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Unit 14: Advance Tax Planning and Tax Relief

14. The ……………under section 90 are intended to provide relief to the taxpayer, who is Notes
resident of one of the contracting country to the agreement.
15. The charge of tax of a foreign company at a rate ……………….than the rate at which a
domestic company is chargeable, shall not be regarded as less favourable charge or levy
of tax in respect of such foreign company.

16. Sub-section (3) provides for relief to a …………………..assessee in respect of his share in
the income of a registered firm assessed as resident in India in any previous year.

Case Study Commissioner v. Indianapolis Power & Light Co.

ndianapolis Power & Light Company (IPL) required customers with suspect credit to
make deposits with it to assure payment of future bills for electric service. IPL paid
Iinterest on deposits held for a certain period of time. A customer could obtain a refund
prior to termination of service by making on time payments or by demonstrating acceptable
credit. The refunds were normally made in cash or by check but a customer could also
choose to have the deposit amount applied against future bills. Any deposit unclaimed
after seven years would escheat to the State. At the time of receipt, IPL did not treat the
deposits as income for tax purposes. The Internal Revenue Service (IRS) audited the utility
and assessed a tax deficiency. IPL appealed this assessment to the United States Tax Court,
which sided with IPL. This decision was then appealed, eventually reaching the Supreme
Court.
In front of the Supreme Court, the IRS argued that the deposits were advance payments for
electricity and therefore taxable to IPL in the year of receipt. In response, the utility
stressed its obligation to refund the deposits with interest. IPL argued the payments were
not taxable income because they were similar to loans.
To determine whether the deposits were income, the Supreme Court noted that “undeniable
accessions to wealth, clearly realized, and over which the taxpayers have complete
dominion” constitute income. Commissioner v. Glenshaw Glass Co. The Court found that
IPL did not enjoy “complete dominion” over the customer deposits; rather, the IPL had an
express obligation to repay a deposit when a customer established good credit or terminated
service. IPL’s right to keep the money thus depended upon the customer’s subsequent
decision to have the deposit applied to future bills, not merely upon the utility’s adherence
to its contractual duties. As such IPL’s dominion over the funds was far less than is ordinarily
present in an advance payment situation.

The Court, in a unanimous decision, held that whether a payment constitutes income
when received depends upon the rights and obligations of the parties at the time the
payments are made. The ability to choose what happens to the deposit distinguishes a
loan from an advance payment. An individual who makes an advance payment retains no
right to insist upon the return of the funds. In contrast, the IPL utility customers retained
the right to repayment. While a customer might apply the money to the purchase of
electricity, he or she assumed no obligation to do so. Because the utility did not acquire
unfettered “dominion” over the money, the deposits did not constitute income for tax
purposes at the time of receipt.
Questions
1. Study and analyse the case.
Contd...

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