/Excess Profits Tax [1954] 26 ITR 265 (MAD.)
SATYANARAYANA RAO AND RAJAGOPALAN, JJ.
In applying the test of commercial expediency to determine whether the expenditure is wholly and exclusively laid out for the purpose of the business, the reasonableness of the expenditure should be considered from the point of view of the businessman and not from the point of view of outsiders including the Income-tax Officer. The Department might consider that such a large amount as in Tata's case (supra) was wholly unreasonable, viewing it purely from the point of view of a layman. The view point of the businessman is all the more important under the present set-up, when the difficulties of running a business are more pronounced. The bonus that is paid to employees is no longer treated as a payment ex gratia, and the percentage of commission under the managing agency agreements is intended to give an inducement to the managing agent to exert to the best of his ability to increase the volume of business so as to bring into the business more profits. The necessity to keep the employees in good humour and to keep them above want with a view to deter them, if possible, from becoming corrupt or even disloyal could be appreciated and realised only by a person who actually runs a huge growing concern, like the business of the Tatas in the case above referred to, and may not always be fully appreciated and sympathetically viewed by one unconnected with business.
CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377
Once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case.
No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.
Referred and agreed with in [2007] 288 ITR 1 (SC)
S.A. Builders Ltd. v. Commissioner of Income-tax (Appeals), Chandigarh
[1988] 39 Taxman 368 (SC)/[1988] 173 ITR 479 (SC)
Commissioner of Wealth-tax v. Arvind Narottam*
R.S. PATHAK, CJ. AND SABYASACHI MUKHARJI, J.
It is true that tax avoidance in an under-developed developing economy should not be encouraged on practical as well as ideological grounds. One would wish, as noted by Reddy, J. that one could get the enthusiasm of Justice Holmes that taxes are the price of civilization and one would like to pay that price to buy civilization. But the question which many ordinary taxpayers very often in a country of shortages with ostentious consumption and deprivation for the large masses ask, is does he with taxes buy civilization or does he facilitate the wastes and ostentiousness of the few. Unless wastes and ostentiousness in the Government's spendings are avoided or eschewed, no amount of moral sermons would change people's attitude to tax avoidance.