Referencer for Quick

Revision
Final Course Paper-7: Direct
Tax Laws and International
Taxation
A compendium of subject-wise capsules published in the
monthly journal “The Chartered Accountant Student”

Board of Studies
(Academic)
ICAI
INDEX
Page Edition of Students’
Topics
No. Journal
1-7 February 2020 Taxation Laws (Amendment) Act, 2019
Overview of Select Significant Supreme Court
7-13 February 2020
Rulings
DIRECT TAX LAWS
DIRECT TAX LAWS
This capsule on Final (New) Paper 7: Direct Tax Laws and International Taxation, in its first segment, attempts
to give an insight into the amendments made by the Taxation Laws (Amendment) Act, 2019 in the Income-tax
Act, 1961 and the Finance (No. 2) Act, 2019. In the second segment, it also attempts to give an overview of
the significant select Supreme Court decisions pronounced in the last decade. In this capsule, the provisions
of the Taxation Laws (Amendment) Act, 2019 are detailed using comparative tables and examples, so as to
facilitate easy understanding of the new/amended provisions inserted in the Income-tax Act, 1961. Students
may note that the amendments made by the Taxation Laws (Amendment) Act, 2019 are relevant for May 2020
Final (New) and Final (Old) Examinations.

I. TAXATION LAWS (AMENDMENT) ACT, 2019

The Taxation Laws (Amendment) Ordinance, 2019 was promulgated by the President of India on 20.9.2019. The same has been
subsequently approved by the Cabinet, consequent to which, the Taxation Laws (Amendment) Bill, 2019, with certain further
changes, was introduced in the Parliament. The same has been passed by both Houses of the Parliament and has received
the assent of the President of India. The Taxation Laws (Amendment) Act, 2019 shall be deemed to have come into force on
20.9.2019. This Act has, inter alia, reduced the rate of minimum alternate tax, withdrawn enhanced surcharge in respect of
capital gains chargeable to tax under sections 111A and 112A and inserted new sections 115BAB and 115BAA providing for
concessional rate of tax in respect of certain domestic companies.

INSERTION OF NEW SECTIONS 115BAB AND 115BAA

New sections 115BAB and 115BAA have been inserted in the Income-tax Act, 1961 (IT Act, in short) by the Taxation Laws
(Amendment) Act, 2019, providing for concessional rates of tax and exemption from minimum alternate tax (MAT) in respect of
certain domestic companies with effect from A.Y.2020-21. The comparative provisions of these two new sections are tabulated
hereunder -
(1) (2) (3) (4)
S. No. Particulars Section 115BAB Section 115BAA
(1) Applicability Domestic manufacturing company Any domestic company
(2) Rate of tax 15% 22%
(3) Rate of surcharge 10% 10%
(4) Effective rate of tax 17.16% 25.168%
(including surcharge & [Tax@15% (+) [Tax@22% (+)
HEC) Surcharge@10% (+) Surcharge@10% (+)
HEC@4%] HEC@4%]
(5) Applicability of MAT Not applicable Not applicable
(6) Manner of computation of tax liability
Income on which The rate of tax (i.e., 17.16%) would be applicable in respect The rate of tax (i.e., 25.168%)
concessional rate of tax of income derived from or incidental to manufacturing or is notwithstanding anything
is applicable production of an article or thing. contained in the IT Act, but
[Read with point no.11 below, wherein the rate of 34.32% subject to the provisions of
(i.e., Tax@30% + surcharge@10% + HEC@4%) would be Chapter XII, other than sections
applicable in specified circumstance] 115BA and 115BAB.
Rate of tax on income Such income would be subject to tax at the rates Such income would be subject
covered under Chapter mentioned in the said sections in Chapter XII. to tax at the rates mentioned in
XII [For example, LTCG Surcharge@10% would be levied on tax computed on the said sections in Chapter XII.
chargeable to tax u/s such income. HEC@4% would be levied on the income- Surcharge@10% is leviable on
112 and 112A, STCG tax plus surcharge. tax computed on such income.
chargeable to tax u/s HEC@4% would be levied on the
111A] income-tax plus surcharge.
Rate of tax on other The applicable tax rate is 25.168% (i.e., tax@22%, The applicable tax rate is
income in respect of plus surcharge @10% plus HEC@4%), if such income 25.168% (i.e., tax@22% plus
which no specific rate has neither been derived from nor is incidental to surcharge@10% plus HEC@4%).
of tax is provided in manufacturing or production of an article or thing (For There is, however, no restriction
Chapter XII example, income from house property and income from regarding claim of any deduction
other sources). or allowance permissible under
In respect of such income, no deduction or allowance the relevant provisions of the Act.
in respect of any expenditure or allowance shall be
allowed in computing such income.
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 DIRECT TAX LAWS
(1) (2) (3) (4)
S. No. Particulars Section 115BAB Section 115BAA
Rate of tax on STCG The applicable rate of tax is 25.168% (i.e., tax@22%, The applicable rate of tax is
derived from transfer plus surcharge@10% plus HEC@4%). 25.168% (i.e., tax @22%, plus
of a capital asset on There is, however, no restriction regarding claiming of surcharge @10% plus cess@4%).
which no depreciation is deduction or allowance in this regard. There is no restriction regarding
allowable under the Act claiming of deduction or
allowance in this regard.
(7) Conditions to be fulfilled for availing concessional rate of tax and exemption from MAT
Conditions to be (i) The company (Co.) should be set-up and No time limit specified. Both
fulfilled for availing registered on or after 1.10.2019. existing Cos and new Cos can
concessional rate of tax avail benefit.
and exemption from (ii) It should commence manufacturing or Need not be a manufacturing or a
MAT production of an article or thing on or before production Co.
31.3.2023.
(iii) It should not be formed by splitting up or No similar condition has been
the reconstruction of a business already in prescribed.
existence (except in case of a Co., business of
which is formed as a result of the re-establishment,
reconstruction or revival by the person of the
business of any undertaking referred to in section
33B, in the circumstances and within the period
specified therein).
(iv) It does not use any P or M previously used for any No similar condition has been
purpose [Refer Note at the end]. prescribed.
(v) It does not use any building previously used as a No similar condition has been
hotel or a convention centre [meanings assigned in prescribed.
section 80-ID(6)] in respect of which dedctn. u/s
80-ID has been claimed and allowed.
(vi) It should not be engaged in any business other No similar condition has been
than the business of manufacture or production of prescribed.
any article or thing and research in relation to, or
distribution of, such article or thing manufactured
or produced by it.
Note – Business of manufacture or production of any
article or thing does not include business of –
1. Development of computer software in any form
or in any media
2. Mining
3. Conversion of marble blocks or similar items
into slabs
4. Bottling of gas into cylinder
5. Printing of books or production of
cinematograph films
6. Any other business as may be notified by the
Central Govt. in this behalf.
Note - If difficulty arises regarding fulfilment of conditions
listed in (iv) to (vi) above, the CBDT may, with the approval
of the Central Govt, issue guidelines for the purpose of
removing difficulty and to promote manufacturing or
production of article or thing using new P & M.
Every guideline issued by the CBDT has to be laid before
each House of Parliament, and shall be binding on the
person, and the income-tax authorities subordinate to it.

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DIRECT TAX LAWS
(1) (2) (3) (4)
S. No. Particulars Section 115BAB Section 115BAA
(8) Common conditions In case of a Co. opting for either section 115BAA or 115BAB, the total income should be
for both sections computed -
for availing the (i) without providing for deduction under any of the following sections:
concessional rate of tax Section Provision
and exemption from
10AA Exemption of profits and gains derived from export of articles or things
MAT
or from services by an assessee, being an entrepreneur from his Unit
in SEZ.
32(1)(iia) Additional depreciation @20% or @35%, as the case may be, of actual
cost of new P&M acquired and installed by manufacturing undertakings.
32AD Deduction@15% of actual cost of new P&M acquired and installed
by an assessee in a manufacturing undertaking located in the notified
backward areas of Andhra Pradesh, Telengana, Bihar and West Bengal.
33AB Deduction@40% of profits and gains of business of growing and
manufacturing tea, coffee or rubber in India, to the extent deposited
with NABARD in accordance with scheme approved by the Tea/Coffee/
Rubber Board.
33ABA Deduction@20% of the profits of a business of prospecting for, or
extraction or production of, petroleum or natural gas or both in India,
to the extent deposited with SBI in an approved scheme or deposited in
Site Restoration Account.
35(1)(ii)/ Deduction/weighted deduction for payment to any research association,
(iia)/(iii) company, university etc. for undertaking scientific research or social
science or statistical research.
35(2AA) Weighted deduction@150% of payment to a National Laboratory or
University or IIT or approved specified person for scientific research
35(2AB) Weighted deduction@150% of in-house scientific research expenditure
incurred by a company engaged in the business of bio-technology or in
the business of manufacture or production of an article or thing.
35AD Investment-linked tax deduction for specified businesses.
35CCC Weighted deduction@150% of expenditure incurred on notified
agricultural extension project
35CCD Weighted deduction@150% of expenditure incurred by a company on
notified skill development project.
80-IA to Deductions from GTI under Chapter VI-A under the heading “C-
80RRB Deductions in respect of certain incomes” other than the provisions
of section 80JJAA.
(ii) without set-off of any loss or allowance for unabsorbed depreciation deemed so u/s 72A,
where such loss or depreciation is attributable to any of the deductions listed in (i) above
[Such loss and depreciation would be deemed to have been already given effect to and no
further deduction for such loss shall be allowed for any subsequent year].
(iii) by claiming depreciation u/s 32 determined in the prescribed manner. However, additional
depreciation u/s 32(1)(iia) cannot be claimed.
Note – Additional points relevant in the context of section 115BAA:
(1) In case of a Co. opting for section 115BAA, total income should be computed without set-
off of any loss c/f or depreciation from any earlier A.Y., where such loss or depreciation is
attributable to any of the deductions listed in (i) above [Such loss and depreciation would
be deemed to have been already given effect to and no further deduction for such loss or
depreciation shall be allowed for any subsequent year].
(2) In the case of a person having a Unit in the IFSC, referred to in section 80LA(1A), which
has exercised option for section 115BAA, deduction u/s 80LA would be allowed subject to
fulfilment of the conditions specified in that section.

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 DIRECT TAX LAWS
(1) (2) (3) (4)
S. No. Particulars Section 115BAB Section 115BAA
(3) Where there is a depreciation allowance in respect of a block of asset which has not been
given full effect to prior to A.Y.2020-21, corresponding adjustment shall be made to the
WDV of such block of assets as on 1.4.2019 in the prescribed manner, if option for section
115BAA is exercised for P.Y.2019-20 relevant to A.Y.2020-21.[For example, in case of an
asset acquired and put to use for < 180 days in P.Y. 2018-19, the effect of balance additional
depreciation to be allowed in P.Y. 2019-20 will be made in the WDV of the block as on
1.4.2019, if option for section 115BAA is exercised for P.Y.2019-20 relevant to A.Y.2020-21]
(4) Since there is no time line within which option under section 115BAA can be exercised, a
domestic company having b/f losses and depreciation on a/c of deductions listed in (i) above
may, if it so desires, postpone exercise the option u/s 115BAA to a later A.Y., after set off of
the losses and depreciation so accumulated.
(9) Failure to satisfy On failure to satisfy the conditions mentioned in point On failure to satisfy the conditions
conditions no. (7) & (8) above in any P.Y., the option exercised would mentioned in point no.(8) above
be invalid in respect of the A.Y. relevant to that P.Y. and in any P.Y., the option exercised
subsequent AYs; would be invalid in respect of
Consequently, the other provisions of the Act would apply the A.Y. relevant to that P.Y. and
to the person as if the option had not been exercised for subsequent AYs;
the A.Y. relevant to that P.Y. and subsequent AYs. Consequently, the other
provisions of the Act would apply
Note – Where option exercised u/s 115BAB is rendered to the person as if the option
invalid due to violation of conditions stipulated in point had not been exercised for the
no.7 [(iv) to (vi)] above, such person may exercise option A.Y. relevant to that P.Y. and
u/s 115BAA. subsequent AYs.
(10) Availability of set-off Since it is a new Co, there would be no b/f MAT credit B/f MAT credit cannot be set-off
of MAT credit brought against income u/s 115BAA.
forward from earlier Note - If a Co. has b/f MAT credit,
years it can first exhaust the MAT credit,
and thereafter opt for section
115BAA in a subsequent P.Y.
(11) Adjustments for If the A.O. opines that the course of business between No such requirement to make any
transactions with the Co. and any other person having close connection adjustment.
persons having close therewith is so arranged that the business transacted b/w
connection them produces more than the ordinary profits to the Co.,
he is empowered to take into a/c the amount of profits
as may be reasonably deemed to have been derived
therefrom, while computing profits and gains of such Co.

In case the arrangement referred above involves a

specified domestic transaction ref. to in section 92BA,
then, the amt of profits from such transaction would be
determined by considering the ALP.
The amt, being profits in excess of the amt of the
profits determined by the A.O., shall be deemed to be
the income of the person.
The income-tax on the income so deemed shall be
subject to tax@34.32%(i.e., tax@30% + surcharge
@10% +HEC@4%).

Note – The scope of “specified domestic transaction”

referred to in section 92BA has been expanded to include
within its ambit, any business transacted between such
persons with close connection, where one such person is a
Co. claiming benefit u/s 115BAB.

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DIRECT TAX LAWS
(1) (2) (3) (4)
S. No. Particulars Section 115BAB Section 115BAA
(12) Exercise of option by The beneficial provisions of this section would apply only The beneficial provisions of this
the company within the if option is exercised in the prescribed manner on or section would apply if option
prescribed time before the due date u/s 139(1) for furnishing the first of is exercised in the prescribed
the returns of income for any P.Y. relevant to A.Y.2020- manner on or before the due
21 or any subsequent A.Y. date u/s 139(1) for furnishing
Such option, once exercised, would apply to subsequent the return of income for any P.Y.
AYs. relevant to A.Y.2020-21 or any
Further, once the option has been exercised for any P.Y., subsequent A.Y.
it cannot be subsequently withdrawn for the same or Such option, once exercised,
any other P.Y. would apply to subsequent AYs.
Further, once the option has been
Notes – (1) The option has to be exercised at the time of exercised for any P.Y., it cannot be
furnishing the first of the returns of income for any P.Y. subsequently withdrawn for the
If a person fails to so exercise such option, it cannot be same or any other P.Y.
exercised thereafter for any subsequent P.Y.
(2) In case of amalgamation, the option exercised u/s Note – The option can be exercised
even in a later year, but once
115BAB shall remain valid in the case of the amalgamated
exercised, cannot be withdrawn
Co. only and if the conditions mentioned in point no.(7)
subsequently.
and (8) are continued to be satisfied by such Co.
Further, where the person exercises
option u/s 115BAA, the option u/s
115BA may be withdrawn.
Note - For the purpose of point no.7(iv) in column (3) of the above table in relation to a Co. exercising option under section 115BAB,
any P or M which was used outside India by any other person shall not be regarded as P or M previously used for any purpose, if all the
following conditions are fulfilled, namely:—
(a) such P or M was not, at any time previous to the date of the installation, used in India;
(b) such P or M is imported into India from any country outside India;
(c) no deduction on account of depreciation in respect of such P or M has been allowed or is allowable under the provisions of the Act
in computing the total income of any person for any period prior to the date of installation of the P or M by the person.
Further, where in the case of a person, any P or M or any part thereof previously used for any purpose is put to use by the Co. and the
total value of the P or M or part so transferred does not exceed 20% of the total value of the P or M used by the Co., then, the condition
specified that the Co. does not use any P or M previously used for any purpose would be deemed to have been complied with.

RATES OF SURCHARGE APPLICABLE TO INDIVIDUALS/HUF/AOP/BOI/ARTIFICIAL JURIDICAL PERSONS

FOR A.Y.2020-21
Rate of Example
Particulars surcharge on Components of total income (TI) Applicable rate of surcharge
income-tax
(i) Where TI (including income 10% • STCG u/s 111A R 30 lakhs; Surcharge would be levied@10% on
u/s 111A & 112A) > R 50 • LTCG u/s 112A R 25 lakhs; income-tax computed on TI of R 95
lakhs but ≤ R 1 crore and lakhs.
• Other income R 40 lakhs
(ii) Where TI (including income 15% • STCG u/s 111A R 60 lakhs; Surcharge would be levied@15% on
u/s 111A & 112A) > R 1 crore • LTCG u/s 112A R 65 lakhs; income-tax computed on TI of R 1.75
but ≤ R 2 crore and crores.
• Other income R 50 lakhs
(iii) Where TI (excluding income 25% • STCG u/s 111A R 54 lakh; Surcharge would be levied @15% on
u/s 111A & 112A) > R 2 crore • LTCG u/s 112A R 55 lakh; income-tax on:
but ≤ R 5 crore and • STCG of R 54 lakhs chargeable to
• Other income R 3 crores tax u/s 111A; and
The rate of surcharge on the Not
• LTCG of R 55 lakhs chargeable to
income-tax payable on the exceeding
tax u/s 112A.
portion of income chargeable 15%
Surcharge@25% would be leviable
to tax u/s 111A and 112A
on income-tax computed on other
income of R 3 crores included in TI.

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 DIRECT TAX LAWS
Rate of Example
Particulars surcharge on Components of total income (TI) Applicable rate of surcharge
income-tax
(iv) Where TI (excluding income 37% • STCG u/s 111A R 50 lakhs; Surcharge@15% would be levied on
u/s 111A & 112A) > R 5 crore • LTCG u/s 112A R 65 lakhs; income-tax on:
and • STCG of R 50 lakhs chargeable to
• Other income R 6 crore tax u/s 111A; and
Rate of surcharge on the Not • LTCG of R 65 lakhs chargeable to
income-tax payable on the exceeding tax u/s 112A.
portion of income chargeable 15% Surcharge@37% would be leviable on
to tax u/s 111A and 112A the income-tax computed on other
income of R 6 crores included in TI.
(v) Where TI (including income 15% • STCG u/s 111A R 60 lakhs; Surcharge would be levied@15%
u/s 111A & 112A) > R 2 crore • LTCG u/s 112A R 55 lakhs; on income-tax computed on TI of
in cases not covered under and R 2.25 crore.
(iii) and (iv) above • Other income R 1.10 crore

RATES OF SURCHARGE APPLICABLE ON TAX ON TOTAL INCOME OF INDIVIDUALS/AOP/BOI/ARTIFICIAL JURIDICAL

PERSONS (HAVING ANY INCOME UNDER SECTION 115AD) FOR PAYMENT OF ADVANCE TAX FOR A.Y.2020-21
Rate of Example
Particulars surcharge on Components of TI Applicable rate of surcharge
income-tax
(i) Where TI > R 50 lakhs but ≤ 10% • Capital gains on securities referred Surcharge would be levied@10%
R 1 crore to in section 115AD(1)(b) R 60 on income-tax computed on TI of
lakhs; and R 95 lakhs.
• Other income R 35 lakhs;
(ii) Where TI > R 1 crore but ≤ 15% • Capital gains on securities referred Surcharge would be levied@15%
R 2 crore to in section 115AD(1)(b) R 1.20 on income-tax computed on TI of
crore; and R 1.80 crore.
• Other income R 60 lakhs;
(iii) Where TI [excluding STCG/ 25% • Capital gains on securities referred Surcharge would be levied:
LTCG on securities referred to in section 115AD(1)(b) R 1.20 • @15% on income-tax leviable
to in section 115AD(1)(b)] > crore; and on capital gains of R 1.20 crore
R 2 crore but ≤ R 5 crore • Other income R 3 crores; referred to in section 115AD;
Rate of surcharge on the Not and
income-tax payable on the exceeding • @25% on income-tax computed
portion of income chargeable 15% on other income of R 3 crores
to tax u/s 115AD(1)(b) included in TI.
(iv) Where TI [excluding STCG/ 37% • Capital gains on securities referred Surcharge would be levied -
LTCG on securities referred to in section 115AD(1)(b) R 1.70 • @15% on income-tax leviable
to in section 115AD(1)(b)] > crore; and on capital gains of R 1.70 crore
R 5 crore • Other income R 6 crore referred to in section 115AD;
and
Rate of surcharge on the Not • @37% on income-tax
income-tax payable on the exceeding computed on other income of
portion of income chargeable 15% R 6 crore included in TI.
to tax u/s 115AD(1)(b)
(v) Where TI (including STCG/ 15% • Capital gains on securities referred Surcharge would be levied@15% on
LTCG on securities referred to in section 115AD(1)(b) R 1.10 income tax on TI of R 2.70 crore.
to in 115AD(1)(b)) > R 2 crore; and
crore in cases not covered • Other income R 1.60 crore
under (iii) and (iv) above

Note – The October, 2019 edition of the Study Material incorporates the amendments made by the Taxation Laws (Amendment) Ordinance,
2019, promulgated by the President of India on 20.9.2019.
On account of the subsequent amendments brought in through the Taxation Laws (Amendment) Bill, 2019 introduced in the Parliament,
students are advised to ignore Annexures 1, 2 and 3 of Chapter 12 in the printed copy of Module 2 of the October 2019 edition and
instead, read the Annexures given in the RTP for May, 2020 Examination, which have also been detailed in this Capsule.
Students are advised to also ignore the last paragraph in page no.1.38 and the first paragraph in page no. 1.39 given in italics in
Chapter 1: Basic Concepts of the printed copy of Module 1 of the October, 2019 Edition of the Study Material, which incorporates the
provision relating to surcharge as inserted by the Taxation Laws (Amendment) Ordinance, 2019 promulgated on 20.9.2019. Consequent
to the amendment effected by the Taxation Laws (Amendment) Act, 2019 as assented by the President of India, surcharge of 10% would
be leviable on the income-tax computed on the total income of a company opting for the provisions of section 115BAA or 115BAB.

Further, students are advised to ignore the table containing rates of surcharge in pages 1.35-1.36 of Chapter 1 in Module 1 of the
printed copy of the October, 2019 edition of the study material and read the table containing the rate of surcharge for Individuals/
HUF/AOP/BOI/ Artificial Juridical Persons given in this capsule.

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DIRECT TAX LAWS
RATE OF MINIMUM ALTERNATE TAX ON COMPANIES (MAT)

In respect of companies, other than companies opting for MAT Rate

section 115BAB and 115BAA, the rate of MAT has been 18.5%
Upto A.Y. 2019-20
reduced from 18.5% (plus applicable surcharge and HEC) to
15% (plus applicable surcharge and HEC). However, for units
located in an International Financial Services Centre, deriving
its income solely in convertible foreign exchange, the rate of MAT Rate
15%
MAT would continue to be 9% (plus applicable surcharge and From A.Y. 2020-21 onwards
HEC).

Taxation provisions in respect of buyback of shares effected on or after 5.7.2019

(except where buyback is announced before 5.7.2019 and effected on or after 5.7.2019)
Taxability in the hands of Buyback of shares by Buyback of shares by a Buyback of specified
domestic companies company, other than a securities by any company
domestic company
Company Subject to additional income- Not subject to tax in the hands Not subject to tax in the hands
tax@23.296%. of the Co. of the Co.
Shareholder / holder of Income arising to shareholders Income arising to shareholder Income arising to holder of
specified securities exempt u/s 10(34A) taxable as capital gains u/s specified securities taxable as
46A. capital gains u/s 46A.
Note - Prior to 5.7.2019, additional income-tax was attracted only in case of buy-back of unlisted shares by domestic companies.
Consequently, only holders of unlisted shares were entitled to exemption u/s 10(34A).
Further, where buyback of listed shares is announced before 5.7.2019 but effected on or after 5.7.2019, additional income-tax is not
payable by the domestic companies. Consequently, income arising to shareholders would not be exempt u/s 10(34A).

II. OVERVIEW OF SELECT SIGNIFICANT SUPREME COURT RULINGS

The Supreme Court of India is the apex court of the country and its rulings lay down the law of the land. In this capsule, an
attempt has been made to capture select significant Supreme Court rulings in income-tax law pronounced during the last
decade. For detailed reading of these cases, you may refer to the October, 2019 edition of the Study Material of Final Paper 7 and
the webhosted Judicial Update for May, 2020 examination.

Sl. No. Case Law

1 CIT v. Saurashtra Cement Ltd. (2010) 325 ITR 422
Issue Decision
What is the nature of liquidated The damages are directly and intimately linked with the procurement of a capital
damages received by a company asset i.e., the cement plant, which lead to delay in coming into existence of the
from the supplier of plant for profit-making apparatus. It was not a receipt in the course of profit earning
failure to supply machinery to the process. Therefore, the amount received by the assessee towards compensation for
company within the stipulated sterilization of the profit earning source is not in the ordinary course of business,
time – a capital receipt or a revenue hence it is a capital receipt in the hands of the assessee.
receipt?
2 CIT v. HCL Technologies Limited (2018) 404 ITR 719
Issue Decision
Can expenditure incurred in Deduction u/s 10AA is based on the profit from export business, thus, expenses
foreign exchange for provision of excluded from “export turnover” must also be excluded from “total turnover”, since
technical services outside India, one of the components of “total turnover” is export turnover. Expenses incurred in
which is deductible for computing foreign exchange for providing the technical services outside India are thus, to be
export turnover, be excluded from excluded from total turnover also.
total turnover also for the purpose If deductions in respect of freight, telecommunication charges and insurance
of computing deduction under attributable to delivery of articles, things etc. or expenditure incurred in foreign
section 10AA? exchange in rendering of services outside India are allowed only against export
turnover but not from the total turnover for computing deduction under section
10AA, then, it would give rise to inadvertent, unlawful, meaningless and illogical
results causing grave injustice, which could have never have been the intent of the
Legislature. Hence, such expenditure incurred in foreign exchange for providing
technical services outside India is deductible from total turnover also.

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3 Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673;
Rayala Corporation (P) Ltd. v. Asstt. CIT (2016) 386 ITR 500; and
Raj Dadarkar and Associates v. ACIT (2017) 394 ITR 592
Issue Decision
Would rental income from the In Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673, the Supreme
business of leasing out properties Court observed that holding of the properties and earning income by letting out
be taxable under the head “Income of these properties is the main objective of the company. Further, in the return
from house property” or “Profits of income filed by the company and accepted by the Assessing Officer, the entire
and gains from business or income of the company comprised of income from letting out of such properties.
profession”?
The Supreme Court, accordingly, held that such income was taxable as business
income. Likewise, in Rayala Corporation (P) Ltd. v. Asst. CIT (2016) 386 ITR 500,
the Supreme Court noted that the assessee was engaged only in the business of
renting its properties and earning rental income therefrom and accordingly, held
that such income was taxable as business income. However, in Raj Dadarkar and
Associates v. ACIT (2017) 394 ITR 592, on account of lack of sufficient material to
prove that substantial income of the assessee was from letting out of property, the
Supreme Court held that the rental income has to be assessed as “Income from
house property”.
4 I.C.D.S. Ltd. v. CIT (2013) 350 ITR 527
Issue Decision
Can depreciation on leased Section 32 imposes a twin requirement of “ownership” and “usage for business”
vehicles be denied to the lessor on as conditions for claim of depreciation thereunder. As far as usage of the asset is
the ground that the vehicles are concerned, the section requires that the asset must be used in the course of business.
registered in the name of the lessee It does not mandate actual usage by the assessee itself. In this case, the assessee did
and that the lessor is not the actualuse the vehicles in the course of its leasing business. Hence, this requirement of
user of the vehicles?
section 32 has been fulfilled, notwithstanding the fact that the assessee was not the
actual user of the vehicles.
As long as the assessee-lessor has a right to retain the legal title against the rest of the
world, he would be the owner of the asset in the eyes of law. In this regard, the following
provisions of the lease agreement are noteworthy –
• The assessee is the exclusive owner of the vehicle at all points of time;
• The assessee is empowered to repossess the vehicle, in case the lessee committed
a default;
• At the end of the lease period, the lessee was obliged to return the vehicle to the
assessee;
• The assessee had a right of inspection of the vehicle at all times.
The proof of ownership lies in the lease agreement itself, which clearly points
in favour of the assessee. The assessee-lessor is, therefore, entitled to claim
depreciation in respect of vehicles leased out since it has satisfied both the
requirements of section 32, namely, ownership of the vehicles and its usage in
the course of business.
5 CIT v. Smifs Securities Ltd. (2012) 348 ITR 302
Issue Decision
Is the assessee entitled to Explanation 3 to section 32(1) states that the expression ‘asset’ shall mean, inter-
depreciation on the value of alia, an intangible asset, being know-how, patents, copyrights, trademarks, licences,
goodwill considering it as an asset franchises or any other business or commercial rights of similar nature.
within the meaning of Explanation A reading of the words ‘any other business or commercial rights of similar nature’ in
3(b) to section 32(1)? Explanation 3(b) indicates that goodwill would fall under the said expression. In the
process of amalgamation, the amalgamated company had acquired a capital right
in the form of goodwill because of which the market worth of the amalgamated
company stood increased.
Therefore, it was held that ‘Goodwill’ is an asset under Explanation 3(b) to section
32(1) and depreciation thereon is allowable under the said section.

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6 Berger Paints India Ltd v. CIT (2017) 393 ITR 113
Issue Decision
Whether “premium” on subscribed Share premium collected by the assessee on its subscribed issued share capital could
share capital is “capital employed not be part of “capital employed in the business of the company” for the purpose of
in the business of the company” section 35D(3)(b). If it were the intention of the legislature to treat share premium
as being “capital employed in the business of the company”, it would have been
under section 35D to be eligible for
deduction? explicitly mentioned. Moreover, Sl. No. IV(i) in Form MGT- 7 read with section 92
of the Companies Act, 2013 dealing with capital structure of the company provides
the break-up of “issued share capital” and “subscribed share capital” which does not
include share premium at the time of subscription. Hence, in the absence of the
reference in section 35D, share premium is not a part of the capital employed.
Also, section 52 of the Companies Act, 2013 requires a company to transfer the
premium amount to be kept in a separate account called “securities premium
account”. The assessee is, therefore, not entitled to claim deduction in relation to
the premium amount received from shareholders at the time of share subscription.
7 Palam Gas Service v. CIT (2017) 394 ITR 300
Issue Decision
Whether section 40(a)(ia) is The obligation to deduct tax at source is mandatory and applicable irrespective of
attracted when amount is not the method of accounting adopted. If the assessee follows the mercantile system of
‘payable’ to a sub-contractor but accounting, then, the moment amount was credited to the account of the payee on
has been actually paid? accrual of liability, tax was required to be deducted at source. If the assessee follows
cash system of accounting, then, tax is required to be deducted at source at the time
of making payment.
Accordingly, section 40(a)(ia) would be attracted for failure to deduct tax in
both cases i.e., when the amount is payable or when the amount is paid, as the
case may be, depending on the system of accounting followed by the assessee.
8 Balakrishnan v. Union of India & Others (2017) 391 ITR 178
Issue Decision
Whether receipt of higher When proceedings were initiated under the Land Acquisition Act, 1894, even if the
compensation after notification compensation is negotiated and fixed, it would continue to remain as compulsory
of compulsory acquisition would acquisition. Merely because the compensation amount is agreed upon, the
change the character of transaction character of acquisition will not change from compulsory acquisition to a
into a voluntary sale, so as to deny voluntary sale. The claim of exemption from capital gains under section 10(37)(iii)
exemption u/s 10(37)(iii)? is, therefore, tenable in law.
9 CIT v. V.S. Dempo Company Ltd (2016) 387 ITR 354
Issue Decision
In a case where a depreciable asset The assessee cannot be denied exemption u/s 54EC, because firstly, there is nothing
(building) held for more than 24 in section 50 to suggest that the fiction created therein is not restricted to only
months is transferred, can benefit sections 48 and 49. Secondly, fiction created by the legislature has to be confined
of exemption u/s 54EC be claimed, for the purpose for which is created. Thirdly, section 54EC does not make any
if the capital gains on sale of such distinction between depreciable and non-depreciable asset for the purpose
asset are reinvested in long-term of re-investment of capital gains in long term specified assets for availing the
specified assets within the specifiedexemption thereunder. Further, section 54EC specifically provides that when the
time? capital gain arising on the transfer a long-term capital asset (being land or building
or both) is invested or deposited in long-term specified assets, the assessee shall not
be subject to capital gains to that extent. Therefore, the exemption u/s 54EC cannot
be denied to the assessee on account of the fiction created in section 50.
10 Fibre Boards (P) Ltd v. CIT (2015) 376 ITR 596
Issue Decision
Can advance given for purchase of For the purpose of availing exemption, all that was required for the assessee is to
land, building, plant and machinery “utilise” the amount of capital gain for purchase and acquisition of new machinery
tantamount to utilization of capital or plant and building or land. Since the entire amount of capital gain, in this case,
gain for purchase and acquisition was utilized by the assessee by way of advance for acquisition of land, building,
of new machinery or plant and plant and machinery, the assessee is entitled to avail exemption/deduction under
building or land, for claim of section 54G.
exemption under section 54G?

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11 CIT v. Sree Rama Multi Tech Ltd. (2018) 403 ITR 426
Issue Decision
Is interest income from share The assessee-company was statutorily required to keep share application money
application money deposited in in a separate account till the allotment of shares was completed. Part of the share
bank eligible for set-off against application money would normally have to be returned to unsuccessful applicants,
public issue expenses or should and therefore, the entire share application money would not ultimately be
such interest be subject to tax appropriated by the company. The interest earned was inextricably linked with
under the head ‘Income from Other
the requirement of raising share capital.
Sources’?
Any surplus money deposited in the bank for the purpose of earning interest is liable
to be taxed as “Income from Other Sources”. Here, the share application money
was deposited with the bank not to make additional income but to comply with
the statute. The interest accrued on such deposit is merely incidental. Moreover,
the issue of shares relates to capital structure of the company and hence, expenses
incurred in connection with the issue of shares are to be capitalized. Accordingly,
the accrued interest is not liable to be taxed as “Income from Other Sources”;
the same is eligible to be set-off against public issue expenses.
12 CIT v. Container Corporation of India Limited (2018) 404 ITR 397
Issue Decision
Can Inland Container Depots Inland Container Depots function for the benefit of exporters and importers located
(ICDs) be treated as infrastructure in industrial centres which are situated at distance from sea ports. The purpose of
facility, for profits derived therefrom establishing them was to promote the export and import in the country as these
to be eligible for deduction u/s 80- depots acts as a facilitator and reduce inconvenience to the exporter or importer.
IA? Section 80-IA provides for a deduction of profits derived from operation of an
infrastructure facility. The definition of “infrastructure facility” in Explanation
to section 80-IA(4)(i) includes an inland port. Considering the nature of work
such as custom clearance carried out at inland container depots, it can be
considered as an inland port within the meaning of section 80-IA(4).
13 CIT v. Meghalaya Steels Ltd (2016) 383 ITR 217
Issue Decision
Can transport subsidy, interest There is a direct nexus between profits and gains of the undertaking or business,
subsidy and power subsidy received and reimbursement of such subsidies. Transport subsidy, interest subsidy and
from the Government be treated power subsidy from Government were revenue receipts which were reimbursed to
as profits “derived from” business
the assessee for elements of cost relating to manufacture or sale of their products.
or undertaking to qualify for
Thus, the subsidies were only in order to reimburse, wholly or partially, costs
deduction u/s 80-IB?
actually incurred by the assessee in the manufacturing and selling of its
products. Accordingly, these subsidies qualify for deduction u/s 80-IB.
14 CIT v. Orchev Pharma P. Ltd. (2013) 354 ITR 227 [Liberty India v. CIT (2009) 317 ITR 218 followed]
Issue Decision
Can Duty Drawback be treated as DEPB / Duty drawback are incentives which flow from the schemes framed by the
profit derived from the business Central Government or from section 75 of the Customs Act, 1962. Section 80-IB
of the industrial undertaking to be provides for the allowing of deduction in respect of profits and gains derived from
eligible for deduction under section
eligible business. However, incentive profits are not profits derived from eligible
80-IB?
business under section 80-IB. They belong to the category of ancillary profits
of such undertaking. Profits derived by way of incentives such as DEPB/Duty
drawback cannot be credited against the cost of manufacture of goods debited in
the statement of profit and loss and they do not fall within the expression "profits
derived from industrial undertaking" u/s 80-IB. Hence, Duty drawback receipts
and DEPB benefits do not form part of the profits derived from the eligible
business for the purpose of the deduction u/s 80-IB.

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15 Pr. CIT v. Aarham Softronics (and other appeals) [2019] 412 ITR 623
Issue Decision
Can an assessee who has set up a Where an eligible unit carries out “substantial expansion” as defined in 80-IC(8)
new industrial undertaking and (ix) within the period of 10 years, the previous year in which the substantial
availed deduction@100% of profits expansion is undertaken would become "initial assessment year", and from
u/s 80-IC(3) for the 5 years, once that assessment year, the assessee shall again be entitled to 100% deduction of
again claim deduction@100% the profits and gains. Such deduction, however, would be for the period remaining
of profits on the basis of having out of 10 years, as per section 80-IC(6). For example, if the substantial expansion
undertaken “substantial expansion” is carried out immediately, on the completion of first 5 years, the assessee would
thereafter? be entitled to 100% deduction again for the next 5 years. On the other hand, if
substantial expansion is undertaken, say, in the 8th year, deduction would be
100% for the first 5 years, deduction at 25% for the next 2 years and at 100% again
from the 8th year as this year becomes "initial assessment year" once again. This
100% deduction would be for the remaining 3 years only, i.e., 8th, 9th and 10th
assessment years.
16 Union of India v. Tata Tea and Others (2017) 398 ITR 260
Issue Decision
Can dividend distribution tax u/s Dividend is not ‘revenue derived from land’ and hence cannot be termed as
115-O be levied in respect of agricultural income in the hands of a shareholder. Hence, despite the company
the dividend declared out of being involved in agricultural activities, in the shareholder’s hands, the income is
agricultural income? only dividend and not agricultural income.
When dividend is declared to be distributed and paid to a company’s shareholders, it
is not impressed with character of the source of its income. Section 115-O is within
the competence of the Union Parliament and therefore, dividend distribution tax can
be levied in respect of the entire dividend declared and distributed by a tea company.
17 ITO v. Venkatesh Premises Co-operative Society Ltd. (2018) 402 ITR 670
Issue Decision
Whether certain receipts by The doctrine of mutuality is based on the common law principle that a person
co-operative societies from its cannot make a profit from himself. Accordingly, the transfer charges, non-
members (non-occupancy charges, occupancy charges common amenity fund charges and other charges are exempt
transfer charges, common amenity owing to application of the doctrine of mutuality.
fund charges) are exempt based on
the doctrine of mutuality?
18 CIT v. Govindbhai Mamaiya (2014) 367 ITR 498
Issue Decision
Where land inherited by three In this case, the property in question came to the assessees’ possession through
brothers is compulsorily acquired inheritance i.e., by operation of law. It is not a case where any ‘association of
by the State Government, whether persons” was formed by volition of the parties. Further, even the income earned in
the resultant capital gain would the form of interest is not because of any business venture of the three assessees,
be assessed in the status of but is the result of the act of the Government in compulsorily acquiring the said
“Association of Persons” (AOP) or land. Thus, the basic test to be satisfied for making an assessment in the status of
in their individual status? AOP is absent in this case. Hence, the income from asset inherited by the legal
heirs is taxable in their individual hands and not in the status of AOP.
19 Joint CIT v. Rolta India Ltd. (2011) 330 ITR 470
Issue Decision
Can interest u/s 234B and 234C be Section 115JB(5) provides that all other provisions of the Income-tax Act, 1961
levied where a company is assessed shall apply to every assessee, being a company, mentioned in that section. Section
on the basis of book profits u/s 115JB is a self-contained code pertaining to MAT, and by virtue of sub-section (5)
115JB? thereof, the liability for payment of advance tax would be attracted. Therefore, if a
company defaults in payment of advance tax in respect of tax payable under section
115JB, it would be liable to pay interest under sections 234B and 234C.
20 CIT v. Society for the Promotion of Education (2016) 382 ITR 6
Issue Decision
In a case where the charitable trust Deemed registration would commence only after 6 months from the date of
is deemed to be registered u/s 12A application.
due to non-disposal of application Note - In the light of the current provisions of section 12A(2), the exemption
within the period of 6 months, as provisions of sections 11 and 12 would apply in relation to the income of the trust
stipulated u/s 12AA(2), from when from the assessment year immediately following the financial year in which such
would such deemed registration application is made, even though the effective date of deemed registration would be
take effect? after expiry of the six month period as per the Supreme Court ruling.
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21 ITC Ltd v. CIT (2016) 384 ITR 14
Issue Decision
Whether “tips” received by the Section 15 applies when an employee has a vested right to claim any salary from
hotel-company from its customers an employer or former employer. However, in the case on hand, there is no vested
(who made payment through right on the part of the employee to claim any amount of tips from the employer,
credit card) and distributed to the since tips are purely voluntary amounts that may or may not be paid by customers
employees would fall within the for services rendered.
meaning of “Salaries” to attract tax The amount of tips paid by the employer to the employees had no reference
deduction at source under section to the contract of employment at all. Tips were received by the employer in a
192? fiduciary capacity as trustee for payments that were received from customers which
they disbursed to their employees for service rendered to the customer. There was,
therefore, no reference to the contract of employment when these amounts were
paid by the employer to the employee.
Therefore, the tips received by the employees could not be regarded as “profits
in lieu of salary” in terms of section 17(3). The payment by the employer of tips
collected from the customers to the employees would not be a payment made “by or
on behalf of ” an employer. Such payments would be outside the purview of section
15(b) of the Act.
The person who paid the tip was the customer and not the employer. Even
though the amounts were with the employer, he had no title to the money and it
was held in a fiduciary capacity as trustee for and on behalf of the employees.
Therefore, in such a case, no liability to deduct tax at source under section
192 arises, and hence, the assessee company cannot be treated as an assessee in
default for non-deduction of tax at source from the amount of tips collected and
distributed to its employees.
22 Japan Airlines Co. Ltd. v. CIT / CIT v. Singapore Airlines Ltd. (2015) 377 ITR 372
Issue Decision
Are landing and parking charges The charges which are fixed by the AAI for landing and take-off services as well as for
paid by an airline company to parking of aircrafts are not for the "use of the land". These charges are for services and
Airports Authority of India in facilities offered in connection with the aircraft operation at the airport which include
the nature of rent to attract taxproviding of air traffic services, ground safety services, aeronautical communication
deduction at source u/s 194-I? facilities, installation and maintenance of navigational aids and meteorological
services at the airport. Hence, the charges are not for use of the land per se and,
therefore, it cannot be treated as "rent" within the meaning of section 194-I.
23 CIT and Anr v. SV Gopala and Others (2017) 396 ITR 694
Issue Decision
Does the CBDT have the power The CBDT does not have the power to amend legislative provisions in exercise of its
to amend legislative provisions powers under section 119 of the Income-tax Act, 1961 by issuing a Circular.
through a Circular?
24 CIT v. Meghalaya Steels Ltd. (2015) 377 ITR 112
Issue Decision
Does the High Court have an High Courts being courts of record under article 215 of the Constitution of India,
inherent power under the Income- the power of review would inhere in them. There is nothing in article 226 of the
tax Act, 1961 to review an earlier Constitution to preclude a High Court from exercising the power of review
order passed on merits? which inheres in every court of plenary jurisdiction to prevent miscarriage of
justice or to correct grave and palpable errors committed by it.
Section 260A(7) does not purport in any manner to curtail or restrict the application
of the provisions of the Code of Civil Procedure. Section 260A(7) only states that all
the provisions that would apply qua appeals in the Code of Civil Procedure would
apply to appeals under section 260A. That does not in any manner suggest either
that the other provisions of the Code of Civil Procedure are necessarily excluded or
that the High Court's inherent jurisdiction is in any manner affected.
25 CIT v. A.A. Estate Pvt. Ltd. (2019) 413 ITR 438
Issue Decision
Considering the procedure as There lies a distinction between the questions proposed by the appellant for
prescribed u/s 260A, is the High admission of the appeal to the High Court and the questions framed by the High
Court justified in not framing Court. The substantial questions of law, which are proposed by the appellant,
any substantial question of law fall u/s 260A(2)(c) whereas the substantial question of law required to be framed
itself and adjudicating merely on by the High Court falls u/s 260A(3). U/s 260A(4), the appeal is heard on
the questions put forth by the merits only on the substantial question of law framed by the High Court
appellant? u/s 260A(3). If the High Court is of the view that the appeal did not involve any

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substantial question of law, it should have recorded a categorical finding to the
effect that the questions proposed by the appellant either do not arise in the case
or/and are not substantial questions of law so as to attract the rigour of section
260A for its admission and accordingly should have dismissed the appeal in limine.
However, this was not done. Instead, the appeal was heard only on the questions
urged by the appellant u/s 260A(2)(c), which is not in line with the requirement
contained in section 260A(4). The High Court, therefore, did not decide the appeal
in conformity with the mandatory procedure prescribed in section 260A.
26 Spinacom India (P.) Ltd. v. CIT (2018) 258 Taxman 128
Issue Decision
Whether delay in filing appeal The Supreme Court rejected the question of invoking section 14 of the Limitation
u/s 260A can be condoned where Act, 1963 which allows condonation of delay on demonstration of sufficient cause.
the stated reason for delay is the The Supreme Court refused to accept the submission that the application before
pursuance of an alternate remedy bythe ITAT u/s 254(2) was an alternate remedy to filing of the application u/s 260A.
way of filing an application beforeThe former is an application for rectifying a ‘mistake apparent from the record’
the ITAT u/s 254(2) for rectification
which is much narrower in scope than the latter. U/s 260A, an order of the ITAT
of mistake apparent on record? can be challenged on substantial questions of law. The Supreme Court stated that
the appellant had the option of filing an appeal u/s 260A while also mentioning in
the Memorandum of Appeal that its application u/s 254(2) was pending before the
ITAT. The time period for filing an appeal u/s 260A does not get suspended on
account of the pendency of an application before the ITAT u/s 254(2).
27 K. Lakshmansa and Co. v. CIT and Anr (2017) 399 ITR 657
Issue Decision
Is an assessee receiving refund The right to claim refund is automatic once the statutory provisions have been
consequent to waiver of interest complied with. The statutory obligation to refund, being non-discretionary, carries
u/s 234A to 234C of the Income- with it the right to interest. Section 244A is clear and plain – it grants a substantive
tax Act, 1961 by the Settlement right of interest and is not procedural.
Commission, also entitled to U/s 244A, it is enough if the refund becomes due under the Income-tax Act, 1961 in
interest on such refund u/s 244A? which case the assessee shall, subject to the provisions of that section, be entitled to
receive simple interest. The expression “due” only means that a refund becomes due
pursuant to an order under the Act which either reduces or waives tax or interest.
It does not matter that the interest being waived is discretionary in nature; the
moment that discretion is exercised and refund becomes due consequently, a
concomitant right to claim interest springs into being in favour of the assessee.
28 Asstt. CIT v. Hotel Blue Moon (2010) 321 ITR 362; and
CIT v. Laxman Das Khandelwal (2019) 417 ITR 325
Issue Decision
Is the omission to issue notice u/sWithout the statutory notice u/s 143(2), the Assessing Officer could not assume
143(2) a defect not curable u/s jurisdiction. In Hotel Blue Moon’s case, the Assessing Officer recorded his inability
292BB, inspite of participation to generate a notice as the return was not filed electronically. Such defect cannot be
by the assessee in assessment cured subsequently, since it is not procedural but one that goes to the root of the
proceedings? jurisdiction.
Even though the assessee had participated in the proceedings, in the absence
of mandatory notice, section 292BB cannot help the Revenue officers who
have no jurisdiction, to begin with. Section 292BB helps Revenue in countering
claims of assessees who have participated in proceedings once a due notice has
been issued.
29 Principal CIT v. Maruti Suzuki India Ltd. (2019) 416 ITR 613
Issue Decision
Is notice issued u/s 143(2) and The consequence of the scheme of amalgamation approved under section 394 of
142(1) to the amalgamating the Companies Act, 1956 (section 232 of the Companies Act, 2013) was that the
company, after approval of the amalgamating company ceased to exist. It could not thereafter be regarded as a
scheme of amalgamation by the person u/s 2(31) against which assessment proceedings could be initiated or an
High Court and intimation of the order of assessment made. Notice u/s 143(2) was issued to the amalgamating
same to the A.O., a defect curable company. Prior to the date on which the jurisdictional notice under section 143(2)
under section 292B? was issued, the scheme of amalgamation had been approved by the High Court.
Since the notice u/s 143(2) was issued in the name of the amalgamating company in
spite of the fact that the amalgamated company had, prior to that date, addressed a
communication to the Assessing Officer intimating the fact of amalgamation, the
initiation of assessment proceedings against an entity which had ceased to exist
was void ab initio. Further, participation in the proceedings by the amalgamated
company would not cure this defect.

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