Waiver of Interest u/s 234, 234B, 234C - where tax is paid voluntarily

*V. Akilandeswari Versus The Chief Commissioner of Income Tax *
Interest u/s 234, 234B, 234C - waiver of interest where tax is paid
voluntarily - it is seen in the present case that the petitioner has paid
the tax voluntarily and has also pleaded a good and sufficient reason for
the non payment of tax on time. The fact of the death of petitioner's father
who was looking after the business, and as well as the petitioner's mother
and guardian was an house wife unfamiliar with such transactions, is not
denied by the respondent. On the contrary, he has given some logical
interpretation for overruling the claim made by the petitioner. - Held that.
The claim made by the petitioner is bona fide and genuine and the respondent
has not exercised his discretion in terms of law interest levied under
Sections 234A, 234B and 234C is set aside and it is declared that the
petitioner need not pay any interest for those two assessment years - At the
same time, if any excess amount had been paid, she is also not entitled to
seek refund of the same.

CIT vs. Grasim Industries (Bombay High Court)

U/s 260A, High Court has no power to condone delay

S. 260A permits the filing of an appeal to the High Court within 120
days. In CIT vs. Velingkar Brothers 289 ITR 382 (Bom) (FB), The Full
Bench held that the Court had power to condone delay u/s 260A. However,
in Hongo India 236 E.L.T. 417 and Chaudharana Steels 238 E.L.T. 705,
the Supreme Court held in the context of sections 35H & 35G of the
Excise Act, that in the absence of specific powers, the High Court has
no power to condone delay. On the question whether the said judgement
of the Supreme Court would apply to s. 260A as well, HELD:
S. 35 G of the Excise Act is pari materia with s. 260 A of the I. T.
Act. S. 260 A (7) as well as s. 35 G (9) of the Excise Act provide that
the provisions of the Code of Civil Procedure, 1908 relating to appeals
to the High Court shall as far as may be, apply to the appeals filed
under the respective provisions. No such provision is to be found in
Section 35 H of the Excise Act. Therefore, the argument advanced by the
Counsel for the revenue that s. 35 G and s. 35 H of the Excise Act are
materially different cannot be said to be wholly without substance.
However, once the Apex Court has held that the High Court has no power
to condone delay in filing Appeal under s. 35 G of the Excise Act, we
have no option but to hold that this Court has no power to condone
delay under s. 260 A because s. 260 A is pari materia with s. 35 G of
the Excise Act. As the appeals were delayed, they had to be dismissed.

Note: The Finance Bill, 2009 has proposed to amend ss. 35G & 35H of the
Excise Act to supercede the said judgements of the Supreme Court.
However, no amendment has been proposed to s. 260A so far.

loss on purchase and sale of units of mutual fund cannot be treated as loss from speculation business

Units of mutual fund cannot be equated with shares of a company; hence,
loss on purchase and sale of units of mutual fund cannot be treated as
loss from speculation business.

ITAT, DELHI BENCH ‘D’, DELHI

Multiplex Trading & Industrial Co. Ltd.

v.

ITO

ITA No. : 863 (Del) of 2006

June 5, 2009

This is the relevant extract of the case

8. We have heard both the parties and gone through the material
available on records. The assessee is engaged in rendering Business &
Management Consultancy and Marketing Services to its various clients
against payment of professional fees. The assessee invested Rs
2,00,00,000/- in 14,38,848.929 units of Sun F &C fund. The dividend of
Rs.43,16,546.70 received on 22.02.2001 was also reinvested in
4,09,151.252 units of the said fund as per the scheme of reinvestment
plan. The investment of Rs 2,00,00,000/- in units of Sun F & C Fund and
investment of dividend of Rs 43,16,546.70 in units of the said fund had
taken place on the same day. The assessee sold 18,
48,000.181(14,38,848.929 +4,09,151.252 ) units on 23.02.2001 for Rs
1,94,77,922.88. In fact no loss was suffered by the assessee in this
transaction. However, from point view of taxation, the dividend of Rs
43,16,546.70 was became capital in the hands of the assessee. The total
investment made by the assessee in units of the said Fund was at Rs
2,43,16,546.70 against which) the assessee received net sale
consideration after meeting expenses al Rsl.lM.77.922.KK. This resulted
in loss of Rs.48,38,623.88. The assessee as discussed alone earned
profits from share trading activities at Rs.48,65,115/-. Thus during
the year under consideration the assessee had earned loss in trading in
units of mutual funds and profits from trading in shares. The assessee
had treated these two activities as two separate activities reflecting
short term capital loss under trading in units of mutual fund and
profits from trading in shares, As per clause 6 of Memorandum of
Association, the assessee is permitted "to carry on business of shore
brokers, sub-brokers, underwriters, and sub-under-underwrirers. " There
is no other clause in Memorandum of Association permitting the assessee
to deal in shares and units of mutual funds as business activity.
However the fact remains that the assessee was engaged in trading of
shares during the year under consideration.

9.1 Now question arises as to whether the purchase and sale of units
can be treated as business carried on by the assessee? The
expression "business" is not defined under income Tax Act, 1961. As per
the decision of Hon'ble Supreme Court in Mazagaon Dock Ltd. v. CIT
[1958] 34 ITR 368, the word 'business' is one of wide import and in
fiscal statutes it must be construed in a broad rather than a
restricted sense. In bellow mentioned cases the Hon'ble Courts have
discussed the circumstances under which a person could said to have
carried out business activities:

i. In Sole Trustee, Loka Shikshana Trust v. CIT 11975] 101 ITR 234 (SC)
Hon'ble Apex court has held that there must be a course of dealings
with continuity. The expression 'business', though extensively used in
taxing statutes, is a word of indefinite import. In taxing statutes it
is used in the sense of an occupation or profession which occupies the
time, attention and labour of a person, normally with the object of
making profit. To regard an activity as business there must be course
of dealings either actually contained or contemplated to be contained
with a profit motive, and not for sport or pleasure. Whether a person
carried on business in a particular commodity must depend upon the
volume, frequency, continuity and regularity of transactions of
purchase and sale in a class of goods and the transaction must
ordinarily be entered into with a profit motive.

ii. In P. Krishna Menon v. C1T [ 19.S9] 35 [ IK 4S (SC) has held that
motive to produce income is not necessary. It is well-established that
il is not the motive of the person doing an act which decides whether
the act done by him is carrying on of a business, profession or
vocation. If any business, profession or vocation, in fact produces an
income that is taxable as income from business, irrespective of the
fact that business was not carried on with any motive of producing any
income.

iii. Hon'ble Patna High Court in Eclat Construction (P.) Ltd. v. C1T
[1988] 172 ITR U (Pat.) has held that the expression 'business' in
ordinary parlance means any trading activity accompanied by regularity
of transactions intended for the purpose of making profit. In general,
a single transaction is not taken as business.

9.2 From above mentioned decisions it is clear that for considering a
transaction as business there must be trading activities accompanied by
regularity of transactions intended for the purpose of making profit.
In the case before us the assessee purchased units' of Sun F & C Value
Fund with a motive of reinvestment the amount of dividend receivable
into units of the said fund. Thus intension of assessee at time
purchase of original units of Sun F & C Value Fund was to hold them as
investments. The units were not purchased as stock in trade. It is
immaterial that subsequently assessee thought to sell them at profit
earned by way of tax free dividend income. The assessee had borrowed Rs
2,00,00.000/- from the bank for this purposes. The assessee itself had
treated the investment of dividend income as capital investment for the
purposes of determination of the short term capital loss. Hon'ble
Calcutta High Court in the case of Bikhamchand Bagri v. CIT [1962] 44
ITR 746 (Cal) held that normally shares in joint stock companies
acquired and held by a trader in shares are the stock-in-trade of his
business. His business is to buy with a view to sell at a profit.
Nonetheless the trader may, if he likes, acquire and hold the shares
for investment and not for purposes of trade. But his intention to
retain them and enjoy their dividends and not to circulate and part
with them in course of business must be distinctly shown. The Court
further observed that if the family treated the profits and losses
arising from the sales of those shares as capital accretion or capital
diminution and not as business profits or business losses arising from
sales of stock-in-trade their conduct was relevant material to show
that the shares were not stock-in-trade. Seen in the light of
observations of Hon'ble Calcutta High Court the units were acquired by
the assessee as investments and assesses had taken dividend income as
further investment in units of the l-'und for the purposes of
compilation of short term capital loss. The receipt of dividend and its
reinvestment in units of the said Fund shows that the assessee held the
units as investments and not as stock in trade and hence the loss
suffered on sale such investments will he assessable as capital loss.
Hence the assessing officer was justified in accepting the loss from
units as short term capital loss. The purchase and sale of units do not
fall in speculative transactions within the meaning of section 43(5) of
the Act as ; the assessee had taken and given the actual delivery of
units. The assessee itself in the profit and loss account treated the
loss as short term capital loss. Therefore, the assessing officer was
justified in treating the loss on purchase and sale of units as short
term capital loss. We, therefore, set aside the order of CIT(A) holding
that purchase and sale of units of mutual fund constituted business
activity and restore tire order of assessing officer.

9.3 Now we will decide the nature of transactions involved in purchase
and sale of shares. The assessing officer has given a finding that the
assessee had taken the deliveries of shares traded. The assessee had
not given the copy of DEMAT account so as to prove the actual
deliveries of the shares. In the absence of any such material to show
the actual deliveries of the shares traded, the logical conclusion is
that assessee was trading in shares without effecting actual deliveries
of the shares. Section 43(5) of Income Tax Act,1961 defines the
term "speculative transaction " and at the relevant time it stood as
under:-

"(5) "speculative transaction " means a transaction in which a contract
for the purchase or sale of any commodity, including stocks and shares,
is periodically or ultimately settled otherwise than by the actual
delivery or transfer of the commodity or scrips:

Provided that for the purposes of this clause—

(a) a contract in respect of raw materials or merchandise entered into
by a person in the course of his manufacturing or merchanting business
to guard against loss through future price fluctuations in respect of
his contracts for actual delivery of goods manufactured by him or
merchandise sold by him; or

(b) a contract in respect of stocks ami shares entered into by a dealer
or investor therein to guard against loss in his holdings of stocks and
shares through price fluctuations; or

(c) a contract entered into by a member of a forward market or a stock
exchange in the course of any transaction in the nature of jobbing or
arbitrage to guard against loss which may arise in the ordinary course
of his business as such member: or

(d) an eligible transaction in respect of trading in derivatives
referred to in clause (act of section 2 of the Securities Contracts
(Regulation) Act, 1956 f-f? of J 956) carried out in a recognised stock
exchange:"

shall not be deemed to be a speculative transact ion;

The language employed in section 43(5) is plain and dear. A speculative
transaction as contemplated by section 43(5) should fulfill four
essential conditions namely (i) the contract should be for purchase or
sale; (ii) the purchase or sale should be of any commodity, including
stocks and shares; (iii) periodical or ultimate settlement of the
contract; and (iv) settlement to be otherwise than by the actual
delivery or transfer. The section covers only those transactions or
contracts which are periodically or ultimately settled otherwise than
by the actual delivery or transfer. The assessee's case does not fall
under any of the exceptions contained in the proviso to section 43(5)
of the Act. It has been held by Hon'ble Delhi High Court in the case of
M.R. Ohawan v. CIT [1979] 119 ITR 412 (Delhi) that 'speculation' in
common parlance connotes an intention to speculate, gamble, take a
chance or risk. The Act however provides a very simple and objective
test for determining whether a transaction is a speculative transaction
or not. Under this definition, all that has to be found out is whether
the contract was periodically or ultimately settled by actual delivery,
transfer or otherwise. If the goods or commodities in respect of which
the contracts were entered into were actually taken delivery of
pursuant to the contract, it would not be a speculative transaction,
even though the commodity or scrip may be a highly speculative one by
its very nature and even though at the time when the contracts were
entered into the parties might have had no idea of taking delivery at
all. On the other hand, if the contract is settled otherwise than by
actual delivery, then it will be a speculative transaction
notwithstanding that the nature of the commodity was not one lending
itself to possibilities of speculation or that the intention of the
parties at the time of entering into the contract might have been to
take actual delivery but this intention could not be effectuated for
one reason or the other. On examination of the facts of the case before
lis in the light of decision of Hon'ble Jurisdictional High Court of
Delhi we find (hat the settlement of contracts in respect of shares
traded during the period May 2000 to March 2001 has been made otherwise
than by the actual delivery or transfer. Hence, the transactions of
purchase and sale of shares are in nature speculative in nature within
the meaning of section 43(5) of the Act.

9.4 There is another aspect of the matter. The assessee's main business
consists of providing consultancy services to its clients. The receipts
from consultancy business for the year under consideration as per
profit and loss account are at Rs 2,12*01,307/-. As per the objects of
Memorandum of Association the assessee is not permitted to trade in
shares. The Memorandum of Association only authorizes it to engage in
business of stock broker for which membership of a stock exchange is
necessary. Admittedly the assessee is not in business of a stock
broker. Though the memorandum of association does not authorize the
assessee to carry on business of share trading but fact remains that
the assessee was engaged in share trading activities. As many as 200
transactions of purchase and sale of shares of different companies were
concluded in the year under consideration. Be it, as it may. We have to
see the applicability of the Explanation to section 73 of the Act to
the share trading activities carried on by the assessee As per
Explanation to Section 73, where any part of business of the company an
assessee whose gross total income is not consisted mainly of income
which is chargeable under the heads "Interest on securities", "Income
from house property", "Capital gains" and "Income from other sources",
or a company the principal business of which is the business of banking
or the granting of loans and advances, consists of the purchase and
sale of shares of other companies, such company shall, for the purposes
of section 73, be deemed to be carrying on a speculation business to
the extent to which the business consists of the purchase and sale of
such shares. The provisions of Explanation to section 73 do not
distinguish between the transaction of trading in shares on actual
delivery or without delivery basis. Admittedly the assessee does not
fall under any of the exceptions provided in the Explanation and hence,
the purchase and sale of shares traded during the year under
consideration is also in nature of speculation business within the
meaning of proviso to section 73 of II Act, 1961.

9.5 Another contention of Sh. Veil Jain, the AK of the assessee is that
both the transactions i.e. trading in shares and units of mutual funds
have to be treated on same footings. We are unable accept this
proposition o\' the Id AR of the assessee on the ground that units of
mutual fund cannot be equated to shares of a company for the purposes
of Explanation to section 73 of the Act. A Mutual Fund is not a company
within the provisions of Companies Act. Therefore the units of mutual
fund cannot be treated as shares. Hon'ble Supreme Court in the case of
Apollo Tyres Ltd. r. Commissioner of Income-tax [2002] 122 Taxman 562
had an occasion to examine the question "whether the business of buying
and selling of units of Unit Trust of India by the assessee-company
amounts to a speculation business or not, for the purpose of allowing
set off as to the loss suffered by the company in such a business ?"
Hon'ble Supreme Court answering the question in negative held as under:

"8. The last point for our consideration is: whether buying and selling
of units by the assessee company can be treated as a speculative
business? For this purpose, the revenue argues that the units purchased
by the assessee-company from the UTI are shares, therefore, as per
Explanation to section 73 of the Act, the said business of purchasing
and selling of shares will have to be treated as a business of
speculation. The revenue in support of this argument relies on section
32(3) of the UTI Act which reads as follows:

"(3) Subject to the foregoing sub-sections, for the purposes of the
Income-tax Act, 1961,—

(a) any distribution of income received by a unit holder from the Trust
shall be deemed to be his income by way of dividends; and

(b) the Trust shall be deemed to be a company."

9. Relying on the above provision of the UTI Act, the revenue contends
that if the UTI is a company and income from its units is dividend,
then ipso facto the units will have to be shares, therefore, the
business of purchase and sale of units conducted by the
assessee-company will have to be deemed to be a business in shares
which business, according to the revenue, attracts Explanation to
section 73. On this basis, it is contended that the business of
purchase and sale of units by the assessee-company amounts to a
business of speculation. Both the Tribunal and the High Court have
considered this argument as also the effect of section 32(3) of the I
77 Act and have come to the conclusion that the provision of the said
Act is limited for the purpose of assessment of dividend income under
the Act and Jar deduction of tax at source. They have held that the
legal fiction created by section 32(3) of the UTI Act cannot be carried
any further. We have examined the provisions of the UTI Act and we are
of the opinion that even though the said section creates a fiction to
make the UTI as a deemed company and distribution of income received by
the unit holder as a deemed dividend, by virtue of these deemed
provisions, it cannot be said that it also makes the unit of the UTI a
deemed share. In our opinion, a deeming provision of this nature, as
found in section 32(3) should be applied for the purpose for which the
said deeming provision is specifically enacted, which in the present
case is confined only to deeming the UTI as a company and deeming the
income from the units as a dividend. If as a matter of fact, the
Legislature had contemplated making the unit as also a deemed share,
then it would have stated so. In the absence of any such specific
deeming in regard to the units as shares, it would be erroneous to
extend the provisions of section 32(3) of the UTI Act to the units of
UTI for the purpose of holding that the unit is a share. For these
reasons, we are in agreement with the finding of the High Court on this
point also. "

From the decision of Hon'ble Supreme Court it is clear that units of
mutual fund cannot be equated with shares of a company. Hence income
from short term capital loss on purchase and sale of units of Sun F & C
Value Fund cannot be treated as loss from speculation business. Further
under section 73(1) of the Act, any loss computed in respect of a
speculative business carried on by the assessee, shall not be set off
except against profits and gains, if any, of another speculation
business. Therefore the income from speculation business earned by the
assessee cannot be set off against the short term capital loss from
purchase and sale of units of the said Fund. Accordingly we do not find
any infirmity in the order of C1T(A) upholding the assessment order for
not allowing the set off of income from speculation business against
short term capital loss from units of Sun F & C Value Fund.

Levy of Penalty u/s 271(1)(c) of IT Act

The tax laws in this country are so complicated that even a person
specializing in this field, including tax administrators, may not
understand the law in the correct perspective or a particular provision
may go unnoticed because of the number of amendments made to the tax
enactments from year to year; therefore, it would be a travesty of
truth and justice to hold that an assessee ought to have known the
correct law and comply therewith, even though he was not aware of the
provisions. ITAT, MUMBAI BENCHES ‘E’: MUMBAISunilchandra Vohra
v.ACITITA No. 4963/Mum/2006June 23, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

12. We have heard the rival submissions and perused the record. It is
not in dispute that the liability to pay tax under section 2(22)(e) of
the Act arose for the first time in the assessee’s case. He, being an
Engineer by profession, claimed that he was not conversant with the
provisions of the I.T. Act and hence he was not conversant with the
provisions of the I.T. Act and hence he was filing the return by taking
the assistance of C. A. from year to year. But, at no stage, the
accountant, who was professionally qualified, brought to the notice of
the assessee the possibility of applicability of the provisions of
section 2(22)(e) of the Act. The tax authorities have not disputed, in
principle, about the incorrect guidance by the C.A. They were of the
opinion that the assessee ought to have informed the Assessing Officer
voluntarily ignoring the fact that as per the procedure prescribed
under law the burden is not cast upon the assessee to annexe the copy
of the books of account along with return of income. It is also not the
case of the Revenue that the return of income and the annexure thereto
are not as per the requirements of the provisions. Merely because loan
was cleared within the year and thus do not find place in the Balance
sheet, one cannot jump to the conclusion that the assessee withheld the
information till an enquiry was made during the course of assessment
proceedings.

13. The tax laws in this country are so complex and complicated that
even a person specializing in this field, including tax administrators,
may not understand the law in the correct perspective or a particular
provision may go unnoticed because of the number of amendments made to
the tax enactments from year to year. Under these circumstances, it
would be a travesty of truth and justice to hold that an assessee ought
to have known the correct law and comply therewith, even though he was
not aware of the provisions. In the case of Kaushal Diwan vs. ITO 3 ITD
432, the learned Accountant Member observed, on an analogous situation,
that the tax provisions are so complex that even he was not aware of
the provision in question till the matter was placed before the Bench.
Similar view was taken in the case of WTO v. S.P. Jai Kumar 3 ITD 221
(Mad.). The Bench observed that the plea of ignorance of law can be
treated as a proper explanation. Such explanation can be said to have
been substantiated when it is shown that (a) he was assisted by a
professional C.A. who has not brought to his notice the applicability
of provisions of section 2(22)(4) of the Act and (b) by making a
statement that this is the first year in which these provisions came to
be applied in assessee’s case. It could thus be seen that the assessee
tendered an explanation which was substantiated and thus the burden is
cast upon the Revenue to prove that the explanation is false so as to
invoke Explanation 1 to section 271(1)(c) of the Act. Except merely
stating that the assessee ought to have furnished the loan particulars
voluntarily, along with the return of income, no other reason was
assigned by the tax authorities to dispute the bona fides of the
explanation. Under the peculiar facts and circumstances and in the
light of decisions cited by the learned counsel for the assessee, we
are of the view that the explanation of the assessee is bona fide and
hence the case falls outside the ambit of Explanation 1 to section 271
(1)(c) of the Act. In other words, no case was made out by the tax
authorities to levy penalty under section 271(1)(c) of the Act. We,
therefore, set aside, the orders of the tax authorities and cancel the
penalty levied by the Assessing Officer.

Scope for rectification of a defective return under section 139(9) of IT Act, 1961

The return of income, if not signed by signatory as contemplated by
section 140, would be mistake, defect or omission; but, by virtue of
section 139(9) that defect can be cured.

HIGH COURT OF BOMBAY
Prime Securities Ltd.v.Varinder Mehta, ACIT
(Inv.)Writ Petition No. 112 of 1993April 27, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

In our opinion, once Section 140 of the Act mandates that the return has to be signed in the case of a company by the Managing Director and where Managing Director
is not available by any Director thereof, it is not possible to hold
that the signing of the return by the Company Secretary is merely an
irregularity. When the law provides for a particular thing to be done
in particular manner, it must be so done. Apart from that the language
used in Section 140 is "Shall be signed and verified".

In our opinion, therefore, the principles as laid down by the Supreme Court in Sri
Keshab Chandra Mandal (Supra) will have to be applied. Such a defect,
therefore, will not amount to a mere irregularity and the return filed
on 1.12.1991 will have to be treated as defective.8 Having so held, we
may now consider the second contention based on Section 139(9) of the
Act. Section 139(9) reads as under:"139(9).

Where the [Assessing] Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him
an opportunity to rectify the defect within a period of fifteen days
from the date of such intimation or within such further period which,
on an application made in this behalf, the Assessing Officer may, in
his discretion, allow; and if the defectis not rectified within the
said period of fifteen days or, as the case may be, the further period
so allowed, then, notwithstanding anything contained in any other
provision of this Act, the return shall be treated as an invalid return
and the provisions of this Act shall apply as if the assessee had
failed to furnish the return:
Perusal of this subsection indicates that a duty is cast on the Assessing Officer when he considers the return of income to be defective to intimate the defect to the assessee and to give an opportunity to rectify the defect within a period of 15 days
from the date of such intimation or within such further period which,
on an application made in this behalf, the Assessing Officer may
allow.

In the instant case, if it is held that the notice of 9.10.1992
is the notice as contemplated by Section 139(9) then in that event,
petitioner within 15 days had removed the defect by filing the same
return but with the signature of the director. A similar issue had come
up for consideration before the learned Division Bench of the Kerala
High Court in Commissioner of Income tax v. Masoneilan(India) Ltd.
(2000) Vol.242 I.T.R. 569. In that case also, the assessee was a public
limited company. Return was signed by a person not named under Section
140 of the Act in relation to the "company". Notice was issued under
Section 154 of the Act to the assessee stating that the return was
nonest and all proceedings were being initiated on the basis that
return were void ab initio. T

he issue before the learned Division Bench of the Kerala High Court was, whether Section 292B of the Act applied to the facts of the case. The learned Division Bench held that once the defect was cured, question of rectification would not arise. In our opinion, therefore, considering the duty cast on the Assessing Officer,
the communication of 9.10.92 must be read as an intimation to the
petitioner pursuant to which the defect was remedied on 15.10.1992. We
have earlier held that not signing the return by the proper person
results in the return being defective. Can then the defect in the
return be cured by virtue of Section 139(9).

In our opinion, the answer is in the affirmative. Failure to sign by a proper person is a defect. The expression defect will have to be understood as it is naturally
understood. Even if the defect has the effect of treating the return as
non est, the legislature still has provided for curing such defects. If
the defect is cured then the return becomes a valid return. Petition on
that count will have to be allowed.10 The last submission is the
consequence flowing from the provisions of Section 292B.

It was introduced by Taxation Laws (Amendment) Act, 1975, with effect from
1.10.1975 and reads as under:“292B. No return of income, assessment,
notice, summons or other proceeding, furnished or made or issued or
taken or purported to have been furnished or made or issued or taken in
pursuance of any of the provisions of this Act shall be invalid or
shall be deemed to be invalid merely by reason of any mistake, defect
or omission in such return of income, assessment, notice, summons or
other proceeding if such return of income, assessment, notice, summons
or other proceeding is in substance and effect in conformity with or
according to the intent and purpose of this Act.”

A bare reading of this provision, makes it clear that a return of income shall not be treated as invalid merely by reason of any mistake, defect or omission
in such return of income, if such return of income is in substance and
effect in conformity with or according to the intent and purpose of
this Act. The return of income, therefore, if not signed by signatory
as contemplated by Section 140 would be mistake, defect or omission.
Question is whether in spite of the defect, the return was in substance
and effect in conformity with or according to the intent and purpose of
this Act. Submissions on behalf of the respondents is that by virtue of
fresh shares issued by the petitioner, petitioner ceasedto be a holding
company of Great Eastern Shipping Company Ltd. and consequently,
benefit of Section 47 of the Income tax Act was not available. The
assessment year was 1991 92.

The previous year would be 1990 91. Admittedly, when the petitioner filed the return, it was a 100% subsidiary of Great Eastern Shipping Company Ltd. and upto March, 1992. Return had been filed on 31.12.1991. The return had been substituted on
15.10.1992 by which date the petitioner had ceased to be a 100%
subsidiary of the company. It is in that context, we will have to
examine the later part of Section 292B. We may gainfully refer to the
judgment of the Supreme Court in Commissioner of Income tax v.
Hindustan Electro Graphites Ltd. (2000) Vol.243 I.T.R. 48, which
approved the judgment of the Calcutta High Court in Modern Fibotex
India Ltd. And another v. Deputy Commissioner of Income tax and others
(1995) Vol.212 I.T.R. 496.

The issue before the Calcutta High Court was the validity of intimation under Section143(1)(a) and the constitutionality of sections 143 (1) (a) and 143(1A) of the Income Tax Act. The Company in its return for the assessment year 1989 90
discloses business loss on the ground that cash compensatory support
was not taxable and that even if cash compensatory support was treated
as taxable , the company would still have suffered a loss in the year.
Subsequent to the company submitting its return, the Finance Act, 1990,
was enacted and Section 28 of the Act were amended with effect from
April 1, 1967, making cash compensatory support taxable.

The Income tax officer issued notice under Section 143(2) of the Act to the company
for the assessment year 1989 90. After notice under 143(1)(a),
additional tax was levied and a demand was raised. Company in that
event filed revised return and on September 7, 1990, filed an
application under Section 154 of the Act against the intimation under
Section 143(1)(a) of the Act. A learned Single Judge of the Calcutta
High Court was pleased to observe that the date for judging the
question of adjustment must be the actual date of the return in the
light of the law then prevailing.

The Court held to hold otherwise would manifestly shock one's sense of justice that an act, correct at the time of doing it, should become incorrect by some new enactment. In the case before the Supreme Court, assessee had filed return for the
assessment year 1989 90 in December, 1989. It received cash assistance
from Government of India in respect of exports, which it had not
included as income. Consequent to Section 28 being given retrospective
effect from 1.4.1967, the Cash compensatory assistance was made
chargeable as business income.

Question was whether the return filed by the assessee was correct. The Court held there that where the return is valid, the law applicable would be law as it stood on the date of filing of the return.11. In the instant case, when the petitioner filed
its return for the previous year 1990 91 the petitioner was a fully
owned subsidiary of Great Eastern Shipping Company Ltd. The petitioner
ceased to be fully owned subsidiary only after March, 1992. The defect
in signature was removed on 15.10.1992 but in respect of the same
assessment year 1991 92.

In our opinion, the subsequent event can not result in holding that the return as originally filed was not in substance and effect in conformity with or according to the intent or purpose of the Act on the date the return was filed. The test to be
applied is whether on the date the original return was filed was the
return in conformity with or according to the purpose of the Act. On
the date the return was filed the petitioner was admittedly a wholly
owned subsidiary of Great Eastern Shipping.

It is true that the return was invalid as originally filed because of a defect in the person signing the returns. But by virtue of Section 139(9) that defect could
be cured and was infact cured. Though the defect was cured on 15.10.92
it would relate back to 31.12.1991 the date of original filing of the
return. Once the return is valid and in conformity with the intended
purpose of the act, in our opinion, therefore, on this count also, the
petition will have to be allowed.

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LATEST LEGAL DECISIONS RELATING TO TDS

1. Landing and Parking charges liable for TDS u/s 194–I: Payments made for landing and parking charges would be deemed to be rent and the same would warrant deduction of tax at source u/s 194–I. CIT Vs Asiana Airlines 175 Taxman 177 (Del.)

2. Interconnection / port charges not liable u/s 194J: Expression ‘Fees for technical services’ as appearing in section 194J would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots. Hence, interconnect charges / port access charges cannot be regarded as fees for technical services. CIT Vs Bharati Cellular Ltd 175 Taxman 573 (Del.)

3. TDS liability only if income is taxable [Section 195]: TDS obligation arises only if the tax is assessable in India. If the interest is exempt under the Act, there was no question of TDS being deducted by the assessee. Vijay Ship Breaking Corpn Vs CIT 175 Taxman 77 (SC)

4. Liability to deduct tax u/s 195: Payment of interest presupposes the borrowal of money or the incurring of a debt. Issuance of debentures is a mode of borrowing money. If the mode of discharging the debenture debt us by issuing equity shares in lieu of cash, it does not in any way detract from its legal character as a debt. The assessee is liable to deduct tax in respect of the interest payments. LMN India Ltd 307 ITR 40 (AAR)

Source: Padhuka