Income from franchising hotels / Restaurants is a business income

The rental income from leasing / franchising hotels & restaurants, under the franchisee conditions, is a business income and the same is not chargeable under the head “income from house property”. Hence lessor/ franchiser can not claim 30% adhoc deduction under section 24(a) of Income Tax Act, 1961 with respect to rental income from leasing / franchising the hotels & restaurants.

M/s. Tamil Nadu Tourism Development Corporation Ltd. Versus The Deputy Commissioner of Income Tax – MADRAS HIGH COURT

The assessee is a wholly owned Government of Tamil Nadu undertaking engaged in the business of development of tourism in the State. the assessee relying upon its Memorandum of Association had stated that its main activity was to start, operate and promote establishments, undertakings, enterprises and activities which facilitate or accelerate the development of tourism, handicrafts and cottage industries in Tamil Nadu; Continue reading

Interest on not deducting TDS count till the date tax actually paid by deductee.

If deductor fail to deduct  TDS  and deductee paid the advance tax and self assessment tax on such income then interest on not deducting TDS under section 201(1A) shall be applicable from the period commencing from “the date of such tax was deductible” to “the date on which tax was actually paid by the deductee”, not to “the date on which TDS is deducted by deductor”.

In the case, Commissioner of Income Tax Delhi XVII Versus M/s. Babcock Power (Overseas Projects) Ltd.- Delhi High Court

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TDS credit given even if deductor has not paid TDS amount

It is immaterial as to whether the TDS has been paid by deductor to the Central Government or not – Section 205 of the Income Tax Act prevents the department from demanding the tax from the deductee to the extent of TDS and TDS credit will be given.

Section 205 of the Income Tax Act reads as follows:

“Where tax is deductible at the source under sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-I, section 194J, section 194K, section 194L, section 195, section 196A, section 196B, section 196C and section 196D, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income”.

The plain reading of the section makes it clear that whenever tax is deductible under the provisions of this Act and where the tax has already been deducted, no demand can be raised on the deductee. This implies that to the extent of TDS, demand cannot be raised on the deductee and tds credit shall be available.

In the case of Executors of the Estate of S. Shanmuga Mudaliar Versus The ACIT, MADRAS HIGH COURT

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No section 271(1)(c) penalty on mere Disallowance of claim

Mere Disallowance of claim cannot be made the basis for levying Penalty under section 271(1)(c) of the Income Tax Act.

As per section 271(1)(c) of income tax act, 1961, assessing officer or CIT(A) or CIT in the course of proceedings under this Act may impose penalty in the range of 100% to 300% of the amount of tax sought to be evaded. The penalty can be impose if he satisfy that any person concealed the particulars of such income or furnished inaccurate particulars of such income. This penalty is in addition to the tax payable by assessee.

Further, there is also a concept of deemed concealment laid down under explanation 1 to section 271(1)(c). the explanation 1 is triggered when the person :-

  1. Fails to offer an explanation or
  2. Offers an explanation which is found to be false, or
  3. Offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him],

So the question is mere the claim made by a person in his return which disallowed by revenue, is comes under the ambit of section 271(1)(c) / explanation 1 of to section 271(1)(c). Continue reading

Construction company can follow the project completion method for determining the taxable income

In the case of construction contracts, the assessee company can follow the project completion method for determining the taxable income, if method is regularly employed.

In the case, Deputy Commissioner of Income Tax Versus Ansal Landmark Townships (P) Ltd. ITAT Delhi

The assessee is real estate developer company and consistently following a project completion method for recognizing the income and AO made the addition on account of applying the percentage completion method.

Commissioner of Income Tax(Appeals) has given a finding that assessee company falls under the category of real estate developer and not a construction contractor. In that view of the matter, clearly AS-9 issued by the ICAI is applicable to the assessee and AS-7 is applicable to the construction contractor. Further it is seen that assessee has been consistently following this method of accounting in the previous years since long and it has not been disturbed.

CIT(A) also observed that:- Continue reading