Section 199 of the Income Tax Act
The decision most relied on for Section 199 is CIT v. Bokaro Steel Ltd. (236 ITR 315), cited in 370 of the 535 judgments on BharatTax that turn on this section.
Leading authorities on Section 199
Interest earned during the pre-commencement period of a project, on advances made to contractors or on unutilized borrowed funds, if inextricably linked to the setting up of the plant, constitutes a capital receipt. Such interest is not taxable as income but can be reduced from the capital work-in-progress.
Income is diverted by an overriding charge, and thus not taxable, when it never truly accrues to the assessee due to a prior obligation. Conversely, income that first accrues to the assessee and is then applied to discharge an obligation out of that income is taxable.
The law does not oblige a trader to make maximum profit out of his trading transactions. Profits charged to tax must be in accordance with law and not amount to taxing notional income.
Tax assessments must be made according to the law in existence during the relevant assessment year. A new statutory explanation or amendment, even if effective retrospectively, does not apply to pending assessments of prior years if it takes away the vested rights of the assessees.
The Assessing Officer must record objective satisfaction, based on objective analysis and cogent reasons, before invoking Section 14A and applying Rule 8D for disallowing expenditure related to exempt income. Furthermore, disallowance under Section 14A applies only to investments that have actually yielded exempt income during the relevant assessment year.
The case elucidates the meaning of 'management services', detailing its components and considering whether such services qualify as 'technical services' for income tax purposes, particularly in relation to fees for technical services.
An assessee is entitled to credit for TDS even if the certificate is issued in the name of a joint venture or related party, provided the income to which the TDS relates is offered by the assessee. This principle emphasizes looking at the substance of the transaction over strict adherence to the name on the TDS certificate.
An assessee's consistently followed accounting method, if previously accepted by the Department, cannot be rejected by the tax authorities unless they establish that it distorts the true profits. The doctrine of consistency applies.
Expenditure on Employees Stock Options Plan (ESOP) compensation is an ascertained liability and is allowable as revenue expenditure.
Once tax has been deducted at source (TDS), the bar of section 205 applies, preventing the deductee from being asked to pay the tax again, even if the deductor fails to deposit the tax or issue TDS certificates.