Category: Income Tax

Income Tax: Commission to Procure Goods from India if exempt?

Difference between Service Rendered from India and in India:

Exemption to Income u/s 80-O of  Income Tax Act, 1961.

The agreements of the appellant with the foreign entities primarily show that the appellant was to locate the source of supply of the referred merchandise and inform the principals; to keep liaison with the agencies carrying out organoleptic/bacteriological analysis and communicate the result of inspection; to make available to the foreign principals the analysis of seafood supply situation and prices; and to keep the foreign principals informed of the latest trends in the market and also to negotiate and finalise the prices. As per the agreements, in lieu of such services, the appellant was to receive the agreed commission on the invoice amounts.

In contrast to what has been observed in the cases of J.B. Boda &Co. (advising on the risk factor related to the proposed insurance/reinsurance) and E.P.W. Da Costa (dealing with statistical analysis of data collected), what turns out as regards the activities/services of the appellant is that the appellant was essentially to ensure supply of enough quantity of good quality merchandise in proper packing and at competitive prices to the satisfaction of the principals. This has essentially been the job of a procuring agent. Though the expressions “expert information and advice”, “analysis”, “technical guidance” etc., have been used in the agreements but, these expressions cannot be read out of context and de hors the purpose of the agreement. All the clauses of the agreements read together make it absolutely clear that the appellant was merely a procuring agent and it was his responsibility to ensure that proper goods are supplied in proper packing to the satisfaction of the principal. All other services or activities mentioned in the agreements were only incidental to its main functioning as agent. Significantly, the payment to the appellant, whatever label it might have carried, was only on the basis of the amount of invoice pertaining to the goods. There had not been any provision for any specific payment referable to the so-called analysis or technical guidance or advice. Viewed from any angle, the services of the appellant were nothing but of an agent, who was procuring the merchandise for its principals; and such services by the appellant, as agent, were rendered in India. Even if certain information was sent by the assessee to the principals, the information did not fall in the category of such professional services or information which could justify its claim for deduction under Section 80-O of the Act. In other words, in the holistic view of the terms of the agreements, we have not an iota of doubt that the appellant was only a procuring agent, as rightly described by the High Court. 33.If at all any doubt yet remains about the nature of services of the appellant, the same is effectively quelled by the default clauses in the agreements in question.

Conclusion:

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Exercise of writ jurisdiction when alternate remedy under Benami Act is efficacious.

Remedy of appeal under Prohibition of Benami Property Transactions Act, 1988:

Classic cases of frequent invocation of extraordinary jurisdiction under Article 226 of the Constitution of India, even though two, inbuilt efficacious alternative remedies are provided by the Act, 1988

All contentions including that of powers conferred upon Adjudicating Authority under Section 26(1) (3) and whether such powers conferred upon Adjudicating Authority vis-a-vis jurisdiction, all can be raised before Appellate Tribunal exercising vide appellate powers under Section 46 of the Act 1988. Even after the order is passed by the Appellate Tribunal further appeal is provided before the High Court under Section 49 of the Act 1988, we are of the considered opinion in view of decision of the Apex Court in the case of Thansingh Nathmal & Ors. vs. A. Mazid reported in AIR 1964 SC 1419 and 1964 (6) SCR 654 that High Court is not to interfere with the order passed by the Adjudicating or Competent Authority when inbuilt efficacious alternative remedies are available.

[Source: Adjudicating Authority vs Kundan Trading Co. decided by HC of Gujarat on 2 April, 2019]

National Litigation Policy to reduce litigation with Government

Unmindful litigation by Government Departments:

The propensity of Government Departments and public authorities to keep litigating through different tiers of judicial scrutiny is one of the reasons for docket explosion. The Income Tax Department of the Government of India is one of the major litigants. There are two departmental scrutinies at the level of the Assessing Officer and the Commissioner of Income Tax (Appeals) and thereafter an independent judicial scrutiny at the Income Tax Appellate Tribunal (hereinafter referred to as the ‘ITAT’) level followed by the legal issue which can be inquired into by the High Courts. The last tier is, of course, the jurisdiction under Article 136 of the Constitution of India before the Supreme Court.

Mindful of the phenomenon of the docket explosion and the rising litigation in the country, the Union of India in order to ensure the conduct of responsible litigation framed what is today known as the National Litigation Policy, to bring down the pendency of cases and get meaningful issues decided from the judicial forums rather than multiple tiers of scrutiny just for the sake of it. The Government, being a litigant in well over 50 per cent of the cases, has to take a lead in not being a compulsive litigant. Continue reading “National Litigation Policy to reduce litigation with Government” →

Claim of depreciation u/s. 80-IA of Income Tax Act, 1961

Deduction for depreciation u/s. 80-IA of Income Tax Act, 1961

Whether claim for deduction on account of depreciation under Section 80-IA is the choice of the assessees or it has to be necessarily taken into consideration while computing the income under this provision?

Section 80-IA of the IT Act at relevant time was as under:

“80-IA. Deductions in respect of profits and gains from industrial undertakings etc., in certain cases.- (1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services whether basic or cellular including radio paging, domestic satellite service or network of trunking and electronic data interchange services or construction and development of housing projects or operating an industrial park or commercial production or refining of mineral oil in the North Eastern Region or in any part of India on or after the 1st day of April, 1997 (such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6).”

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What is the meaning of word “production” and “manufacture”?

Extraction if amounts to manufacture or production?

Does extraction and processing of iron ore  amount  manufacture or production of any article or thing?

Production means amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort”. From the wide definition of the word “production”, it has to follow that mining activity for the purpose of production of mineral ores would come within the arnbit of the word “production” since ore is “a thing”, which is the result of human activity or effort.

In CIT v. N. C. Budharaja and Co. (1993) 204 ITR 412 (SC): AIR 1993 SC 2529: 1994 SCC Supl. (1) 280 it was held that the word ,production” is much wider than the word “manufacture”. It was said (page 423) :

“The word production has a wider connotation than the word manufacture. While every manufacture can be characterized as production, every production need not amount to manufacture …. Continue reading “What is the meaning of word “production” and “manufacture”?” →

Income tax law in India: Implications for tax payers

INCOME TAX PROVISIONS AT A GLANCE:

(Detailed information of Income Tax is available on http://www.incometaxindia.gov.in)

2. As per Income Tax Act, Income is taxable under five heads- Salary, House Property, Business or Profession, Capital Gain and Other Sources.

3. Salaried person must obtain Form 16 from his Employer Every Year.

4. Income Tax Return should be filed by considering Form 16 and other Income.

5. Transport Allowance is exempt up to Rs.1,600 per month.

6. 30% Standard deduction is available on Income from House Property.

7. Income to be considered as deemed let out on second House property. Continue reading “Income tax law in India: Implications for tax payers” →