Collecting Fee by Charitable Society for Rendering Service not a ‘ Commercial Activity

The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) held that collecting fee for rendering services by Charitable Society cannot be considered as ‘commercial activity’ and hence is liable for exemption under Section 11 of the Income Tax Act. The Assessee, Institute of Health Systems, is a society formed and registered under Section 12A of the of the Income Tax Act. The Assessing Officer (AO) observed that during the assessing year 2014-2015, assessee provided services to Hyderabad Metro Water Supply and Sewerage Board (HMWSSB) towards water quality testing and incurred expenditure with reference to the services provided by it.

According to AO, assessee has not incurred any expenditure relating to charitable activity for the cause of education, medical aid or relief to poor and even not incurred any expenditure for the general public utility. He further observed that the activity of the assessee is professional/technical services not in accordance with the aim and object of the society and the activity carried out by the assessee is not for charitable purposes. As the assessee received the revenue receipts from services rendered to HMWSSB, the AO was of the opinion that the activity of the assessee, principally, commercial in nature, hence, assessee is not eligible for exemption u/s 11 of the Act.

The above observations were also upheld by the Commissioner of income tax (Appeals). The Tribunal bench comprising of Judicial Member V. Durga Rao and Accountant Member B. Ramakotaiah allowed the appeal of the assessee and were of the opinion that, “Testing of water and thereby supplying good quality of water contribute to the health of the people.

Therefore, the activity carried out by the assessee as per its object to take care of the health of the people and the activity of the assessee has to be considered as advancing of general public utility. Therefore, the assessee is eligible for exemption u/s 11 of the Act.”

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No Tax on Sale of Agricultural Land after its Conversion into ‘Industrial Land

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) in ITO v. Meera Thapa Prop, held that the sale of Agricultural Land after its conversion to industrial land would not make the sale taxable under the head ‘Capital Gains’ under the provisions of the Income Tax Act. Assessee was carrying on agricultural activities in the land in dispute which was notified by the Government as industrial land. She later, sold her land and did not offer the income for taxation under a belief that the sale of agricultural land is exempted from taxation.

However, the Assessing Officer noted that the assessee has not shown agricultural income in her return of income for earlier years and made addition under the head capital gains. On appeal, the first appellate authority held that merely because the land is declared as ‘industrial land’ same cannot be held to be a ‘capital asset’ and ‘capital gain’ cannot be charged on sale of ‘agricultural land’. He further held that as the assessee’s land was very small and the income was also very negligible as it was not conducive to sell agricultural produce from the land in market after the consumption.

The Tribunal noted that an agricultural land which was cultivated by the assessee for agricultural purposes, on being notified by the Govt, the land was sold for industrial purposes. The question before the Tribunal was whether such land can be considered to be sale of agricultural land or not in absence of any agricultural income shown by the assessee because of the smallness of the income, is chargeable to tax or not?

Upholding the order, the bench noted that “the impugned land was sold by the assessee is an „agricultural land‟ as it is shown so in the land records and the assessee has given proper explanation about not showing the agricultural income in her return of income due to smallness.”

Penalty Under Section 271(1)(C) Of Income Tax Act Is Not Automatic, Intentional Wrongdoing By The Assessee Has To Be Established

Delhi High Court: A Division Bench comprising of Ravindra Bhat and A.K. Chawla, JJ. dismissed Revenue’s appeal holding that Income Tax Appellate Tribunal (ITAT) was right in holding that the assessee was not liable to penalty under Section 271(1)(c) of Income Tax Act, 1961.

The assessee, manufacturers of TV parts, purchased some machinery for Rs 3.34 crores, which they were not able to remove from the port due to inability to mobilize funds. The assessee decided to write off the machinery into account books, which was disclosed in Annual Accounts. Subsequently, while filing the IT return, the above-mentioned amount was claimed as revenue loss.

The revenue Authorities held that the writing off of the said amount was not justified. The penalty was levied on the assessee under Section 271(1)(c) for making the wrong claim in the return. On appeal, ITAT held that no penalty could be levied on assessee in the present case. Revenue appealed against the order of ITAT.

The High Court perused the section and observed that a plain reading of the provision shows that penalty is levied only on an assessee who either ‘conceals’ or ‘furnishes inaccurate particulars of his income’, these are the two essentials.

Supreme Court decision in T. Ashok Pai v. CIT, (2007) 7 SCC 162, was relied upon wherein it was held that penalty under the section is not automatic in nature; the conditions under the section must exist before the penalty is imposed; Revenue had the responsibility of showing intentional wrongdoing. It was observed that though the petitioner made a wrong claim, the Parliament had no intention to penalise everyone who makes a wrong claim of deduction. The Court held that the essentials of Section 271(1)(c) were not satisfied. Hence, the decision of ITAT was upheld and the appeal was dismissed. [PR CIT-8 v. Samtel India Ltd., ITA No. 43 of 2017, dated 09-07-2018]

Re-Opening of Assessment without Application of Mind is Invalid:

The Agra Bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of M/s Deepraj Hospital (P.) Ltd. v. ITO held that the proceedings initiated under Section 147 of the Income Tax Act and the notice issued under Section 148 of the Income Tax Act are wrong, bad in law, arbitrary, without jurisdiction and against the facts and circumstances of the case. The appeal before the present court is directed on the ground that the action of the Assessing Officer (AO) who challenged the validity of initiation of proceedings under Section 147 and the consequent issue of notice. Further on the ground that the Commissioner of Income Tax (CIT) had wrongly, illegally and arbitrarily confirmed the addition made by the AO u/s 68 of the Income Tax Act treating the receipt of share application money to be unexplained cash investment. The assessee contended that he had obtained accommodation entries from Shri S Group as advance during the relevant financial year under consideration. Neither the AO ever provided with any documents nor confronted the assessee with any documents in possession of which it can be said to form a reason to believe by the AO that the assessee has taken accommodation entry from Shri S. Group. Furthermore, the assessee contended that the reason recorded on the ground of which the notice was issued is also wrong and bad in law as it is not the own belief of the AO but is solely based on the information received from CIT. The Ld. CIT(A) remanded the matter to the AO asking for a remand report. The CIT(A) further cut the issue to whether the material in possession of the AO was sufficient to form a reason to believe and hold in favor of the revenue declared that the report of the Investigation Wing, is a good material for the AO to form a reason of escapement of income and the AO is not required to investigate the veracity of the facts narrated in the same. The Hon’ble High Court held that where there is no independent application of mind by the AO to the tangible material which forms the basis of the reasons, the reasons are unsustainable. Furthermore, it remains undisputed in the present case that though the reasons recorded by the AO for belief of escapement of income contain reference to material forming the basis thereof, such material, despite written request by the assessee to the AO was never supplied by the AO to the assessee and hence the same is in contravention of the principles of natural justice.

S. 56(2)(viia) is a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts.

Vora Financial Services P. Ltd vs. ACIT (ITAT Mumbai)

Assessment year 2014-15, 29-09-2018

S. 56(2)(viia) is a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts. The primary condition for invoking S. 56(2)(viia) is that the asset gifted should become a “capital asset” and property in the hands of recipient. If the assessee-company has purchased shares under a buyback scheme and the said shares are extinguished by writing down the share capital, the shares do not become capital asset of the assessee-company and hence s. 56(2)(viia) cannot be invoked in the hands of the assessee company

The provisions of sec. 56(2)(viia) should be applicable only in cases where the receipt of shares become property in the hands of recipient and the shares shall become property of the recipient only if it is “shares of any other company”. In the instant case, the assessee herein has purchased its own shares under buyback scheme and the same has been extinguished by reducing the capital and hence the tests of “becoming property” and also “shares of any other company” fail in this case. Accordingly we are of the view that the tax authorities are not justified in invoking the provisions of sec. 56(2)(viia) for buyback of own shares

What is the extent of Tax Deduction You Can Claim On Premium Paid For Health Insurance?

Exorbitant costs of healthcare has made it is necessary to buy a Health Insurance Policy nowadays. Even if you have a company group health insurance, it is always advisable to have a separate individual health plan to ensure the same financial safety when you are not employed or when your company withdraws the policy. Apart from providing financial security during medical emergencies, buying a health insurance plan also gives you tax benefits. Tax benefits for premium paid for health insurance can be claimed under section 80 D as per Income Tax Act, 1961.

Below is the list of tax deductions you can claim on health insurance premium.
For Self, Spouse And Children: You can claim deduction for any health insurance premium paid for self, spouse or children up to a maximum of Rs. 25,000 for assessment year 2019-2020.

For Parents (Whether Dependent Or Not) Who Are Not Senior Citizens:

For any premium paid for a health plan for parents who are not senior citizens, you can claim a deduction of Rs.25,000.

For Parents (Whether Dependent Or Not) Who Are Senior Citizens:

After this year’s budget the premium paid for senior citizen’s health plan would help you claim deduction of Rs. 50,000. In the previous financial year 2017-2018, the total deduction allowed under this category was Rs. 30,000.

If You And Your Parents Are Both Senior Citizens:

In case both of you are senior citizens, the deduction claim would be Rs. 50,000 each, and so the deduction can be claimed on the total of Rs. 1 lakh.

Senior Citizens Who Are Not Eligible For Health Plan But Incur Medical Expenses:

A deduction of Rs. 50,000 is allowed towards medical expenses to senior citizens who are above 60 years of age, but are no eligible for a health plan.

Extra Deductions:

You can claim additional deduction of Rs. 5,000 if you have undergone any health check-ups or tests provided you have receipts for it. However, please note that this deduction is not over and above the individual limits under Section 80 D.
For Multi-year Health Plan: Many people buy multi-year health plan so that the benefits accrue over a long period and they need not have to renew the policy every year. This also means that they will have to pay lesser premium for a multi-year health plan. While claiming tax deduction for such multi-year health, the tax deduction is spread over the duration of the policy proportionately. For example, if you bought a three-year health plan at a lump sum premium of Rs 30,000, you can claim deduction of Rs 10,000 in each assessment year.

Can You Claim Deduction If Premium Is Paid Through Cash?

You can claim deductions only if the payment for health plan premium is anything other than cash. However, expenses on health check-up can be paid in cash.

You Cannot Claim Deductions If:

You pay premium on health insurance for your in-laws. However, your spouse can claim tax benefit if he/she pays from his/her taxable income.
You pay premium on health insurance on behalf of your siblings.
Also, it is important to note that service tax on premium amount is excluded for tax deduction.

Is minor child’s income clubbed with the income of parent?

As per section 64(1A) , income of minor child is clubbed with the income of his/her parent (*). Income of minor child earned on account of manual work or any activity involving application of his/her skill, knowledge, talent, experience, etc. will not be clubbed with the income of his/her parent. However, accretion from such income will be clubbed with the income of parent of such minor.

Income of minor will be clubbed along with the income of that parent whose income (excluding minor’s income) is higher.

If the marriage of parents does not sustain, then minor’s income will be clubbed with the income of parent who maintains the minor.

In case the income of individual includes income of his/her minor child, such individual can claim an exemption under section 10(32) ) of Rs. 1,500 or income of minor so clubbed, whichever is less.

(*) Provisions of section 64(1A) will not apply to any income of a minor child suffering from disability specified under section 80U . In other words income of a minor suffering from disability specified under section 80U will not be clubbed with the income of his/her parent.

Illustration F
Mr. Raja has two minor children, viz., Master A and Master B. Master A is a child artist and Master B is suffering from diseases specified under section 80U . Income of A and B are as follows:
• Income of A from stage shows: Rs. 1,00,000
• Income of A from bank interest: Rs. 6,000
• Income of B from bank interest: Rs. 1,20,000.
Will the income of minor children be clubbed with the income of their parent (Mrs. Raja is not having any income)?

**
As per section 64(1A) , income of minor children is clubbed with the income of that parent whose income (excluding minor’s income) is higher. In this case, Mrs. Raja is not having any income and, hence, if any income is to be clubbed then it will be clubbed with the income of Mr. Raja.

Income of minor child earned on account of manual work or income from the skill, knowledge, talent, experience, etc., of minor child will not be clubbed with the income of his/her parent. Thus, income of A from stage show will not be clubbed with the income of Mr. Raja but income of A from bank interest of Rs. 6,000 will be clubbed with the income of Mr. Raja.

Income of a minor suffering from disability specified under section 80U will not be clubbed with the income of his/her parent. Hence, any income of B will not be clubbed with the income of Mr. Raja.

The taxpayer can claim an exemption under section 10(32) ). Thus, in respect of interest income of Rs. 6,000 clubbed in the income of Mr. Raja, he will be entitled to claim exemption of Rs. 1,500 under section 10(32) ), hence, net income to be clubbed will be Rs. 4,500 ( i.e., Rs. 6,000 – Rs. 1,500).