Facts:

The appellant, Commissioner of Income Tax-VI, contested the allowance of deduction for lease equalization charges claimed by the respondent, Virtual Soft Systems Ltd., under the Income Tax Act, 1961.

The respondent filed its return of income for the Assessment Year 1999-2000, declaring a loss and claiming deduction for lease equalization charges.

The Assessing Officer disallowed the deduction claimed, leading to appeals by the respondent to higher authorities, ultimately reaching the High Court, which upheld the decision of the Income Tax Appellate Tribunal (ITAT).

Issues:

Whether deduction on account of lease equalization charges from lease rental income can be allowed under the Income Tax Act, 1961, based on the Guidance Note issued by the Institute of Chartered Accountants of India (ICAI)?

Held:

The Supreme Court held that the respondent is entitled to bifurcate lease rental income as per the accounting standards prescribed by the ICAI. The method of accounting recommended by the Guidance Note is valid for computing real income and is in accordance with accounting principles.

There is no express bar in the Income Tax Act against bifurcating lease rental income as per the accounting standards prescribed by the Guidance Note. The Court dismissed the appeal, affirming the decision of the High Court.

Decided on : 24-04-2018

Companies Act, 1956 - Section 211

Income Tax Act, 1961 - Section 145

Counsel for Appearing Parties

K. Radhakrishnan, Sr. Adv, Mrs. Anil Katiyar, Advocates, for the Appellants; Mrs. Rani Chhabra, Santosh Kumar-I, Nikhil Nayyar, Advocates, for the Respondents

Cases Referred

Commissioner of Income Tax-VII, New Delhi Vs. Punjab Stainless Steel Industries, (2014) 15 SCC 129

Facts:

The case pertains to M/S. Shree Rama Multi Tech Ltd., engaged in manufacturing.

Dispute related to Assessment Years 1999-2000, 2000-2001, and 2001-2002.

Initial assessment by the Assessing Officer modified based on a Tribunal decision.

Appeals filed before the Commissioner of Income Tax (Appeals) and reassessment proceedings initiated.

Tribunal allowed respondent's claim regarding deduction of interest income and remanded other issues to the Assessing Officer.

Revenue appealed before the High Court, which upheld the Tribunal's decision.

Issues:

Whether interest accrued on deposit of share application money is taxable income.

Whether the interest income can be deducted against public issue expenses.

Held:

The Supreme Court held that interest earned on share application money deposited in compliance with statutory requirements should be eligible for deduction against public issue expenses. The purpose of such deposits was not primarily to generate additional income but to fulfill statutory requirements. Therefore, the interest earned was incidental and not the prime purpose, making it eligible for deduction.

The Court dismissed the appeals and upheld the decision of the High Court, stating that the interest income earned from share application money was liable to be set off against public issue expenses.

Facts:

The case involved Cheran Properties Limited (Appellant) v. Kasturi and Sons Limited and Ors., where disputes arose between the parties regarding a business transaction. An agreement was entered into between various entities, including Kasturi and Sons Limited (KSL), Cheran Properties Limited (appellant), and others. The transaction involved the allotment of shares and subsequent disputes led to arbitral proceedings. An arbitral award was passed, directing certain actions, including the transmission of shares.

Issues:

Whether the appellant, who was not a signatory to the arbitration agreement, could be bound by the arbitral award?

Whether the National Company Law Tribunal (NCLT) had jurisdiction to order rectification of the register under Section 111 of the Companies Act, 1956?

Held:

The Court interpreted Section 35 of the Arbitration and Conciliation Act, 1996, which provides that an arbitral award is final and binding not only on the parties directly involved but also on persons claiming under them. The doctrine of 'claiming under' extends the scope of those who can be bound by the award to include entities deriving their capacity or position from a party to the proceedings.

In this case, the appellant, though not a signatory to the arbitration agreement, was found to claim under a party to the agreement. It was aware of the terms of the agreement and had sought to purchase shares in accordance with it. Therefore, the appellant could be bound by the arbitral award.

The Court affirmed the jurisdiction of the NCLT to order rectification of the register under Section 111 of the Companies Act, 1956, to effectuate the transmission of shares as mandated by the arbitral award.

The enforcement of the arbitral award was found to be equivalent to the enforcement of a decree of a civil court under Section 36 of the Arbitration and Conciliation Act, 1996. Therefore, the award could be enforced in the same manner as a court decree.

Decision: The appeals were dismissed, affirming the enforcement of the arbitral award against the appellant and the jurisdiction of the NCLT to order rectification of the register under the Companies Act, 1956.

Facts:

B.L. Passi filed an income tax return claiming a deduction under Section 80-O for income received from Sumitomo Corporation, Japan, for providing specialized industrial and commercial knowledge about the Indian automobile industry.

The Income Tax Department disallowed the deduction, leading Passi to appeal through various levels of adjudication, ultimately reaching the Supreme Court.

Issues:

Whether Passi was entitled to the deduction under Section 80-O of the Income Tax Act.

Held:

The court analyzed the nature of the services provided by Passi and the relevant provisions of Section 80-O. It noted that Passi claimed to have provided blueprints and information about the Indian automobile industry to Sumitomo Corporation, but failed to produce evidence such as the blueprints to substantiate his claim before the lower authorities.

The court emphasized that technical services, as per Section 80-O, involve the use of tools and machinery, which may not include managerial services. Since Passi couldn't prove the technical nature of the services provided or the basis for the alleged payment by Sumitomo Corporation, the court dismissed his appeal.

Additionally, the court affirmed the High Court's finding of a principal-agent relationship between Passi and Sumitomo Corporation, further supporting the denial of the deduction under Section 80-O.

Facts:

Bharat V. Patel, Chairman and Managing Director of Procter and Gamble (P&G) India, received an amount on redemption of SARs issued by P&G USA.

Assessment proceedings were conducted under Section 143(3) of the Income Tax Act, 1961, determining Patel's total income.

Patel appealed to the Commissioner of Income Tax (Appeals) and then to the Tribunal.

The High Court upheld Patel's appeal, dismissing the Revenue's appeal.

The Revenue appealed to the Supreme Court.

Issues:

Whether the amount received on redemption of SARs is taxable as capital gains or as a perquisite under Section 17(2)(iii) of the IT Act.

Whether the amendment introduced by the Finance Act, 1999, regarding taxation of specified securities has retrospective effect.

Held:

The Court held that the amendment introduced by the Finance Act, 1999, did not have retrospective effect. Hence, Patel's transaction falls outside its purview.

The Court emphasized that unless a benefit is made taxable by law, it cannot be regarded as income. Therefore, the amount received by Patel cannot be taxed as perquisite or under capital gains.

The Court rejected the Revenue's argument regarding the applicability of Section 28(iv) of the IT Act, as it pertains to business or profession-related transactions, which was not the case here.

Facts:

The Union of India filed multiple appeals despite clear precedents and guidelines, leading to the dismissal of these appeals. The Court observed a pattern of non-compliance with the National Litigation Policy and a disregard for efficient and responsible litigation practices.

Issues:

Whether the conduct of the Union of India in filing frivolous appeals and not adhering to the National Litigation Policy warrants judicial intervention?

Whether costs should be imposed on the Union of India for such conduct?

Held:

The Court expresses dissatisfaction with the Union of India's attitude towards litigation and its failure to adhere to the National Litigation Policy. It emphasizes the burden placed on the justice system and the need for the Union of India to act as an efficient and responsible litigant. Costs of Rs. 1,00,000 are imposed on the Union of India for frivolous litigation.

The Court criticizes the Union of India for its continued non-compliance with the National Litigation Policy despite discussions and plans for reform. It underscores the importance of withdrawing vexatious cases promptly and implementing measures to reduce government litigation. The Court dismisses the appeal and directs the Union of India to deposit the imposed costs within four weeks.

Facts:

Respondent Nos. 1 to 3 were appointed as Additional Deputy Commissioners with the powers of Additional Sessions Judge on a contract basis to man Fast Track Courts (FTC). They sought regularisation to the said posts invoking the provisions of Rule 7 of the Arunachal Pradesh Judicial Service Rules, 2006. However, a Committee of High Court Judges rejected their claim. Subsequently, the High Court undertook a selection process for FTC Judges, during which none of the respondents qualified, leading to the termination of their services. The respondents filed a Writ Petition challenging the termination, which was set aside by the High Court, directing the State to start the consultation process for their absorption.

Issues:

Whether the respondents were entitled to automatic absorption into the regular cadre of the Higher Judicial Service.

The interpretation of the proviso to Rule 7 of the Arunachal Pradesh Judicial Service Rules, 2006, regarding the consideration for absorption.

Held:

The Committee of High Court Judges opined that the respondents were not entitled to appointment in the regular cadre of the Higher Judicial Service. This decision was not challenged by the respondents. The decision of the Committee stands vindicated as the respondents failed to qualify in various selection processes, indicating their incompetence.

The interpretation of the proviso to Rule 7 was discussed. While the proviso suggested that the cases of the respondents 'may be considered' for absorption, it did not mandate their automatic absorption. The proviso only provided for the consideration of the respondents' cases for absorption, and there was no automatic absorption provided for.

Therefore, the Court allowed the appeal, affirming that the respondents were not entitled to automatic absorption into the regular cadre of the Higher Judicial Service. Their cases were considered but found unfit for absorption based on their performance in selection processes and other factors.

Facts:

The respondent, in order to repay dues of the bank, signed an assignment deed with the Bank Manager for the assignment of a trademark. After several months, the bank cancelled the assignment deed. Litigation ensued between the parties in two proceedings. The trial court and the first appellate court erroneously treated the statutory prohibition contained in s.45(2) of the Trade Marks Act as res judicata without proper interpretation of the relevant law.

Issues:

Whether an erroneous decision on a statutory prohibition in a former suit precludes the application of res judicata in a subsequent suit or proceeding.

Whether the assignment deed violated provisions of the Trade Marks Act and the Banking Regulation Act.

Held:

Res judicata is a fundamental doctrine in the legal system aimed at bringing finality to litigation. An erroneous decision on a question of law that sanctions something illegal cannot be allowed to operate as res judicata. This principle is applicable in cases involving statutory prohibitions.

Until the limitation period for filing an appeal expires, the matter remains sub judice. Courts may adjourn or stay proceedings to await the outcome of an appeal in the first case to prevent conflicting judgments.

If the period for filing an appeal has expired and no appeal is filed, the court hearing the second proceeding may treat the first proceeding as res judicata based on the facts and circumstances of each case.

A belated review petition filed after the judgment was reserved cannot delay the application of res judicata. The judgment in question must be examined to determine its applicability as res judicata.

An erroneous decision on a statutory prohibition in a former suit or proceeding precludes the application of res judicata in a subsequent suit or proceeding, even if the issue raised is directly and substantially the same.

The assignment deed in question violated s.45(2) of the Trade Marks Act, which prohibits the admission of unregistered assignment deeds as evidence of title to a trademark.

Sections 6, 8, and 46(4) of the Banking Regulation Act also prohibit the bank from engaging in certain activities, including dealing in trademarks for purposes not permitted under the Act.

The judgments of the trial court and the first appellate court are set aside due to their erroneous application of res judicata principles and failure to consider statutory prohibitions and banking regulations.

Facts:

The case involved a summary eviction suit filed by the appellant, Apollo Zipper India Limited, against the respondent, W. Newman and Co. Ltd., regarding a business premises known as the "Great Eastern Hotel" in Kolkata.

The respondent was originally a tenant of the Great Eastern Hotel Limited (GEHL), but due to legislative acts, the ownership of the hotel premises was transferred to various entities over time, eventually leading to the appellant becoming the owner.

The respondent challenged the appellant's suit on various grounds, including questioning the ownership, disputing the monthly rent, and arguing that the suit should have been filed under a different act.

Issues:

Whether the respondent should be granted leave to defend the eviction suit based on the grounds raised by them.

Held:

The Court held that the respondent had effectively attorned to the appellant's ownership of the premises, as evidenced by their conduct and communications.

The appellant had prima facie proved their title over the premises and the monthly rent amount.

The suit was rightly filed under the Transfer of Property Act, and the provisions of the Tenancy Act did not apply due to the monthly rent exceeding the prescribed limit.

The grounds raised by the respondent for seeking leave to defend were found to lack merit and were not arguable.

The appeal was allowed, the impugned judgment was set aside, and the order of the Single Judge was restored, granting the appellant's suit for eviction.

The respondent was given six months to vacate the premises, subject to certain conditions, including depositing the arrears of rent and damages for use and occupation.