“tax benefit”
The decision most relied on for tax benefit is CIT v. Vegetable Products Ltd. (88 ITR 192), cited in 2,664 judgments on BharatTax.
Leading authorities on tax benefit
When two equally plausible interpretations of a taxing provision are possible, or when conflicting views exist from non-jurisdictional High Courts, the interpretation that favors the assessee must be adopted.
When an income or expenditure is revenue neutral across different assessment years, where any benefit derived is offset by a corresponding liability or reversal, no additional tax liability arises, particularly concerning income recognition under the mercantile system of accounting.
A citizen is free to carry on business within the law, and mere tax planning without a motive to evade taxes through colorable devices is not frowned upon. The liability to taxation, for the purpose of tax treaty application, is a legal situation, not the fiscal fact of actual payment.
Transfer pricing adjustments for outstanding receivables are permissible only if the Tax Officer establishes, through analysis over a period, a pattern indicating an international transaction intended to benefit an associated enterprise. The Tax Officer cannot question purely business decisions like royalty payments or exceed jurisdiction by applying cost-benefit analysis to determine the arm's length price of services.
For fees for technical or consultancy services to 'make available' technical knowledge or know-how under a DTAA, the service must transmit such knowledge, allowing the recipient to derive an enduring benefit and utilize it independently in the future.
Legitimate tax planning is permissible, allowing taxpayers to arrange their affairs to minimize tax liabilities while respecting the "look at test" for transaction genuineness and the separate entity principle in corporate taxation. The source of funds for treaty-beneficial structures does not automatically invalidate the transaction.
Expenditure providing an enduring advantage, such as upfront lease rent for land, is revenue expenditure if no capital asset is acquired or generated, allowing for deduction under Section 37, even when capitalized in the books of account.
Expenditure incurred for increasing a company's share capital or expanding its capital base, such as expenses related to the issue of shares, constitutes capital expenditure. Such expenses are not deductible as revenue expenditure under Section 37(1) of the Income-tax Act, 1961, even if they incidentally benefit the business.
