Legal Updates

The information contained in this newsletter is of a general nature and it is not intended to address specific facts, merits and circumstances of any individual or entity. We have tried to provide accurate and timely information in a condensed form however, no one should act upon the information presented herein, before seeking detailed professional advice and thorough examination of specific facts and merits of the case while formulating business decisions.

DIRECT TAXES

As per the terms of the partnership deed, any partner who retires after the age of 50 years is entitled to 25 per cent of his average earnings of three completed financial years prior to his retirement. Assessee firm has to pay the same for a period of five years. In terms of said clause there is a charge on the profits of the assessee firm. There is a diversion of income to the extent of the retirement benefits paid by the assessee firm as per the terms of the said clause. Therefore, retirement benefit paid by the assessee firm to the retired partner cannot be included in the total income of the assessee.
Dr. Rahul Tugnait v.ITO (ITA No. 197/CHD/2008)
Scholarship/ stipend received by a student for pursuing higher studies cannot be treated as salary
Sections 15, 16 and 17 of the Income-tax Act, 1961 nowhere includes scholarship/ stipend which have been mentioned in section 10(16) of the Act; therefore, it can be said that the stipend/scholarship has been specifically precluded from the mischief of sub-clause (1) & (2) of section 17.
Sponge Iron India Ltd. v. DCIT (ITAT No. 410 & 411/ Hyd/2007)
Assessee is not entitled to depreciation on a plant which is not in operation since its capitalization
Even after introduction of concept of block assets, identity of the individual assets are not lost and the Assessing Officer can restrict the depreciation having regard to the usage of a plant.
Bosch Ltd. v. CIT [2009-TIOL-736-ITAT-BANG]
Depreciation is allowable on payments made to acquire skill and know-how of incoming employees as ‘business information’ classified under other intangibles (Goodwill)
The Tribunal has held that the taxpayer company was entitled to claim depreciation on the skill and the know-how brought by the employees of the transferee company classified as ‘business information’ under the category of ‘other identifiable intangibles’ (goodwill) under section 32(ii) of the Income-tax Act, 1961.
Dr. Aswath N. Rao v. ACIT (ITA No. 2900/2005) (Karnataka HC) [2010] 5 taxmann.com 63 (Kar.) Second hand machinery purchased for use as spare parts for existing old machineries has to be considered as an allowable expenditure on revenue side
When an assessee purchases the spare parts for the existing machineries, same cannot be treated as capital expenditure and it has to be treated as revenue expenditure since these spare parts are purchased for the maintenance of the existing equipments.