Supreme Court Annual Digest 2023 -Income Tax Act, 1961

2015 amendment to Section 153C of Income Tax Act will apply to searches conducted prior to the date of amendment. 2023 LiveLaw (SC) 274

Amendment brought to Section 153C of the Act, 1961 vide Finance Act, 2015 shall be applicable to searches conducted under Section 132 of the Act, 1961 before 01.06.2015, i.e., the date of the amendment. (Para 11) 2023 LiveLaw (SC) 274

Carrier of Goods not an 'Owner'; Bitumen not a 'valuable article' under S. 69A. 2023 LiveLaw (SC) 451

Chapter X - Any determination of the arm's length price under Chapter X of the Act de hors the relevant guidelines stipulated under the Act and the Rules, can be considered as perverse, which may be considered as a substantial question of law. Thus, in each case, the High Court should examine whether the guidelines laid down in the Act and the Rules are followed while determining the arm's length price. 2023 LiveLaw (SC) 328

Chapter XIVB is a complete code in itself providing for self-contained machinery for assessment of undisclosed income for the block period of 10 years or 6 years as the case may be- for assessment of undisclosed income for the block period, the normal assessment proceedings under Section 140 of the Income Tax Act would not be applicable. (Para 10.6) 2023 LiveLaw (SC) 54

Date of the Panchnama last drawn can be said to be the relevant date and can be said to be the starting point of limitation of two years for completing the block assessment proceedings. 2023 LiveLaw (SC) 246

Exclusion of 'Old Indian Settlers' from definition of Sikkimese in Section 10(26AAA) Income Tax Act unconstitutional. 2023 LiveLaw (SC) 28

For a company to be a "resident" in India, domicile or registration irrelevant; test is where de facto control lies. 2023 LiveLaw (SC) 291

For block assessment, normals procedure not applicable; Interest can be levied without Section 158BC notice. 2023 LiveLaw (SC) 54

If an Indian Entity's Establishment is operating in Oman and has a 'Permanent Establishment' (PE) status under Double Taxation Avoidance Agreement (“DTAA”), then the dividend income received by the Indian Entity from such Establishment would not be taxable under Indian Taxation laws. (Para 16 - 18) 2023 LiveLaw (SC) 802

Income Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963; Rule 11 - Age of retirement of the Members of the Income Tax Appellate Tribunal (ITAT) - In terms of the provisions, a member of ITAT to continue in the post till the age of 62 years. 2023 LiveLaw (SC) 178

Mere delay in remittance of TDS doesn't attract penalty under S. 271C Income Tax Act. 2023 LiveLaw (SC) 285

Non-banking finance & leasing companies not liable to pay interest tax on instalments paid under hire purchase agreement. 2023 LiveLaw (SC) 7

Revenue justified in levying interest under Section 158BFA(1) of the Income Tax Act for late filing of the return for the block period even in absence of any notice under Section 158BC of the Act and for the period prior to 01.06.1999. (Paras 10.3, 10.7) 2023 LiveLaw (SC) 54

Section 10(26AAA) - Sikkim Subject Rules, 1961 - Sikkim Subjects Regulations, 1961 - All Indians/old Indian settlers, who have permanently settled in Sikkim prior to the merger of Sikkim with India on 26.04.1975, irrespective of whether his/her name is recorded in the register maintained under the Sikkim Subjects Regulations, 1961 read with Sikkim Subject Rules, 1961 or not, are entitled to the exemption under Section 10(26AAA) of the Income Tax Act. (Para 17) 2023 LiveLaw (SC) 28

Section 10(26AAA) - The exclusion of Old Indian settlers, who have permanently settled in Sikkim prior to merger of Sikkim with India on 26.04.1975 from the definition of “Sikkimese” in Section 10(26AAA) is hereby held to be ultra vires to Article 14 of the Constitution of India and is hereby struck down. (Para 13- 17) 2023 LiveLaw (SC) 28

Section 10(26AAA) Proviso - Proviso to Section 10(26AAA) inasmuch as it excludes from the provision of exemption a Sikkimese woman merely because she marries a non-Sikkimese after 01.04.2008 is totally discriminatory and violative of Articles 14, 15 and 21 of the Constitution of India - A woman is not a chattel and has an identity of her own, and the mere factum of being married ought not to take away that identity. (Para 15-17.1) 2023 LiveLaw (SC) 28

Section 153A - Block assessment under Section 153A is linked with the search and requisition under Sections 132 and 132A, respectively. Further, the object of assessment under Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search/requisition. Therefore, the jurisdiction of AO to make assessment is confined to the incriminating material found during the course of search or requisition. Income Tax Act, 1961 - Only in cases where the undisclosed income is found on the basis of incriminating material in search/ requisition, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period, even in case of completed/unabated assessment. 2023 LiveLaw (SC) 346

Section 153A - No additions can be made by the Assessing Officer under Section 153A of the Income Tax Act in the absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132 A, in respect of completed / unabated assessments. 2023 LiveLaw (SC) 346

Section 153C - The object and purpose of Section 153C is to address the persons other than the searched person - 2015 amendment was necessitated because of the narrow interpretation given to "belong/belongs" in Section 153C by the Delhi High Court in Pepsico Holdings which led to a situation where, though incriminating material pertaining to a third party / person was found during search proceedings under Section 132, the Revenue could not proceed against such a third party. (Para 10.8) 2023 LiveLaw (SC) 274

Section 153C allows the revenue department to proceed against a party other than the person who is being searched, if incriminating articles against the "other person" is found during the search. So, if any books of accounts or documents which belonged a person other than the person who is being searched is discovered during the search proceedings, Section 153C enabled the department to proceed against the "other person" if the materials indicated undisclosed income or assets. (Para 7) 2023 LiveLaw (SC) 878

Section 2 (24) - Interest income earned on fixed deposits made in the banks by Clubs has to be treated like any other income from other sources within the meaning of Section 2(24). The principle of mutuality would not apply to interest income earned on fixed deposits made by Clubs in the banks irrespective of whether the banks are corporate members of the club or not. Dismissed the plea that the judgement in Bangalore Club vs. Commissioner of Income Tax, (2013) 5 SCC 509 is not a binding precedent and therefore the same calls for reconsideration. (Para 43) 2023 LiveLaw (SC) 660

Section 260A - High Court is not precluded from considering the determination of the arm's length price determined by the Income Tax Appellate Tribunal (ITAT), in exercise of its powers under Section 260A - there cannot be any absolute proposition of law that in all cases where the Tribunal has determined the arm's length price the same is final and cannot be the subject matter of scrutiny by the High Court in an appeal under Section 260A. 2023 LiveLaw (SC) 328

Section 263 - Commissioner of Income Tax can exercise revision powers under Section 263 of the Income Tax Act over the erroneous orders of the Assessing Officer which cause prejudice to the interest of the revenue - If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. 2023 LiveLaw (SC) 282

Section 263 - Erroneous order of assessing officer causing prejudice to revenue is revisable by CIT. 2023 LiveLaw (SC) 282

Section 271C - The Supreme Court has ruled that no penalty is leviable under Section 271C on the mere delay in remittance of TDS after the same has been deducted by the assessee. The Court has held that the relevant words used in Section 271C(1)(a) are “fails to deduct”, and the same does not speak about belated remittance of the TDS - The Court ruled that the words “fails to deduct” occurring in Section 271C(1)(a) cannot be read as “failure to deposit/ pay the tax deducted”, while adding that the consequences of non-payment/belated remittance of the TDS are specifically provided by the Parliament under Sections 201(1A) and 276B of the Income Tax Act - The Court thus set aside the Kerala High Court's order where it had upheld the levy of penalty under Section 271C for belated remittance of TDS. 2023 LiveLaw (SC) 285

Section 6(3) - Since the control and management of the affairs of the assessee companies was with its auditor in New Delhi, the Income Tax Act, 1961 was applicable to them. Thus, the assesses who were incorporated under the company law of Sikkim, were resident Indian companies, and the income accrued to them/ earned by them in India for the assessment years prior to 1st April 1990, was taxable under the Income Tax Act. 2023 LiveLaw (SC) 291

Section 69A - Bitumen cannot be treated as a 'valuable article' under Section 69A. For an 'article' to be 'valuable', even in small quantity it must be 'worth a good price' or 'worth a great deal of money', and it is not sufficient if it has some 'value'. Considering the price of one kilogram of bitumen, 'bitumen' cannot be treated as a 'valuable article'. 2023 LiveLaw (SC) 451

Section 69A - Principle of Ejusdem Generis - the preceding words in Section 69A - such as money, bullion, and jewellery- would suggest that the phrase 'other valuable article' would justify inclusion of only high value goods. The ownership of the goods did not pass to the assessee, who was a mere carrier of goods and whose possession of bitumen began as a bailee. Thus, the assessee could not be said to be the 'owner' of bitumen so as to attract Section 69A. 2023 LiveLaw (SC) 451

Section 69A - Thief cannot be recognised as the owner of the property within the meaning of Section 69A. For Section 69A to apply, it is indispensable that the Assessing Officer must find that the articles/ goods enumerated and covered under Section 69A, are owned by the assessee. A person may own contraband or prohibited articles and still be within the embrace of Section 69A. However, without finding ownership, or in a case where it is obvious that someone else is the owner, a person who is found to be in illegal possession of goods cannot be said to be the owner under Section 69A. 2023 LiveLaw (SC) 451

Section 80 HHC - Gain from foreign exchange fluctuations cannot be claimed as deduction. 2023 LiveLaw (SC) 1004

Section 80 IA - For the purpose of computing deduction under Section 80IA, the rate at which the State Electricity Board supplies power to the consumers has to be taken as the market value of electricity. 2023 LiveLaw (SC) 1048

Section 80-IB - Assessee is not entitled to deduction under Section 80- IB of the Act on the amount received / profit derived from the Duty Entitlement Pass Book Scheme (DEPB) and the Duty Drawback Schemes. The bench held that the profit from the DEPB and the Duty Drawback claims cannot be said to be an income “derived from” the industrial undertaking. The court added that even otherwise, such an income is chargeable to tax as per Sections 28(iiid) and (iiie) of the Income Tax Act. 2023 LiveLaw (SC) 299

Section 90 - Double Taxation Avoidance Agreement (DTAA) cannot be given effect to by a court, authority or a tribunal unless it has been notified by the Central Government. 2023 LiveLaw (SC) 911

Sections 132, 132A, 147, 148, 153A - In view of the judgment of the Supreme court in Principal Commissioner of Income Tax vs. Abhisar Buildwell Pvt. Ltd., [(2023) SCC Online SC 481], an Assessing Officer (AO) cannot make additions to assessee's income in respect of completed / unabated assessments if no incriminating material has been found during the course of search under Section 132 or requisition under Section 132A of the Income Tax Act, 1961. However, in terms of the said judgment, the completed / unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions mentioned under the said provisions - Therefore, AO's powers under Sections 147/148 of the Income Tax Act were saved in terms of Supreme Court's judgment in Abhisar Buildwell (2023). 2023 LiveLaw (SC) 532

Sections 147, 148 - In case of completed/ unabated assessment, if no incriminating material is found during the search, the only remedy available to the revenue department would be to initiate the reassessment proceedings under Sections 147/148, subject to fulfilment of the specified conditions. 2023 LiveLaw (SC) 346

Sections 148 and 148A - Writ petition can be entertained to examine if conditions for issuance of notice under Section 148 have been satisfied. 2023 LiveLaw (SC) 16

Sections 245C, 245D, 245H, 271 (1)(c) - Section 245H of the Act, which empowers the Settlement Commission to grant immunity from prosecution and penalty to the assessee if he has co-operated with the Settlement Commission and has made “full and true disclosure of his income”, cannot be saddled with an artificial requirement that the material “disclosed” by the assessee before the Commission must be something apart from what was “discovered” by the Assessing Officer. (Para 7) 2023 LiveLaw (SC) 822

Settlement Commission - there is a real object and purpose of setting up of the Settlement Commission as an Assessee, who is given an opportunity to disclose the undisclosed income in order to seek benefit in the form of immunity from penalty and prosecution. 2023 LiveLaw (SC) 648

Supreme Court grants relief to ITAT member whose appointment was delayed for not filing income tax returns and allowed to continue in the post till the age of 62 years as per the provisions of the Income Tax Act 1961. Although she had applied in pursuance of a notification issued in 2013, she was given appointment only in 2018, as there was a dispute regarding non-filing of income tax returns by her with respect to the relevant assessment year (2010-11). In June 2017, the Calcutta High Court had granted her relief by holding that she cannot be excluded merely on the ground that she had not filed income tax returns. In the meantime, the Centre had brought in new rules for appointment to Tribunals, namely Tribunal, Appellate Tribunal and Other Authorities (Qualifications, Experience and Other Conditions of Service of Members) Rules 2017. The letter of appointment was issued to her in terms of the 2017 Rules, fixing her term as three years. The bench held that the right of the applicant to appointment had been crystallized even before the 2017 Rules. Therefore, the appointment of the applicant would be governed by the position as it existed prior to the 2017 Rules. In other words, her tenure shall be extended until she attains the age of 62 years. 2023 LiveLaw (SC) 178

Supreme Court grants relief to ITAT member whose appointment was delayed for not filing income tax returns. 2023 LiveLaw (SC) 178

Supreme Court has upheld the jurisdiction of the Assessing Officer at New Delhi to tax the income earned by the assessees incorporated under the Registration of Companies (Sikkim) Act, 1961, for the assessment years prior to the date the Income Tax Act, 1961 was extended to the State of Sikkim. 2023 LiveLaw (SC) 291

Thief can't be assessed as 'owner' of stolen property under Section 69A Income Tax Act. 2023 LiveLaw (SC) 451

Transfer Pricing - High Courts not precluded from scrutinising ITAT's determination of Arm's Length Price. 2023 LiveLaw (SC) 328

Under Section 153C, a third party would only have to furnish income tax returns of preceding six years, starting from the date when the Assessing Officer assigns the third party's documents to the concerned Assessing Officer and not from the date of the original search. Section 153C does not contemplate calculation of six years period from date of search and seizure, as any delay caused by Assessing Officer in assigning documents to concerned Assessing Officer would obligate the third party to preserve the records of more than six preceding years. (Para 10) 2023 LiveLaw (SC) 878

'Woman not a chattel, has identity of her own; marriage won't take away her identity': Supreme Court strikes down income tax provision. 2023 LiveLaw (SC) 28

Writ Petition can be entertained to examine if conditions to issue Section 148 notice are satisfied. 2023 LiveLaw (SC) 16