Taxation is a fascinating branch of law, though highly complex and complicated to comprehend. lts practice demands an adequate knowledge of accountancy and economics besides a fair knowledge of various commercial laws, personal laws, laws relating to property as also civil criminal laws.

The system of taxation has been in existence since time immemorial when people started to organise themselves into societies and with the establishment of some form of governing bodies. The legitimacy of the collection of tax by the governing body for the welfare of its subjects has been accepted from a long time. But from the ancient time to the modern age, the concept has witnessed a multi-pronged transformation. Justice Oliver Wendell Homes once said “taxation is the price we pay for civilisation”.

In India, financial liberalisation was the centrepiece of the larger programme of “economic reform”. Much of the prescriptions of the western world found their echo in the post-1991 economic reform programme in India. It began with a radical programme of stabilisation and structural adjustment, assisted by the World Bank and the IMF. Immediate measures of macro-economic stabilisation, fiscal correction, exchange rate adjustment, monetary targets and inflation controls were announced. These stabilisation measures were to be supplemented by structural reform measures, which included industrial deregulation, liberalisation of foreign direct investment, trade liberalisation, overhauling of public enterprises and financial sector reforms.

Taxation, which was originally a means to sustain the survival of the State, over the years underwent substantial changes and now, as we stand in the 21st century, is perceived as one of the major means to vitalise economic development. And thus, it could be concluded that taxation carries forward the important task of economic vitalisation, income redistribution, and socio economic cohesion.

The fundamentals of our economy must be very strong but the economy of our country depends upon augmentation of the resources for which taxation is absolutely essential. The people of the country pay taxes and the lawyers encourage them to pay the legitimate taxes to the State. But we expect that the taxes should be properly utilised.

The tax profession is a solemn and serious occupation. It is a noble calling and all those who belong to it are its honourable members. Although the entry to the profession can be made merely by acquiring the qualification of tax competence, the honour as a professional has to be maintained by its members by their exemplary conduct both in and outside the Court.

The role of tax professionals in the current global economic scenario is extremely important. They have started to play a crucial role in ensuring the sound functioning of domestic tax systems. Hence, the well-functioning of a tax system depends to a large extent on the efficacy of the tax advisors. However, there exists some real and potential conflict between the duty to provide zealous representation of clients and a more abstract responsibility towards “the system”.

The taxpayers, in order to pay less tax, often try to exploit the inconsistencies and ambiguities in the tax legislation. Where different tax consequences follow two different forms of a transaction, the taxpayer will, if properly advised, often adopt the form that incurs the lowest tax burden. And, where there is some ambiguity in the application of the statute, the taxpayer will seek to interpret the ambiguous wording in the most advantageous way possible.

Thus, any law aimed at regulating the tax advisors must take into consideration the state’s interest in raising revenue and the client’s interest in minimising tax. It is also necessary to put in place proper regulations to protect the clients from unscrupulous or incompetent tax advisors.

In the era of globalisation and e-technology the entire world has become a global village and we have to get ourselves fully equipped with the latest developments in each field of taxation.

Tax evasion as a matter of major concern

The state’s financial experts as well as the economists and social scientists feel that the growing tax evasion is mainly due to our defective, irrational and anti-conditioned taxation policy. The variety of tax preferences that are extended to the subjects have not only distorted the after-tax rates of return on various types of investments in unintended ways, but also have significantly eroded the tax base. The wide ranging tax preferences have led to large scale avoidance of the tax by companies resulting in several “zero tax” companies. In order to correct this, Minimum Alternate Tax (MAT) was imposed since 1997-98.

In India there has been insufficient manpower for tackling evasion. While complete elimination of evasion may well be an uphill task, it is quite possible to subject returns to better check. Taxpayer education and use of media is another area through which better compliance is possible.

Also, we cannot be unmindful of the fast-paced changes taking place in the taxation regime in the country, and even internationally. In our own country, in the next few years, the Income-tax Act of 1961 is likely to be replaced by the Direct Tax Code. The Central Excise, Service Tax and Value Added Tax regimes are proposed to be subsumed under the Goods and Services Tax. Perhaps, a beginning has already been made with the new Companies Act, 2013. A lot of systems would be interlinked through the use of information technology. There would be a paradigm shift in our taxation system on all fronts. Not only the content of the law shall stand changed, but also the manner in which we approach taxation itself will undergo a complete transformation.

For any professional, be that a Chartered Accountant, Advocate, Tax Practitioner or Engineer, Doctor or Architect, the integrity and honesty is the supreme which makes the man straightforward and sincere to his profession.

For achieving success, one has to be quite objective as well as fair and impartial to his colleagues, subordinates and to the work itself.

When it comes to a professional, not only entire stake but some time the life of a person is put in the hands of the professional. Hence, the professional’s competence is supreme which can be achieved by having the complete knowledge and information about the subject and the laws with which we are dealing.

The statutory bodies of advocates and chartered accountants or the Bar Council of India, State Bar Councils and the Institute of Chartered Accountants of India have the duty to control the working of the professionals.

However, in today’s world, tax professionals must be concerned also with risk management, tax contingencies, disclosure requirements and reputational risk. In order to keep the professional reputation always high, it is absolutely essential that we must be very careful and we should not make a part of our professional family such persons, individuals or the professional firms who have indulged in various unscrupulous work.

Moreover, with the convergence of International Financial Reporting Standards (IFRS) and lndian Accounting Standards, and the convergence of accounting treatment under the Companies Act and the Income-tax Act, it will not be long before these systems are inter-linked and the tax authorities can, at the click of the button, verify the actual accounts of an assessee. At a more mundane level, with the introduction of information technology, it is far easier to ascertain the authenticity of transactions for claiming deductions or tax credits. Taxpayers profiling, which provides the tax authorities with a rich source of information, is common now, at least on the Income-tax side, and is made easier with the e-filing initiatives.

Every year, Economic Co-operation and Development, or OECD deeply examines and brings out a report on a particular aspect of taxation, such as Voluntary Disclosures, Tax Avoidance Processes, Role of Technology in Taxation etc. ln a globalised world, where we are slowly inching towards adopting the same processes and frameworks as are prevalent in the Western world, we have much to learn from these studies and reports.

Make in India Campaign

Indian markets have significant potential and offer prospects of high profitability and a favourable regulatory regime to entice investors. With the new ‘Make in India’ campaign the Government further intents to attract the Non Resident Indians to make financial investment in India. The ambitious ‘Make in India’ campaign launched on September 25 aims at turning the country into a global manufacturing hub. Government’s initiative to create ‘Make in India’ a global phenomenon will bolster and help increase per capita income and will create jobs for over 10 million people.

The tax professionals are advisors and not Senior Executive Officers of the corporate world. We must act independently according to our knowledge and wisdom and not according to the desire or dictate of any assessee or client, howsoever big it may be.

The nature of business is also undergoing a change. Globalisation is slowly leading to a situation where size of business is becoming all important – not just for expansion, but even for survival. Global competition is leading to the obliteration of any business which does not have the capacity to cope with the challenges, and increasingly, with size or scale of the business, the capacity to survive is increasing, while smaller businesses are being wiped out. Take any sector of the economy, be it finance, construction, real estate or retail, the big have to get bigger and smaller are on the risk of being wound-up.

Conclusion

Taxation is a sharp-edged weapon of fiscal management. The developing countries face the problem of financial inadequacy mainly due to the limited avenues for its generation. Taxation remains the lone source in the hands of the Government either for augmenting the State revenues or for carrying forward the task of economic development.

India today remains as an unbeatable combination of an ancient civilisation embracing economic globalisation in a context that is open and democratic, and that is what really makes India the emerging giant that it has become.

In the changing times present tax professionals are facing new challenges. But fortunately, the tax professionals as a group are not hesitant to embrace change, and embrace it successfully. Even though, there may be initial hiccups, but I am sure that the tax professionals will master their new role.

[Source: Inaugural Speech delivered at National Tax Conference held on 20th December, 2015 at Jaipur]

Hon’ble Mr. Justice R. K. AgrawalJudge, Supreme Court

NATIONAL SCENARIO

My beloved Members,

At the outset, I extend greetings and best wishes to all of you on the eve of New Year 2015!

For a long while as regards cutting the RBI Bank Repo rate Governor Raghuram Rajan and Union Finance Minister Mr. Arun Jaitley, were having different views due to their own perspective of the Indian Economy, especially in the context of inflation affecting the common man. However, RBI stunned the market on 15th January, 2015 on the auspicious occasion of ‘Makar Sankranti’ by cutting Repo rate from 8 per cent to 7.75 per cent, ahead of its February 3 policy review taking into consideration the Government’s commitment to adhering to its fiscal deficit target. Obviously, the white collar members of the society as well as traders and industrialist welcomed the above fast decision of the RBI which will boost the economy of the country. It is interesting to note here that ‘Care Ratings’ had forecast the said reduction on the ground of overall wholesale price index of inflation having been down at acceptable limits.

Meantime, Prof. Jagdish Bhagwati, an eminent international economist had stated thus: – “The Modi Government should overcome populist anti-reformers both politically and intellectually. Simultaneously, he lauded PM Narendra Modi for his right direction towards trade openness.”

Mr. Arvind Panagariya has taken charge of the ‘NITI AAYOG’ as Vice-Chairman, holding Cabinet rank, and stated in his personal capacity that a rethink on GST and Centre should try to first ‘straighten out’ central taxation. “Let us have proper value-added central sales tax on both goods and services. I think it will open the door a lot better for States to come on Board,” he said, conceding his view was different from the conventional one (source: ET, P 17, dated 8th January, 2015).

Meantime, Bishwajit Bhattacharya, a lawyer – PIL Petitioner has challenged the recently enacted law that granted Constitutional status to the ‘National Judicial Appointments Commission (NJAC)’ that would replace the collegium system of judges appointing judges. The PIL, inter alia reads : “such violence done to the basic structure of India’s Constitution is reminiscent of the dark days of emergency. The sanctity, chastity of the Constitution and its basic structure cannot be permitted to be defiled, defaced and demolished by the executive acting in conjunction with legislature in order to take over the function of the CJI and his senior colleagues to appoint and transfer Judges of HCs and the Supreme Court. That would destroy the doctrine of separation of power and the independence of the judiciaries.” So, let us await the decision on the PIL filed by the aforenamed petitioner.

I am pleased to share with you that the National Tax Conference 2014 held at Jaipur on 20th-21st December, 2014 was a great success inasmuch as over 900 delegates and invitees attended the said Conference. The hallmark of the Conference was, it being webcast live through internet and being watched across the world on a real time basis, apart from which it was live on twitter.

The next National Tax Conference is scheduled to be held at Darjeeling on 17th April, 2015. Members are requested to attend the same in large numbers and promote the cause of AIFTP to spread education in direct and indirect taxes.

With best wishes and regards,

J. D. Nankani

National President

Finance Bill 2015 – Wish list of tax professionals – Simple tax laws and better tax administration to achieve the goal of the Honourable Prime Minster to have “Ache din” for honest taxpayers

Professionals and honest tax-payers are having great expectations that this year’s Budget will be a vision document of the Honourable Finance Minister to have a simplified tax structure and better tax administration. The Federation has short-listed some of the issues for the kind consideration of the Honourable Finance Minister which can be deliberated upon:

1. Accountability provision in the direct tax law

Due to lack of accountability on the part of the Assessing Officers and his supervising officers, it is common to find additions being made for name sake which is not permissible in quasi-judicial proceedings, knowing well that they might not withstand judicial scrutiny. In order to keep a check on such frivolous additions, the accountability provision as suggested by Dr. Raja J. Chelliah, in his report [(1992) 197 ITR 177 (St) (257) Para 5.9] must be incorporated in the Income–tax Act, 1961, taking into consideration that the Honourable Bombay High Court has passed a number of orders against frivolous appeals filed by revenue when the Tribunal has followed the judgment of Supreme Court.

2. Speedy justice in taxation matters by Income–tax Appellate Tribunal which is the final fact finding authority is a need of the hour.

As on 1-12-2014 there are 1,00,420 appeals which are pending before the Income-tax Appellate Tribunal (the “Tribunal”) before its 63 Benches across the country. Pendency has increased due to non-appointment of members to the Tribunal. Though the interview process was completed about six months back, the appointment of members is not yet done due to reasons best known to the Government. It is essential that the members may be appointed at the earliest, which will help to reduce the pendency as well as release revenue to the Government, if any.

3. Proposal of appointment of Members of the Tribunal and Customs Excise and Service Tax Appellate Tribunal only for five years may be scrapped as it will not yield the desired result.

4. Formation of regular ‘Tax Bench’ in all High Courts to deal with direct and indirect taxes.

As the provisions of National Tax Tribunal Act have been struck down by Apex Court, it is essential that for quick disposal of taxation matters, the respective High Court may be requested to constitute a regular Tax Bench so that tax litigation may be settled within a reasonable time. The Bombay High Court has huge pendency. To clear the old references and appeals admitted, the Bombay High Court may require at least three Tax Benches and proactive support from the Tax Bar and the Department as well.

5. Transparency in the appointment of members of the Settlement Commission

To settle the taxation disputes the Settlement commission provision was introduced. If the scope is widened, many tax-payers may approach the Settlement Commission. Federation has made suggestions from time to time to bring transparency in appointment of the members of Settlement Commission and some members may be selected from the profession of law and accountancy. In this connection also, process of appointment of members of the Tribunal may be adopted which will be quite beneficial.

6. Reconciliation and arbitration within the department

A mechanism may be introduced within the department for reconciliation and arbitration with a view to final determination of cases, subject to suitable safe guards, as is the practice followed in countries like USA.

7. Quarterly circulars on every High Court judgment involving legal issues, may be published on the website of the CBDT.

8. All orders of A.O. may be made appealable to CIT(A) and all orders of CIT & CIT(A) may also be made appealable to the Tribunal.

9. Amendment be made to section 255(3) of the Income-tax Act, 1961 to increase the jurisdiction of the Single Member Bench from Rs. 5 lakhs to Rs. 25 lakhs. The last amendment was made w.e.f. 1-4-1971. Over the years, due to steep inflation, the rupee value has gone down considerably and therefore the suggestion made is worth considering without any further delay.

10. Direct appeal be provided to the Supreme Court to attain finality on very important issues which are affecting large number of assesees.

11. Special provisions for avoiding repetitive appeals – Chapter XIV-A, provision may be extended to revenue appeals.

12. Postponement of demand be made on account of arbitrary assessment by coercive methods till decision of first appeal. This is necessary because the Dept. has failed to arrest arbitrary and high-handed assessment orders which is the norm of the day.

13. Advance ruling for all resident Indians.

14. Prosecution matters in taxation – Compounding of technical offences may be done by charging nominal charges.

15. Withholding tax on payments made to non–residents under Explanation 2 to section 195 to be restricted to persons having tax presence in India.

16. Hardship arising out of the Supreme Court‘s decision in Goetze (India) Ltd v. CIT (2006) 284 ITR 323 (SC).

17. Research in tax liability to reduce generation of unaccounted money.

18. Honest Officers must be protected.

19. Transparency in tax administration and corruption free India

Government initiative regarding ‘Swachh Bharat Abhiyan’ is well received by the citizens of our country and everybody is supporting this vital cause. On the same objective, is it possible to have corruption free India? There are good number of officials and professionals whose integrity and devotion to duty cannot ever be doubted. If professionals take the oath that whatever may be the temptation or compulsion they will not indulge in unethical practice, we can have clean and unpolluted tax administration. This is the serious thought we are proposing to our fraternity for debate and response thereto.

The Federation has sent a representation to the Honourable Prime Minister, the Honourable Finance Minister, the Honourable Law Minster and also to the Chairman of the Law Commission. The Federation has presented its views on various issues before the High Powered Committee of the Finance Ministry (refer pg. No. 63) in this regard. The Federation has also sent detailed representations identifying problem areas in litigation relating to tax payers. Readers may also send their suggestions to the office of Finance Ministry by e-mail at [email protected] and [email protected]

Dr. K. Shivaram

Editor-in-Chief

1. Hindu widow – Right to property – Hindu Succession Act, 1956

Interest in property devolving on widow under the Hindu Women’s Right to Property Act, 1937 was limited interest. After coming into effect Hindu Succession Act (1956) widow would become full owner of property held by her as limited owner after death of her husband.

Gurudayalsing Mehersing Bindra (since deceased), through Legal Representatives and Ors. v. Basant Singh Mehersingh Bindra (since deceased) through his Legal Representatives and Ors. AIR 2015 Bombay 15

2. Eviction – Ground of sub letting: Bombay Rents, Hotel and Lodging House Rates Control Act, 1947

Comparison of section 13(1)(e) before and after the amendment by Maharashtra Act 17 of 1973 shows that after amendment, the scope of sec. 13(1) (e) is enlarged. After the amendment of sec. 13(1)(e), the landlord can obtain decree against the tenant on the ground that the tenant after the date of commencement of the Bombay Rents, Hotel and Lodging House Rates Control (Amendment) Act, 1973 has unlawfully given on licence the whole or part of the premises.

Alankar Private Ltd., Mumbai vs. Cricket Club of India Ltd., Mumbai AIR 2015 (NOC) 48 (Bom.)

3. Order in review Petition modifying earlier decree – Fresh decree passed – Both appeal and cross appeal are maintainable against that decree. Civil Procedure Code, 1908

An order of Court rejecting an application for review is not appealable but if a fresh decree is passed in the review petition by modifying the earlier decree, an appeal as well as cross appeal are maintainable against the fresh decree passed in the review petition. Cross appeal required to be filed within 30 days from date of service of notice.

Lairenmayum Rashmandal Singh vs. Khwairakpam Jayentakumar Singh (dead) by LRS and Others AIR 2014 Manipur 51

4. Suit for Pre-emption – Impleadment of party – Suit found to be barred by limitation: Acceptance of application, not proper. – Civil Procedure Code, 1908, 01. R.10

Pre-emptor must come with clear facts in his plaint, so that he may lead his evidence accordingly and may neither improve his case during the trial, nor may make departure therefrom. Applicant in instant case was claiming his rights as pre-emptor with assertion that he was having a better pre-emptory right vis-à-vis the present plaintiff, therefore, he shall be added as a plaintiff in the event of acceptance of his application. Consequent thereto he would be bringing additional facts on record, which were, not otherwise part of the plaint. It shall be an abuse of the process, if he be permitted to do so after losing his right to file a suit. Subordinate court while arriving at the conclusion that no limitation was prescribed for filing an application under O. 1, R. 10 of Code, failed to appreciate that in the instant matter the application preferred was having a nature of filing a suit for pre-emption. The application as such was not an application simpliciter to join as a party to the proceedings, but to have a decree of possession that could have been availed by way of filing a suit for possession by claiming pre-emption. Such a suit admittedly would have been barred by limitation, if would have been filed on the day the application under O. 1, R. 10 of Code was filed. The court on that day had no jurisdiction to entertain the suit being barred by limitation. The subordinate court, on acceptance of the application, had assumed the jurisdiction that it lost earlier. The Jurisdictional error, thus, was apparent. Acceptance of application thus was not proper.

Hari Singh v. Padmawati Arts Creation P. Ltd. & Ors. AIR 2014 Rajasthan 186

5. Land acquisition – Allotment of Alternate land:

Clause in scheme, providing that in the case of ownership of acquired land of a partnership firm allotment of land is to be made to individual partners in accordance with their shares defined in the Partnership Deed and not providing for separate allotment to co-shares of land this is not discriminatory. Clause in scheme should be interpreted is consonance with the understanding thereof by the respondents who have made the said scheme and are responsible for implementation thereof.

Prem Raj v. Land and Building Department & Ors. AIR 2014 Delhi 198

6. Reference to arbitration – Objection – Arbitration and Conciliation Act, 1996

Having provided for resolution of disputes through arbitration, parties cannot be permitted to avoid arbitration, without satisfying the court that it will be just and in the interest of all the parties not to proceed with the arbitration. Section 5 provides that the court shall not intervene in the arbitration process except in accordance with the provisions contained in Part I of the Arbitration Act. This policy of least interference in arbitration proceedings recognizes the general principle that the function of courts in matters relating to arbitration is to support arbitration process. A conjoint reading of sec. 5 and section 16 makes it clear that all matters including the issue as to whether the main contract was void/voidable can be referred to arbitration. Otherwise, it would be a handy tool available to the unscrupulous parties to avoid arbitration, by raising the bogey of the underlying contract being void. Therefore, whenever a plea is taken to avoid arbitration on the ground that the underlying contract is void, the Court is required to ascertain the true nature of the defence. Undoubtedly, in cases, where the court can come to a conclusion that the contract is void without receiving any evidence, it would be justified in declining reference to arbitration but such cases would be few and isolated. However, it would not be possible to shut out arbitration even in cases where the defence taken is that the contract is voidable. In exercising powers under sec. 11(6) of the Arbitration Act, the Court has to keep in view the provisions contained in sec. 8 of the Arbitration Act, which provides that a reference to arbitration shall be made if a party applies not later than when submitting his first statement on the substance of the dispute. In contrast, Sec. 45 of the aforesaid Act permits the court to decline reference to arbitration in case the court finds that the agreement is null and void, inoperative or incapable of being performed.

Swiss Timing Limited v. Organising Committee, Commonwealth Games 2010, Delhi AIR 2014 SC 3723

Ajay R. Singh

A] Classification of Service

Advertising Agency Service

1 The Hon’ble Tribunal held that the appellant only collected advertisement and forwarded to newspapers for publication and did not carry out any activity connected with making, preparation, display etc. therefore, was not liable to service tax under Advertising Agency Service.

Spring Advertising Pvt. Ltd. v. CCCEX&ST, Aurangabad 2014 (36) STR 883 (Tri.-Mumbai)

Banking & other Finance Services

2 Where the assessee had leased/licensed their plant to its customer for a rent payable per month with no element of financing involved in the agreement, it was held that the agreement was purely an agreement of renting of immovable property (plant & machinery) which became taxable under section 65(105)(zzzz) w.e.f. 1-6-2007 and could not be classified under the category of ‘Banking and Financial Services’ as ‘financial leasing including equipment leasing or hire purchase’.

Flex Industries Ltd., v. CCE [2014] 36 STR 659 (Tri.- Del.)

3 Where the assessee, who was neither a bank nor a NBFC, had leased out land, plant and machinery owned by it and the lease agreement did not provide for transfer of assets at the end of the lease term to the lessee, the Hon’ble Tribunal held that such leasing activities were not be liable for service tax under the category of ‘Banking and financial service”

Vidarbha Iron & Steel Corporation Ltd. v. CCE [2014] 36 STR 324 (Tri.-Mum.)

4 The issue which arose before the Hon’ble High Court was whether hiring of a car was different from renting of vehicle for the purpose of levy of service tax. The Hon’ble High Court observed that the scheme was formulated for regulating the business of renting of motor cabs or motorcycles to persons desirous of driving by themselves or through drivers, either for their own use or for matters connected therewith, nature of service provided while hiring and renting was the same such that services are taxable. The Hon’ble High Court further held that the legislature had not made any distinction between hiring and renting of vehicle. Thus the assessee could not escape tax liability on ground that hiring was different from renting as intention of Government was to tax service provider of service which involves both hiring and renting of cab for a longer duration.

CST v. Vijay Travels 2014 (35) STR 513 (Guj.)

Broadcasting Agency Service

5 The assessee was a subsidiary/associate of foreign based T.V. broadcasting companies. Since the assessee was deemed to be a branch office/ subsidiary/representative/agent in India of the said companies, it paid service tax on its gross income under the category of ‘Broadcasting service’ as it was considered to be a Broadcasting agency. The Revenue sought to levy service tax under reverse charge on the payments made by the assessee to its such foreign companies. The Hon’ble Tribunal held that (a) The programmes/ channels uplinked on the foreign satellite by the foreign broadcasters were directly downlinked by the MSO/DTH operators in India and not by the assessee and hence, technically the MSO/ DTH operators were the service recipients and not the assessee. (b) The assessee was a service provider and not a service receiver (c) Granting distribution rights to the assessee was not covered under the definition of ‘Broadcasting’.

ESPN Software India (P) Ltd. v. CST [(2014) 35 STR 927 (Tri.-Del.)]

Business Auxiliary Service

6 The main function of the assessee was to deliver money to the ultimate beneficiary in India as per directions given by their principal representative for which the assessee got commission. The Hon’ble Tribunal relied on the judgment of Paul Merchants Ltd. and held that advertisement and sale promotion by agent/subagent as also delivery of money to the ultimate beneficiary in India was to be treated as export of service and therefore was not liable to service tax.

CCE, Chandigarh v. Ashu Forex Pvt. Ltd [(2014) 35 STR 776 (Tri-Del.)]

7 The activity of fabrication of steel storage tanks, dozers and settlers, steel structures, steel platforms, railing, foundation frames, etc. and their erection and installation in the factory was not liable to service tax under the category of business auxiliary services since it did not fall under any of the sub-clauses of the definition

CCE v. Kunal Fabricators & Engineering Works [2014] 36 STR 549 (Tri.-Del.)

8 Where the Hon’ble Tribunal found that the assessee, a well-known actress promoted her clients products/services by appearing in her clients advertisements and promotional events/ activities, it was held that the assessee was providing the service of promoting a brand i.e. “Brand Ambassador Services” liable for service tax w.e.f. 1-7-2010 and not marketing or promotion of some particular goods or services of the client and her services would not be liable for service tax under the category of ‘Business Auxiliary Service’ prior to 1-7-2010.

CST v. Shriya Saran (2014) 36 STR 641 (Tri.-Del.)

9 Where the assessee had entered into a Management Agreement with its principal whereby it was to undertake activities of designing, managing and operating showroom, receiving goods on stock on transfer basis, undertaking sales promotion activities and collecting the sale proceeds on behalf of the principal, the Hon’ble Tribunal held that the activities would not fall within the purview of “Commission agent” as defined in Notification No.13/2003 and accordingly would not be exempted from payment of service tax

Provincial Lifestyle Retail Services v. CCE [2014] 36 STR 305 (Tri.-Mum.)

10 Where the assessee was engaged in buying goods from M/s. MGL and thereafter selling the same to the buyers on principal to principal basis and had not provided any services of marketing the goods of M/s. MGL no service tax could be demanded from the assessee only on the grounds that its trade margin was shown as commission in its invoices

Bharat Petroleum Corporation Ltd. v. CST [2014] 36 STR 433 (Tri.-Mum.)

11 The activity of fabrication of steel storage tanks, dozers, settlers, steel structures, platforms, railing, foundation frames etc. and their erection and installation in the factory amounts to manufacture and the same would not be liable for service tax under the category of Business Auxiliary Services.

CCE v. Shri Shanker Engineering Works [2014] 36 STR 436 (Tri.-Del.)

12 The appellant provided services to customer in Hong Kong which were utilised abroad and consideration thereon was received in CFE. Following the decision in the case of Paul Merchants Ltd. 2013 (29) STR 257 (Tri.), it was held that the transactions would fall within the ambit of Export Service Rules, 2005.

Alpine Modular Interiors (P) Ltd. v. CST (Adj.) New Delhi 2014 (36) STR 454 (Tri.-Del.)

13 It was held that process of making of corrugated boxed from craft paper on job work basis amounted to ‘manufacture’ and therefore not liable to service tax.

Vishal Packaging v. CCE, Raipur 2014 (36) STR 465 (Tri.-Del.)

14 It was held by the Hon’ble Tribunal that multipiece packaging on soaps already packed amounted to repacking and accordingly the same was covered under the definition of ‘manufacture’ under section 2(f)(iii) of Central Excise Act, 1944. It was further held that Notification No. 8/2005- ST was applicable as the goods were returned to supplier after undertaking job work for further manufacture.

Deshmukh Services v. CCE, ST&C, Nagpur 2014 (36) STR 100 (Tri.-Mumbai)

15 The appellant provided computerised data processing services in relation to banking and financial services to clients’ group entities. The Hon’ble Tribunal held that since services provided were in relation to Banking and Financial Services, the question of providing services incidental or ancillary to any customer care services did not arise. Further, since services were included under Information Technology Software Services, therefore the same would be specifically excluded from Business Auxiliary Services.

TCS E-Serve Ltd. v. CST, Mumbai-II 2014 (36) STR 132 (Tri.-Mumbai)

16 The assessee was engaged as a Direct Sale Agent to evaluate prospective customers for ICICI Bank. The Hon’ble Tribunal held that there was a contract between assessee and ICICI Bank and not between assessee and customers and services provided by the assessee were in the nature of promotion and marketing and the said services could not fall under category of ‘provision of service on behalf of client’ as prescribed under category (c) of Notification No. 14/2004-ST and benefit thereof was not available to the assessee.

CCE, Chandigarh vs. Kathuria Financial Services 2014 (36) STR 662 (Tri.-Del.)

Business Support Service

17 The assessees undertook management of distillery unit M/s Kolhapur Sugar Mills Ltd. (KSML) for which it paid them ` 30 lakhs per annum but the profit/loss was on account of the assessee. KSML were also paying service tax under the category of “franchise service” as directed by revenue since 2006. On these facts the Hon’ble Tribunal held that the assessee has not provided any support service to KSML and could not be made liable under “Business Support Services”.

Karan Agencies v. CCE [2014] 36 STR 667 (Tri.- Mum.)

18 The appellant in this case collected market fees from farmers for providing infrastructural support and other facilities. The department sought to tax them under BSS. The Hon’ble Tribunal held that CBEC Circular No. 157/8/2012-ST dated 27-4-2012 clarified that the appellant was not rendering any service to licensees and market fees were not in the nature of consideration for such service. The appellant provided basic facilities to farmers, purchasers and others and such services were classifiable as Business Auxiliary Services and covered by exemption.

Agricultural Produce Market Committee v. CCE, Nagpur 2014 (36) STR 382 (Tri.-Mumbai)

19 The Hon’ble Tribunal held that IPO financing received from NBGC was not liable to service tax under Business Auxiliary Services. Further, Reimbursement received of common expenses such as electricity and other expenses was just a share of expenses and was not liable under Business Support Services as infrastructure support services.

JM Financial Services Pvt. Ltd. v. CST, Mumbai-I 2014 (36) STR 151 (Tri.-Mumbai)

Cargo Handling Services

20 Where the assessee a container freight station (CFS) (i) recovered transportation charges (on actual basis) from the clients by way of separate bills (ii) Charged and paid service tax on cargo handling charges separately (on actual basis) (iii) Discharged Service tax on GTA services provided by its vendor transporters as recipient of services, the Hon’ble Tribunal held that the question of leviability of Service tax on the whole amount under one taxable service of Cargo handling was not sustainable in law.

Balmer Lawrie & Co. Ltd. v. CCE, Raigad [(2014) 35 STR 800]

21 Where the assessee was engaged in loading, unloading and shifting of sugar bags from floor to mill house to godown and from one godown to another, the Hon’ble Tribunal held that these activities would not be liable for service tax under the category of ‘Cargo Handling Service’

CCE v. Surender Kumar [2014] 36 STR 327 (Tri-Del)

Clearing & Forwarding Agency Services

22 An activity would be taxable under the category of ‘clearing’ and ‘forwarding’ agency services only when both – clearing and forwarding activities were done. Mere distribution of goods sent by another company to the assessee could not be taxed under clearing and forwarding agency services

CCE v. Fenner (India) Ltd. [2014] 36) STR 503 (Mad.)

23 Where the assessees were merely procuring orders on commission basis and were not undertaking the work of clearing and forwarding of the goods, the Hon’ble Tribunal held that the same would not be liable for service tax under the category of Clearing and Forwarding Agent services.

Malhotra Distributors Pvt. Ltd. v. CCE [2014] STR 93 Tri.-Mum.)

Commercial or Industrial Construction Service

24 The appellant was supplying GRP pipes, manufactured by it and carried out lowering, laying, joining and testing of such pipes at the site of its customer. The appellant contended that since pipelines laid for a Government of Gujarat undertaking i.e. GIDC for providing water supply, it was not liable to service tax. The Hon’ble Tribunal held that the activity of laying of pipeline as taxable under Commercial or Industrial Construction Service as GIDC was set up to establish and organize areas/centers for commercial purposes or industries within the State of Gujarat.

Graphite India Ltd. vs. CCE, Nashik 2014 (36) STR 948 (Tri.-Mumbai)

Consulting Engineer Service

25 Prior to 1-5-2006, Companies (i.e. body corporate) were not covered under the definition of Consulting Engineer as defined in section 65(13). Accordingly, it was held that prior to 1-5-2006 no service tax was payable by the company in respect of consulting engineering services rendered by it. Further the Hon’ble Tribunal relying on Trade Notice No. 53-CE, Service Tax/97 dated 4-7-1997 also held that where the assessee had rendered services to the primary consultant as a sub-consultant, no service tax are required to be paid by it.

Crompton Greaves Ltd v. CCE [2014] 36 STR 358 (Tri-Mum) relying on Simplex Engineering & Foundry Works P. Ltd. v. CCE [2012] 25 STR 106 (Tri.-Del.)

Commercial Training or Coaching Services

26 Notification No. 7/2003 dated 1-7-2003 had exempted – (i) vocational training institute (ii) computer training institute and (iii) recreational training institute from the category of commercial coaching and training from 1-7-2003 – 30-6-2004. Thereafter, Notification No. 24/2004 dated 10-9-2004 exempted only “vocational training institute” and “recreational training institute”. This notification which was amended on 16-6-2005 provided that computer training institutes were excluded from the purview of vocational training institutes. On appeal, the High Court confirmed the order of Hon’ble Tribunal that held that in the interim period between 10- 9-2004 – 15-6-2005, computer training institutes would qualify as vocational training institutes since such training imparts skill to the trainee to undertake self-employment or seek employment after such training and accordingly would be exempt.

CCE v. Doon Institute of Information and Techno P. Ltd. [(2014) 35 STR 711 (Uttarakhand)]

27 The Hon’ble Tribunal held that the training programme to impart and promote advancement and diffusion of knowledge in the field of aerospace, aviation science, aircraft engineering, technology and evaluation of aeronautical professional was not liable to service tax. It relied on the decision in case of Indian Institute of Aircraft Engineering 2013 (30) STR 689 (Del.)

Hindustan Institute of Aeronautics 2014 (36) STR 703 (Tri.-Del.)

Foreign Currency Conversion Services

28 The issue before the Hon’ble High Court was whether the activity of depositing foreign remittances in the customer’s account in INR by banks could be construed as ‘Foreign currency conversion services’. It was held that the bank while remitting foreign currency, purchased such currency at a lower rate than the RBI notified rate (i.e. the rate at which the currency was converted), and the difference in such rates was to be construed as ostensible consideration which the bank derives. Thus, such services would be subject to service tax.

M/s Palm Fibre India Pvt Ltd v. Union Bank of India [WP(C) No. 2809 of 2014(A)]

Franchise Service

29 The appellant which was accredited with International Corporation for Assigned Names and Numbers (ICANN), after identifying and setting minimum standards for registration, was allowed to use symbol indicating accreditation. However, the Hon’ble Tribunal held that it could not be said that the assessee was providing franchise service of associate franchisor of ICANN. It also held that accreditation and representing ICANN were two different things, and assessee was only accredited by ICANN. It was also held that agreement between assessee and reseller was on principal to principal basis and resellers could be considered as franchisee or associate franchisor of ICANN.

Directi Internet Solutions P. Ltd. v. CST, Mumbai 2014 (36) STR 849 (Tri. – Mumbai)

Health and Fitness Service

30 Where the assessee a trust registered under the Maharashtra State to teach the art of yoga undertook the activity of treating particular ailments by combination of yoga and medicine it was held that the assessees are liable for service tax under the category of ‘Health and Fitness Service’.

Manav Sansadhan Vikas Ani Sansodhan Manch v. CCE [2014] 36 STR 385 (Tri.-Mum.)

Intellectual Property Service

31 Fees received by the assessee for sublicencing the copyrights in cartoon characters which were ‘artistic work’ covered under section 2(c) of the Copyright Act, 1957 and not a ‘trademark’ under the Trade Mark Act, 1999, was not taxable under IPR services since ‘copyright’ was specifically excluded from the definition of IPR service.

ESPN Software India (P) Ltd. v. CST [(2014) 35 STR 927 (Tri.-Del.)]

32 The assessee had obtained information which were trade secrets/confidential information under US law of another company. In an appeal the US Court restrained the assessee from utilising the said technology in India. To overcome these adverse legal decision the assessee entered into an out of court settlement agreement with other company whereby it paid a compensation of USD 3.8 crore to other company and became a co-owner of the technology. The revenue had sought to demand service tax on these payments under the category of Intellectual Property Right (“IPR”) services. On appeal the Hon’ble Tribunal held that –

• In absence of any law in India governing trade secrets and confidential information, the same would not be considered as IPR under the service tax law;

• Since there was a permanent transfer of copyright and not a temporary transfer, the same would not constitute a service.

• Payment received towards out-of-court settlement would not be considered as towards supply of taxable service.

Accordingly no service tax would be payable by the assessee on the above payments under the reverse charge basis under the category of IPR services.

Thermax Ltd. v. CCE [2014] 36 STR 318 (Tri.- Mumbai)

Lending Services

33 The Hon’ble Delhi Tribunal held that the commitment charges, imposed by the banks on clients who decided not to draw the amount of the loan that had been at their disposal, being integrally connected with the lending services, which were taxable services, would be chargeable to service tax.

Punjab National Bank v. C.C.E [2014-TIOL-2080- CESTAT-DEL]

Maintenance and Repair Services

34 Services provided under the category of the repair and maintenance during the period 10-9-2004 to 31-3-2006 were liable to service tax only when they were conducted in terms of a contract or an agreement. In absence of any findings in the order of the Commissioner (Appeals) to this effect, the demand was set aside.

CCE v. Kunal Fabricators & Engineering Works (2014) 36 STR 549 (Tri.-Del.)

Management Consultancy Services

35 The services of monitoring and review of performance of subsidiaries, providing technology upgradation, research and development, etc. were clearly taxable under the category of Management Consultancy Services.

CCE v. Bharat Yantra Nigam Ltd. (2014) 36 STR 554 (Tri.-Del.)

36 Where the assessee M/s GSPL had entered into an agreement with M/s BWIL for integration and jointly carrying out day-today functions such as commercial, marketing, corporate personnel, quality assurance etc., and for sharing the cost incurred towards the same and in absence of any evidence of the assessee having provided any consultancy services in the field of management, the Hon’ble Tribunal held that assessee cannot be said to have provided management consultancy services to M/s BWIL. Accordingly no service tax can be demanded from it under this category of Management Consultancy Service.

GlaxoSmithKline Pharmaceuticals Ltd. v. CST [2014] 36 STR 349 (Tri.-Mumbai)

Manpower Recruitment and Supply Agency Service

37 The assessees (trusts/co-operative societies of farmers), entered into an agreement with farmers for harvesting and transportation of sugarcane and were paid based on tonnage of sugarcane supplied. It distributed amounts received to the labourers after retaining a supervision charge. It was held, on facts, that the services were not liable for service tax as ‘Manpower Recruitment and Supply Agency Service’. It was further held that though the assessee did not procure sugar (input) for sugar factories they rendered a service incidental or ancillary to such procurement, and hence their activity more appropriately fell under Business Auxiliary Service [65(19)(vii)]. Also, it was held that other jobs such as handling of sugarcane/ sugar, cleaning or removal of boiler ash, stitching sugar bags, etc. were not liable for service tax under the category of ‘Manpower Recruitment and Supply Agency Service’.

Satara Sahakari Shetu Audyogik Oos Todani Vahtook Society v. CCE [2014] 36 STR 123 Tri.-Mum.) See also Samarth Sevabhavi Trust v. CCE [2014] 36 STR 83 (Tri.-Mum.); Amrit Sanjivani Sugarcane Transport Co. P. Ltd. v. CCE [2014] 36 STR 360 (Tri-Mumbai)].

38 The Hon’ble High Court held that hiring of expatriate employees from overseas group entities, under an employment agreement did not qualify as ‘manpower recruitment or supply services’. It observed that the Indian company paid the salaries, deducted tax and contributed to statutory social security benefits for the expatriate employees under a contract of employment entered into with the employee directly. Thus, there was no service that had been provided by the group companies and the employees while working on the payroll of the Indian company.

CCE. v. M/s. Computer Science Corporation India Pvt. Ltd. [2014-TIOL-1896-HC-ALL-ST]

Offshore Drilling Services

39 The Hon’ble Tribunal held that offshore drilling services provided beyond territorial waters of India were taxable under ‘Supply of tangible for use’ service category. The Hon’ble Tribunal observed that two conditions stipulated to be complied for a service to qualify as ‘supply of tangible goods for use’ – supply of tangible goods for use & supply of goods along with the personnel to operate the same and no transfer of right of possession and effective control of such goods was to be made to the service receiver. It was also held that since the services were provided in an area notified under the Maritime Zone Act, 1976, the same were held to be provided in taxable territory.

Great Ship (India) Ltd. v. Commissioner of Service Tax [2014-TIOL-2122-CESTAT-Mum.]

Online information and database access or retrieval service

40 The department demanded service tax under RCM on receipt of service from foreign CRS/GDS companies. The assessee contended that no service was received as transaction occurred between Head Office in UK and CRS/ GDS companies located abroad and payment was also made outside India. The Hon’ble Tribunal observed that appellant was for some limited purpose and by virtue of section 66A(2) of FA, 1994 it had to be treated as a separate person from Head Office, such that the transaction only existed between Head Office and foreign companies. Thus the Hon’ble Tribunal held that appellant could not be treated as recipient of service provided by CRS/GDS companies and no Service Tax could be charged from them.

British Airways v. CCE (Adjn) Delhi 2014 (36) STR 598 (Tri.-Del.).

Outdoor Catering Service

41 Outdoor Catering Service provided by a NGO on no profit-no loss basis was still liable for service tax. However it was entitled to exemption vide ad hoc exemption order No. 2/2/2011-ST dated 8-8-2011.

Naandi Foundation v. CCE, Jaipur [(2014) 35 STR 775 (Tri.-Del.)].

Port Services

42 Where the assessee was carrying out stevedoring services (loading/unloading of export cargo) and lighterage services (sea transportation from the location where the mother vessel is anchored till the jetty and vice versa) at minor port in Gujarat under the licences granted to them by the Gujarat Maritime Board Act which was not an authorization by the port in term of s. 32(3) of the Gujarat Maritime Board Act, the Hon’ble Tribunal held that the assessee would not be liable for service tax under the category of ‘Port Services’.

Shreeji Shipping vs. CCE & ST (2014) 36 STR 569 (Tri.-Ahmd.)

Programme Producer Service

43 Where the scope of work involved provision of pre-production, production and post production services and the fees for the same were shown in the invoice as pertaining to ‘Production Services rendered’, the activity was classifiable under ‘Programme Producer services’ and not under ‘Business Support Services’.

ESPN Software India (P) Ltd. v. CST [(2014) 35 STR 927 (Tri.-Del.)].

Real Estate Agent Service

44 The appellant was engaged in the business of purchasing and selling of land suitable for wind farm projects. The department alleged that the appellant was liable to service tax under Real Estate Agent Service since it acquired land on behalf of the manufacturer of wind turbine generators. The Hon’ble Tribunal observed that the appellant acquired and sold land in its own name and also the cost of acquisition and other related costs were borne by it which were later recovered from customers. It was also held that notwithstanding the agreement with SEL, legal transaction indicating assessee as purchaser/ seller of land could not be washed away. Further, the word “commission” in agreement facilitating 11% on total cost of land could not negate legality of transaction and hence, the consideration received was not liable to service tax.

Sarjan Realties Ltd. v. CCE, Pune 2014 (36) STR 877 (Tri.-Mumbai)

Renting of Immovable Property Service

45 The renting of buildings for a hotel was excluded from the definition of ‘immovable property’ under Explanation 1 clause (d) and hence would not be liable for service tax under the category of ‘Renting of immovable property services’

Jai Maha Hotels Pvt. Limited v. CCE (2014) 36 STR 669 (Tri.-Del.)

46 The appellant was engaged in activity of granting licence to set up and operate duty-free shops within Airport premises, with stipulation of fixed monthly licence fees and share of gross revenue generated by product sold. The issue which arose before the High Court was whether such activity would be considered as service liable to service tax. The Hon’ble High Court observed that original agreements were entered on 9-11- 2006, but appellant closed their operation w.e.f. 30-6-2010. The department had sought to tax them under ‘Airport Services’. The Hon’ble High Court held that, such activity was liable under ‘Renting of Immovable Property Services’ w.e.f. 1-6-2007 and prior to that it was not liable to service tax. It was also held that, splitting of consideration by itself could not lead to conclusion that, licence fee was not a consideration for use of premises. Lease rentals even though based on revenue, could not alter nature of transaction or interest in immovable property created in favour of lessee/ licencee.

Airport Retail Pvt. Ltd. v. UOI 2014 (35) STR 659 (Del.)

Stock Broker Service

47 It was held by the Hon’ble Tribunal that delayed payment charges (DPC) collected by the appellant was not liable to service tax as it was not on account of any stock broking service, but it was collected only in case of overdue payments, as penal interest for compensation of assessee for payments already made by it to the Exchange on behalf of the client. It was further held that, no service tax was payable on services provided by sub-brokers in the State of J&K to clients situated therein even though accounts of such services were being maintained in Delhi NCR offices. Such accounts were maintained in Delhi for the sake of facility and maintaining control on its office.

Religare Securities Ltd. v. CST, Delhi 2014 (36) STR 937 (Tri.-Del.)

Storage and Warehousing Service

48 The assessee, a manufacturer of gases had paid to the overseas supplier of such gases rentals for use of vacuum insulated tanks used for transportation of liquid helium imported by it from the supplier. The revenue had sought to demand service tax from the manufacturer on the ground that overseas exporter had provided storage and warehousing services to the assessee by invoking the reverse charge mechanism. On appeal the Hon’ble Tribunal observed that during transportation, the overseas supplier had no control over the tanks and hence it failed to satisfy the essential test of ‘Storage & warehouse keeper services’ viz., providing for security of goods, stacking, loading/unloading of the goods in the storage area. Accordingly, it held that the overseas supplier of helium cannot be held to be a storage and warehouse keeper and hence no service tax could be demanded from the assessee under the reverse charge mechanism

Inox Air Products Ltd v. CCE [2014] 36 STR 391 (Tri.-Mum.)

Sub-contractor Services

49 The Hon’ble Tribunal held that post introduction of the Service Tax Credit Rules, 2002/ CENVAT Credit Rules, 2004, a subcontractor was not exempt from payment of service tax even when the main contractor had discharged service tax liability on the entire value of services including on the value of services rendered by the sub-contractor.

Sunil Hi tech Engineering Ltd. v. CCE [2014] 36 STR 408 (Tri.-Mumbai)

Supply of tangible goods for use Service 50 The appellant had entered into agreement with owners of Offshore Supply Vessels (OSVs) for supply of OSVs for deployment by appellant in eastern and western coasts of India in their offshore oil and exploitation sites. The Hon’ble Tribunal held that right of possession and effective control of such machinery, equipment and appliances were not parted with and thus, such activity came under the scope of supply of tangible goods for use service. It was further held that vessels could not be considered as vessels within the meaning appearing in Notification No. 1/2002 ST dated 1-3-2002. It was also held that, from 1-3-2002 to 7-7-2009, Finance Act, 1994 was extended only to designated areas in Continental Shelf and Exclusive Economic Zone of India and since vessels were plying from Karnataka Port to installations / structures through sea which was not in India and thus was non-designated area.

Reliance Industries Ltd. v. CCE&ST LTU Mumbai 2014 (36) STR 820 (Tri.-Mumbai)

Tour Operator Services

51 The assessee operated and facilitated outbound tours whereby Indian tourists were provided services in relation to tourism outside the Indian territory, to visit foreign locales. The assessee’s activity of outbound tourism consist of operating tours but not in a tourist vehicle, which is a necessary requirement to come within the ambit of service tax under Tour Operator Services. Therefore the Hon’ble Tribunal held that the outbound tourism was not liable for service tax since it was clearly outside the locus of the definition of ‘Tour operator.’ Further the consideration received for operating and arranging outbound tours was not liable to levy of Service tax under the provisions of the Act since the service was provided and consumed beyond the Indian Territory where the levy did not operate.

Cox & Kings India Ltd v. CST, New Delhi [(2014) 35 STR 817 (Tri.-Del.)].

Works Contract

52 Services of civil or industrial construction or erection, installation and commissioning provided as a single indivisible contract would attract service tax even for the period prior to 1-6- 2007 i.e. the date on which works contract services were introduced.

CCE v. Gopal Enterprises [2014] 36 STR 674 (Tri.- Del.)

53 Under a contract dated 14-2-2007 for expansion of an oil refinery of its client, the execution of which began in July, 2007 the assessee had received advance prior to 1-6-2007 (the date on which “works contract services” came into force) and had paid service tax post 1-6-2007 under the Works Contract Composition Scheme Rules, 2007 @ 2% of the amount received and disclosed the same in the returns, the Hon’ble Tribunal held that the advances prior to 1-6-2007 which tantamount to provision of service prior to 1-6-2007 would not be entitled to the composition scheme since the services at that point of time were not classifiable under the “Works contract services” but were classifiable under “commercial/industrial construction services”. However, since the amounts were disclosed in the ST3 returns and the payment of taxes were made under the composition scheme as per the returns, the Hon’ble Tribunal held that the extended period of limitation was not invocable and demands were barred by limitation.

Essar Projects Ltd. v. CCE & ST (2014) 36 STR 681 (Tri.-Ahmd.)

54 The Hon’ble Tribunal had to deal with an issue as to whether separate contracts entered into with two different parties, one for supply of goods and other for provision of services by different parties for single turnkey contract, should be construed as a single composite contract. The Hon’ble Tribunal observed that activities undertaken were in the nature of ‘works contract’ and therefore, the service portion in such works contract would be subject to service tax. It also held that a whole contract had been awarded by the appellant to the contractor and the contractor had intentionally split the said contract into two. Thus, it held that the two contracts should be read together as a single composite contract.

Gupta Energy Pvt. Ltd. v. CCE, Nagpur [TS-410- Tribunal-2014-ST]

B] Valuation

55 The Hon’ble Tribunal held that unless the invoice indicated the description, quantity of goods sold, its unit rate and the value of goods separately, the conditions of the Notification No. 12/2003 dated 1-7-2003 would not be satisfied and hence, the assessee could not claim deduction of value of materials under the said notification and was liable to pay service tax on the entire invoice value.

Laxmi Tyres v. CCE [2014] 36 STR 364 (Tri.- Mumbai)

56 Where the value of the goods and materials which were used for the repair of the transformers stood separately disclosed in the agreements and were also separately mentioned in the invoices raised by the assessee, the Hon’ble Tribunal held that the value of goods sold would not be includible in the value of taxable service in terms of Notification No.12/2013 dated 20- 6-2003 and accordingly no service tax could be demanded from the assessee on the value of the goods

J.P. Transformers v. CCE & ST [2014] 36 STR 471 (Tri.-Del.)

57 Relying on Safety Retreading Co. Pvt. Ltd. v. Commissioner (2012) 26 STR 225 (Tri.), the Hon’ble Tribunal held on facts that in the case of rebuilding of old worn out rollers, liners, etc. which involved putting flux core wire on old worn out rollers, liners, tyres on cement plants, it was held that the value of materials could not be reduced from the value of taxable service. On facts however, the demands were confined to the normal period of limitation and also penalties were set aside.

Ador Fontech Ltd. v. CCE, [2014] 36 STR 146 (Tri.– Mum.)

58 The Hon’ble Tribunal relying on the decision in Intercontinental Consultants and Technocrats Pvt. Ltd. (2013) 29 STR 9 (Del.) held that reimbursement of expenses incurred for marketing of the TV channels for overseas service recipients were not liable for service tax and therefore could not form part of the gross amount.

ESPN Software India (P) Ltd. v. CST [(2014) 35 STR 927 (Tri.-Del.)]

59 It was held by the Hon’ble Tribunal that adjustment of non-refundable registration fees towards first purchase made by clients ought to be added to gross value of taxable service.

CST, Mumbai v. Diotech India Ltd. 2014 (36) STR 96 (Tri.-Mumbai)

60 Free supply of diesel by service recipient to service provider was not includible in gross consideration received by service provider for rendition of taxable services as decided by Larger Bench of this Hon’ble Tribunal in the case of M/s. Bhayana Builders Pvt. Ltd. v. CST [2013] 32 STR 49.

Gurmehar Construction v. CCE (2014) 36 STR 545 (Tri.-Del.)

61 The assessee, an instrumentality of the Government raised funds through issue of its own bonds and kept it in its public deposit account and not the Consolidated Fund of the State under Article 266 of the Constitution. The State Government reimbursed the administrative expenses incurred by the assessee for issuing bonds as a percentage of the loan raised which was sought to be taxed under the category of ‘Banking and Financial Services’ on the ground that the assessee acted as an intermediary for raising loans for the State Government by issuing bonds. The Hon’ble Tribunal held that since the bonds were issued in its own name and also deposited in its own public deposit account, there was no rendition of any taxable service by the assessee to the State Government and the administrative expenses reimbursed were in the nature of a grant for the financial stability of the assessee which was an instrumentality of the State. Hence, no service tax was payable on the administrative expenses reimbursed

Rajasthan State Indl. Devel. & Investment Corp. Ltd. v. CCE [2014] 36 STR 653 (Tri.-Del.)

C] CENVAT

62 An assessee could claim CENVAT credit paid on GTA services only if the amount paid for the service formed integral part of the price of the goods [Circular No. 97/8/2007 dated 23-8-2007].

Lafarge India Ltd., v. CCE [(2014) 35 STR 645 (Chhattisgarh)

63 The Hon’ble High Court has held that any service availed by the exporters until the goods left India from the port were the service used in relation to clearance of final products up to the place of removal and port of shipment was considered as place of removal. Therefore, credit was allowed to the assessee.

Commissioner v. Dynamic Industries Ltd. [2014 (35) STR 674 (Guj.)]

64 Hon’ble High Court did not allow CENVAT Credit on Overseas Commission Agent’s Service. It placed reliance on Commissioner v. Cadila Healthcare Ltd., 2013 (30) S.T.R. 3 (Guj).

Commissioner v. Dynamic Industries Ltd., [2014] 35 STR 674 (Guj.)

65 Since there was no documentary evidence or contract to the effect that Customs House Agent (CHA) was working as an agent of the assessee and that there was no mention in the debit note that service was being provided by the CHA for the assessee, the Hon’ble Tribunal held that the assessee had not directly availed services from Kandla Dock Labour Board/ Kandla Port Trust and hence the credit was not admissible.

Friends & Friends Shipping Pvt. Ltd. v. CE & ST, Rajkot [2014] 35 STR 811 (Tri.-Ahmd.)

66 The claim of CENVAT credit of duty paid on towers and parts thereof/ printers/ pre-fabricated buildings (PFB) by the assessee, a cellular service provider, was rejected by the Hon’ble High Court answering the following substantial questions of law–

• Towers and parts thereof/printers/PFB were not capital goods under Rule 2(a)(A) of the CENVAT Credit Rules, 2004.

• Towers and parts thereof/printers/PFB were fastened to the earth and hence were immovable property and could not be goods so as to be classified as inputs under Rule 2(k) of the CENVAT Credit Rules, 2004.

Assessee’s contention that towers and parts thereof/ printers/PFB was an accessory or part of the antenna which were capital goods under Rule 2(a)(A) of the CENVAT Credit Rules, 2004 was turned down by the Hon’ble Tribunal.

Bharti Airtel Ltd. v. CCE, [2014] 35 STR 865 (Mum.)

67 A Circular beneficial to the assessee would have a retrospective effect in view of the Hon’ble Supreme Court decision in M/s. Suchitra Components Ltd. v. Commissioner, (2008) 11 STR 430 (S.C.) and hence benefit of Circular No. 868/6/2008-C.X. dated 9-5-2008 clarifying that export services were not ‘exempted services’ for the purpose of CENVAT credit was available to the exports for the period June to October, 2007.

L & T Sargent & Lundy Ltd. v. CCE, [2014] 35 STR 945 (Tri.-Ahmd.)

68 CENVAT credit was eligible in a case where service tax though not payable by the assessee was actually paid by him.

Sarda Energy & Minerals Ltd. v. CCE [2014] 35 STR 946 (Tri.-Del.)

69 Input service credit of commission paid for procuring sales orders was eligible–

• Prior to 1-4-2011 – as procuring sales was an activity in relation to the business of manufacture of final products; and

• Post 1-4-2011 – since it is covered under the term “advertisement or sales promotion” appearing in the definition of input service [Reliance on Circular No. 943/4/2011- CX dated 29-4-2011].

Birla Corporation Ltd. v. CCE [2014] 35 STR 977 (Tri.-Del.)

70 The Hon’ble Tribunal held that the appellant could not take credit on the basis of documents issued by the premises not registered as an ‘Input Service Distributor’ (ISD) under Cenvat Credit Rules, 2004. Further, it also held that since the appellant never brought to the knowledge of department that CENVAT credit was taken on documents issued by unregistered ISD, the extended period of limitation was invocable.

Market Creators Ltd. v. CCE&ST, Vadodara 2014 (36) STR 386 (Tri.-Ahmd.)

71 The Hon’ble Tribunal allowed CENVAT credit of service tax paid on fumigation expenses considering them as in the nature of packing expenses.

Venus Wire Industries Pvt. Ltd. v. CCE, Mumbai-III 2014 (36) STR 475 (Tri.-Mumbai)

72 It was held by the Hon’ble Tribunal that commission paid for selling activity was part of sales promotion and credit of the same was admissible as category of sale promotion specifically covered under definition of input service.

CCE, Surat v. Remi Metals Gujarat Ltd. 2014 (36) STR 158 (Tri.-Ahmd.)

73 The Hon’ble Tribunal held that CENVAT credit of service tax paid on rent, security and maintenance service was admissible even though the said services were rendered beyond the place of manufacture.

CCE, Vadodara-II v. Siemens Healthcare Diagnostic Ltd. 2014 (36) STR 192 (Tri.- Ahmd.)

74 CENVAT credit of service tax paid on photostat services was allowed by the Hon’ble Tribunal as the services were necessary for the business of the assessee.

Punjab Alkalies & Chemicals Ltd. v. CCE&ST Chandigarh-II 2014 (36) STR 688 (Tri.-Del.)

75 The Hon’ble Tribunal held that trading activity was not a service prior to 1-4-2011 and hence, it could not be treated as exempt service. Thus, credit thereon was not allowed. For period prior to 1-4-2011, credit would be apportioned with reference to turnover of manufactured cars and turnover of traded cars.

Mercedez Benz India P. Ltd. v. CCE, Pune-I 2014 (36) STR 704 (Tri.-Mum.)

76 CENVAT credit of service tax paid was allowed by the Hon’ble Tribunal on clearing charges paid to Customs’ House Agents, commission on export sale, material handling charges, terminal handling charges, bank commission charges, aviation charges and courier charges. The same was allowed as they were used in the course of export of goods where place of removal was the port.

JSW Steel Ltd. v. CCE, Thane-I 2014 (36) STR 801 (Tri.-Mum.)

77 The department denied credit on the ground that documents for availing credit issued in the name of head office and not the factory. The Hon’ble Tribunal held that credit was available qua the manufacturer and not qua the factory. Further, the basic condition for distribution of credit was that head office received invoices towards purchase of input service and pays service tax. Being a registered ISD, they were entitled to distribute credit to its manufacturing plant. Since, the credit availed by the appellant reflected in statutory records, no suppression of facts or misstatement with mala fide intention attributable to invoke longer period of limitation.

Moser Baer India Ltd. v. CCE, Noida 2014 (36) STR 815 (Tri.-Del.)

78 CENVAT credit of service tax paid on repair & maintenance service received by branch office but paid by head office was denied by the department on the ground that invoices for services were in the name of branch office. The Hon’ble Tribunal held that receipt of service and eligibility to CENVAT credit was not disputed and objection of department rectified by producing certificate from service provider that address may be read as head office and therefore there was no valid reasons for denial of credit.

Rajasthan Diesel Sales & Service v. CCE, Jaipur II 2014 (36) STR 832 (Tri.-Del.)

79 CENVAT credit of GTA service utilised for clearance of tubes and flaps in replacement market was claimed by the appellant being part of trading activity. The Hon’ble Tribunal held that proportionate credit attributable to trading arrived at in accordance with Standard Accounting Principle was required to be reversed. It was further held that if GTA service credit taken was reflected in returns and process of trading activity was also intimated to department there was no suppression or misdeclaration with intent to evade duty.

Apollo Tyres Ltd. v. CCEC&ST, Calicut 2014 (36) STR 835 (Tri.-Bang.)

80 The Hon’ble Tribunal allowed CENVAT credit of service tax paid on reinsurance service procured by the appellant from overseas company as reinsurance was a statutory obligation and was coterminous with the insurance policy. The percentage of insurance to be reinsured was directly connected to the premium collected from the persons who are insured with insurer and it was basically a transfer of a portion of the risk and therefore, it could be said that reinsurer was providing the service to insurance company when he accepted to reinsure a portion of insurance undertaken by the insurer.

PNB Metlife India Insurance Co. Ltd. v. CCEST&C, Bengaluru 2014 (36) STR 891 (Tri.-Bang.)

81 The Hon’ble High Court held that the CENVAT credit of service tax paid on Group Accident and group medical policies for its employees was admissible under Rule 2(l)(i) of CENVAT Credit Rules, 2004.

CST, Bengaluru v. Team Lease Services Pvt. Ltd. 2014 (36) STR 543 (Kar.)

82 The Hon’ble Tribunal held that denial of credit for want of registration with Central Excise Department was not sustainable as the entire exercise being done for setting up of factory for manufacturing of excisable goods that can be done so only when assessee erects, installs and commission capital goods with help of various agencies.

Beico Industries Pvt. Ltd. v. CCE&ST, Vapi 2014 (36) STR 551 (Tri.-Ahmd.)

83 The Hon’ble Tribunal allowed CENVAT credit of service tax paid on shipping service, documentation charges, terminal handling charges in respect of exported goods. It was further held that the assessee had two options whereby they could either take credit instead of refund when the service related to the export. The Notification which permitted refund did not debar availment of credit in case refund was not claimed. The assessee could not be pressurized to claim refund only.

Jotindra Steel & Tubes Ltd. v. CCE, Delhi-IV 2014 (36) STR 672 (Tri.-Del.)

84 The Hon’ble Tribunal allowed CENVAT credit of service tax paid on insurance for workers as the same had an integral connection with the manufacture.

Binani Cement Ltd. v. CCE&ST, Jaipur-II 2014 (36) STR 676 (Tri.-Del.)

85 The appellant, as per terms of warranty, was under obligation to provide repair and maintenance service to its customers. It had claimed CENVAT credit of service tax paid on repair & maintenance service during warranty period. The Hon’ble Tribunal allowing the contention of the appellant held that it was entitled to claim such credit which was after sale service charges and value of goods was included such warranty charges.

Gujarat Forging Ltd. v. CCE, Rajkot 2014 (36) STR 677 (Tri.-Ahmd.)

86 The Hon’ble High Court observed that there was no provision in the Central Excise Act or Rules or Circular to hold that, in case the duty was charged on specified rate, then the place of removal would be factory gate. If legislature or Central Government or CBEC wanted the ‘place of removal’ to be factory gate, they could have defined it in Central Excise Act or Rules or Circulars. The presumption by Hon’ble Tribunal that, place of removal was factory gate of manufacturer in case the Excise duty was charged on specified rate was incorrect. Hence the Hon’ble High Court held that it was to be decided on facts and circumstances of the each case as to what was the place of removal.

Ultratech Cements Ltd. v. CCE, Raipur 2014 (34) STR 641 (Chhattisgarh)

87 The Hon’ble Tribunal observed that dealer was registered with department only after physically visiting the premises and assessee proved transportation of goods, service tax paid on GTA service and the department had not established any alternative source of procurement of inputs. Since the appellant procured inputs from registered dealer, reflected the same in RG-23A Part-I, utilized the same in manufacture of final product cleared on payment of duty, it was held that assessee was entitled for benefit of CENVAT credit.

F.M. Steel Alloys (P) Ltd. v. CCE, Chandigarh – I 2014 (35) STR 767 (Tribunal – Delhi)

D] Others

Appeal

88 An additional ground pertaining to lack of jurisdiction in issuance of the show cause notice which was neither raised at the time of adjudication nor before the lower Appellate Authority could not be entertained.

Chirspal Shipping v. CCE [2014] 35 STR 1000 (Tri.- Mumbai)].

Condonation of delay

89 Delay of 285 days and 250 days in filing two appeals respectively was condoned by the Hon’ble Tribunal considering the fact that an appeal on a similar issue of the applicant was already allowed by the Hon’ble Tribunal and there was no gross negligence or deliberate inaction on the part of the applicant to delay the filing of the appeal.

ARR Enterprise v. CCE [(2014) 35 STR 1004 (Tri.- Chennai)]

Demand

90 The Hon’ble Tribunal had set aside the demand raised by the Revenue on royalty for technical know-how on the grounds that –

• Supply of technical know-how does not fall under the category of ‘Consulting Engineer’s Service’;

• Rule 6 of the Service Tax Rules, 1994 was not applicable as the foreign service provider has not authorised the Respondent to pay service tax on its behalf.

Section 68 of the Act r/w Rule 6 of the Service Tax Rules, 1994 would apply only to services rendered in India by a non-resident service provider who does not have an office in India and therefore technical know-how that has been provided by foreign service provider was a service provided from abroad and received in India and receipt of service was taxable only from 18-4-2006.

CCE v. Gabriel India Ltd. [(2014) 35 STR 967 (Tri.- Mumbai)]

91 The assessee, a builder had due to prevalence of confusion (created by DGST Circular dated 16-2-2006) as to the leviability of service tax on construction of flats collected sums from prospective buyers representing as contingent liability towards service tax if any payable to the department but had refunded the same along with interest to the buyers in pursuance of a Board Circular No. 108/2/2009- ST dated 29-1-2009. The Hon’ble Tribunal held that provisions of section 73A(2) would not be attracted since –

• The amount was collected in pursuance of DGST Circular dated 16-2-2006 and he cannot be blamed for believing that it was required to be collected;

• The amounts were collected as deposit towards contingent liability and not as ‘service tax’ per se.

Neel Sidhi Enterprises v. CST [2014] 36 STR 346 (Tri.-Mum.)

92 Show Cause Notice issued after 10-9-2014 (when provisions changed) in respect of a period prior 10-9-2004, under the erstwhile provisions for issuing a show cause notice [73 (i)(a)], it was held that the demands were unsustainable. CST v. The Peoples Choice [2014] 36 STR 10 (Kar.) 93 The Adjudicating Authority confirmed the demand under ‘Cargo handling service’ whereas the appellant was not put to notice under such category but under category ‘transport of goods by air service’. The Hon’ble Tribunal held that the demand was beyond the scope of the show cause notice and hence, was not sustainable.

DHL Logistics Pvt. Ltd. v. CST, Mumbai-I 2014 (36) STR 874 (Tri.-Mumbai)

Export

94 Prior to 18-4-2006 the exports exemption under the Export Rules was available even if the amounts for the rendition of service were not received in foreign currency.

ESPN Software India (P) Ltd. v. CST [(2014) 35 STR 927 (Tri.-Del.)].

95 Where the assessee, a subsidiary of an overseas holding company provided services of evaluating prospective customers in India, collection of information to enable the overseas parent to design product for the customer in India, advising holding company, tracking delivery schedules, etc. which were liable for service tax under ‘Business support service’, the Hon’ble Tribunal held that the services being meant for use by overseas holding company which was the service recipient would be considered as export of services under Rule 3(1) (iii) of the Export of Service Rules, 2005 and hence would not be liable to service tax

Gecas Services India Pvt. Ltd. v. CST [2014] 36 STR 556 (Tri.-Del.)

96 Where for the periods 1-7-2003 to 30-9-2007 the assessee tested samples received from sister concerns located abroad and sent the research reports outside India, and received payment in convertible foreign exchange, the Hon’ble Tribunal held that:

• For period up to 14-3-2005, the service were exempted under Notification No. 21/2003- ST dated 20th November, 2003 which exempted services in respect of which money was received in convertible foreign exchange; and

• For the period from 15-3-2005, service was to be considered as export of service under Rule 3(1)(ii) r/w Rule 3(2) of Export of Service Rules, 2005 since part performance was abroad (the research report being sent abroad) relying on Hon’ble Tribunal’s judgment in B.A. Research India Ltd. (2010) 18 STR 439 (Tribunal). Accordingly no service tax was held to be payable.

CCE v. Nestle India Ltd. [2014] 36 STR 563 (Tri.- Del.)

97 The Hon’ble Tribunal held that since the service provider (subsidiary of the assessee) was located outside India and the customer was also located outside India, the onshore services [output services] were performed outside India. Hence it could not be said that the services were provided from India and were used outside India – a necessary condition for an output service to be considered as exports. This condition was omitted only w.e.f. 27-2-2010. Accordingly it was held that

• In respect of services provided prior to 27-2-2010 since the condition of export was not satisfied, the assessee would not be eligible for claiming refund.

• In respect of services provided post 27-2-2010, since the only condition for claiming exports, viz., receipt of consideration in foreign exchange, was satisfied, the assessee would be eligible to claim refund.

Tech Mahindra Ltd. v. CCE (2014) 36 STR 332 (Tri.- Mum.) affirmed in [2014] 36 STR 241 (Bom.)

98 The Hon’ble Tribunal held that marketing services provided by the appellant to its parent company located outside India would qualify as ‘export’ under the provisions of Export of Service Rules, 2005. It was observed that the condition to qualify as ‘export’ of service got satisfied in as much as the service provided by the appellant to its overseas entity was used outside India for the purpose of sale of their products in India.

Microsoft Corporation (I)(P) Ltd. v. C.S.T. [TS-465- Tribunal-2014-ST]

99 The Hon’ble Tribunal held that services provided to the overseas customer in India with respect to money transfer from abroad to a person situated in India would qualify as ‘export’. It was observed that services were provided by the appellant to the overseas entity and not to any Indian customers and the payment for such services were also received from the overseas entity.

Wall Street Finance Ltd. and Weizman Forex Ltd. v. C.S.T [TS- 481-Tribunal-2014-ST]

Interest

100 No interest under section 75 was payable when no final assessment has been passed by the Department and shortfall in tax was paid before the final assessment.

Canara Bank v. CST [(2014) 35 STR 981 (Tri.-Bang.)]

101 Prior to 10-9-2004 (which was the period of dispute) what was required was reason to believe on the part of the Assistant/Deputy Commissioner that on account of omission or failure on the part of the assessee to file return u/s. 70 for any prescribed period or to disclose wholly or truly all the material facts required for verification of assessment u/s. 71, some value of the taxable service has escaped assessment or has been under-assessed or service tax has not been paid or has been short-paid or any sum has erroneously been refunded. Since the assessee was not filing any return and had not even taken any registration and hence in terms of s. 73(1)(a) as it stood during that period, longer limitation has been correctly invoked.

Masicon Financial Services Pvt. Ltd. v. CCE [2014] 36 STR 630 (Tri.- Del.)

Limitation

102 There was no material to indicate suppression on the part of the assessee since it has shown availment of CENVAT credit in Parts IV and V of ER-1 returns filed by it, extended period of limitation was not invocable.

Commissioner v. Dynamic Industries Ltd. [2014 (35) STR 674 (Guj.)]

103 Where the SCN did not contain any allegation as to suppression of facts for nonpayment of service tax on lease premium, but was only based on the audit report of the CERA team which in itself appeared to be illegal and unsustainable, it was held that the extended period of limitation cannot be invoked.

Infinity Infotech Parks Ltd. v. Union of India [2014] 36 STR 37 (Cal.)

104 The longer limitation period for demand of non-paid service tax under proviso to Section 73(1) would not be invocable since the assessee was a public sector undertaking and the allegation of the wilful misstatement, suppression of facts or deliberate contravention of the rules to evade the payment of service tax could not be made

CCE v. Bharat Yantra Nigam Ltd. [2014] 36 STR 554 (Tri.-Del.)

105 Where there was a dispute since 2004 whether the activity of providing place, seating arrangement, etc. to the finance institutions by automobile dealers on commission basis falls under the category of Business Auxiliary Services which litigation travelled up to the Hon’ble Tribunal, extended period of limitation was not invocable

CCE v. Raj Auto [2014] 36 STR 566 (Tri.-Mum.)

106 The Hon’ble High Court in this case held that section 73(1) clearly indicated the circumstances under which limitation period of one year or five years would apply. If once the Hon’ble Tribunal decides that the demand was barred by limitation, then even if it was in order, the Department could not collect the amount of service tax and impose penalty. Since the Hon’ble Tribunal had not decided the issue of limitation, matter was remitted back to the Hon’ble Tribunal.

Centre for Dev. of Imaging Technology v. CST Thiruvananthapuram 2014 (35) STR 723 (Ker.)

Rate of tax

107 The Hon’ble Tribunal held that the taxable event was the date of rendition of service and not the date of raising the invoice or receipt of payment and accordingly the rate of service tax as on the date of rendition of service was applicable.

CST v. Epic India Pvt. Ltd. [(2014) 35 STR 948 (Tri.- Del.)]

108 The rate of tax applicable was the rate prevailing on the date of rendering of services and not the rate prevailing on the date of receipt of payments.

CST v. Union Bank of India [2014] 36 STR 470 (Tri.- Mum.)

109 It was held by the Hon’ble Tribunal that rate of tax prevailing at the time of rendition of taxable service was applicable and not the rate of tax in force at the time of receipt of payments for such services.

CST, New Delhi v. Lea Associates South Asia P. Ltd. 2014 (36) STR 909 (Tri.-Del.)

Refund

110 The Hon’ble Tribunal held that as per Notification 41/2007, refund was granted to exporters on taxable services used for export and there was no requirement for verification of registration certificate of the supplied service. Therefore, the assessee being a service provider who provided for various services to the exporter but had registration of only one service was granted refund.

Commissioner v. Adani Enterprise Ltd. [(2014) 35 STR 741 (Guj.)]

111 In first round of litigation, Commissioner (Appeals) ordered that, refund was to be sanctioned considering supplies made to 100 per cent EOU as deemed exports and matter was remanded back for quantification. Commissioner (Appeals) in second round held that, refund granted by Adjudicating Authority in second round was not legal and proper and was to be recalled. The Hon’ble Tribunal held the impugned order as not maintainable since the issue on merits had already attained finality in the first round of litigation itself in the absence of any appeal by the Revenue against the order of the Commissioner (Appeals).

Arkay Glenrock (P) Ltd., Unit-II v. CCE [(2014) 35 STR 953 (Tri.-Chennai)

112 The Hon’ble Tribunal allowing the refund claim of the assessee held that the period of one year for filing the refund claim should be reckoned as per Clause (f) of Explanation B to section 11B of the Central Excise Act, 1944 viz., from the date of payment of service tax i.e. 2-4-2008 and refund claim made on 19-3-2009 was not time barred.

K.K.S.K. Leather Processors (P) Ltd. v. C.C., C. Ex &ST [(2014) 35 STR 956 (Tri.-Chennai)]

113 The refund application filed under Notification Nos. 9/2009-ST and 17/2011-ST was rejected by the Hon’ble Tribunal as the appellant failed to submit certain documents since the requirements of the said notification were not complied with.

IFGL Exports Ltd. v. CCE & ST, Rajkot 2014 (36) STR 311 (Tri.-Ahmd.)

114 The appellant paid service tax on CHA services and filed a refund claim under Notification No. 9/2009-ST after 2 years which was allowed by Hon’ble Commissioner (Appeals). Aggrieved, the department filed an appeal against this action of the Commissioner. The Hon’ble Tribunal held that in view of clause 2(f) of Notification No. 9/2009-ST, claim for refund should be filed within six months or such extended period as AC/DC may permit. Since, the assessee was eligible for refund and it was an initial period of implementation of the new procedure, observations of Hon’ble Commissioner (Appeals) were valid and in accordance with law in condoning delay.

CCEC&ST v. Divis Laboratories Ltd. 2014 (36) STR 398 (Tri.- Bang.)

115 The assessee, an exporter of goods, claimed refund of service tax paid on overseas commission [on reverse charge basis] under Notification No 41/2007-S.T. read with Notification No. 32/2008-S.T. on last day but his claim was returned for not submitting the proof of service tax payment along with bank realisation certificate. Subsequently on another date the appellant submitted these documents along with the refund claim but the same was rejected as the date was beyond the time period for filing the claim. The Hon’ble Tribunal allowed the refund claim and stated that the date of first filing of refund claim was to be reckoned which was on time. It further observed that instead of returning the refund claim, the lower authorities could have asked the assessee to file relevant documents which would have been compiled by the assessee and in that case refund claim was well within the time.

R.L Fine Chem v. CCE (Appeals), Bengaluru [(2014) 35 STR 814 (Tri.-Bengaluru)]

116 Refund under Notification No. 41/2007-ST was allowed by the Hon’ble Tribunal on export of goods on the ground that in the invoice of the Customs’ House Agent, there was the description of goods exported. The Hon’ble Tribunal observed that refund could not be denied on the sole ground that the agreement between the foreign buyer and appellant was not produced.

Khosla Profile Pvt. Ltd. v. CCE, Thane-I 2014 (36) STR 592 (Tri.-Mumbai.)

Revision

117 Where the assessee, a charitable trust, was providing coaching and training services, it was held by the Additional Commissioner that it was not liable for service tax on the ground that –

• The assessee was not a commercial organisation. They were vocational training institutes exempt under Notification No. 24/2004 dated 10-9-2004.

However, where the Commissioner had sought to revise the Additional Commissioner’s order, without any finding that they were ineligible for exemption under Notification No. 24/2004, it was held by the Hon’ble Tribunal that the order passed in revision was not sustainable.

Everest Educational Charitable Trust v. CST [2014] 36 STR 79 (Tri.-Chennai)

Show Cause Notice

118 The Hon’ble Tribunal set aside the demands on a preliminary ground that the SCN did not specify the precise sub-clause (but not on merits) with a liberty to the revenue to proceed to act in accordance with law. On appeal, the High Court held –

• Anyone reading the said sub-clauses along with the assertions made in the notice would understand that reference was with regard to sub-clauses (vi) and (vii); and

• The assessee was not in dark or unaware as to what he had to answer and argue. The ambiguity in such circumstances would have to be removed at the time of oral hearing.

Hence the Hon’ble High Court held that the SCN did not suffer from any vice and remanded the case back to the Tribunal to decide on merits

CST v. ITC Ltd. [2014] 36 STR 481 (Del.) Others

119 The Hon’ble Calcutta High Court, in the facts of the case, held that the audit of the appellant (a non-government company) by Central Excise Revenue Audit (CERA) team was illegal and unsustainable since CERA team of CAG of India could inspect records only if the same were lying at premises of Government Company or a company which had received any grant/loans/aid from the Government or any Government undertaking, or when there was a request for the same from President of India or Governor of State.

Infinity Infotech Parks Ltd. v. UOI 2014 (36) STR 37 (Cal.)

120 In the instant case, the issue before the Hon’ble High Court was whether services provided in relation to serving of food and beverages in air conditioned restaurant, hotel, inn, guest house, etc. would be chargeable to service tax. Dismissing the Department’s appeal, it was held that after the 46th amendment in the Constitution, supply of food and other articles for human consumption in restaurants had been categorically enumerated as ‘deemed sale’. Thus, it was held that states alone had legislative competence to impose tax on whole consideration received for such sales and Union could not characterize the same transaction as ‘service’ for levy of service tax.

Union of India & Others v. M/s. Kerala Bar Hotels Association [TS-501-HC-2014(KER)-ST]

121 The appellant contended that services provided to them by the foreign service providers were outside India and also consumed/received outside India. Thus, it could not attract service tax as import of service. The Hon’ble Tribunal rejected this contention and held that for services specified in Rule 3 of the Import of Service Rules, the place of consumption/receipt of service was immaterial, once the recipient of such service was located in India.

Gujarat Borosil Ltd. v. CCE&ST, Surat 2014 (36) STR 808 (Tri.-Ahmd.)

122 The Hon’ble Tribunal held that section 85(4) authorised the Commissioner (Appeals) to hear and determine an appeal and pass such order as “he may think fit”. Thus, it was within his powers to remand matter to the primary authority.

CCE, Raipur v. Anand Colour Lab 2014 (36) STR 915 (Tri.-Del.)

123 Where the appellant, a steamer agent, had collected extra amounts towards statutory levies reimbursable from the client, the Hon’ble Tribunal held that service tax was payable on such extra amount.

Chirspal Shipping v. CCE [2014] 35 STR 1000 (Tri.- Mumbai)].

124 The appellant availed CENVAT credit of service tax paid on digital photographs. Such photographs were required for brochures/ catalogues for sales promotion. The department denied credit of the same on the ground that the appellant did not disclose in its returns that credit had been availed in respect of digital photographs. The Hon’ble Tribunal held that there was no column in return to show the nature of input service and thus, non-disclosure of facts not required to be disclosed in law could not be attributed suppression. It further held that when credit was denied on photographs used for brochure meant for sale, production of brochure before Commissioner (Appeals) could not be ‘additional evidence’.

Saboo Coatings Ltd. v. CCE [2014] 36 STR 447 (Tri.- Del.)

Sunil Moti Lala

1. Appeal

A. Appeal against a non-speaking and ex parte order was allowed and case was remanded with the direction to examine its afresh after giving opportunity of hearing to the appellant and to pass a speaking order, within two months from receipt of appeal order. At the same time, the appellant was directed to place any evidence he wishes to produce before the AO. But, the remand case was not decided even after seven years; no proceedings were initiated nor any notice was served on the petitioner.

2. The petitioner filed a writ petition for refund of amount deposited for filing of appeal. The P&H HC allowed the petition and held that the appeal having been allowed and order of penalty having been set-aside, the petitioner was entitled for refund of ` 88,000 deposited by him for filing appeal against the penalty order, and mere pendency of remand case did not entitle the revenue to retain the amount deposited by the petitioner. The HC further held that in the remand proceedings, the petitioner may also raise a plea of interest on delayed refund of deposit.

Surya Synthetics v. State of Punjab (2014) 25 STJ 86 (P&H)

B. Appeals decided on merits on ex parte orders due to non-appearance of the appellant or his counsel on the date of hearing. Earlier also, four dates of hearing were given, and thus, the Appellate Authority assumed that the appellant did not want to pursue his appeals. In the Second Appeal, the appellant raised the only ground of passing of ex parte orders of Appellate Authority. The Appellate Board remanded the matter to the assessing authority with a specific direction to examine nature of transactions.

Mangalam Gasses Ltd., Gwalior v. Commissioner, CT, M.P. (MPBD) (2014) 25 STJ Page 588.

C. If conditions for a best judgment assessment were present, the assessing authority can had recourse to best judgment, but it would not make on speculative or fanciful grounds but on reasonable guess, since the best judgment assessment did not negate the exercise of judgment on the part of the officer. A tax officer, who framed a best judgment assessment, should have make an intelligent well-grounded estimate rather than launch upon pure surmises.

S. M. Hasan, STO; Jhansi v. New Gramophone House (2014) 25 STJ 288 (SC)

2. Business

A. Activities of the appellant providing telecommunication services to its customers was covered in “business”. The definition of “business” u/s 2(c) of MPCT Act, was very wide and expansive as it started with the word “includes”. For being covered in the definition of business, it is not necessary that there should be sales and purchases.

B.T.A. Cellcom Ltd., Indore v. C.C.T., M.P., (2014) 25 STJ 531 (MPBD)

B. Sale of prospectus and application forms by petitioner – Manipal University, which was registered as a dealer for sale of medicines and other equipments in the hospital and medical shops attached to their medical colleges. Petitioner contended that they were not engaged in the activity of sale of prospectus and application forms so as to attract levy of VAT. The Karnataka HC after considering receipts from sale of prospectus and application forms held that it could not be said that there was no profit motive as claimed by the petitioner. Merely because the university was established for imparting education did not mean that it was not indulged in the business. Their intention to make profit was clear from the facts and figures placed on record. That apart, once they were registered as a dealer u/s. 22 of the Karnataka VAT Act, the total turnover would mean aggregate turnover of the dealer in all goods whether or not liable to tax. The petitioner therefore could not take a stand that they were registered only for sale of medicine and equipments in the hospital and not for sale of prospectus and application forms. Accordingly, its liability to pay tax was fastened by the HC.

Manipal University v. State of Karnataka (2014) 25 STJ 94 (Kar.)

3. Check Post Penalty

Whether the goods were UPS or Inverters? It was for the assessing authority to determine, and the check post officer had no jurisdiction to delve upon into the issue while levying the check post penalty. The nature of the transaction could only be determined by the assessing authority u/s 51.

State of Punjab v. Genus Overseas Electronics Ltd. (2014) 25 STJ 233 (P&H)

4. Composition Tax

A. The appellant once having exercised the option under the composition scheme could not be permitted to turn around and rescind from his liability, merely on the ground that he had no turnover due to losses or had not done any manufacturing activity during the relevant year. In other words, the appellant once having opted for composition could not request the Assessing Authority for regular assessment. In the instant case, the appellant had voluntarily offered to pay tax at the compounded rates, which was accepted by the Assessing Authority. Thereafter, in the middle of the year the appellant could not withdraw the option for payment of tax at the compounded rates.

Liquors v. Dy. Commissioner of ST (2014) 25 STJ 273 (SC)

B. Whether additional tax u/s. 5-D of the Kerala General Sales Tax Act was leviable in case of Composition u/s. 7 of the Act. Supreme Court held that u/s. 7(1), the non obstante clause “notwithstanding anything contained in subsection 1 of section 5” had been used to give provisions of section 7(1) overriding effect over provisions of section 5(1). The additional tax could therefore be levied on a dealer who was liable to pay tax u/ss. 5 and 5-A at a particular rate. In the instant case, the dealer was not being taxed u/s. 5 or 5-A, but was paying tax at the compounded rate u/s. 7, and, therefore, he was not liable to pay additional tax u/s. 5-D.

Bhima Jewellery v. AC (Assessment), Kerala 25 STJ (2014) 1 (SC)

5. Condonation of Delay

A huge delay of 1205 days in preferring the appeal by the revenue took place. Except mentioning various dates and throwing burden upon the office of the Govt. Pleader the delay was not properly and sufficiently explained to the Court. The Dept. miserably failed to give any acceptable and cogent reason for such a delay. In the case of Lanka Venkatewarlu AIR 2011 SC 1199, Supreme Court held that while considering application for condonation of delay u/s. 5 of the Limitation Act, the courts did not enjoy unlimited and unbridled discretionary powers. All discretionary powers, especially judicial powers, had to be exercised within reasonable bounds, known to the law. The SC further observed that the concepts such as liberal approach, justice oriented approach, substantial justice could not be employed to jettison the substantial law of limitation especially, in cases where the court concludes that there was no justification for the delay. Applying the said decision of the SC, the High Court refused to condone the delay.

State of Gujarat v. Swet Zink Ltd. (2014) 25 STJ 65 (Guj.)

B. Non-submission of ‘H’ forms in the assessment for 2004-05 and 2005-06. Revisions filed in CST case rejected on the ground that revisions should have been filed in State case. Thereafter, revisions were filed in State case with delay of two years and nine months in 2004-05 and one year and 10 months in 2005-06. Request made for condonation of delay was not accepted and both the revisions were rejected. M.P. High Court held that revisional authority should have taken a more liberal view and the delay having been reasonably explained, it was a fit case where delay could have been condoned and revision petition could have been decided on merits. Accordingly, directions for such action were given.

Venkatesh Food Industries v. State of M.P. (2014) 25 STJ 137 (M.P.)

C. It was not necessary to discuss each and every judgment cited before us for the simple reason that section 5 of the Limitation Act, 1963 did not lay down any standard or objective test. The test of ‘sufficient cause’ was purely an individualistic test. It was not an objective test. Therefore, no two cases can be treated alike. The statute of limitation had left the concept of ‘sufficient cause’ delightfully undefined, thereby it left to the court a well-intentioned discretion to decide the individual cases whether circumstances existed establishing sufficient cause. There were no categories of sufficient cause. The categories of sufficient cause were never exhausted. Each case spelled out a unique experience to be dealt with by the court as such.

Indian Oil Corporation Ltd. v. State of Haryana (2014) 49 PHT 251 (P&H)

6. Interpretation of Entries

A. Glue trap – used to trap the mouse. Held it was covered in Entry 30 of Part II of Schedule II, CG VAT Act, which pertained to Rodenticides and was liable to tax at 5%.

Shreshta Home Care, Raipur (CCT, CG) 2014 25 STJ 373

B. Dumper, held as covered in motor vehicles and therefore was liable for entry tax under Entry 1 of Part-1 of the Schedule to the Gujarat Entry Tax Act, 2001.

State of Gujarat v. Dhorajia Construction Co., Gujarat (2014) 25 STJ 503 (Guj.).

C. Component of machinery for printing industry. P.S. Aluminium Litho Graphic Plate which was used in off-set printing. Though it may be a component of printing material but it was not a component of printing machinery. Therefore, it was not covered in Entry 1 (XVII) of list of goods specified in Notification No. 45 dated 28-4-2006 in terms of Entry II / II / 27 of C.G. VAT Act. Held, it is covered under residuary entry as held in the case of Mittal Printing Ink, Raipur (2007) 11 STJ 70 (CCT, CG), and was liable to tax at 14%.

Technova Imaging System (P) Ltd., Panvel (CCT, CG) (2014) 25 STJ 621.

D. Entry Tax Act and Sales Tax Act are two different Acts enacted under different entries of the Constitution, and, therefore, entries in the Schedule of Sales Tax Act cannot be applied for deciding rate of entry tax.

Parle International Pvt. Ltd., Indore v. CCT, M.P. (M.P.-Bd) (2014) 25 STJ 187.

7. Interpretation of Statute

Amendment in the statute clarificatory/ declaratory amendment could be treated as retrospective even if there is no specific mention about the same in the amended provision.

Dashmesh Oil Cake Industries v. CCT, M.P. (2015) 26 STJ 58 (M.P.-Bd)

8. Situs of Sale

In respect of inter-State trade or commerce, the situs of sale or purchase is wholly immaterial. State legislature could not by law, treat sales outside the State and sales in the course of import as ‘sales’ within the State by fixing the situs of sales within its State in the definition of ‘sale’ as it was within the exclusive domain of Parliament to fix the location of sale by creating legal fiction or otherwise.

2. Where situs has not been fixed or covered by any legal fiction created by appropriate legislature, the location of sale would be a place, where property in goods passes. It was the passing of property within the State that was intended to be fastened for the purpose of determining whether the sale was inside or outside the State. To quote, where a party had entered into a formal contract and the goods were available for delivery irrespective of the place where they were located, the situs of such sale would be where the property in goods passes, namely, where the contract was entered into.

Commissioner of Trade Tax v. M/s. Rotomack Finance Pvt. Ltd. (2014) 49 PHT 507 (All)

9. Sufficient Cause

A. The expression ‘sufficient cause’ should receive liberal construction. The court has to exercise the discretion on the facts of each case keeping in mind that in construing the said expression, the principle of advancing substantial justice was of prime importance.

Nipa Chemicals Ltd. v. State of Haryana (2014) 49 PHT 119 (HTT)

B. There did not exist any exhaustive list constituting sufficient cause. The question regarding whether there was sufficient cause or not, depended upon each case and primarily was a question of fact to be considered taking into totality of events which had taken place in a particular case.

Kishori Lal & Sons v. State of Haryana (2014) 49 PHT 201 (HTT).

10. Tax Recovery from a Director of Company

Liability of Director of Private Company in liquidation to pay tax was always a matter of serious consideration. Opportunity of hearing is a hallmark and essential aspect before proceedings to recover the arrears of tax from Director of a Company.

P. K. Rajgarhiya v. State of Haryana (2014) 49 PHT 464 (P&H)

11. Time-Barred Assessment Notice

It is a settled law that if the assessment proceedings were initiated after the limitation period, the same became vitiated and the orders so passed were without jurisdiction. Since, the requirement of section 15(2) of the Haryana VAT Act had not been fulfilled, rather violated in this case, the impugned orders, therefore, became legally unsustainable and there was no other alternative except to quash the same.

Rukmini Polytubes (P) Ltd. v. State of Haryana (2014) 49 PHT 527 (HTT)

12. Tribunal – Its powers and functions

Five Members Bench of Haryana Tax Tribunal proceeded to abdicate its powers on an erroneous premise that it had no jurisdiction to opine whether an Order passed by the High Court is no longer good law in view of the subsequent judgments of the Hon’ble Supreme Court. The Tribunal was apparently unaware that law laid down by the Supreme Court could not be ignored merely because a Division Bench of a High Court may or may not have had taken a contrary view. The Supreme Court of India sits at the pinnacle of the system of administration of justice, and its orders prevail over all other orders. A Tribunal, exercising judicial or quasijudicial powers could not refuse to consider the judgments of the Hon’ble Supreme Court by holding that it was for the HC to decide whether its opinion subsists or not.

J.S. Polymers India (P) Ltd. v. State of Haryana (2014) 49 PHT 462 (P&H)

13. Writ Petition vis-a-vis Rectification Order

The Punjab & Haryana High Court held that a writ petition against the Rectification Order was not maintainable.

Larsen & Toubro Ltd. v. State of Punjab (2014) 49 PHT 153 (P&H)

D. H. Joshi

218. S. 2(22)(e) : Deemed dividend – Lease for its director – Released some other company in which directors had substantial interest – Cannot be assessed as deemed dividend

Where assessee company having taken a property on lease from its directors, released same to another company in which those directors had substantial interest, security deposits received by assessee from said company in terms of release agreement being an amount received in normal course of its business activity, could not be brought to tax as deemed dividend under section 2(22)(e). (A.Ys. 2002-03, 2005-06 and 2006-2007)

ACIT v. Madras Madurai Properties (P.) Ltd. (2014) 64 SOT 159 (URO) / (2011) 9 taxmann.com 93 (Chennai)(Trib.)

219. S. 4 : Charge of Income-tax – Capital or revenue – Damages – Capital receipt

Assessee, a non-resident, received certain amount of compensation from his power of attorney holder towards damages for breach of trust in respect of sale of shares of Indian companies, said amount being in nature of capital receipt, could not be brought to tax. (A.Y. 2005-06) (ITA No 2551(Mum) of 2008 dated 12-9-2014)

ITO v. Vinay P. Karve (2014) 52 taxmann.com 24 / (2015) 152 ITD 58 / (Mum)(Trib)

220. S. 4 : Income chargeable to tax – Diversion of income by overriding title – Application of income [S. 37(1)]

Contribution of 1% of net profit to the Cooperative Education Fund maintained by National Co-operative Union is an application of income, hence cannot be allowed as deduction. (A.Y. 2010-2011)

A.P. Mahesh Co-op. Urban Bank Ltd. v. DCIT (Hyd.)(Trib.); www.itatonline.org

221. S. 5 : Scope of total income – Method of accounting – TDS credit – Real income has materialised, has to be examined in context of commercial and business realities of situation in which assessee is placed and not with reference to system of accounting. [S. 145, 199]

Assessee-individual was working as consulting engineer and commission agent/dealer in air-conditioning sector. During assessment proceeding, AO observed that in balance sheet certain amount was shown under heading ‘contingent Income’. AO further observed that credit for TDS for said income had been claimed though receipt was not offered for taxation and, therefore, he treated said amount as income for current assessment year. It was found that commission earned from dealer had been offered for taxation on basis of completion of service and installation contract in respective year and this method had been consistently followed yearto- year by assessee. This method was also seen in consonance with accounting method AS-9 in respect of service contract and installation fee which states that revenue be recognised only when equipment is installed and accepted by customer. Since work related to installation and erection of equipment had been completed in subsequent assessment years, accrual of income happened only in subsequent years and, when assessee got an enforceable right to receive same. In view of above, addition made by AO was rightly deleted by CIT(A).(A.Y. 2009-10)

Addl.CIT v. Vinay V. Kulkarni (2014) 64 SOT 131 / 46 taxmann.com 370 (Pune)(Trib.)

222. S. 6(1) : Residence in India – Individual – Forced stay – force majeure –Reading down – Impossibility of performance – Due to untenable impounding of passport were to be excluded while computing days of his stay in India

According to assessee, his stay in India during the years under consideration had exceeded 182 days because of reasons beyond his control as his passport was illegally impounded by the Govt. agencies and he was unable to travel from India. The CIT(A), however, confirmed the order of AO on this issue and held him to be a resident as per literal meaning of the provisions. He, however, partly deleted the additions made by the AO on merits.

The Tribunal held that the assessee’s overstay in India was neither attributable to his volition nor free will and was a result of untenable actions of impounding his passport by executive orders which were quashed by the highest Court. In these circumstances, the literal meaning of the provisions leads to a manifest absurdity in as much as by untenable actions of executive, a taxpayer is exposed to the peril of loosing his valuable right under taxation law, i.e., retaining his NRI status.

In the entire episode no fault can be attributed to assessee who has shown active diligence in defending his legal rights. The legislature cannot have enacted this provision with an intention to forfeit the NRI status by unlawfully compelling the assessee not to leave India even if he has found not to have violated the alleged law. In the given facts and circumstances, the strict and literal interpretation applied by lower authorities to the provisions leads to manifest absurdity resulting in a meaning which cannot be intended by the legislature. The legislature in its wisdom might not have envisaged such a situation wherein a person is forced to become a resident due to wrongful restraint of subject in absence of eligibility to travel outside India. Therefore, assessee’s case becomes fit where doctrine of force majeure may be applicable as it was impossible for the assessee to move out of country and therefore doctrine of impossibility of performance is also applicable. This is a fit case where strict legal reading of the provisions regarding residence in India should not be applied. An interpretation or construction should be applied which results in harmonious meaning, equity rather than injustice. Thus, application of rule of interpretation of ‘reading down’ and ‘harmonious construction’ automatically take care of assessee’s arguments on doctrines of impossibility of performance and ‘force majeure’. In view of the above facts and circumstances it is held that for calculation of stay in India for these years the same should be calculated after exclusion of days of wrongful impounding of passport which constitutes forced stay in India. Consequently assessee’s residential status is held to be as ‘non resident’. In view of above, impugned addition is set aside and matter is remanded back to AO to examine the taxability of amount in question keeping the NRI status in mind and after affording a reasonable opportunity. (A.Ys. 2007-08, 2008-09)

Suresh Nanda v. ACIT (2014) 64 SOT 121 (URO)/ 31 ITR 620 / 45 taxmann.com 269 (Delhi)(Trib.)

223. S. 6(1) : Residence in India – Individual – Not-resident in India –Professional – Self employment like business or profession stays in India less than 182 days considered as non-resident – Receipts from outside India is not taxable [OECD Model tax convention, Article 17]

Assessee, a world known professional golfer, pursued vocation of sportsman. During current and earlier years, he participated in gold tournament in various countries and remained outside India for considerable period in these years. Assessee being a professional golfer is a self-employed professional, and requirement for being treated as resident of India his stay of 182 days in India in previous year as per Explanation (a) to section 6(1)(c). Since assessee had stayed in India less than 182 days, he was not resident of India for assessment purpose hence receipts from his outside employment was held to be not taxable. (A.Y. 2009-10)

ACIT v. Jyotinder Singh Randhawa (2014) 64 SOT 323 / 46 taxmann.com 10 (Delhi)(Trib.)

224. S. 9(1)(i) : Income deemed to accrue or arise in India – Sale of shares – Cannot be assessed as capital gains – DTAA-India-France [S. 45,90, Art, 14(6)]

Income earned by assessee, a French resident, from sale of shares of Indian companies, could not be taxed under head ‘capital gain’ due to benefit conferred in terms of Article 14(6) of India-France DTAA. (AY. 2005-06) (ITA No 2551 (Mum) of 2008 dated 12-9-2014)

ITO v. Vinay P. Karve (2014) 52 taxmann.com 24 / (2015) 152 ITD 58 (Mum.)(Trib.)

225. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Profit – Technical fees – Cost recovered directly connected with shipping business – Receipts are not taxable in India- DTAA-India-Denmark [S.9(1) (vii), Article 9, 13]

Assessee, a Danish company, was mainly engaged in business of operation of ships, chartering and other related activities of shipping in international traffic. Assessee’s shipping operations were carried out in India by an agent namely MIPL Denmark DTAA, has to be construed broadly so as to include not only activities directly connected with shipping operations but also to include income from activities which facilitate or support such operation as well as any ancillary activities of assessee. AO held that amount so received was taxable as royalty and fee for technical services under Article 13 of India. Tribunal held that cost recovered by assessee from its various agents including MIPL towards usage of software was directly connected with its shipping operations and same had to be treated as covered under Article 9(1) of India-Denmark DTAA and, thus, receipt in question could not be taxed in India. (A.Y. 2008-09)

Dy. CIT v. A. P. Moller Maersk (2014) 64 SOT 50 / 39 taxmann.com 39 (2013)(Mum.)(Trib.)

226. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Support services – Not taxable in India-DTAA-India- German [Article 7]

Assessee German company was engaged in business of designing, manufacturing and marketing of passive electronic components. It had two subsidiaries in India. Assessee provided support services to these subsidiaries to which assessee was providing support services in field of product marketing, sales and information. Reasoning given by Tribunal in assessee’s own case in Asstt. CIT v. EPCOS AG, Germany [2009] 28 SOT 412 (Pune), it was held that, where assessee did not have any PE in India, much less a PE to which subject royalties and fees for technical services could be attributed; and that in terms of India-German DTAA, India did not have right to tax these receipts as business profit under Article 7. In light of finding, that no revenue earned by assessee could be said to be attributable to PE, even if one was to come to conclusion that a PE existed, no taxability could arise under Article 7. (A.Y. 2008-09)

EPCOS AG v. Dy. DIT (2014) 64 SOT 257 / 43 taxmann.com 65 (Pune)(Trib.)

227. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection-Shipping business – Merely managing affairs of said companies on remuneration basis – Cannot be held to be shipping income – Not taxable – DTAAIndia- Denmark [Article 9]

Assessee was a partnership firm existing under laws of Denmark. Assessee was appointed as managing agent by two Danish companies. Activities of those companies were shipping operations in international traffic at global level and effective place of management was in Denmark. Assessee firm had been filing return of income on behalf of Danish companies wherein benefit of non-taxation was claimed in respect of shipping income under Article 9 of India- Denmark-DTAA. AO held that shipping income was liable to tax in India in hands of assessee. Tribunal held that the entire infrastructure including vessels deployed in international traffic belonged to two Danish companies, and assessee-firm was merely managing affairs of said companies on remuneration basis. Even otherwise, assessee firm was separate and distinct from two Danish companies and any income accruing on account of shipping operations did not belong to assessee, but to those two companies only. In view of above, AO was not justified in holding that shipping income in question was taxable in hands of assesseefirm. (A.Ys. 1997-98 to 2003-04)

Dy. DIT v. A. P. Moller (2014) 64 SOT 147 (URO) / (2013) 158 TTJ 537 / 39 taxmann.com 27 (Mum.) (Trib.)

228. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Charge of fees – Shared contract – Not taxable as fees for technical services or royalty. [Ss.9(1)(v), 9(1)(vi)]

Assessee-firm, a resident of Denmark, was managing shipping business of two Danish companies in international traffic at global level. For rendering said services, assessee-firm was entitled to charge fee which was calculated on basis of Gross Registered Tonnage (GRT) of ships per annum. In course of assessment, AO held that management fees received/receivable by assessee from two Danish companies was chargeable to tax in India. Since payment had been made from one non-resident to another non-resident in connection with entire global business in Denmark, such a payment could not be taxed in India either as fees for technical services or as royalty, addition was deleted. Similarly where assessee-firm shared cost of Global Online System and software developed by Danish companies to be used in their international shipping business, payment so made to non-resident companies could not be taxed in India as fees for technical services or royalty (A.Ys. 1997-98 to 2003-04)

Dy. DIT v. A. P. Moller (2014) 64 SOT 147 (URO) / (2013) 158 TTJ 537 / 39 taxmann.com 27 (Mum.) (Trib.)

229. S. 9(i) : Income deemed to accrue or arise in India – Business connection – Cost for setting up global telecommunication facility – Not assessable as royalty or fees for technical services – DTAAIndia- Denmark [S.9(1)( vi), 9(1) (vii), Article 13]

Assessee maintained a global telecommunication facility capable of supporting communication facility between itself and its agents in various countries on a combination of mainframe and non-mainframe servers located at Denmark. Cost for setting up global telecommunication facility was shared between assessee and its agents. AO made addition treating the amount received by assessee towards shared IT Global Portfolio Tracking System from its agents by treating same as fees for technical services. Tribunal had deleted a similar addition made by AO in earlier year and following earlier year addition of the same was deleted. (A.Y. 2003-04)

ADIT v. Aktieselskabet Dampskibsselskabet Svendborg (2014) 64 SOT 181 (URO) / 47 taxmann. com 187 (Mum.)(Trib.)

230. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Royalty – Fees for technical services – Benefit of lower rate of tax under Article 13(2) of India-UK DTAA was available because beneficial owner of royalty being JCBE, was also a resident of UK – DTAA – India- UK. [S.9(1)(vi), 9(1)(vii), 90(2), 115A(1)(b), 195A, Article 5(2)(K), 7, 13]

Assessee company was incorporated and was tax resident of UK. There was another group company namely JCBE, which was also incorporated under laws of UK. JCBE entered into an agreement with Indian group company, namely JCBI, to licence know-how and related technical documents consisting of all drawings and designs with an exclusive right to manufacture and market Excavator Loader in territory of India. In terms of agreement, JCBE seconded its employees to JCBI on assignment basis. Subsequently, JCBE entered into sublicence agreement with assessee whereby licence was to be commercially exploited by JCBI as was done earlier, but royalty for such user was to be paid by JCBI to assessee, who in turn was to pass on 99.5 per cent of same to JCBE. AO opined that employees of JCBE as seconded to JCBI constituted a service PE of assessee as they were covered under expression ‘or other personnel’ in Article 5(2)(k) of India-UK DTAA. Since seconded employees furnished services including managerial services for a period of more than 90 days during relevant assessment year, AO rightly concluded that service PE of assessee was established in India, in such a situation, amount paid to employees of JCBE sent to India on deputation on assignment basis was covered within para 6 of Article 13 of India-UK DTAA and, thus, same was chargeable to tax under Article 7 of India-UK DTAA, however, fees for services rendered by employees of JCBE falling in second category doing stewardship activities and inspection and testing only, did not fall in para 6 of Article 13 and, was, thus, chargeable to tax as per para 2 of Article 13 of India-UK DTAA. Finally, even though while accepting revenue’s stand that assessee, a resident of UK was not a beneficial owner, still benefit of lower rate of tax under Article 13(2) of India-UK DTAA was available to it because beneficial owner of royalty being JCBE, was also a resident of UK. Partly in favour of assessee. (A.Y. 2008-09)

JC Bamford Investments Rocester v. DDIT (2014) 64 SOT 311 / 33 ITR 493 / 150 ITD 209/164 TTJ 433 / 47 taxmann.com 283 (Delhi)(Trib.)

231. S. 9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – construction, installation and assembly activities are de facto in the nature of technical services, the consideration thereof will not be assessable under Article 12 but will only be assessable under Article 7 if an “Installation PE” is created under Article 5. As Article 5 is a specific provision for installation etc., it has to prevail over Article 12 [S. 5, Article 5, 7, 12]

The Tribunal had to consider whether consideration attributable to the installation, commissioning or assembly of the plant and equipment & supervisory activities thereof is assessable to tax in India under section 5(2)(b) & 9(1)(vii) of the Act and Articles 5 & 7 and Article 12 of the DTAA. HELD by the Tribunal.

(i) Under s. 5(2)(b) of the Act, the consideration attributable to the installation, commissioning or assembly of the plant and equipment & supervisory activities thereof is assessable to tax in India as the said income accrues in India. S. 9(1)(vii) does not apply because the definition of ‘fees for technical services’ in Explanation 2 to s. 9 (1)(vii) specifically excludes “consideration for any construction, assembly, mining or like project undertaken by the recipient”. Even though the exclusion clause does not make a categorical mention about ‘installation, commissioning or erection’ of plant and equipment, these expression, belonging to the same genus as the expression ‘assembly’ used in the exclusion clause and the exclusion clause definition being illustrative, rather than exhaustive, covers installation, commissioning and erection of plant and equipment;

(ii) However, the said receipt is not assessable as business profits under Article 7(1) of the DTAA if the recipient does not have an “installation PE” in India. Under the DTAA, an installation or assembly project or supervisory activities in connection therewith can be regarded as an “Installation PE” only if the activities cross the specified threshold time limit (or in the case of Belgium & UK, where the charges payable for these services exceeds 10% of the sale value of the related machinery or equipment). The onus is on the revenue authorities to show that the conditions for permanent establishment coming into existence are satisfied. That onus has not been discharged on facts;

(iii) On the question as to whether the said receipt for installation, commissioning or assembly etc. activity can be assessed as “fees for technical services”, it is seen that the DTAA has a general provision in Article 12 for rendering of technical services and a specific provision in Article 5 for rendering of technical services in the nature of construction, installation or project or supervisory services in connection therewith. As there is an overlap between Article 5 and Article 12, the special provision (Article 5) has to prevail over the general provision (Article 12). What is the point of having a PE threshold time limit for construction, installation and assembly projects if such activities, whether cross the threshold time limit or not, are taxable in the source state anyway. If we are to proceed on the basis that the provisions of PE clause as also FTS clause must apply on the same activity, and even when the project fails PE test, the taxability must be held as FTS at least, not only the PE provisions will be rendered meaningless, but for gross versus net basis of taxation, it will also be contrary to the spirit of the UN Model Convention Commentary. Accordingly, though construction, installation and assembly activities are de facto in the nature of technical services, the consideration thereof will not be assessable under Article 12 but will only be assessable under Article 7 if an “Installation PE” is created;

(iv) In any event, the said consideration cannot be assessed as “fees for technical/ included services” as the “make available” test is not satisfied. The said installation or assembly activities do not involve transfer of technology in the sense that the recipient of these services can perform such services on his own without recourse to the service provider (this is relevant only for the DTAAs that have the “make available” condition). (ITA No. 251 and 252/Jab/2013, dated 24-12-2014). (A Ys. 2010-11 and 2011-12)

Birla Corporation Ltd. v. ACIT (Jab.)(Trib.); www. itatonline.org

232. S. 11 : Property held for charitable or religious purposes – Educational society – Exemption cannot be denied on the ground that requisite approval under section 10(23C) was not obtained – Revenue cannot be thrust upon assessee for particular deduction [Ss. 10(23C(vi), 12A]

Assessee, an educational society, was registered under section 12A. It claimed exemption under section 11. AO denied exemption on ground that it was eligible for exemption under section 10(23C)(vi) and not under section 11. A.O. held that exemption could not be claimed since assessee had not obtained requisite approval under section 10(23C)(vi) provision. ITAT held that, since assessee was registered under section 12A, and was entitled for exemption under section 11, if conditions required under this section was complied with and it was not required to obtain approval under section 10 (23C). AO could not deny exemption on reason that assessee’s case was not covered under section 10(23C) and could not thrust upon assessee for particular deduction. (A.Y. 2010-11)

Dy. DIT v. Vidyananda Educational Society (2014) 64 SOT 176 (URO) / 47 taxmann.com 242 (Hyd.) (Trib.)

233. S. 12 : Voluntary contributions – Trusts or institutions – Corpus fund –Specific funds could not be treated as voluntary contribution in the nature of income [S.12AA]

Assessee-society of practicing anesthesiologists’ received contribution towards life membership fee, award fund and two other funds specifically created for procuring journals, books and other professional. Since these funds were used only for fulfilling specific objectives for which they were constituted, such specific funds always remained as capital. Said funds could not be treated as voluntary contribution in nature of income. (A.Y. 2007-08)

Indian Society of Anaesthesiologists v. ITO (2014) 64 SOT 178 (URO)/32 ITR 152 / 47 taxmann.com 183 (Chennai)(Trib.)

234. S. 12AA : Procedure for registration – Trust or institution – Charitable purpose – Cancellation of registration was held to be not valid. [Ss. 2(15, 11, 12]

Where assessee-association, formed with object of promotion and development of game of cricket, was granted registration under section 12A, Commissioner in exercise of power under section 12AA(3) could not cancel said registration taking a view that assessee was promoting sports activity on commercial basis by holding various tournaments of BCCI and, therefore, its case was hit by amendment to section 2(15) by Finance Act, 2008 with effect from assessment year 2009-10. (A.Y. 2009-10) (ITA Nos. 1855 & 1856/PN) of 2012 dt. 28-8- 2014)

Maharashtra Cricket Association v. CIT (2014) 51 taxmann.com 511 / (2015) 152 ITD 1 (Pune)(Trib.)

235. S. 12AA : Procedure for registration –Trusts or institutions – Rejection of application on the ground that trust had not started its activities was held to be not valid

The assessee-trust was established with objects to provide credit counselling services to persons for the purposes of, amongst others, facilitating efficient debt management and promoting and assisting better credit management. It filed application seeking registration under section 12AA. The DIT(E) rejected application of assessee-trust for registration under section 12AA on ground that trust had not started its activities and objects were mixed. Tribunal held that rejection of application on the ground that the Trust has not started its activities was held to be not valid. Matter remanded. (ITA No. 2087 (Mds) of 2012 dated 6-3-2014)

Disha Trust v. DIT (E) (2014) 31 ITR 154 /49 taxmann.com 396 / (2015) 152 ITD 42 (Chennai) (Trib.)

236. S. 12AA : Procedure for registration – Trusts or institutions – Commencement of activity is not a pre-condition for grant of registration

Commissioner refused registration of trust on ground that assessee was not carrying out any charitable activities and it was premature to register said trust. Tribunal held that commencement of activity is not a pre-condition for grant of registration under section 12AA, when objects of trust and genuineness of activities of trust are not questioned. Matter remanded.(ITA No. 262 (Mds) of 2014 dated 30-4-2014)

Maha Avatar Trust v. ITO (2014) 32 ITR 178 / 49 taxmann.com 358 (2015) 152 ITD 31 (Chennai) (Trib.)

237. S. 12AA : Procedure for registration – Trusts or institutions –Advance, promote, propagate and preach religion of Islam amongst Daowoodi Bohras in conformity with Quran, Shariat Mohammediyah and tenets of Dawat-e-Hadiyay to develop, expand, renovate and maintain masjids, Madrasas, etc- Denial of registration was not valid [S. 2(15), 11]

Object of assessee was to advance, promote, propagate and preach religion of Islam amongst Daowoodi Bohras in conformity with Quran, Shariat Mohammediyah and tenets of Dawate- Hadiyay to develop, expand, renovate and maintain masjids, Madrasas, etc. and to carry out charity to needy people. Where assessee was founded for development of Muslim religion, object was beneficial to section of public; registration under section 12AA could not denied as object beneficial to section of public would amount to an object of general public utility. To secure charitable purposes, it is not necessary that object should be beneficial to whole mankind or all persons in particular country or State. Even if a section of public is given benefit, it could not be said that it is not a trust for charitable purpose in interest of public. Denial of registration was not valid. (A.Y. 2012- 13).

Shia Dawoodi Bohra Jamaat Waqf v. DIT (2014) 64 SOT 173 / 45 taxmann.com 340 (Kol.)(Trib.)

238. S. 12AA : Procedure for registration – Trust or institution – Charitable purpose – Specified securities –Bonds – Savings certificates –Ancillary activities of business crosses prescribed limit of Rs. 10 lakhs, that by itself cannot be ground for cancellation of its registration [Ss. 2(15), 12A]

The assessee cotton textile promotion council was registered as a charitable trust. Its activities were falling in the category of ‘advancement of any other objects of general public utility’ as per definition of ‘charitable purpose’ given under section 2(15). The DIT(E ) held that the assessee was carrying out activities in the nature of trade, commerce or business, etc., and gross receipts therefrom were in excess of Rs. 10 lakhs. Taking resort to the newly added proviso with effect from 1-4-2009 to section 2(15), he cancelled the registration of the assessee. Tribunal held that, merely because income of a registered charitable trust from ancillary activities of business crosses the prescribed limit of Rs. 10 lakhs, that by itself cannot be ground for cancellation of its registration. However, assessee will not be entitled for exemption or other admissible benefits of its being charitable in nature for year during which gross receipts from business activities exceeds limit of Rs. 10 lakhs, despite its carrying out charitable activities. Order of DIT(E) was set aside and the registration to the assessee council granted under section 12A. (A.Y. 2009-10)

Cotton Textiles Exports Promotion Council v. DIT (E) (2014) 64 SOT 167 (URO) / 44 taxmann.com 168 (Mum.)(Trib.)

239. S. 12AA : Procedure for registration – Trusts or institutions – Rejection of registration was not justified when activities of the institution was not doubted [S. 11]

Assessee-trust moved an application for grant of registration under section 12AA along with all information as requisitioned including objectives of trust. Though assessee did not own land and school building, it had duly furnished complete details and document/evidences in support of ownership and source of investment therein by owner. CIT rejected application on ground that Additional Commissioner and AO had not testified such source of investment. Tribunal held that CIT did indeed err in rejecting application particularly as there were no adverse findings on fundamental issue regarding objectives of trust. With regard to investments, unless there was a categorical finding about lack of bona fides in activities, these aspects would not affect registration and same could be addressed at time of assessment.

Shanta Education Academy v. CIT (2014) 64 SOT 168 (URO) / 33 ITR 154 / 47 taxmann.com 231 (Agra)(Trib.)

240. S. 13 : Denial of exemption – Trusts or institutions – Investment restrictions – Interest free loan other institutions with similar objects – No violation [S. 11(5) 12]

Advancement of interest free loan by a charitable institution to other charitable institutions registered under section 12A having similar objects is not in violation of provisions of section 13(1)(d), read with section 11(5) (A.Y. 2009-10) (ITA Nos. 1796 & 1819 (Mds) of 2012 dated 20-12-2013)

Jt. CIT (OSD) (E) v. Bhaktavatsalam Memorial Trust (2014) 30 ITR 264 / 51 taxmann.com 248 / (2015) 152 ITD 48 (Chennai)(Trib.)

241. S. 12AA : Registration – Nature of activities – CIT, while granting registration or renewal, can only look at the nature of activities and is not concerned with violation of s. 11(5) or s. 13 – Rejection of registration was held to be not justified [Ss. 11, 13, 80G(5)]

While granting the exemption or renewal of exemption under section 80G(5) of the Act, the role of CIT is limited to look into the nature of activities being carried on by the institution or fund and the violation if any, of the provisions of section 13 of the Act and its various subsections are to be looked into by the Assessing Officer while deciding the issue of grant of deduction under sections 11 and 12 of the Act. The CIT while issuing the extension of exemption under section 80G(5) of the Act has a limited role to play i.e., to see whether the activities of the assessee trust were charitable in nature. Even if the ground about contravention of section 11(5) of the Act was validly taken by the CIT, that would have bearing only at the point of the assessment and would not be a material consideration in so far as the granting approval under section 80G(5) of the Act was concerned (ITA No. 549 & 1294/PN/2009, dated 31-12-2014. ’A’)

Ashoka Education Foundation v. CIT (Pune)(Trib.); www.itatonline.org

242. S. 15 : Salaries – Employees stock option (ESOP) – Capital Gains – Assessable as salaries. [S. 45]

Assessee software engineer initially served a US company SIRF-USA as an independent consultant and thereafter, as an employee . After returning to India, he became an employee of SIRF-India. SIRF-USA granted stock option to assessee, which gave right to him to acquire 35,000 shares of common stock of SIRF-USA. Assessee acquired 7,000 shares of SIRF-USA. He sold said shares on same day and earned income. The Tribunal held that the assessee was not in employment of SIRF-USA would be immaterial, as consideration for payment in question was services rendered by assessee in past and, therefore, assessee was to be regarded as employee for purpose of impugned plan and benefits arising under this plan as well as any other benefit received had to be treated as income under head ‘salaries’. Further, by exercising option to acquire shares at a particular price, there was no transfer of any capital asset and, therefore, there was no question of any income being assessed under head ‘capital gain’; such income had to be treated as income from salary. (A.Y. 2006-07).

ACIT v. Chittaranjan A. Dasannacharya (2014) 64 SOT 226 / 45 taxmann.com 338 (Bang.)(Trib.)

243. S. 17 : Salary – Perquisite – Family pension – Income deemed to accrue or arise in India – Family pension received by husband cannot be once again taxed in India – DTAA – India-UK. [Ss.9(1) ((ii), 15, 17(1)(ii), (57(iia), 90, Articles 19(2), 20(1), 23(3) ]

The assessees wife was working in UK with Royal Bank of Scotland/County Nat West Limited (RBS). She died on 22-4-1989 while she was in service. On her death, her employer decided to pay family pension to the husband i.e., the assessee under the family pension scheme run by the company. As per commitment of the UK employer of the deceased wife, they would continue to paying her husband, i.e., assessee family pension until his death. The AO had taxed family pension received by the assessee in UK.

On appeal, the CIT(A) granted relief for the assessee holding that the family pension received by the assessee was covered under Article 23(3) of the DTAA between India and UK and could not be taxed in India when source country i.e. UK had already taxed these amounts.

Tribunal held that Article 20 is related to pension, means the payment received by the employee in consideration of past employment. Section 57(iia) read with Explanation defines ‘Family Pension’ and section 17(1)(ii) which provides that the salary includes ‘pension’ received by the employee in consideration of past employment. Therefore, Article 20 has no relevance to the family pension which is generally received by the spouse or family members or legal dependent of the deceased employee from the employer of deceased family member. Article 23(1) stipulates about the items of income beneficially owned by the residents of a contracting state wherever arising, other than the income paid out of trust or estates of the deceased person in the course of administration which are not dealt within the foregoing articles to the article 23 of this Convention shall be taxable only in that contracting State. Article 23(2) is neither related to pension nor related to family pension. Article 23(3) starts with a word ‘notwithstanding the provisions of paragraphs 1 and 2 of this article’ meaning thereby items of income of a resident of a contracting state not dealt with in the foregoing articles of Convention arising in the other contracting state may be taxed in that other state. Therefore Article 23(3) is related to the items of income which are not included in the foregoing articles to article 23(3) of this Convention, then notwithstanding the provisions of paragraphs (1) and (2) of article 23, the same arising in the other contracting state may be taxed in that other state. Meaning thereby that ‘family pension’ which was not within the ambit of foregoing articles to the article 23(3) of Indo-UK Treaty and arose in the other contracting State, may be taxed in other State and the said receipt of the family pension is beyond the purview of Article 23 of Indo-UK DTAA and the same is covered by the residuary Article 23(3) of this Convention and, therefore, it was rightly taxed in U.K. i.e. source country. Accordingly, the Commissioner (Appeals) rightly held that the family pension received by the assessee from the employer of deceased wife of the assessee was rightly taxed at source in UK and no amount of family pension is thus taxable in India. The expression ‘may be taxed in that other State mentioned in Article 23(3) authorizes only the contracting State of source to tax such income and by necessary implication, the contracting State of resident is precluded from taxing such income, specially when the tax has been deducted by the contracting state of source and contracting state of the residence cannot tax it again in the hands of resident assessee. If analogy advanced by the revenue and the AO is accepted and the country of source as well as country of receipt, both are allowed to tax the same income twice, then an object of double tax avoidance agreement would become infructuous and the provisions stipulated in the Indo-UK DTAA would be otiose. Accordingly, interpretation adopted by the AO was perverse and wrong which was rightly corrected by the CIT(A) by holding that the income received by the assessee from employer of deceased wife of the assessee and country of source has deducted tax and assessee received amount after deduction of tax, then the same income cannot be taxed second time in the other contracting State i.e. India. (A.Y. 2001-01, 2002-03, 2003-04, 2006-07, 2009-10)

ACIT v. Karan Thapar (2014) 64 SOT 334 / 163 TTJ 405 / 46 taxmann.com 46 (Delhi)(Trib.)

244. S. 24 : Income from house property – Interest paid on loan borrowed at Australia for purchase of House at Australia which was let out held to be allowable – Income deemed to accrue or arise in India – DTAA – India- Australia. [S. 4, 5, 9(1)(v)(b), 22, 25, 90(2)

Assessee purchased a house property in Australia and let it out on rent. Assessee had also obtained a loan from ‘A’ bank Australia for construction of said property. Since amount of interest paid on loan amount was higher than rental income, assessee incurred loss under head ‘income from house property’. Assessee filed its return declaring income which included loss from house property. Revenue authorities held that as far as rental income from Australia was concerned, assessee was required to file return in Australia and such negative income could not be included in Indian income. In terms of section 5 in case of assessee, a resident, income accruing or arising outside India had to be assessed in India. Even otherwise, when assessee in terms of section 90(2), exercised option of filing return under Indian law, same could not have been refused merely because DTAA was applicable to assessee’s case. Order of lower authorities was set aside. (A.Y. 2008-09)

Sumit Aggarwal v. DCIT (2014) 64 SOT 265 / 163 TTJ 509 / 45 taxmann.com 345 (Chd.)(Trib.)

245. S. 28(i) : Business loss – Foreign currency loan – acquiring a capital asset for expansion of profit earning apparatus, it was to be treated as capital loss

Assessee-company advanced foreign currency loan in Indian rupees to its wholly subsidiary company, ‘A’, Mauritius, for acquiring entire share capital of a South Africa based company. Subsequently, ‘A’, Mauritius converted loan advanced by assessee into preference shares. However, at time of conversion of loan into cumulative redeemable preferential shares, due to decline in value of Rands, loan amount declined. Assessee claimed that loss was incurred due to difference in foreign exchange conversion rate, and, thus, it was to be allowed as business loss. Revenue authorities rejected assessee’s claim. Since loss in question was suffered in course of acquiring a capital asset for expansion of profit earning apparatus, it was to be treated as capital loss which could not be allowed as deduction (A.Y. 2007-08).

Apollo Tyres Ltd. v. ACIT (2014) 64 SOT 203 / 45 taxmann.com 337 (Cochin)(Trib.)

246. S. 32 : Depreciation – Statutory licences – Intangible asset – Co-operative bank – Eligible depreciation

Where assessee, a co-operative bank, by acquiring four banks has acquired existing running banking businesses complete with required statutory licences, operational bank branches, customers base as also employees, besides other assets, then consideration paid on account of excess of liabilities over realisable values of assets taken over is liable to be considered as an intangible asset, being ‘business or commercial rights of similar nature’ contemplated under section 32(1)(ii). (A.Ys. 2007- 08 and 2008-09)

Cosmos Co-op. Bank Ltd. v. Dy. CIT (2014) 64 SOT 90 / 45 taxmann.com 13 (Pune)(Trib.)

247. S. 32 : Depreciation – Light motor vehicle – Honda car eligible depreciation at 50%

Assessee claimed depreciation at 50% in respect of Honda motor car. AO allowed the depreciation at 15%. On appeal the Tribunal held that the motor car being light motor vehicle eligible depreciation at 50%. (ITA No. 598/ PN/2013, dated 31-12-2014 ‘A’) ( AY. 2009-10)

Gera Developments Pvt. Ltd. v. JCIT (Pune)(Trib.); www.itatonline.org

248. S. 32 : Depreciation – Additional depreciation – Cary forward – Can be claimed in subsequent year

There is no restriction on assessee to carry forward additional depreciation and, thus, where only 50 per cent of additional depreciation is allowed in year of purchase of machinery as it was put to use for less than 180 days during said year, balance 50 per cent of additional depreciation can be claimed in subsequent assessment year (AY. 2007-08)

Apollo Tyres Ltd. v. ACIT (2014) 64 SOT 203 / 45 taxmann.com 337 (Cochin)(Trib.)

249. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Payable – Merilyn Shipping 146 TTJ 1 (Vizag.) has binding effect in view of the SLP dismissal & the clarification in Janapriya Engineers (AP) (HC) and so amounts already paid during the year cannot be disallowed

The Tribunal had to consider whether in view of the Special Bench verdict in Merilyn Shipping & Transport 146 TTJ 1 (Vizag.), a disallowance u/s 40(a)(ia) could be made in respect of the amounts that have already been paid during the year and are not “payable” as of 31st March.

In the light of the decision rendered by Hon’ble Supreme Court in the form of dismissal of Revenue’s SLP in the case of Vector Shipping Services (P) Ltd. Section 40(a)(ia) is not applicable with reference to payments already made since the expression ‘payable’ has to be satisfied for invoking provisions of section 40(a)(ia). The fact that the order of the Special Bench delivered in the case of Merilyn Shipping & Transport has been kept in abeyance by the Andhra Pradesh High Court and that the Gujarat High Court has taken a different view is not relevant. In Janapriya Engineers Syndicate (I.T.A. No. 352 of 2014 dated 24-6-2014) the Andhra Pradesh High Court has clarified the issue of interim stay granted by it in the case of Merilyn Shipping & Transport and held that until and unless the decision of the Special Bench is upset by the High Court, it binds smaller Bench and co-ordinate Bench of the Tribunal. From the clarification issued by the High Court, it is clear that until and unless the decision of Marilyn Shipping & Transport is reversed by the Court, it is binding on all the benches of the Tribunal. We find that the Hon’ble Court has held that judicial discipline mandates that the decision of the Special Bench has to be followed by other benches. As on today, the stay order granted by the Hon’ble Court has been vacated and the order of the special bench is binding on other benches of the Tribunal. Therefore, respectfully following the same, we hold that no disallowance u/s. 40(a)(ia) can be made for amounts already paid during the year and which are not payable as of 31st March (ITA No. 1871/ Mum/2013, dated. 22-12-2014.) (A. Y. 2006-07).

Arcadia share & Stock Brokers Pvt. Ltd. v. DCIT (Mum.)(Trib.); www.itatonline.org

250. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Hire charges – Payment was made before due date of filing of return – Amendment by Finance Act, 2008 is retrospective effect from 1-4-2005

Assessee, engaged in transportation of goods, made payment of hire charges on 31-3-2007 after deducting tax at source, however, tax so deducted was remitted to Government Exchequer on 7-7-2007, i.e., beyond due date of remitting tax deducted at source but before due date of filing of return of income. AO disallowed payment of hire charges under section 40(a)(ia). In view of amendment made in section 40(a)(ia) by Finance Act, 2008 with retrospective effect from 1-4-2005 and CBDT Circular No. 1/2009, dated 27-3-2009, it was to be concluded that impugned disallowance made under section 40(a)(ia) by Assessing Officer was not sustainable and, thus, same was to be deleted (A.Y. 2007-08)

ACIT v. Shanthi Logistics (P.) Ltd. (2014) 64 SOT 141 (URO) / 43 taxmann.com 126 (Chennai)(Trib.)

251. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Income deemed to accrue or arise in India – Royalty – Pay channel charges – No disallowance can be made for failure to deduct tax at source in view of judgment of Delhi High Court, though the explanation is clarificatory in nature [Ss.9(I)(vi), 195]

Assessee company was engaged in the business of distributing cable signals. It received satellite signals from various channel companies in capacity of Multi System Operator. Assessee made payments to channel companies for receiving said signals without deducting tax at source. AO taking a view that payments in question were in nature of royalties, disallowed the same on account of non-deduction of tax at source. In view of insertion of Explanation 6 below clause (vi) of section 9(1) by Finance Act, 2012, payments made by assessee as ‘Pay Channel Charges’ would fall in category of ‘royalty’ as defined in clause (i) of Explanation 2 to section 9(1), however, even though Explanation 6 to section 9(1)(vi) inserted by Finance Act, 2012 is clarificatory in nature, yet in view of fact that at time of making payment, assessee’s case was covered by decision of Delhi High Court in case of Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 332 ITR 340 (Delhi)(HC) assessee could not be held liable to deduct tax at source from pay channel charges. Therefore, AO was not justified in disallowing claim of pay channel charges by invoking provisions of section 40(a)(ia). (A.Y. 2009-10)

Kerala Vision Ltd. v. ACIT (2014) 64 SOT 328 / 35 ITR 81 / 46 taxmann.com 50 (Cochin)(Trib.)

252. S. 40(a)(ia) : Amounts not deductible – Housing project – Disallowance cannot be made if the assessee has not claimed a deduction

Payment has not been claimed as a revenue expenditure while computing the income chargeable under the head ‘Profits and Gains of Business or Profession’ in this year and therefore the same would not fall for consideration in section 40(a)(i) of the Act. (ITA No. 598/ PN/2013, dt. 31-12-2014.)(A.Y. 2009-10)

Gera Developments Pvt. Ltd. v. JCIT (Pune)(Trib.); www.itatonline.org

253. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Dealers – Amendment is substantive – Each bill less than Rs. 20,000, no disallowance can be made [R. 6DD(k)]

Purchase of agricultural produce by making payment in cash would not be covered by exception provided in Rule 6DD(e), if it is purchased from dealers and not from cultivators or growers.

Where purchases by making payment in cash were effected from registered traders/ commission agents who were independent businessmen acting in their own capacity and not as an agent of assessee, purchases were not covered by exception given in Rule 6DD(k).

Amendment in section 40A(3) by Finance Act, 2008 with effect from 1-4-2009 can only be considered as substantive in nature and shall have prospective operation only. If purchase is effected from a single person by way of several bills/invoices and if value of each bill/invoice is less than Rs. 20,000 then payments made to settle each bill/invoice would not be hit by provisions of section 40A(3), as each bill/invoice has to be considered as a separate contract. (A.Y. 2007-08)

Raja & Co. v. Dy. CIT (2014) 64 SOT 12 (URO) / (2013) 37 taxmann.com 268 (Cochin)(Trib.)

254. S. 43(6) : Written down value – Block of assets – Depreciation actually allowed – WDV as per books at beginning of impugned assessment year 2003-04 became WDV for purpose of section 43(6) and entire exercise of re-determining WDV from year of inception till assessment year 2002-03 could not be upheld [Ss. 2(11)10(20), 32]

Assessee was constituted under Hyderabad Metro Water Supply & Sewerage Act, 1989. Being a local authority, its income was exempt from tax under section 10(20) up to assessment year 2002-03. With insertion of Explanation to section 10(20) by Finance Act, 2002 effective from 1-4-2003, assessee became taxable entity from assessment year 2003-04. AO was of opinion that as per provisions of section 43(6), block of assets were to be re-determined from time of inception and accordingly, referred matter to special audit for purpose of adjusting capital grants-in-aid to assets acquired/capitalised by assessee in all years up to assessment year 2002-03. Based on report of special audit, AO not only re-determined total income but also restricted depreciation. In terms of Explanation 6 to section 43(6), amount of depreciation provided in books of account up to previous year relevant to assessment year has to be considered as depreciation ‘actually allowed’ under Act, therefore, WDV as per books at beginning of impugned assessment year 2003-04 became WDV for purpose of section 43(6) and entire exercise of redetermining WDV from year of inception till assessment year 2002-03 could not be upheld. (A.Ys. 2003-04 and 2004-05)

Hyderabad Metropolitan Water Supply & Sewerage Board v. ACIT (2014) 64 SOT 96 (URO) / 46 taxmann.com 123 (Hyd.)(Trib.)

255. S. 45 : Capital gains – Business income – Investment in shares – Merely because assessee liquidates its investment within a short span of time, which had given better overall earning to assessee, it would not lead to conclusion that assessee had no intention to keep on funds as investor in equity shares – Assessable as short term capital gains and not as business income. [Ss. 2(42B), 28(i), 115A, 115AD]

Assessee had been consistently investing in shares, though there was large volume of transactions in trading of shares within a short period, assessee had invested in equity shares of Indian companies and all along treated same as capital asset, i.e., assessee had not valued shares as stock but valued same as investment. Two separate accounts were maintained in respect of shares so purchased, i.e., ‘trading account’ and ‘investment account’. Analysis of balance sheet of assessee also fortified that equity shares were treated as investment. Merely because assessee liquidates its investment within a short span of time, which had given better overall earning to assessee, it would not lead to conclusion that assessee had no intention to keep on funds as investor in equity shares, but was actually intended to trade in shares. Gains earned on sale of such investment was capital gains and AO’s action of treating it as business income was not justified. (A.Y. 2005-06)

Dy. CIT v. E-Cap Partners (2014) 64 SOT 192 / 45 taxmann.com 342 (Mum.)(Trib.)

256. S. 50B : Capital gains – Slump sale – Depreciable assets – Block of assets – Sale of business as going concern assessable as slump sale [Ss. 2(11), 45]

The assessee was engaged in manufacture of dyestuffs and chemicals, pharmaceuticals and pesticides, and also manufacture of additives, polymers, pigments and composites. During relevant year, the assessee sold its oral hygiene business (OHB) to another concern namely CPL. Assessee claimed that since it was a case of slump sale, capital gain arising from said transaction was not liable to tax. Revenue authorities rejected assessee’s claim. Since it was apparent from sale agreement that business was transferred as a going concern and sale consideration was not itemised, transaction in question amounted to slump sale and, thus, assessee’s claim was allowed. (A.Y. 1995-96)

Novartis India Ltd. v. DCIT (2014) 64 SOT 182 (URO) / 45 taxmann.com 341 (Mum.)(Trib.)

257. S. 54F : Capital gains – Investment in a residential house – Amount paid to builder – Amount paid to builder for house is equivalent to amount spent by assessee for construction. Fact that only advance is given and construction is delayed beyond 3 years does not deprive assessee of exemption

The Tribunal held that the flat which is newly constructed by a builder on behalf of the assessee is in no way different from a house constructed. Section 54F being a beneficial provision has to be interpreted so as to give the benefit of residential unit viz., flat instead of house in the present state of affairs. Even if only advance is given the benefit still will be available for exemption u/s. 54F, though the construction is delayed beyond 3 years does not deprive assessee of exemption. (ITA No. 1520/Hyd/2013, dt. 31-12-2014.) (A.Y. 2009-10)

Pradeep Kumar Chowdhry v. DCIT (Hyd.)(Trib.); www.itatonline.org

258. S. 56(2)(vi) : Income from other sources – Amounts received under a Power of Attorney for making investments cannot be treated as income in the hands of the recipient

Section 56 of the Act deals with income from other sources. Sub-clause (vi) to section 56(2) was inserted by taxation laws (amendment) Act, 2006, with effect from 1-4-2007. The plain reading of the aforementioned statutory provisions reveals that it is intended to tax a receipt of money without consideration. The impugned amount was received by the assessee for making the investment on behalf of Ustad Zakir Hussain, on the basis of Power of Attorney. If the provisions of the Act and the content of the Power of Attorney are kept in juxtaposition and analysed then it can be concluded that the mutual funds, purchase and sold by the assessee were made on behalf of Shri Zakir Hussain and there is no evidence to establish that the investment made by the assessee is from the funds of Shri Zakir Hussain as is evident from return of income, balance sheet filed in the case of Ustad Zakir Hussain and the explanation of the assessee there is no doubt about the genuineness of the transaction. The assessee never became the beneficiary of the impugned amount i.e. Rs. 25 lakh, thus there is no question of making the addition u/s. 56(2) (vi) of the Act. Even otherwise, the amount after liquidating the mutual fund was returned back meaning thereby, the amount was returned back along with profit, consequently, the provision of section 56(2)(vi) is not applicable (CIT vs. Saran Pal Singh (HUF) 237 CTR (P & H) 50 followed) (ITA No. 6232/Mum/2011, dt. 17-12-2014.) (A.Y. 2008-09).

Sannidhi C. Patel v. ITO (Mum)(Trib)www. itatonline.org

259. S. 69A : Unexplained money – Survey – computer printout sheet – Assessee has not explained satisfactorily – Addition was held to be justified. [Ss.68, 69, 133A, 292C]

A computer printout sheet was found during course of survey proceedings at assessee-firm’s business premises, which reflected Rs. 18.44 lakhs received from one of its partners ‘P’ for being used by a number of persons, including assessee. AO made addition under S.68 for amount noted to have been given to assessee-firm as assessee did not fulfil its obligation to explain document. However, assessee claimed it to be explained in as much as document itself reflected ‘P’ to be source of funds. CIT(A) held that as sums were not admittedly reflected in books and no money was actually found, S. 69 was applicable. Tribunal held that section 69A would apply as section 69 applies in respect of an unexplained investment. Tribunal held that question of applicability of any particular section was never an issue as it was inconsequential in view of assessee’s obligation to explain transaction, failing which amount reflected as received would be deemed as its income. Addition was justified.(A.Y. 2006-07)

Alliance Hotels v. ACIT (2014) 64 SOT 163 (URO) / 41 taxmann.com 123 (Mum.)(Trib.)

260. S. 80IA : Industrial undertakings –Windmills – Set-off of notional losses – Prior to initial year was held to be not justified. [S. 32(2)]

Assessee was engaged in manufacturing and sale of metal powders It was captively consuming electricity generated by its own wind mill power plant. AO held that assessee could not claim deduction under section 80IA on windmills as he has adjusted set-off of notional losses of prior to initial year. In appeal, CIT (A) allowed deduction for windmills treating same as separate undertaking and directed not to adjust notional losses of years prior to initial year of such claim. Tribunal held that question of set-off notional losses prior to initial year of claim did not arise in view of High Court’s decision in case of Velayudhaswamy Spinning Mills (P.) Ltd. v. ACIT [2012] 340 ITR 477(Mad.) (HC). (A.Ys. 2002-03, 2003-04, 2005-06, 2006-07, 2007-08 & 2008-09)(ITA Nos .782 to 787 & 869 to 874 (Mds) of 2012 dated 21-2-2013).

Metal Powder Co. Ltd. v. ACIT (2014) 26 ITR 759/ 51 taxmann.com 304 / (2015) 152 ITD 144 (Chennai) (Trib.)

261. S. 80-IAB : Undertaking – Development of Special Economic Zone – Since BOA had granted approval for transfer of bare-shell to co-developer in accordance with relevant provisions of SEZ Act and SEZ Rules, profits arising to assessee from such an authorised transaction were eligible for deduction

Assessee was engaged in business of developing, operating and maintaining real estate projects which inter alia included development of SEZs. Assessee company entered into a memorandum of understanding with DAPL as a co-developer for developing, operating and maintaining SEZ. Board of Approval (BOA) granted approval to said agreement. Assessee claimed deduction under section 80-IAB of Act against development income earned during year in respect of its SEZ project. AO rejected assessee’s claim holding that assessee sold bare-shell buildings to co-developer DAPL which was not a permitted activity. Since BOA had granted approval for transfer of bareshell to co-developer in accordance with relevant provisions of SEZ Act and SEZ Rules, profits arising to assessee from such an authorised transaction were eligible for deduction. (A.Y. 2008-09)

DLF Info City Developers (Chennai) Ltd. v. Addl. CIT (2014) 64 SOT 94 (URO) / 46 taxmann.com 124 (Delhi)(Trib.)

262. S. 80IB(10) : Housing project – Floor plan showing less than 1,000 sq.ft-Constructed duplex as per the need of the buyers – Brouchres to merge flats in to duplex for boosting sales – Denial of exemption was held to be not justified. [S.133A]

The assessee was an AOP of three members. The AOP was formed for developing a property and the assessee constructed two wings and each wing was to have 96 flats. All the flats were approved to be with the built-up area of less than 1000 sq. ft. as prescribed in clause (c) to Explanation to section 80-IB(10). The project was approved in the assessment year 2005- 06 and completed before March 2009 relevant to the assessment year 2009-10. There was a survey action under section 133A and during the survey, the officers noted that flats were constructed in such a way that the said flats could be conveniently combined with the lower 1-BHK flats vertically in order to generate spacious duplex flats. Revenue Officers interpreted these findings by stating that the assessee intended to sell 1 BHK flats as duplex flats. Further, the Assessing Officer relied on a colour brochure of ‘Duplex Floor Plan’ showing the drawing how two 1-BHK flats (located one above other) could be joined. It was found at the site and the same was impounded too. When combined, obviously, the built-up area of each of the said duplex flat exceeded the stipulated area limit of 1,000 sq. ft. built up area. Considering the discrepancies and the intention for generating duplex flat, the Assessing Officer interpreted the same against the assessee and opined that the assessee violated the condition relating to the area of the flat provided clause (c) of the Explanation to section 80-IB(10). Therefore, assessee was not found eligible for claim of deduction under such section. On appeal Tribunal held that, where construction provision and supply of design through brochure to merge flats into a duplex constituted only a marketing strategy to boost sale of flats and otherwise assessee constructed flats in accordance with approved plan and sold them as such to buyers, assessee was entitled for deduction under section 80IB. (A.Y. 2009-10)(ITA No 2443, 3704/ Mum/2012 dt 30-9-2014).

Poddar & Ashish Developers v. ITO (2014) 51 taxmann.com 505 / (2015) 152 ITD 117 (Mum.)(Trib.)

263. S. 80-IB(10) : Housing project – Income disclosed in the course of search and seizure – Deduction is eligible for additional income disclosed [S.132, 132(4), 153A, 153C]

The assessee, a partnership firm engaged, in construction business was subject to a search action under section 132(1). In the course of search, partner of the assessee-firm in a statement deposed under section 132(4), declared certain additional income pertaining to the housing project undertaken by the firm. The additional income declared was on account of on-money received from the customers to whom flats were sold in the said project. The assessee duly reflected such additional income in the returns of income filed in response to notice issued under section 153A(1)(a) for the captioned assessment years as the profits from its housing project, and since the said housing project was eligible for deduction under section 80-IB(10), it claimed deduction under section 80-IB(10) in relation to such additional income. The AO did not allow the claim of the assessee for deduction section 80-IB(10). CIT(A) affirmed the action of the AO. The Tribunal held that, where in response to notice issued under section 153A(1)(a) after search, assessee-firm declared certain additional income pertaining to a housing project undertaken by it, nature of income has to be treated as ‘business income’ albeit same was not accounted for in books of account. Benefits of Chapter VI-A, which inter alia includes section 80-IB(10) are applicable to an assessment made sections 153A to 153C. Assessee is eligible for deduction section 80-IB(10) in relation to additional income pertaining to a housing project which was offered in a statement under section 132(4) in course of a search and subsequently declared in return filed in response to notice under section 153A(1)(a). (A.Y. 2008-09 to 2010- 11).

Malpani Estates v. ACIT (2014) 64 SOT 105 (URO) / 164 TTJ 803 / 44 taxmann.com 242 (Pune)(Trib.)

264. S. 80-IB(10) : Housing project – Completion certificate – Deduction cannot be denied on the ground that the completion certificate has not been issued by the municipality if the assessee has completed construction before the due date [S. 133(6)]

Explanation (ii) to section 80IB(10)(a) of the Act prescribes that the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority. In the present case, the local authority, i.e. Pune Municipal Corporation has not issued the requisite completion certificate (to be understood as occupancy certificate in the context of the PMC) before the stipulated date. However, the assessee has countered the aforesaid objection by pointing out that in fact it has completed the construction of the project on 4-12-2007 i.e., much before the stipulated date of completion contained in section 80IB(10)(a) of the Act, it had applied to the PMC for obtaining of the occupancy certificate based on the certificate of the architect and the other NOCs required for the said purpose. The CIT(A) has also called for information u/s. 133(6) of the Act from the PMC and its response did not reveal any objection on the part of the PMC that the construction was not complete with respect to the sanctioned plans. Therefore, there is no controversion to the assertions of the assessee that its project was otherwise complete as per the sanctioned plans within the stipulated date. Deduction is eligible. (ITA No. 598/PN/2013, dated 31-12-2014 ‘A’.) (A.Y. 2009-10)

Gera Developments Pvt. Ltd. v. JCIT (Pune)(Trib.); www.itatonline.org

265. S. 80IC : Special category states –Manufacture – Cutting and polishing of diamond – Eligible deduction

Cutting and polishing of diamond amounts to manufacturing or production of article or thing and, therefore, an assessee, engaged in said activity, is entitled to claim deduction. (A.Y. 2008- 09 and 2009-10).

Flawless Diamond (India) Ltd. v. Addl. CIT (2014) 64 SOT 135 (URO) / 45 taxmann.com 67 (Mum.)(Trib.)

266. S. 80M : Intercorporate dividend – Tax on distributed profits – Domestic companies – Dividend was received by assessee-company by 31-3-2003, i.e., before, 1-4-2003 – Exemption is available. [S.115-O]

Assessee-company claimed deduction under section 80M in respect of proposed final dividend during financial year 2002-03. AO disallowed assessee’s claim on ground that such dividend distribution was hit by section 115-O, so that no deduction under section 80M was eligible for assessment year 2003-04. Tribunal held that deduction under section 80M was in respect of dividend received by assesseecompany which had, by itself, nothing to do with dividend declared, distributed or paid by assessee-company, which alone could be a subject matter of tax under section 115-O(1). There was no overlap between deduction under section 80M and tax under section 115-O(1) in instant case, so that a deduction under former could not be withdrawn with reference to latter. Even otherwise since impugned dividend was received by assessee-company by 31-3-2003, i.e., before, 1-4-2003, there was no question of applicability of section 115-O. (A.Y. 2003-04).

New India Assurance Company Ltd. v. CIT (2014) 64 SOT 156 (URO) /(2013) 33 taxmann.com 304 (Mum.)(Trib.)

267. S. 80M : Inter-corporate dividends – Once deduction is allowable under specific section, which is on an altogether different footing, same cannot be withdrawn by any other section unless conditions mentioned under any overriding section have been infringed [S. 115-O]

Assessee, engaged in business of sale of shares and investments in mutual funds, received dividend on which tax was deducted. It had distributed same before due date of filing of return to its shareholders and claimed exemption under section 80M. AO noticed that section 115- O had been brought in statute book with effect from assessment year 2003-04 which clearly provides that dividend distributed will be subject to additional tax and no deduction would be allowed under any other provisions of Act and, accordingly, he held that no deduction under section 80M was allowable to assesse. Tribunal held that purpose and intent of section 115-O is entirely different from section 80M deduction in as much as it sought to tax dividend at time of declaration/distribution/ payment and such payment of tax cannot be claimed as deduction under any section or any other provision, and, thus, in instant case deduction allowable under section 80M to assessee was not overridden by section 115-O and provisions of section 115-O would not negate assessee’s claim for deduction under section 80M. Once deduction is allowable under specific section, which is on an altogether different footing, same cannot be withdrawn by any other section unless conditions mentioned under any overriding section have been infringed. (A.Y. 2003-04).

Shah Investments Financials Developments & Consultants Ltd. v. ITO (2014) 64 SOT 270 / 46 taxmann.com 107(Mum.)(Trib.)

268. S. 90 : Double taxation relief – Once resident State has a right to tax income of partnership firm irrespective of fact that same is being taxed from partners of firm, then it has to be treated as fiscal domicile of that State – DTAAIndia- Denmark [Article 4]

The assessee firm was a partnership firm existing under the laws of Denmark and was also the resident of Denmark. The assessee had been appointed as the managing owner of the two Danish companies. The main activities of these two companies were shipping operations in the international traffic at the global level and the effective place of management was in Denmark. Tribunal held that, once resident State has a right to tax income of partnership firm irrespective of fact that same is being taxed from partners of firm, then it has to be treated as fiscal domicile of that State within Article 4 and, therefore, benefit of India-Denmark DTAA has to be allowed to said firm. (A.Ys. 1997-98 to 2003-04)

Dy. DIT v. A. P. Moller (2014) 64 SOT 147 (URO) /(2013) 158 TTJ 537 / 39 taxmann.com 27 (Mum.) (Trib.)

269. S. 92C : Transfer pricing – Arms’ length price – Royalty – sitting in judgment on business and commercial expediency of assessee was erroneous – TNMMDisallowance of royalty was held to be not justified. [S.37(1)]

Company was engaged in undertaking design, manufacturing, marketing and sale of air and gas separation equipments/plants. During relevant year assessee paid royalty to AE on account of sale made to unrelated party through AE. TPO opined that since sale was made by AE to other AEs of same group, there was no necessity for payment of royalty. He thus held that royalty paid by assessee to its own AE could not be allowed, same being unreasonable and purely a cosmetic transaction. Accordingly, addition was made to assessee’s ALP taking value of royalty paid to AE as nil. In view of order passed in case of CIT v. EKL Appliances Ltd. [2012] 345 ITR 241/209 Taxman 200/24 taxmann.com 199 (Delhi), impugned order of TPO sitting in judgment on business and commercial expediency of assessee was erroneous, even otherwise, once TNMM had been applied to assessee company’s transaction, it covered under its ambit royalty transactions in question also and, thus, a separate analysis and consequent deletion of royalty payment was unwarranted. (A.Y. 2005-06 and 2006-07) (ITA Nos. 1408 of 2010, 1040 & 1159 (Hyd) of 2011 dt 13-02-2014).

Dy. CIT v. Air Liquide Engineering India (P.) Ltd. (2014) 31 ITR 205 / 43 taxmann.com 299 / (2015) 152 ITD 157 (Hyd.)(Trib.)

270. S. 92C : Transfer pricing – Arm’s length price – Advertisement expenses paid to AE – Ad hoc addition was held to be not justified

Assessee entered into international transactions and benchmarked these transactions at entity level on basis of TNM method. It was case of assessee that its operating margin on its export activity was 47.17 per cent as against similar margin of comparables of 8.08 per cent. TPO accepted operating margin of assessee on export activity to be at arm’s length. However, transactions relating to advertising expenses paid to AEs was not considered to be at arm’s length price and entire amount was added as T.P. Adjustment. CIT (A) held that TPO had made this addition in ad hoc manner without adopting any method prescribed to determine ALP of a transaction and, consequently, deleted additions so made. Expenses of advertisement reimbursed by assessee to its AE belonged to export activity of assesse. Total expenditure made by assessee on sharing of advertisement expenses was reduced from operating margin of exports then also operating margin of assessee would be much more than operating margin of comparables. Thus, CIT (A) was right in deleting adjustment as though transaction of sharing advertisement expenditure might be an independent transaction but it related to activity of export. (A.Y. 2003-04 to 2005-06)

Lever India Exports Ltd. v. ACIT (2014) 64 SOT 45 (URO) / 43 taxmann.com 427 (Mum.)(Trib.)

271. S. 92C : Transfer pricing – Arm’s length price – CUP – Geographical location of market is of no consequence – Foreign exchange borrowings – Rupee loan cannot be compared with dollars or Pounds – Higher rate for lack of security was not justified

Assessee company was engaged in business of providing telecommunication services in India. In course of business, assessee provided its customers facilities for making calls to, and receiving calls from, overseas subscribers. However, assessee’s network was used only to extent of domestic segment of those calls. Assessee entered into a bilateral arrangement with its AE located in Singapore. Assessee claimed that said transaction was entered into within tolerance range of +/- 5% of arm’s length price computed on basis of Internal Comparable Uncontrolled Prices. TPO rejected said plea on ground that for purpose of valid CUP analysis, rate charged to AE should be compared with non-AE in same market or geographically nearest market. TPO thus relying upon rate charged from a Malaysian company, made certain adjustment to assessee’s ALP. Since assessee provided services to international telecommunication companies only with respect to activity performed in India irrespective of area from where such international calls originated, impugned addition made on basis of geographical location of market was not sustainable.

When parent company is able to raise foreign exchange borrowings at a certain rate, such rate can constitute a valid comparable for similarly placed borrowings by subsidiary as well particularly in a case where subsidiary is under management and control of lender parent company and business risk is much lower.

Inflationary pressure on strong currency remains lower and, therefore, while determining ALP of interest charged by assessee-company on loans given to its non-resident subsidiaries in foreign currencies like British Pounds, US Dollars etc., TPO could not compare interest rate on rupee loans with interest rate on aforesaid strong currencies.

Where assessee had advanced monies to its subsidiaries which were under its management and control, TPO was not justified in making addition to assessee’s ALP in respect of interest charged by adding higher points to LIBOR as balancing figure towards lack of security. (A.Y. 2007-08).

Bharti Airtel Ltd. v. Addl. CIT (2014) 64 SOT 50 (URO) / 161 TTJ 283 / 43 taxmann.com 50 (Delhi) (Trib.)

272. S. 92C : Transfer Pricing – ALP of interest on funds advanced to AEs has to computed on LIBOR and not as per domestic Prime Lending Rate (PLR)

While benchmarking the international transactions what has to be seen is the comparison between related transactions i.e. where the assessee has advanced money to its associated enterprises and charged interest then the said transaction is to be compared with a transaction as to what rate the assessee would have charged, if it had extended the loan to the third party in foreign country. Once there is a transaction between the assessee and its associated enterprises in foreign currency, then the transaction would have to be looked upon by applying the commercial principles with regard to the international transactions. In that case, the international rates fixed being LIBOR+ rates would have an application and the domestic prime lending rates would not be applicable. The assessee has further explained that it had raised the loan from Citi Bank on international rates for the purpose of investment in the share application money of its associated enterprises, which in turn was partly converted from capital into loan. Where the assessee had a comparable of borrowing loan on international rates and advancing to its associated enterprises, then the said comparable was to be applied for benchmarking the transaction of advancing the loan on interest to its associated enterprises. The assessee had charged interest rate of 4.75% on the loan advanced to the associated enterprises. The assessee on the other hand, claims that it had borrowed the money on LIBOR+ rates i.e. international rates, which were Japanese based LIBOR+ rates which were lower than the US based LIBOR+ rates. The plea of the assessee before us was that it had advanced the loan to its associated enterprises on LIBOR+ rates i.e. 4.75%. Where the assessee has the internal CUP of operating at international rates available and since the said loan raised by the assessee at international rates was advanced to its associated enterprises, we find no merit in the order of the TPO in applying the domestic loan rates i.e. BPLR rates for benchmarking transaction of charging of interest on the loans advanced to the associated enterprises by the assessee. Where the assessee had made the borrowings on LIBOR+ rates and advanced the same at LIBOR+ rates, then the said transaction is at arm’s length price and there is no merit in any adjustment to be made on this account. (ITA No. 2482/PN/2012, dt. 30-12-2014.’B’) (A.Y. 2008-09).

Varroc Engineering Pvt Ltd. v. ACIT (Pune)(Trib.); www.itatonline.org

273. S. 92C : Transfer Pricing – Turnover filter – Comparables have to be excluded by the turnover filter without a FAR analysis being required to be conducted. The AO cannot rely on information obtained u/s. 133(6) which was not available in public domain [S. 133(6)]

In view of the turnover being higher than Rs. 200 crores in the case of the above companies, which was elected by TPO Tribunal directed the AO to exclude these companies from the list of comparables.

Tribunal also held that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO. (ITA no. 1129/Bang/2010, dated 31-12-2014.’B’) (A.Y. 2006-07).

Yahoo Software Development India P. Ltd. v. DCIT (Bang.) (Trib.)

274. S. 92C : Transfer pricing – Arm’s length price – Cost Plus Method (CPM) – Contract manufacturers

The assessee manufactured components of medical devices and sold it to its AE. The assessee claimed that it performed functions and undertook risks that were normally performed by a contract manufacturer. It chose Cost Plus Method (CPM) as the Most Appropriate Method (MAM) for determination of ALP. The assessee identified 19 comparable companies. Tribunal held that Cost Plus Method (CPM) is most appropriate method in case of contract manufacturers but that would be subject to satisfaction of parameters laid down in rules 10C(1) and 2(2). [Matter remanded].

Tribunal also held that where assessee entered into international transactions of contract manufacturing only with its AE, TPO in course of transfer pricing proceedings was required to give adjustments of additional functions performed by comparables in nature of selling and marketing as assessee being a contract manufacturer, was not required to perform said functions. (A.Y. 2004-05).

Dy. CIT v. GE BE (P.) Ltd. (2014) 64 SOT 129 (URO) / 42 taxmann.com 554 (Bang.)(Trib.)

275. S. 92C : Transfer pricing – Arm’s length price – Loan – LIBOR method of rate

During relevant year, assessee advanced loan to its AE located in Mauritius carrying interest at rate of 7.5 per cent per annum. In transfer pricing study, assessee benchmarked international transaction using LIBOR. Six months average US $ LIBOR rate for period April, 2006 to March, 2007 came to 5.39% per annum. Since, assessee actually charged 7.5 per cent which was higher than comparable uncontrolled price of six months US $ LIBOR, transaction of advancement of loan was claimed to be at arm’s length price. TPO by adopting interest rate taken earlier for advancing similar loans to associate enterprises, made certain adjustment. DRP confirmed said adjustment. Tribunal following the order passed in Siva Industries & Holdings Ltd. v. ACIT [2011] 46 SOT 112 (URO)(Chennai) and Mumbai Bench in Tata Autocomp Systems Ltd. v. ACIT [2012] 52 SOT 48 (Mum.), order of lower authorities was set aside and AO was to be directed to consider LIBOR method of rate of interest for purpose of determining arm’s length price of transaction in question. (A.Y. 2007-08).

Apollo Tyres Ltd. v. ACIT (2014) 64 SOT 203 / 45 taxmann.com 337 (Cochin)(Trib.)

276. S. 92C : Transfer pricing – Arm’s length price – CUP method – Future data cannot be contemplated –Valuation of goods accepted by custom authority cannot be considered appropriate for purpose of arriving at ALP

Where assessee purchases raw material from its AE located abroad as well as from uncontrolled enterprises operating in domestic market and, there is high degree of product comparability, in such a case CUP method is most appropriate method to determine ALP in respect of such transactions. Transfer pricing regulations do not contemplate taking into account future data for purpose of benchmarking international transactions. Valuation of goods accepted by custom authority cannot be considered appropriate for purpose of arriving at ALP. Matter remanded. (A.Y. 2003-04).

ACIT v. Denso India Ltd. (2014) 64 SOT 191 (URO) /(2013) 33 taxmann.com 89 (Delhi)(Trib.)

277. S. 94(8) : Transaction in securities –Units – Bonus stripping – Portfolio Management System (PMS) – Claim for set off of loss could not be rejected

In course of assessment proceedings, AO found that shares of two companies were purchased in quick succession, at time when bonus shares were due to be allotted i.e. assessee bought these shares cum-bonus and immediately after allotment of bonus shares, original shares whose value had reduced to almost 50 per cent due to allotment of bonus shares were sold at reduced market price – As a result thereof, assessee incurred a loss even though his wealth remained intact. AO treated said transactions as trading activities and, thus, loss incurred in respect of those transactions was rejected to be set off against long-term capital gain on sale of other shares. CIT(A) held that these share transactions to be ‘bonus stripping’ in investors’ parlance and held them to be covered under section 94(8) CIT(A) further opined that since section 94(8) covered only ‘units’ and not ‘securities’, assessee’s claim for set-off of loss could not be rejected. Tribunal affirmed the order of CIT(A). (A.Y. 2007-08).

Dy. CIT v. B.G. Mahesh (2014) 64 SOT 39 (URO) / 43 taxmann.com 158 (Bang.)(Trib.)

278. S. 139 : Return of income – Revised return – Rejection of revised return was held to be not justified [Ss. 40(a)(ia), 139(5), 139(9)]

In the revised return, the assessee disallowed advertisement charges under section 40(a)(ia) for non-deduction of tax at source and also made a fresh claim for deduction of ‘loss on clearance sale’.

The AO taking a view that the filing of revised return itself was an afterthought, did not consider the revised return. However, he disallowed the advertisement expenses under section 40(a)(ia). Where assessee filed a revised return in accordance with provisions of section 139(5), revenue authorities were not justified in rejecting said return without following procedure prescribed under section 139(9) by merely taking a view that revised return was an afterthought and it was filed only to reduce assessee’s tax liability. (A.Y. 2006-07).

K. Kasi Vishwanathan & Bros. v. ACIT (2014) 64 SOT 154 (URO) / 42 taxmann.com 176 (Cochin) (Trib.)

279. S. 143(3) : Assessment – Bogus purchases – Merely because a party has admitted to indulging in sham/accommodation transactions does not mean that all his transactions with the assessee should be treated as sham. [S.69]

It is not in dispute that the survey action was conducted on a third party. It is also not in dispute that the assessee had business relation with Moxdiam Group, like so many other parties. It is also a fact that there is not even an iota of evidence with the AO, to prove that the assessee did not have straight dealings with the Moxdiam Group. It is also a fact that the assessee entered each of its transaction in its primary books, comprising of ledger and stock register. From the order of the AO, the DR could not establish before us that the transaction as recorded in the books was sham. We cannot accept a bald statement made by the AO that any transaction/business done with a party would be sham, simply because the opposite party besides doing regular business was also indulging in providing accommodation entries. Simply on the basis of statement given by the third party, that they were also providing accommodation entries as well, the conduct of the assessee cannot be doubted and held to be sham.(ITA No. 2239/Mum/2012, dt. 5-12-2014) (A.Y. 2007-08).

ACIT v. G. V. Sons (Mum)(Trib.)www.itatonline.org

280. S. 143(3) : Assessment – AIR information – Additions made solely on the basis of AIR information are not sustainable in law. The AO has to prove that assessee has received income from a particular source. The assessee cannot be expected to prove the negative

It has been held time and again by this Tribunal that the additions made solely on the basis of AIR information are not sustainable in the eyes of the law. If the assessee denies that he is in receipt of income from a particular source, it is for the AO to prove that the assessee has received income as the assessee cannot prove the negative. Reliance can be placed in this respect on the decision of the Tribunal in the case of “DCIT v. Shree G. Selva Kumar” in ITA No.868/ Bang/2009 decided on 22-10-2010 and another case in the case of “Aarti Raman vs. DCIT” in ITA No.245/Bang/2012 decided on 5-10-2012. (5181/M/2012, dt. 5-12-2014) (A.Y. 2008-09)

ANS Law Associates v. ACIT (Mum) (Trib.) www. iatonline.org

281. S. 144C : Reference to transfer pricing officer – Draft assessment order – Order passed without passing draft order was held to be illegal [Ss. 92CA, 92C]

Where AO did not furnish to assessee a draft assessment order, before passing a final assessment order, assessee was deprived of an opportunity of approaching DRP under section 144C(15) and hence assessment order passed by AO illegal and liable to be quashed. Where show cause notice issued by AO before making ALP adjustment cannot be treated as a draft assessment order, nor assessee could have approached DRP against same. (A.Y. 2007-08) (ITA Nos. 1356 & 1371 Delhi) of 2012 dt 30-9- 2014)

Capsugel Healthcare Ltd. v. ACIT (2014) 50 taxmann.com 324 / (2015) 152 ITD 142 (Delhi) (Trib.)

282. S. 145 : Method of accounting – Cash system – Hire purchase agreement – Instalment received was to be included as income [S.4]

Where assessee, following cash system of accounting, sold certain flats under ‘hire purchase agreement’, amount of instalments received during relevant year was to be included in its income after allowing corresponding expenditure expended by assessee in cash or Cheque. (A.Y. 2003-04 to 2008-09).

ACIT v. Punjab Urban Development Authority, Mohali (2014) 64 SOT 65 (URO) / 32 ITR 481 / 161 TTJ 553 / 42 taxmann.com 160 (Chd.)(Trib.)

283. S. 192 : Deduction at source – Salary – Medical expenditure – Reimbursement made prior to incurrence of expenditure would be perquisite – Honest and bona fide estimate was made – No penalty could be imposed. [S. 17(2), 201, 201(IA)]

Assessee made payment to employee which included a component towards medical expenditure; accordingly, employees were paid a sum every month. Payment of medical reimbursement made prior to incurrence of expenditure up to Rs. 15,000 p.a. satisfied all conditions prescribed in proviso (v) to section 17(2) and, therefore, same would be treated as perquisite. Whether, since honest and bona fide estimate of salary taxable was made by employer, no penalty under section 201 and 201(1A) could be levied. (A.Y. 2008-09 and 2009- 10)

ACIT v. Cisco Systems Asia Services (2014) 64 SOT 32 (URO) / 38 taxmann.com 381 (2013)(Bang.) (Trib.)

284. S. 192 : Deduction at source – Salary – Meal coupons – Not perquisite – Not liable to deduct tax at source [Ss.17(2), 201(1)]

AO disallowed claim of expenditure incurred on food coupons disbursed by assessee-employer to its employees on ground that there was scope for misuse of these coupon as identity of users could not be verified. He held value of food coupons as part of salary liable to TDS under section 192 and raised demand under section 201(1) for nondeduction of TDS . On appeal, CIT(A) reversed order of AO. Tribunal following case of Cadila Healthcare Ltd. v. Addl. CIT [2013] 56 SOT 89 (URO)/29 taxmann.com 229 (Ahd.), order of CIT (A) was affirmed. (A.Y. 2008-09 and 2009-10).

ACIT v. Cisco Systems Asia Services (2014) 64 SOT 32 (URO) / 38 taxmann.com 381(2013)(Bang.)(Trib.)

285. S. 192 : Deduction at source – Salary – Leave Travel Concession [LTC] – Reimbursement of medical expenses – Not liable to deduct tax at source [Ss.10(5), 17(2)]

Assessee paid to its employee every month certain amount in advance towards leave travel concession [LTC]. Once employee completed his travel, he had to submit evidence for having incurred expenditure and it was on basis of such evidence, exemption was worked out by assessee in accordance with provisions of section 10(5) read with Rule 2B. Similarly assessee paid to its employee every month an amount of Rs. 1250 [Rs. 15,000 per annum] in advance towards medical reimbursement. Said amount was treated as exempt only if supported by bills and whenever bills were not submitted amount was treated as taxable salary. Assessee as employer deducted tax at source under section 192 at end of financial year. In peculiar facts of case assessee was not obliged to deduct tax at source on amount paid in advance towards LTC and medical reimbursement at time of making payment. (A.Y. 2007-08 to 2010-11)

ITO v. Goodrich Aerospace Services (P.) Ltd. (2014) 64 SOT 27 (URO) /(2013) 38 taxmann.com 37 (Bang.)(Trib.)

286. S. 192 : Deduction of tax at source – Salary – Perquisite – Meal vouchers – Not liable to deduct tax at source [Ss. 10(5), 17 (2), 201(1A]

Assessee as part of its plan provided to its employees meal vouchers/coupons, which were usable at centres within campus and also at certain eating joints. Disbursement of meal coupons by assessee to employees did not require tax to be deducted thereon under section 192. (A.Ys. 2007-08 to 2010-11)

ITO v. Goodrich Aerospace Services (P.) Ltd. (2014) 64 SOT 27 (URO) / (2013) 38 taxmann.com 37 (Bang.)(Trib.)

287. S. 194C : Deduction at source – Contractors – Sub-contractors – Machinery taken on monthly charges could not be covered by term ‘Work contract” – No disallowance could be made S.40(a)(ia)]

The assessee made payment to LDS Engineers towards ‘Excavation charges’. The AO held that the tax at source was required to be deducted on the payment made to LDS Engineers and the failure to do so attracted the provisions of section 40(a)(ia). He, therefore, made disallowance of the said sum. On appeal, the CIT(A) upheld the order of the AO and treated the amount paid to LDS Engineers as covered under section 194C. On appeal to the Tribunal held that it was found that said payment was made for hiring of machinery for excavation on fixed monthly rent. Machinery taken on monthly rental could not be covered by term ‘work contract. Therefore, no disallowance could be made under section 40(a)(ia) (AY. 2006-07) ( ITA Nos. 2082 and 2258 (Delhi) of 2010 dt. 12- 9-2014).

LDS Engineers (P.) Ltd. v. ITO (2014) 35 ITR 262 / 52 taxmann.com 163/ (2015) 152 ITD 140 (Delhi)(Trib.)

288. S. 194C : Deduction at source – Contractors and sub-contractors – Reimbursement of expenses – C&F agents on behalf of assessee – Not liable to deduct tax at source [Ss.40(a)(ia), 194J]

Where expenses were incurred by C&F agents on behalf of assessee and claims were made on actual basis, assessee while making reimbursement of said expenses was not liable to deduct tax at source under section 194C. (A.Y. 2005-06)

Dy. CIT v. Dhaanya Seeds (P.) Ltd. (2014) 64 SOT 15 / 42 taxmann.com 277 (Bang.)(Trib.)

289. S. 194C : Deduction at source – Contractors and sub-contractors – Responsibility to deduct tax at source on freight payments would depend upon terms of agreement entered/available between assessee and suppliers – Matter remanded

Where supplier takes responsibility to deliver goods to doorsteps of assessee, then it can be inferred that contract exists between lorry owners and supplier and in that case, even if assessee makes payment of freight charges, it would be considered as payment made to concerned supplier. On the other hand, if assessee is responsible to take delivery from doorsteps of supplier, then it can be inferred that contract exists between assessee and lorry owners and in that kind of situation, even if, supplier engages lorry, it has to be construed that supplier is acting as agent of assessee in process of booking of lorry for purpose of transportation of goods to assessee. Where AO took a view that assessee was liable to deduct tax at source on lorry freight payments without examining terms of agreement between assessee and suppliers, matter was to be remanded to AO to consider same afresh. Matter remanded. (A.Y. 2007-08).

Raja & Co. v. Dy. CIT (2014) 64 SOT 12 (URO) / (2013) 37 taxmann.com 268 (Cochin)(Trib.)

290. S. 194C : Deduction at source – Contractors and sub-contractors – Specific provision would prevail over general one – Maintenance work – Provisions of section 194C is applicable and not section 194J [Ss.194J, 201(IA), 207(1)]

Assessee-company had entered into contracts with various parties for maintenance work of its various equipments, installations, viz., airconditioners, lifts, etc. Same being contractual maintenance work, assessee deducted tax at source under section 194C. Revenue claimed that above work was of technical nature and same would be covered under section 194J and, thus, raised demand for shortfall in tax deducted as well as for interest thereon under section 207(1) and 201(1A). Since word ‘work’ is defined under section 194C in an inclusive manner to include certain specified services, viz., advertising, catering, broadcasting and telecasting, etc. present type of maintenance work would also clearly fall within ambit of ‘work’. Where it was clarified from bills issued by contractors that work like maintenance of equipment, cleaning and checking of parts, etc. was of routine nature and required less technical skills, assessee had correctly deducted tax at source under section 194C. Where there are two provisions, i.e., section 194C and section 194J, first one is general and other is specific covering a particular transaction, specific provision would prevail over general one. (A.Ys. 2007-08 to 2009-10)

ITO v. Bharat Sanchar Nigam Ltd. (2014) 64 SOT 138 / 45 taxmann.com 124 (Mum.)(Trib.)

291. S. 194C : Deduction at source – Contractors and sub-contractors – Hiring of truck would be an independent contract – Hire of trucks was in course of back to back hiring arrangements, it would be a sub-contract. [Ss.40(a)(ia), 194(2)]

Assessee was engaged in business of transport, hiring trucks and warehousing. He made payments of truck hire charges without deducting tax at source. AO disallowed payments under section 40(a)(ia). In case assessee used hired truck in course of carrying out his business of transportation of goods, it would be an independent contract and, thus, payments for truck hire could not be treated as payments to sub-contractor, in such a situation, provisions of section 194C(2) would not come into play, however, in case hire of trucks was in course of back-to-back hiring arrangements, it would clearly be a case of sub-contracting and provisions of section 194C(2) would come into play. Since there was no finding on aforesaid aspect, impugned disallowance was to be deleted and matter was to be remanded back for disposal afresh (A.Y. 2007-08).

Laxmandas Tolaram Gurnani v. ITO (2014) 64 SOT 143 (URO) / (2013) 35 taxmann.com 234 (Ahd.) (Trib.)

292. S. 194H : Deduction at source – Commission or brokerage – IATA approved agent – Discount – Commission paid to small time agent – Held not liable to deduct tax at source [Ss. 201, 201(IA)]

Assessee was an IATA approved agent and was engaged in business of booking air travel tickets for various airline companies. AO held that the assessee had been paying commission without deducting tax at source as required under section 194H raised demand. CIT(A) grouped payments in three categories viz., payments made to retail customers, group passengers and small time travel agents and held that only discounts/commission paid to small time agents were liable for TDS under section 194H. Since retail customers or group customers were not providing any service to assessee and were only getting flight tickets at a concession from assessee, such customers could not be considered as ‘agent’ of assessee and hence amount of commission ceded by assessee partook character of ‘discount’ only. Commission income ceded by assessee in respect of tickets purchased by small time travel agents on behalf of their respective customers, would partake character of ‘discount’ only, therefore, such discount payments would not be covered by provisions of section 194H. (A.Ys. 2006-07 to 2009-10)

ACIT v. Al Hind Tours & Travels (P.) Ltd. (2014) 64 SOT 1 / 29 taxmann.com 294 (Cochin)(Trib.)

293. S. 194-I : Deduction at source – Rent – Hired vehicle – Vehicle or motor car would stand to be included within purview of words ‘plant’ or ‘machinery’ under section 194-I – Making available services of a chauffeur as well as meeting fuel cost of transportation, same could not be considered towards car rental, and, thus, payment towards such contractual services would be covered by S. 194C. [S. 194C]

Assessee-company made payment towards hired vehicle and, accordingly, deducted tax at source under section 194C. According to revenue same was to be covered under section 194-I. Vehicle or motor car would stand to be included within purview of words ‘plant’ or ‘machinery’ under section 194-I. Arrangement for providing vehicle/cars to assessee’s personnel for their work would stand to be covered under section 194-I. Since arrangement also included making available services of a chauffeur as well as meeting fuel cost of transportation, same could not be considered towards car rental, and, thus, payment towards such contractual services would be covered by section 194C and balance amount would be governed by section 194-I. (A.Ys. 2007-08 to 2009-10).

ITO v. Bharat Sanchar Nigam Ltd. (2014) 64 SOT 138 / 45 taxmann.com 124 (Mum.)(Trib.)

294. S. 194J : Deduction at source – Fees for professional or technical services – Fixed salary and guarantee money to consultants cannot be termed as salary – AO was not justified in holding that there was not justified in holding that the assessee was liable to deduct tax as salary [Ss.192, 201].

Assessee-hospital engaged both employee doctors and consultant doctors. While employee doctors were entitled to salary, leave and medical benefit, consultant doctors were entitled only to lump sum monthly payment of guarantee money without above benefit. Along with guarantee money, they were entitled to share of amount collected by hospital. Impugned ‘Fixed salary and Guarantee Money to Consultants (FGC’s) contract’ between consultant doctors and assessee. A survey was carried out in the assessee-hospital and it was found that TDS was not correctly deducted by the assesseehospital. Thus, an order under section 201 was passed in which tax was imposed alleged to be on account of default under section 192 by the assessee-hospital in respect of engagement of consultant doctors.

The assessee-hospital claimed that there was no short deduction of tax as TDS was deducted as per provision of section 194J. The AO held that there was employer and employee relationship between said doctors and assessee-hospital, hence the deduction should have been done as per the provision of section 192. On appeal, the Commissioner (Appeals) accepted assessee’s claim by holding that payment made to doctors are professional fee for which the assesseehospital has rightly deducted tax under section 194J. On second appeal Tribunal held that the contract between consultant doctors and assessee hospital could not be said to be in nature of a ‘service contract’, it would merely be a contract for medical service. Fee for professional service paid to consultant doctors by assessee-hospital under contract was covered by section 194J. Therefore, the AO was not justified to impute or implicate such a default on the part of the assessee for failure to deduct an adequate tax. [para 8] (S. 194J dated 23rd December, 2010) (A.Y. 2007-08).

ITO v. Apollo Hospitals Internationals Ltd. (2014) 64 SOT 302 / 9 taxmann.com 95 (2011)(Ahd.)(Trib.)

295. S. 195 : Deduction at source – Non-resident – Commission – Foreign agent – Not liable to deduct tax at source. [S. 9(1)(i)]

Commission made by assessee to its foreign agents for rendering services abroad was not taxable in India and, thus, assessee was not required to deduct tax at source while making said payments (A.Y. 2009-10).

ACIT v. Model Exims (2014) 64 SOT 4 (URO) / 45 taxmann.com 140 (Luck.)(Trib.)

296. S. 195 : Deduction at source – Non-resident – Fees for technical services – Marketing agent- Payment made to foreign party was taxable in India – Liable to deduct tax at source [S.9(1)(vii)].

Assessee engaged company SR as marketing agent for South East Asian countries. Work of company SR was to identify potential customer and file a report regarding market strategy and developmental studies. Agreement did not enable company SR to market product of assessee in South East Asian countries. Company SR only had to do survey and file a report so that assessee could market their product after considering report filed by foreign party. Marketing survey and identifying potential customers for assessee’s product were only consultancy services and, therefore, payment made to foreign party was taxable in India and, hence, assessee was bound to deduct tax under section 195. (A.Ys. 2004-05 to 2006-07)

English Indian Clays Ltd. v. ACIT (2014) 64 SOT 25 (URO) / 39 taxmann.com 50 (2013) (Cochin)(Trib.)

297. S. 195 : Deduction at source – Non-resident – Co-owners – sale consideration was paid to nonresident co-owner, assessee was required to deduct tax at source while making said payment [Ss. 54 F, 195(2), 201(1)]

Assessee purchased a property owned by two co-owners. One of co-owner was a non-resident who had executed a General Power of Attorney in favour of other co-owner to execute sale agreement. In course of assessment, Assessing Officer opined that since one of co-owner was a non-resident, assessee was required to deduct tax at source under section 195 while making payment of sale consideration. In view of provisions of section 195, to extent sale consideration was paid to non-resident co-owner, assessee was required to deduct tax at source while making said payment. Therefore, it is held that the assessee can be considered as an ‘assessee in default’ only to the extent of Rs. 60 lakhs paid to the non-resident. (A.Y. 2009-10).

R. Prakash v. ITO (2014) 64 SOT 10 /(2013) 38 taxmann.com 123 (Bang.)(Trib.)

298. S. 195 : Deduction at source – Reimbursement of expenses – Not liable to deduct tax at source. [S. 40(a)(ia)]

AO held that payments made by assessee to UK based company were not in nature of reimbursement of expenses and, hence, liable for deduction of tax under section 195. CIT(A) upheld order of AO. Therefore, reimbursement made by assessee to UK Company was not liable for TDS. (A.Y. 2008-09)

ITO v. AON Specialist Services (P.) Ltd. (2014) 64 SOT 78 / 43 taxmann.com 286 (Bang.)(Trib.)

299. S. 195 : Deduction at source – Non-resident – Income deemed to accrue or arise in India – Business connection – Animation films – Outsourcing Facilities Agreement – Payment was not fees for technical services – Not liable to deduct tax at sources. [Ss.5(2)(b), 9(1)(vii), 195, 201]

Assessee company was in business of production of 2D and 3D animation films. Assessee got orders from various companies for production of animation films. During relevant years, assessee outsourced a part of project received from some clients. In that process, assessee made payment to foreign companies as per agreement named as ‘Outsourcing Facilities Agreement’. AO opined that payments made to foreign companies fell under ‘fees for technical services’ and thus said payments were taxable in India. Since there was no element of any technical services in production of animation films nor in production of a part or certain episodes of an animation film, provisions of section 9(1)(vii), read with section 5(2)(b) did not apply. Order of AO was set aside. (A.Ys. 2006-07 to 2008-09)

ADIT v. DQ Entertainment (International) (P.) Ltd. (2014) 64 SOT 152 / 164 TTJ 84 / 45 taxmann.com 17 (Hyd.)(Trib.)

300. S. 195 : Deduction at source – Nonresident – Hire charges – Credit entry attracts the provision – Disallowance of expenses was held to be justified. [S. 9(1)(i)

Assessee, a tax resident of Thailand, was engaged in execution of hydroelectric-power project of NTPC as a sub-contractor of another Thailand based company ITDL. ITDL provided certain machinery on hire to assessee-company. Assessee’s case was that since it did not pay hire charges by cash or cheque and ITDL had merely adjusted hire charges from dues to assessee on account of contract work done for ITDL, there was no obligation to deduct tax at source on account of said expenses. Revenue authorities rejected assessee’s claim. Method of settlement of accounts is of no consequence as even a credit entry attracts provisions of section 195. Therefore, impugned disallowance of hire charges on account of non-deduction of tax at source was to be confirmed. (A.Ys. 2005-06 to 2008-09).

Right Tunnelling Co. Ltd. v. ADIT (2014) 64 SOT 109 (URO) /45 taxmann.com 196 (Delhi)(Trib.)

301. S. 195 : Deduction at source – Nonresident – Business connection – Legal charges – Arbitration proceedings at Thailand – Not liable to deduct tax at source – Article 22 of Model OECD Convention [S. 9(1)(i)]

Payment of legal expenses made by assessee to a law firm in Thailand in relation to arbitration proceedings conducted in said country, was not chargeable to tax in India and, thus, assessee was not required to deduct tax at source while making said payments (A.Y. 2005-06 to 2008-09).

Right Tunnelling Co. Ltd. v. ADIT (2014) 64 SOT 109 (URO) /45 taxmann.com 196 (Delhi)(Trib.)

302. S. 201 : Deduction at source – Failure to deduct or pay – Limitation – order passed by AO was prior to 31-3-2011 would not be a case of retrospective operation of provision of section 201(3)

Legislature introduced limitation for passing order under section 201 by Finance Act, 2009 with effect from 1-4-2010. In respect of financial year before 1-4-2007 a period was prescribed saying that order may be passed on or before 31-3-2011. For relevant assessment years, order passed by AO was prior to 31-3-2011 would not be a case of retrospective operation of provision of section 201(3); it was only a regular operation of law. (A.Ys. 2004-05 to 2006-07).

English Indian Clays Ltd. v. ACIT (2014) 64 SOT 25 (URO) / 39 taxmann.com 50 (2013) (Cochin)(Trib.)

303. S. 246A : Appeal – Commissioner (Appeals) – Appealable orders – Tribunal – Levy of penalty – Appealable to CIT(A) and not Tribunal [Ss.253, 272A(2)(c)]

JDIT levied penalty under section 272A(2)(c) upon assessee. Against penalty order, assessee directly filed appeal before Tribunal. Tribunal held that penalty order passed by JCIT, who was lower in rank than CIT (A), was appealable before CIT(A) section 246A(1)(q), therefore, assessee had to file appeal before CIT(A) instead of directly filing before Tribunal. (A.Y. 2011-12).

Branch Manager, Punjab National Bank v. ITO (2014) 64 SOT 24 (URO) / (2013) 37 taxmann.com 385 (Cochin)(Trib.)

304. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Non mentioning in the assessment order cannot be held to be erroneous. [Ss. 43A, 80IA, 115JB, 143(3)]

The assessee was a company engaged in generation of power. After verifying the books of account and information submitted by the assessee, the AO completed the assessment under section 143(3) after allowing deduction under section 80-IA while accepting the book profit under section 115JB.

AO in course of scrutiny proceeding conducted detailed enquiry assessee also submitted its explanation explaining why it should not be treated as income. Since in view of decision of Supreme Court view taken by AO was possible view, only because view taken by AO did not appear to be correct to Commissioner, it could not be said that such view was erroneous and prejudicial to interests of revenue. Assessee treated gain derived from sale of Carbon Emission Reduction Certificates (CERCs) as revenue receipt and claimed deduction under section 80-IA which was allowed by AO. Commissioner, in order passed under section 263, held that gain from sale of CERCs having no direct nexus with eligible business of assessee, it could not be part of business profit so as to allow deduction under section 80-IA. Whether amount received on sale of CERCs was capital in nature and, therefore, even if AO had allowed deduction on that amount under section 80-IA treating it as revenue income, no prejudice was caused to revenue which is one of conditions for invoking jurisdiction under section 263.

Where reimbursement of advance tax by parties was not treated as income in assessee’s books of account, same also cannot be considered under provisions of section 115JB, which is to be computed based on profit and loss account of assessee-company.

Non-mentioning of all issues on which enquiry was made by AO in body of assessment order does not indicate lack of enquiry or non-application of mind; non-mentioning of such facts in assessment order would not make it erroneous and prejudicial to interests of revenue (A.Y. 2008-09)(ITA No. 897 (Hyd) of 2013 dated 26-6-2014)

Lanco Kondapalli Power Ltd. v. JCIT (2014) 33 ITR 142 / 50 taxmann.com 442 / (2015) 152 ITD 132 (Hyd.) (Trib.)

305. S. 271(1)(c) : Penalty – Concealment – Even if section 50C is applicable, computing capital gain de hors it does not amount to furnishing inaccurate particulars of income or concealment of income for levy of penalty u/s 271(1)(c) [S.50C]

The assessee sold office premises to its sister concern for a sale consideration of Rs. 1.55 crores. The Assessing Officer considered the full sale consideration as per stamp duty authority valuation at Rs. 2,00,08,000 in accordance with section 50C of Income-tax Act. Accordingly, the Assessing Officer made an addition to the Short term Capital Gain. Subsequently, the Assessing Officer initiated penalty proceedings u/s. 271(1) (c) for levy of penalty against the addition made to the short term Capital Gain and levied penalty. The CIT(A) has deleted the penalty. On appeal by the department to the Tribunal HELD dismissing the appeal:

The Assessing Officer has not given any finding that the sale consideration disclosed by the assessee is not actual amount received as per the agreement of sale. The addition was made by invoking the deeming provisions of section 50C whereby the full value of consideration was adopted as per the valuation of the stamp duty authority for levy of stamp duty. The assessee has disclosed all relevant details as well as documents in support of its computation of Short term capital gain by taking into consideration the actual sale consideration received by the assessee. Consequently penalty u/s. 271(1)(c) cannot be levied.(ITA No. 6454/ Mum/2011, dt. 10.12.2014.) (A.Y. 2008-09).

ACIT v. Sunland Metal Recycling (Mum)(Trib.) www. itatonline.org

306. S. 271(1)(c) : Penalty – Concealment –Reducing the sale proceeds of trial production from work in progress – Not liable penalty. [S.28(i)

Assessee company was engaged in business of scientific research and informatics services for drug discovery units. Assessee filed its return declaring certain taxable income. During assessment proceedings, AO noticed that certain amount representing trial run receipts was reduced from total sales and credited to work-in-progress capitalised in balance sheet. Assessee had not offered said amount to tax contending that project in respect of such trial run receipts were incomplete. AO treated amount received during trial run period as a regular activity and included it in total sales. He also levied penalty. It was noted that entire working of computation of work-inprogress by reducing amount of trial run receipts was properly disclosed in balance sheet which was a part of books of account produced before AO. Moreover, stand of assessee in reducing trial run receipts from work-in-progress for capitalisation was consistent with one taken in preceding year. On facts, there was no concealment of particulars of income and, therefore, impugned penalty order was to be set aside. (A.Y. 2004-05).

Jubilant Biosys Ltd. v. ITO (2014) 64 SOT 99 (URO) / 46 taxmann.com 289 (Delhi)(Trib.)

307. S. 271(1)(c) : Penalty – Concealment – Appeal admitted by High Court on substantial question of law – If the High Court admits the appeal u/s. 260A, it means that the issue is debatable and penalty cannot survive. [S.260A]

When the Hon’ble jurisdictional High Court has admitted substantial question of law on the addition, it becomes apparent that the addition so made has become debatable. The penalty was imposed on the basis of addition so made, therefore, when the addition on the basis of which the penalty was imposed has become doubtful/ debatable, therefore, penalty imposed u/s. 271(1)(c) of the Act cannot survive. Following the Hon’ble jurisdictional High Court, in CIT v. Nayan Builders and Developers (ITA No. 415/2012 dated 8-7-2014), the appeal of the assessee is allowed. However, it is made clear that if at any stage, the order of the Tribunal on quantum addition is upheld by the Hon’ble High Court, the Department is free to proceed in accordance with law on penalty proceedings. (ITA No. 8223/Mum/2010, dated 1-1-2015 ‘ E’.) (A.Y. 2004-05).

Schrader Duncan limited v. ACIT (Mum.)(Trib.); www. itatonline.org

308. S. 271(1)(c) : Penalty – Concealment –ESOP – Assessable as salary – Not liable to penalty. [Ss. 45, 54F]

Assessee contended that benefit arising from employees stock option is assessable as long term capital gains and benefit of section 54F is entitled. Revenue contended that the same is chargeable to tax under head ‘salaries’ and consequently, denied benefit of section 54F. Tribunal held that as bona fides of assessee could not be doubted and assessee was entitled to benefit of Explanation 1 to section 271(1)(c) (AY. 2006-07).

ACIT v. Chittaranjan A. Dasannacharya (2014) 64 SOT 226 / 45 taxmann.com 338 (Bang.)(Trib.)

309. S. 271FA : Penalty – Annual information return – Failure to furnish – Appeal is not maintainable to Tribunal – Appeal is maintainable to CIT(A). [Ss. 246A, 253]

DIT(I) levied penalty. In demand notice it was mentioned that an appeal could be filed under Part B of Chapter XX to Tribunal in Form No. 36. Against order of DIT(I) levying penalty the assessee filed appeal before Tribunal. Nowhere in section 253 it was mentioned that order passed by DIT(I) or any other officer of Income-tax department levying penalty under section 271FA was appealable before Tribunal, therefore, instant appeal was not maintainable before Tribunal. (A.Y. 2010-11)

SRO, Meppayur-Kozhikode v. DIT (2014) 64 SOT 10 (URO) / (2013) 26 ITR 341 /37 taxmann.com 36) (Cochin)(Trib.)

310. S. 272A(2)(c) : Penalty – Appeal – CIT(A) – Tribunal – Appealable orders – Levy of penalty – Appealable to CIT (A) and not Tribunal. [Ss. 246A, 253]

JDIT levied penalty under section 272A(2)(c) upon assessee. Against penalty order, assessee directly filed appeal before Tribunal. Tribunal held that penalty order passed by JCIT, who was lower in rank than CIT(A), was appealable before CIT(A) section 246A(1)(q), therefore, assessee had to file appeal before CIT(A) instead of directly filing before Tribunal (A.Y. 2011-12).

Branch Manager, Punjab National Bank v. ITO (2014) 64 SOT 24 (URO) / (2013) 37 taxmann.com 385 (Cochin)(Trib.)

Research Team

311. S. 4 : Income chargeable to tax – Mutuality – Transfer fees – Exempt

Transfer Fees received by Co-op. Housing Society from incoming & outgoing members (even in excess of limits) is exempt on the ground of mutuality.

CIT v. Darbhanga Mansion CHS Ltd. (2015) 113 DTR 217 (Bom.) (HC), www.itatonline.org

312. S. 5 : Scope of total income – Accrual of income – Civil suit pending-Income has not accrued, hence deletion of addition was held to be justified

Assessee a State Warehousing – Corporation was engaged in business of warehousing and incidental activity. Assessee had raised higher warehousing bills to circle stamp depot than that reflected in its books. AO made addition as income. Tribunal has deleted the addition. On appeal, Court held that the said income had not accrued to assessee as circle stamp depot had resisted said demand and filed a civil suit, hence deletion of addition was held to be justified . (A.Y. 2004-05)

CIT v. Gujarat State Warehousing Co. (2014) 225 Taxman 182 / 43 taxmann.com 301 (Guj.)(HC)

313. S. 9(1)( vi) : Income deemed accrue or arise in India – Royalty – Income received was held to be not taxable in India – DTAA – India- Germany. [Articles 7, 12]

Tribunal held that consideration received as fee would be chargeable as royalty and 80 per cent would be taxable. On reference the assessee contended that Tribunal ought to have held that such consideration receivable were industrial or commercial profits within the meaning of DTAA and impugned consideration would not be taxable in India as the assessee company had no PE in India. Following decision of earlier year in assessees own case the question was answered in favour of assessee. (A.Y. 1981-82)

Fag Kugelfischer Georg Schafer KCAA v. CIT (2014) 227 Taxman 256 (Mag.) (Bom.)(HC)

314. S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Supply of equipment – Principal to principal – Not assessable as royalty – DTAA – India – Danish. [Article 13]

The assessee claimed that certain receipts constituting fees for technical services were not taxable as per Article III(3) of the Old Indo- Danish Tax Treaty it does not have a permanent establishment in India. However, the revenue had taxed these particular receipts either as royalty or something other than technical fees along with royalty and management charges at the rate of 20 per cent of the gross amount. Tribunal deleted the addition. On appeal the Court held that; Payment was made to Danish Company for supply of equipments. Relevant contract included stipulations for giving all information so as to guide Indian party to install equipment at site and thereafter to use it. Technical information that was provided was related to data and plant specification flow sheet issued for installation of plant hence the impugned payment was not a receipt or income accruing or arising to assessee by virtue of section 9(1)(vi). Since payment was made to Danish company towards supply of equipments on ‘principal to principal’ basis, such payment could not be considered as royalty. Since patent, invention, model, design, secret formula or process of trade mark or similar property was not transferred and only basic information to guide Indian resident with regard to installation and use of equipment at site was provided, the sum paid would not fall within definition of royalty. Appeal of revenue was dismissed.

DIT v. Haldor Topsoe (2014) 369 ITR 453 / 225 Taxman 105 / 48 taxmann.com 67 (Bom.)(HC)

315. S. 10(29) : Exemption – Warehousing corporation – Derived from – Supervision charges, fumigation services etc. are eligible for exemption, however income from house property, interest on loan etc are not eligible

Income from house property, bank receipts, income on loans and advances to staff, interest on bank deposits and dividend, not derived from activities enumerated in section 10(29) hence not eligible for exemption. Supervision charges, fumigation service charges, weighbridge receipts, income from sale of tender forms and interest on belated refund of advances are income from activities incidental to warehousing of produce for storage, processing or facilitating the marketing of commodities which are eligible for exemption. (A.Ys. 1989-90 to 2002-03)

Tamil Nadu Warehousing Corporation v. ITO (OSD) (2014) 363 ITR 1 (Mad.)(HC)

316. S. 10(37) : Capital gains – Agricultural land – Land not cultivated by assessee him self – Within specified urban limits – Additional compensation – Entitled to exemption [S. 45(5)]

Assessee received his share of additional compensation awarded by Court for transfer of agricultural land. AO denied exemption under section 10(37) on such receipt on ground that agricultural land was not cultivated by assessee himself. In case of co-owner of land in question in CIT v. Amrutbhai Patel in Tax Appeal No. 355/2013 Court held that assessee was entitled to exemption even if agricultural land was not cultivated by assessee himself but by hired labour or through his family member, hence the exemption was allowed.

CIT v. Jasubhai Somabhai Patel (2014) 225 Taxman 158 / 47 taxmann.com 406 (Guj.)(HC)

317. S. 11 : Property held for charitable or religious purposes – Exercise of option – Cannot be rejected on the ground that declaration was not made in the prescribed manner

Assessee, a charitable trust, being unable to utilise income from property to extent of 85 per cent, wrote letter conveying to department to exercise option available under clause (2) of Explanation to section 11(1) so as to allow it to spend surplus amount that may remain at end of current previous year during immediately following previous year. Such option was exercised before last date of filing return. Court held that there was no requirement of making declaration in prescribed manner because such requirement was to be followed only for exercising option available under section 11(2), therefore no disallowance was to be made merely on ground that declaration was not made in a prescribed manner. (A.Y. 2009-10)

CIT v. Industrial Extension Bureau (2014) 367 ITR 270 / 225 Taxman 160 / 43 taxmann.com 392 / 112 DTR 257 (Guj.)(HC)

318. S. 11 : Property held for charitable or religious purposes – Voluntary contribution by public with specific direction to building corpus – Exempt from income tax

Voluntary contributions made by public to assessee-trust with a specific direction to use same for building purpose would form part of corpus of trust and assessee was entitled to benefit under section 11. (A.Y. 1996-97 to 2000-01)

CIT v. Bharatiya Samskriti Vidyapith Trust (2014) 225 Taxman 131 / 43 taxmann.com 245 (Karn.)(HC)

319. S. 12AA : Procedure for registration – When activities of society were held to be genuine – Cancellation of registration was not justified

The assessee was an education society. Commissioner cancelled the registration of society on the ground that the activities of the society were not entirely charitable in nature and that the same was not in accordance with aim and objects of society. On appeal, Tribunal, held that the assessee was entitled to registration under section 12AA.

Dismissing the revenue’s appeal the Court held that there is no whisper that the assessee did not fulfil any of the conditions mentioned in section 12AA(3), namely, that the activities of such trust were not genuine or were not being carried out in accordance with the objects of the trust. Order of Tribunal was up held. (A.Ys. 2004-05 to 2010-11)

CIT v. Varanasi Catholic Education Society (2014) 225 Taxman 81 / 47 taxmann. 184 (All.)(HC)

320. S. 14A : Disallowance of expenditure – Exempt income – No exempt income – No disallowance can be made. [R. 8D]

Assessee has not made any claim for exemption of any income from payment of tax, hence no disallowance could be made under section 14A. (A.Y. 2009-10)

CIT v. Corrtech Energy (P) Ltd. (2014) 272 CTR 262 (Guj.)(HC)

321. S. 22 : Income from house property – Business income – Lease for thirty years – Sub-letting of office – Assesable as income from house property [Ss. 23, 27(iii) (b), 28(i) 269UA]

Owner of land entering into agreement for development of land. Assessee allotted office space on lease for thirty-three years with option of five consecutive renewals. Assessee sub-let the premises and showed the income as income from business. AO assessed the said income as income from house property, which was confirmed by Tribunal. On appeal the High Court affirming the view of Tribunal held that the assessee was held to be the owner of office space. Amount earned from sub-letting office space is assessable as income from house property. (A.Y. 2003-04, 2004-05, 2006-07, 2008-09)

Rayala Corporation P. Ltd. v. ACIT (2014) 363 ITR 630 / 264 CTR 282(Mad.)(HC)

322. S. 28(i) : Business income – Mutuality – Chit funds scheme – Principle of mutuality does not apply – Income received was held to be taxable. [S. 4, Chit Funds Act, 1982]

Assessee participating in a scheme offered by third party wherein others also joined. Principle of mutuality does not arise. Dividend received over and above what was contributed by assessee was held to be assessable as income. (A.Y. 1996-97)

V. Rajkumar v. CIT (2014) 363 ITR 21 (Mad.)(HC)

323. S.28(iv) : Business income – Benefit or perquisite – Allotment of shares at concessional rate – Not taxable as income. [S. 2(24) (vd)]

Assessee was allotted shares of another company at a concessional rate of Rs. 90 per share. AO took the view that market value of said shares was about 455 per share and charged the differential amount to tax under section 28(iv). There was a bar for block period of three years prohibiting the sale of shares. Tribunal held that allotment of shares at concessional rate was not taxable as income. On appeal by revenue, affirming the view of Tribunal the Court held that benefit could be said to have arisen only if any person would have got the differential price by selling the shares. Tribunal was correct in holding that as long as the bar operates there is no question of any benefit in the form of differential price accruing to the assessee. Further there exists a distinction between “accrual of income” and “arising of income”, while accrual is almost notional in nature, the other is factual. When the Parliament has consciously chosen to restrict the taxation of benefit only when it has arisen, it is not permissible to tax the benefit by treating them as “accrual”. Even if the assumption made by the AO that sale of shares would have yielded that differential price is taken as permissible in law, at the most it amounts to “accrual” and not “arising” of income, therefore the differential price of shares allotted to the assessee is not taxable under section 28(iv). (A.Y. 1995-96)

CIT v. K. N. B. Investments (P) Ltd. (2014) 272 CTR 201(AP)(HC)

CIT v. K. A. R. Investments (P) Ltd. (2014) 272 CTR 201(AP)(HC)

324. S. 32 : Depreciation – Plant – Toll road – Would not qualify as a ‘Plant” hence not entitled higher rate of depreciation. [S. 43(3)]

Manned toll booths/toll plazas are primarily a facility/convenience for collecting the usage charges of the road and nothing more, that would not change the characteristic of “road”, hence the toll road would not qualify as a ‘Plant’ so as to entitle the assessee a higher rate of depreciation.(A.Y. 2003-04, 2004-05, 2007-08)

Mordadbad Toll Road Co.. Ltd. v. ACIT (2014) 369 ITR 403 / 272 CTR 209 (Delhi)(HC)

325. S. 32 : Depreciation – Computers in factory premises – Eligible 60% depreciation

Assessee installed certain computers in its factory premises and claimed depreciation at rate of 60 per cent. AO held that computers should be treated either as office appliances failing which they would form part of machinery and in either case rate of depreciation would be 20 per cent. CIT(A)as well as Tribunal allowed claim of assessee. On appeal by revenue the Court upheld the order of Tribunal. (A.Y. 2007-08)

CIT v. Gujarat Alkalies and Chemicals Ltd. (2014) 225 Taxman 58 (Mag.) / 43 taxmann.com 296 (Guj.) (HC)

326. S. 32 : Depreciation – Renewal energy devices – Wind mill – Generator sets would alone qualify for hundred per cent, depreciation – Drilling machines – Boring machines – Lathe machines – Entitled to depreciation at twenty-five per cent. [S. 2 (11), R, 1962, Appx. I, r. 5, cl. (10A)(xviii)]

The assessee was engaged in turnkey projects, for which it used drilling machines, boring machines for foundation work and lathe machine. When machinery was not used in the manufacture of wind mill or any specially designed device, which ran wind mills, it would not fall for consideration on the block of assets which is defined in section 2(11). Therefore, the generator sets alone would qualify for the rate as prescribed under “renewal energy devices”, that is, hundred per cent depreciation. The other machinery would qualify for depreciation at twenty-five per cent and not at hundred per cent as claimed by the assessee. The Assessing Officer was directed to rework the depreciation treating the generator set as the block of assets used in the manufacture of wind mills and the other machinery would not fall within that head of block of assets, but would be entitled to depreciation at such rate as had been fixed by him. (A.Y. 1995-96, 1996-70

CIT v. TTG Industries Ltd. (2014) 363 ITR 44 (Mad.)(HC)

327. S. 32 : Depreciation – Higher rate of depreciation – Hotel – Roofing – Temporary Construction for convenience of workers of assessee – Construction subsequently demolished – Entitled to hundred per cent depreciation [S. 37(1)]

Court held that the materials on record showed that the construction was not authorised and was put up only for the convenience of workers who were engaged by the assessee. The record also indicated that the construction was subsequently demolished. Therefore, the depreciation claimed at 100 per cent could not be termed unreasonable. (A.Y. 1989-90)

Comfort Living Hotels P. Ltd. v. CIT (2014) 363 ITR 182 / 227 Taxman 145 (Mag.) (Delhi) (HC)

328. S.40(a)(ia) : Amounts not deductible – Deduction of tax at source – Contractor and subcontractor – Condition of second proviso to section 194C(3) are satisfied –Disallowance was not justified.[S. 194C, Form No 15J, Rule 29D]

High Court held that once conditions of second proviso to section 194C(3) are satisfied, liability of payer to deduct tax at source would cease and consequently disallowance of payment for sub-contractor under section 40(a)(ia) could not be made on ground that assessee had not furnished Form No. 15 J as required under Rule 29D.

CIT v. Valibhai Khanbhai Mankad (2012) 28 taxmann.com 119/ (2013) 216 Taxman 18/ 261 CTR 538 (Guj.)(HC)

Editorial: SLP of revenue admitted. SLP No. 23692 of 2013 dt. 13-10- 2014, CIT v. Valibhai Khanbhai Mankad (2014) 227 Taxman 372 (SC)

329. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Interest – Resident – Paid before due date of filing of return – No disallowance – Amendment by Finance Act, 2010, would apply retrospectively

Interest paid to resident and tax was deposited before due date of filing of return. Amendment in section 40(a)(ia) by Finance Act, 2010 would apply retrospectively. No disallowance can be made. (A.Y.. 2005-06 and 2006-07)

CIT v. Ashok J. Patel (2014) 225 Taxman 79 (Mag.)/ 43 taxmann.com 227 (Guj.)(HC)

330. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Sub-contractor – Freight charges – Provision is applicable in respect of amount paid as well as payable. [S. 194C]

Provisions of section 40(a)(ia) are applicable not only to amount which are shown as outstanding on closing of relevant previous year, but to entire expenditure which became liable for payment at any point of time during year under consideration and which was also paid before closing of year. (A.Y. 2006-07)

Palam Gas Service v. CIT (2014) 225 Taxman 44 (Mag.)/ 47 taxmann.com 310 (HP)(HC)

331. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Payable – Binding precedent – Despite stay by High Court, Special Bench verdict in Marilyn Shipping is binding on the ITAT due to judicial discipline

The Tribunal had to consider whether in view of the Special Bench verdict in Merilyn Shipping & Transport 146 TTJ 1 (Vizag), a disallowance u/s. 40(a)(ia) could be made in respect of the amounts that have already been paid during the year and are not “payable” as of 31st March. The Tribunal held that as the department’s appeal against the said verdict was pending in the High Court and as the High Court had granted an interim suspension, the AO should decide the issue after the disposal of the appeal in the case of Merilyn Shipping by the High Court. The High Court. held that until and unless the decision of the Special Bench was upset by the Court, it binds smaller Bench and co-ordinate Bench of the Tribunal. Under the circumstances, it is not open to the Tribunal to remand on the ground of pendency on the same issue before the Court, overlooking and overruling, by necessary implication, the decision of the Special Bench. This is not permissible under quasijudicial discipline. Under the circumstances, the impugned judgment and order was set aside, and the matter restored to the file of the Tribunal which will decide the issue in accordance with law and it would be open to the Tribunal either to follow the Special Bench decision or not to follow. If the Special Bench decision is not followed, obviously remedy lies elsewhere. (ITA No. 352 of 2014, dt. 24-6-2014.)

CIT v. Janapriya Engineers Syndicate (2015) 113 DTR 311(AP) (HC) : www.itatonline.org

332. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Concession given by counsel pertaining to question of law is not binding –Matter set aside to the Tribunal for fresh consideration. [S. 28(i), 245(1]

On account of unexpected administrative exigencies, there was delay in deducting and remitting amount deducted at source under various heads payable to Government account within time stipulated. However, assessee deducted tax at source as stipulated under Chapter XVIIB and remitted above amount to Government account with late fee stipulated in Act and Rules. Tribunal disallowed total expenditure simply based on concession given by counsel pertaining to question of law and proceeded to opine that expenditure could be claimed in year of payment of TDS. On appeal the Court held that law involved and process of making interpretation was never discussed. Further, consequences which would result in incurable hardship to assessee was never discussed. Matter remitted back to Tribunal for fresh consideration of relevant provisions. Court relied on the ratio of judgment in Vimaleshwar Nagappa Shet v. Noor Ahmed Sheriff AIR 2011 SC 2057, for the proposition that if consent is given on question of law, it is not binding, if it is on question of fact then binding. (A.Y. 2008-09)

Time Ads & Publicity v. CIT (2014) 225 Taxman 356 / 48 taxmann.com 239 (Ker.)(HC)

333. S. 40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Ad hoc disallowance was held to be not justified

The assessee engaged in the business of development of infrastructure facilities mainly relating to water and sewage treatment on turnkey basis claimed deduction of amount paid to its sister concern for supply of labour for operating and maintenance work. AO disallowed 10 per cent of payment on ground that sister concern was run by wife of director of assessee company, hence, element of excessive payment could not be denied. CIT(A) deleted the disallowance, and Tribunal confirmed same. On appeal by revenue the Court held that there was no finding by AO that transaction/contract with sister concern was not genuine one, there was also no material before AO such as comparable rates etc. to come to conclusion that excessive payment was made to aforesaid firm which warranted disallowance/ad hoc disallowance. In absence of any material before AO, he was not justified in adopting disallowance to extent of 10 per cent payment under section 40A(2) (b), thus, disallowance made by AO was rightly deleted by CIT(A) and Tribunal. (A.Y. 2005-06 to 2007-08)

CIT v. Enviro Control Associated (P.) Ltd. (2014) 225 Taxman 56 (Mag.)/ 43 taxmann.com 291 (Guj.) (HC)

334. S. 40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Burden is on revenue to bring comparable instances – Deletion of disallowance was held to be justified

The assessee made higher payment on motor bus rent to persons specified under Section 40(A)(2)(b). The payment was made by cheque and TDS was also deducted at source. AO made addition by disallowing 5 per cent of total payment on ground that assessee had not produced any comparative market prices and had failed to produce any document regarding reasonableness of payment and further failed to reconcile difference in payment as per tax audit report and that as provided during assessment proceeding. On appeal, CIT(A) and Tribunal held that it was for AO to assess fair market price and give comparative instances. Since AO had not done same, addition made by him was deleted. On appeal by revenue the Court held that since onus was on AO and AO had failed to discharge said onus, disallowance was unsustainable in law. Appeal of revenue was dismissed. (A.Y. 2005 -06 and 2006-07)

CIT v. Ashok J. Patel (2014) 225 Taxman 79 (Mag.)/ 43 taxmann.com 227 (Guj.)(HC)

335. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Purchases from agriculturist

The assessee was a firm dealing and trading in purchase of cotton, cotton seeds, processing of cotton seeds and extracting cotton seeds oil, etc. AO disallowed the payment by applying the provisions of section 40(A)(3). Addition was deleted by CIT(A) and Tribunal. On appeal by revenue the Court held that where both authorities relying on cogent evidences concluded that purchases were made from agriculturists as also through common agents, case was correctly held to be falling under exception provided under clauses (e) and (k) of rule 6DD of Income Tax Rules. (A.Ys. 2006-07 & 2007-08)

CIT v. A. C. Industries (2014) 225 Taxman 55 (Mag)/ 43 taxmann.com 290 (Guj.)(HC)

336. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Dealers – Amendment is substantive – Each bill less than Rs. 20,000, no disallowance can be made. [R. 6DD(k)]

Purchase of agricultural produce by making payment in cash would not be covered by exception provided in rule 6DD(e), if it is purchased from dealers and not from cultivators or growers.

Where purchases by making payment in cash were effected from registered traders/ commission agents who were independent businessmen acting in their own capacity and not as an agent of assessee, purchases were not covered by exception given in rule 6DD(k). Amendment in section 40A(3) by Finance Act, 2008 with effect from 1-4-2009 can only be considered as substantive in nature and shall have prospective operation only. If purchase is effected from a single person by way of several bills/invoices and if value of each bill/invoice is less than Rs. 20,000 then payments made to settle each bill/invoice would not be hit by provisions of section 40A(3), as each bill/invoice has to be considered as a separate contract. (A.Y. 2007-08)

Raja & Co. v. Dy. CIT (2014) 64 SOT 12 (URO) / (2013) 37 taxmann.com 268 (Kochi)(Trib.)

337. S. 41(1) : Remission or cessation of trading liability – Excise duty refunds – Appeal pending before Supreme Court – Refund received by assessee was held be assessable

Assessee firm claimed refund of excise duty. The refund was received pursuant to the order of High Court. The Excise department appealed against the said order which is pending before Supreme Court. AO assessed the said refund as income. Tribunal held that there was no finality to the claim in the light of the pendency of proceedings hence the addition was deleted. On reference the High Court held that the payment in discharge of the statutory liability incurred while earning the income is an expenditure and even if it is possible in some cases that such payment is liable to be excluded from the income as a liability incurred in the course of trade, it does not detract from its character as expenditure. Therefore, the amounts refunded on the levy being held unconstitutional were the amounts received by the assessee in respect of an expenditure and such receipts are liable to be taxed under section 41(1). Question was answered in favour of revenue.

CIT v. Hansraj Vallabhdas and Sons (2014) 227 Taxman 227 (Mag)(Bom.)(HC)

338. S. 43B : Deduction only on actual payment – Business expenditure – Bank guarantee – Not deductible. [S. 37(I)]

Assessee purchasing raw material from importers. Agreement that assessee would discharge liability of importers to customs duty. Levy of additional customs duty challenged by importers. Supreme Court directing stay of major portion of additional customs duty provided importers furnished bank guarantee. Importers giving bank guarantee. Counter guarantee furnished in consequence by assessee. Court held that bank guarantee is not an ascertained statutory liability to pay additional customs duty but only a contractual liability hence not deductible. (A.Y. 1987-88)

Oswal Agro Mills Ltd. v. ITO (2014) 363 ITR 486 / 222 Taxman 10 / 268 CTR 181 (Delhi)(HC)

339. S. 45 : Capital gains – Gains on sale of TDR received as additional FSI as per the D. C. Regulations has no cost of acquisition and is not chargeable to capital gains [S. 48, 55(2)]

Only an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head “Capital gains” as opposed to assets in the acquisition of which no cost at all can be conceived. In the present case as well, the situation was that the FSI/TDR was generated by the plot itself. There was no cost of acquisition, which has been determined and on the basis of which the Assessing Officer could have proceeded to levy and assess the gains derived as capital gains. It may be that sub-section (2) of section 55 clause (a) having been amended, there is a stipulation with regard to the tenancy rights. However, even in the case of tenancy right, the view taken by the Hon’ble Supreme Court, after the provision was substituted w.e.f. 1st April, 1995, is as above. The further argument is that the tenancy rights now can be brought within the tax net and in the present case the asset or the benefit is attached to the property, it is capable of being transferred. All this may be true but as the Hon’ble Supreme Court holds it must be capable of being acquired at a cost or that has to be ascertainable. In the present case, additional FSI/ TDR is generated by change in the D. C. Rules. A specific insertion would therefore be necessary so as to ascertain its cost for computing the capital gains. Therefore, the Tribunal was in no error in concluding that the TDR which was generated by the plot/property/land and came to be transferred under a document in favour of the purchaser would not result in the gains being assessed to tax. (1356 of 2012, dated 11-12-2014) (A.Y. 2007-08)

CIT v. Sambhaji Nagar Co-op. Hsg. Society Ltd. (2015) 370 ITR 325 (Bom.) (HC) www.itatonline.org (2015) 43 DTR 89 (Bom.)

340. S. 45 : Capital gains – Business income – Investment in shares – Assessable as capital gains and not as business income [S. 28(i)]I

Assessee was engaged in marketing and distribution of books. He purchased shares in previous year which was shown as investment and that treatment was accepted by income-taxauthorities. He sold certain shares during earlier year and gains were treated as short-term capital gains. During relevant assessment year left out shares were five-fold increased mainly due to issue of bonus shares which resulted in assessee becoming owner of huge number of shares. AO treated the income derived on sale of these shares as business income instead of capital gain. CIT(A) and Tribunal held that the surplus was assessable as capital gains. On appeal by revenue dismissing the appeal the Court held that surplus realized on sale of shares were to be taxed under head ‘Capital gain’. (A.Y. 2007-08)

CIT v. Om Prakash Arora (2014) 225 Taxman 73 (Mag.)/ 45 taxmann.com 565 (Delhi)(HC)

341. S. 67A : Association of persons – Loss return of Association of persons was not filed within time – Member cannot claim to carry forward and set off of loss. [S. 80]

The assessee, a member of an association of persons, entered into a joint venture to put up a wind energy generator. The assessee, claimed 100 per cent depreciation and his share of depreciation loss. He sought to set off his share of depreciation loss as against the individual income under various heads. He also claimed carried forward loss and loss from the windmill. After set off of the loss against other incomes, he carried forward unabsorbed depreciation. The AO and the CIT(A) disallowed the claim. The Tribunal held that the association of persons had not filed its return within time to claim the loss and, in the absence of any determination of the loss in the hands of the association of persons, the claim of the assessee was not tenable. On appeal.

Held, dismissing the appeal, that the grant of relief under section 67A of the Income-tax Act, 1961, is dependent on the determination of the income in the hands of the association of persons, so that the computation of the share income of the member in the association of persons could be given effect in the manner in which it has been determined in the hands of the association of persons or the body of individuals. When the association of persons was under legal obligation to file its return declaring loss or income, as the case may be, and had defaulted in filing the return within the time prescribed, the assessee could not take advantage of the absence of a reference to section 67A in section 80. (A.Y. 1995-1996)

N. Jagadeesan v. ACIT (2014) 363 ITR 140 / 224 Taxman 33 (Mad.)(HC)

342. S. 69 : Undisclosed income – Seizure of project report – No evidence that work was done as per project – Addition of amount based on project report – Not justified.[S.158BD]

Merely because a project report showed an estimated figure that did not prove that undisclosed investment was really made by the assessee. The Revenue had not discharged the burden of proving unexplained investment in terms of section 69. The addition of the amount was not justified

CIT v. Vinayak Plasto Chem P. Ltd. (2014) 363 ITR 596 / 221 Taxman 439 / 264 CTR 313 (Raj.) (HC)

343. S. 69B : Amounts of investments not fully disclosed in books of account – Purchase of agricultural property – Report of DVO – Addition merely on the basis of DVO’s report was held to be not justified.

During relevant year, assessee purchased agricultural property value of which was disclosed in the books of account. Assessing Officer finding some discrepancies with respect to investment, referred matter to DVO . DVO reported value of investment of agricultural property, at higher value. AO relying upon report of DVO, made addition to assessee’s income on account of unexplained investment. Tribunal deleted said addition. On appeal by revenue the Court held that onus to prove under valuation of property through positive evidence was upon revenue and mere reliance upon report of Valuation Officer expressing his opinion as to true value would be inadequate material for Assessing Officer to constitute evidence in absence of any other positive evidence on record. Therefore, addition was rightly deleted by Tribunal. (A.Y. 2007-08)

CIT v. Agile Properties (P.) Ltd. (2014) 225 Taxman 107(Mag.) / 45 taxmann.com 512 (Delhi)(HC)

344. S. 80HHB : Projects outside India – More than one project – Deduction is available to each project separately

The assessee was having more than 50 projects in India and outside India. The assessee claimed deduction in respect of each overseas project separately. The AO allowed the relief on the basis of netting up of all the overseas projects. Tribunal decided in favour of assessee. On appeal by revenue the Court affirmed the view of Tribunal and held that deduction could be made in respect of each project and the same was not prohibited by section 80HHB(1).

CIT v. Hindustan Construction Co. Ltd. (2014) 368 ITR 733 (Bom.)(HC)

345. S. 80HHC : Export business- Industrial undertakings – Depreciation – Block of assets – Eligible deduction – Despite the introduction of ‘block of assets’ depreciation cannot be thrust on the assessee while computing quantum of eligible deduction [Ss. 2(11), 32, 80-IA]

The High Court had to be consider whether for computing the profits eligible for deduction u/ ss. 80HHC and 80-IA, depreciation (under the concept of ‘block of assets’) had to be deducted even though the assessee had not claimed the same. The department relied on the judgment of the Full Bench of the Bombay High Court in Plastiblends India Limited v. ACIT 318 ITR (Bom.) (FB) where it was held that for the purposes of deduction under Chapter VIA, the gross total income has to be computed inter alia by deducting the deductions allowable under sections 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation. The Gujarat High Court taking a different view held that: depreciation is optional to the assessee and once he chooses not to claim it, the Assessing Officer cannot allow it while computing the income. Further, once depreciation is optional, it will be optional for block of assets also. It is not necessary that the depreciation is allowable or not allowable as a whole. The assessee can claim it partly also in respect of certain block of assets and not claim in respect of other block of assets. Accordingly, for purposes of sections 80HHC and 80-IA, depreciation not claimed for by the assessee cannot be deducted despite the introduction of the concept of block of assets. (TA No. 93 of 2000, dt. 17-12-2014)

DCIT v. Sun Pharmaceuticals Ltd. (Guj.) (HC) www.itatonline.org

346. S. 80HHD : Earnings in convertible foreign exchange – All units of assessee to be taken together –Computation of benefit cannot be given separately to each hotel [S. 80IB]

The assessee which is in the business of hotel, declared loss in the computation. The AO disallowed the deductions claimed under section 80HHD and section 80-IB of the Act. This was confirmed by the appellate authorities. On appeal : Held, dismissing the appeal, that so far as the principle adopted, the eligibility to deduct under section 80HHD and also the eligibility of deductions under section 80-IB being the same, the Tribunal was justified in negativing the contentions of the assessee. (A.Y..2000-01)

Hotel and Allied Trades P. Ltd. v. Dy. CIT (2014) 363 ITR 328 (Ker.)(HC)

347. S. 80-IA : Industrial undertakings – Infrastructure development – Out- door advertisement – Construction of bus shelter, putting up of footbridge etc. – Advertisement business to recoup expenditure – Not eligible deduction under section 80-IA(4).

The assessee-company was engaged in the business of outdoor advertisement and media advertising. Assessee-company had entered into an agreement with local authority for construction of bus shelters, putting up of footbridge, beautifying road medians and erecting street lights. Assessee was allowed to utilise these bus shelters, lamp posts, road medians and footbridges, for their advertisement business to recoup expenditure incurred for same. Assessee claimed deduction under section 80-IA(4) contending that it was involved in infrastructure development Since assessee eventually was an advertising company, and had developed, existing road median, erected bus shelters and light poles for its advertisement business, activities of the assessee were part of its normal activities of advertising and publicity rather than one of infrastructure development. Since assessee derived income only from advertisement hoardings erected on bus shelters, road medians and street light poles, said income could not be treated as income derived from ‘infrastructure facility’. Assessee was not eligible for deduction under section 80-IA(4).(A.Y. 2006-07 to 2008-09)

CIT v. Skyline Advertising (P.) Ltd. (2014) 269 CTR 289 / 225 Taxman 220 (Mag.) / 45 taxmann.com 532 (Kar.)(HC)

348. S. 80-IB(10) : Housing project – Approval prior to 1-4-2004 – Construction completed prior to 31-3-2008 – Entitled deduction

The assessee, was engaged in the business of builders and developers. It claimed deduction under section 80-IB(10) with respect to ‘housing project’ named ‘Maninagar’ at Rajkot having 119 units. The Assessing Officer disallowed the deduction under section 80-IB(10) by observing that with respect to the entire project there was no approval and/or the entire housing project was not completed and there were multiple approvals with respect to different units of housing project. CIT(A) and Tribunal allowed the claim of assessee. On appeal by revenue the Court held that where housing project was approved prior to 1-4-2004 and some of its units were constructed before 31-3-2008, deduction under section 80-IB(10) was to be allowed with respect to only those units of housing project, which were approved prior to 1-4-2004 and of which construction had been completed prior to 31-3-2008. (A.Y. 2008-09)

CIT v. B. M. & Brothers (2014) 225 Taxman 149 (Mag.) / 42 taxmann.com 24 (Guj.)(HC)

349. S. 80-IB(10) : Housing project – Deduction can be allowed only when return is filed on or before due date specified under section 139(1) [S.139(1)]

The assessee was engaged in the business of construction of housing projects. The assessee filed its return claiming deduction under section 80-IB(10).The Assessing Officer noted that in case of assessee company, due date specified under section 139(1) Explanation 2 to file return of income was 30-9-2009, however, assessee filed its return on 11-2-2010. Since assessee filed its return beyond the due date, the Assessing Officer rejected assessee’s claim for deduction. The Commissioner (Appeals) confirmed the order of Assessing Officer. The Tribunal, however, allowed assessee’s claim. On revenue’s appeal, Court held that the benefit of deduction under section 80-IB(10) can only be availed by the assessee if he has filed his return on time. If he has not filed his return on time, the benefits cannot be claimed. In the result, the revenue’s appeal is allowed. (A.Y. 2009-10)

CIT v. Shelcon Properties (P.) Ltd. (2014) 225 Taxman 165 (Mag.) / 44 taxmann.com 170 / (2015) 273 CTR 106 (Cal.)(HC)

350. S. 80-O : Remuneration from foreign enterprise – Services should be rendered outside India – Advocate – Furnishing of legal opinion to foreign company on matters relating to setting up industry in India – Amount received from foreign enterprise not entitled to deduction of 50%

The assessee, an advocate, entered into a retainer agreement with a foreign company. He gave legal opinions on all matters required by the company, since the company wanted to establish an industry in India. In consideration of the professional services rendered or agreed to be rendered outside India, he received fees in convertible foreign exchange and the income was brought to India. He claimed deduction of 50 per cent of the income so received or brought to India in computing the total income of the assessee. The AO rejected the claim and the Commissioner (Appeals) and the Tribunal confirmed the order of the Assessing Officer. On appeal to the High Court: Held, dismissing the appeal, that the assessee was rendering services in India to a foreign company, and, hence, he was not entitled for any deduction under section 80-O (A.Y.1997-98)

H. Raghavendra Rao v. Dy. CIT (2014) 363 ITR 238 (Karn.)(HC)

351. S. 80P : Co-operative societies –Assessee not being a bank, exclusion provided in Section 80P(4) would not apply – Appeal of revenue was dismissed

Assessee was a co-operative society providing credit facilities. Assessing Officer disallowed claim of assessee made under section 80P. Commissioner (Appeals) as well as Tribunal reversed decision of Assessing Officer on premise that assessee not being a bank, exclusion provided in section 80P(4) would not apply. Revenue contended that section 80P(4) would exclude not only co-operative banks other than those fulfilling description contained therein but also credit societies, which are not co-operative banks. CBDT issued circular No.133 of 2007 dated 9-5-2007 which provides clarification regarding admissibly of deduction under section 80P as per which section 80P will not apply to an assessee which is not a co-operative bank. In instant case assessee was admittedly not a credit co-operative bank but a credit co-operative society, hence, in view of clarification given by CBDT Circular No. 133 of 2007 dated 9-5-2007 exclusion clause of sub-section (4) of section 80P, will not apply to assessee. Appeal of revenue was dismissed. (A.Y. 2009-10)

CIT v. Surat Vankar Sahakari Sangh Ltd. (2014) 225 Taxman 162 (Mag.) / 43 taxmann.com 431 (Guj.) (HC)

352. S. 92C : Transfer pricing – Issue of shares to non-resident – Chapter X would have no application to transaction of issue of equity shares to non-resident AEs for the reason that the transaction of issue of shares is on capital account not giving to any income. [S. 2(24), 56, 92, 92B 92F]

Following the ratio in Vodafone India Services (P) Ltd. v. UOI (2014) 368 ITR 1(Bom.)(HC), the Court held that, Chapter X would have no application to transaction of issue of equity shares to non – resident AEs for the reason that the transaction of issue of shares is on capital account not giving rise to any income. Accordingly the order of TPO as well as draft assessment orders are set aside. (A.Y. 2009-10)

Shell India Markets (P) Ltd. v. ACIT (2014) 369 ITR 516 / 112 DTR 169 / (2015) 273 CTR 161 / 228 Taxman 99 (Bom)(HC)

353. S. 92C : Transfer pricing – Issue of shares at premium to nonresident holding company – Does not give rise to income in an international transaction – Capital receipts arising out of capital account transaction – Transfer pricing provisions held to be not applicable [S. 92CA]

TPO held that the difference between the arm’s length price and issue price (Including premium) was required to be treated as deemed loan given by the assessee to its holding company and deemed interest on such deemed loan was also treated as interest income. The DRP decided the issue in favour of revenue. On writ allowing the petition, the Court held that the order of the Transfer Pricing Officer made under section 92CA(3) was liable to be quashed as the issue of shares at premium does not give rise to income in an international transaction. Transfer pricing provisions are not applicable to capital receipts arising out of capital account transaction. Followed Vodafone India Services P Ltd. v. UOI (2014) 368 ITR 1 (Bom.)(HC)(WP No. 589 of 2014 dt 13-10-2014) (A.Y. 2010-11)

Vodafone India Services P Ltd. v. UOI (2014) 369 ITR 511 (Bom.)(HC)

354. S. 92C : Transfer pricing – Arm’s length price – Higher commission to subsidiaries was held to be justified

During relevant year, assessee paid commission to its subsidiaries located abroad for customisation work. TPO/AO finding that commission had been given to local distribution agents at rate of 10 per cent only, made certain adjustment to assessee’s ALP in respect of payments made to subsidiaries. Tribunal, however, deleted said addition. On appeal by revenue, dismissing the appeal, the Court held that once subsidiaries were found to be performing customisation work which was not being done by independent distributors, justification of payments made to subsidiaries at higher rate was rightly accepted by Tribunal. (A.Y. 2002-03)

CIT v. I-Flex Solutions Ltd. (2014) 225 Taxman 37(Mag.) / 46 taxmann.com 88 (Bom.)(HC)

Editorial: ACIT v. I.Flex Solutions Ltd. (2010) 42 SOT 7(URO)(Mum)(Trib) is affirmed.

355. S. 92C : Transfer pricing – Arms’ length price – Purchase and sale transactions with parent company – Functional and risk profile as well as working capital exposure was considered as comparable – Order of Tribunal was confirmed

Assessee, a subsidiary company entered into transactions of purchase and sale of goods with its parent company. Contention of the assessee that cost of goods sold should not be taken into consideration while computing profit margins and appropriate ratio to be considered for comparing with other entities would be ratio of net revenue to operating costs. Revenue authorities rejected the contention of assessee and made addition to ALP, which was confirmed by Tribunal. On appeal by assessee, the Court held that Tribunal had made it clear that only those entities which were similarly placed as assessee in respect of their functional and risk profile as well as working capital exposure would be chosen as comparables, hence assessee’s appeal had no merit and, thus, it was to be dismissed.

Misubishi Corporation India (P.) Ltd. v. Addl. CIT (2014) 366 ITR 495 / 269 CTR 329 / 225 Taxman 38(Mag.) / 48 taxmann.com 45 (Delhi)(HC)

356. S. 139 : Return – Refund – Delay in filing return – Condonation of delay – Deduction of tax at source – Assessing Officer directed to decide in accordance with law after subjecting return to scrutiny assessment. [S. 119(2)(b), 139(1), 139(4)]

Assessee could not file the return within the time specified under section 139(1) of the Act. Thereafter the assessee filed return of income and claimed a refund of Rs. 6,34,929, there was delay of 22 months. The AO did not act upon the return. The assessee filed an application under section 119(2)(b) before the CBDT for condonation of delay. CBDT rejected the application. The assessee filed writ petition. Allowing the petition the Court held that assesse has not benefited by resorting to delay and the Assessing Officer was directed to decide in accordance with law after subjecting return to scrutiny assessment. (A.Y. 1997-98)

Artist Tree Pvt. Ltd. v. CBDT (2014) 369 ITR 691/113 DTR 370/(2015) 228 Taxman 108 (Bom) (HC)

357. S. 142(2A) : Special audit – Enquiry before assessment – Complexity of accounts – Direction for special audit was held to be justified [S. 80-IAB, 145]

The assessee was a real estate developer engaged in creation, execution and sale of residential and commercial projects. It also earned income from projects in a Special Economic Zone on which it claimed deduction under section 80I-AB. AO directed the assessee to get its audited by a chartered accountant who was nominated as per the provisions relating to conduct of special audit under section 142(2A). The assessee filed writ petition, High Court upheld direction for special audit on ground that accounts of assesse did not contain narration of some entries and assessee had failed to submit comparative details of expenditure in SEZ and non SEZ units and affairs of company were not transparent.(A.Y. 2010-11)

DLF Ltd. and Another v. Addl. CIT (2014) 366 ITR 390 / 225 Taxman 258 / 271 CTR 43 (Delhi)(HC)

Editorial: SLP of assessee is dismissed. SLP No.10481 of 2014 dt 25-4-2014. DLF Ltd. v. Addl.CIT (2014) 365 ITR 210 (St)/227 Taxman 379 (SC)

358. S. 143(2) : Assessment – Notice – Block assessment – Non issue of notice under section 143(2) – Block assessment was held to be invalid. [Ss. 143(3), 158BC]

In order to make an assessment under section 143(3) read with section 158BC of the Income-tax Act, 1961, notice should be issued under section 143(2). Omission to issue such a notice is not a procedural irregularity and is not curable. Held accordingly, allowing the appeal, that having regard to the fact that admittedly no notice was issued under section 143(2) to the assessee for the block assessment period April 1, 1985 to September 15, 1995, the orders passed by the Tribunal as well as the AO were liable to be set aside. [BP. 1-4-1985 to 15-9-1995)

R Romi v. CIT (2014) 363 ITR 311 (Ker.)(HC)

359. S. 144C : Reference to dispute resolution panel – Transfer pricing – Alternative remedy – Writ is not maintainable [S. 92CA, Article 226]

A reference was made by AO to TPO under section 92CA. Following the determination by TPO, AO issued a draft order to which assessee raised objections. DRP issued directions under section 144C(5) – Following said instructions, AO passed assessment order. Assessee filed writ petition challenging assessment order so passed. Since assessee had remedy by way of an appeal to Tribunal against order of assessment in which all issues, inter alia, including addition made by TPO in return could be addressed, instant petition was to be disposed of by relegating assessee to remedy of appeal against order of assessment. Matter remanded.

Lionbridge Technologies (P.) Ltd. v. Dy. CIT (2014) 225 Taxman 130(Mag.) / 46 taxmann.com 184 (Bom.)(HC)

360. S.147 : Reassessment – Survey – Valuation of intangible assets and bogus claim – Higher depreciation – On the basis of statement of managing director and chartered engineer – Reassessment was held to be valid. [S. 32, 143(3)]

The assessment was completed under section 143(3). Survey proceedings took place thereafter. During the survey proceedings statement of managing director and as well as Chartered Engineer who valued the intangible assets were recorded. In the statement managing director stated that he was ready to withdraw 50% of the claim for depreciation, subject to fresh valuation of the intangible assets. Chartered Engineer in his statement stated that he has valued the intangible assets only for internal use of the company and not for claiming depreciation. On the basis of the statement the AO issued reassessment notice. The assessee challenged the said notice by filing writ petition. Dismissing the petition the Court held that reopening on the basis of statements of managing director and Chartered Engineer during survey showing higher valuation of intangible assets and/or bogus claim was sustainable. Petition of assessee was dismissed. (A.Y. 2009-10, 2010-11)

Powerdeal Enery Systems (I) (P) Ltd. v. ACIT (2014) 112 DTR 409 (Bom.)(HC)

361. S. 147 : Reassessment – Housing project – Reassessment on same material was held to be not valid [S. 80-IB(10)]

High Court held that the AO has allowed the claim after making detailed enquiries hence he could not have initiated reassessment proceedings on basis of same material. Accordingly the reassessment proceedings were quashed. (A.Y. 2009-10)

Sarala Rajkumar Varma v. ACIT (2014) 43 taxmann. com 372 (Guj.)(HC)

Editorial: SLP of revenue was dismissed. SCA No. 125 of 2014 dt. 8-10-2014. ACIT v. Sarala Raj Kumar Varma ( 2014) 227 Taxman 377 (SC)

362. S. 147 : Reassessment – Notice after four years – Information from CBI that loans accepted as genuine in original assessment were bogus – Reassessment was held to be valid [Ss. 69, 148]

The assessment was completed under section 143(3). On the basis of information received from CBI that loans accepted as genuine in original assessment were bogus the AO reopened the assessment after four years. The assessee challenged the said notice by filing writ petition. Dismissing the petition the Court held that where the AO forms his belief on the basis of subsequent new and specific information that the income chargeable to tax has escaped assessment on account of omission on the part of the assessee to make full and true disclosure of primary facts, he may start reassessment proceedings. On facts since the assumption of jurisdiction on the part of the AO was based on fresh information, specific and reliable and otherwise sustainable under the law, the reassessment proceedings warranted no interference. Notice for assessment was held to be valid. (A.Y. 2006-07)

Yogendrakumar Gupta v. ITO (2014) 366 ITR 186/ 46 taxmann.com 56 (Guj.)(HC)

Editorial : SLP of assessee is dismissed SLP. Nos. 15381 of 2014 dt. 26-9-2014. Yogendrakumar Gupta v. ITO (2014) 227 Taxman 374 (SC)

363. S. 147 : Reassessment – Notice after four years – Notice on basis of subsequent decision of Appellate Tribunal and High Court – Notice not valid [S. 80HHC, 148]

The assessment was completed under section 143(3) and deduction under section 80HHC was allowed. Reopening of assessment was done due to subsequent decisions of Tribunal and Courts. The assessee challenged the reassessment proceedings. Allowing the petition the Court held that reassessment proceedings on the basis of subsequent decision of Appellate Tribunal and High Courts was not valid. The exercise of jurisdiction has to be examined on the basis of reasons recorded at the time of issuing of notice. It is not open to the revenue to substitute or make addition to the reasons recorded at the time of issuing the notice. Notice of reassessment was held to be not valid. (A.Y. 1998-99)

Allanasons Ltd. v. Dy. CIT (2014) 369 ITR 648 (Bom.)(HC)

364. S. 147 : Reassessment – Eligible business – No power of review – Reassessment was held to be bad in law [Ss.36(1)( viii), 143(3), 148]

AO allowed assessee’s claim for deduction under section 36(1)(viii). Subsequently, AO sought to initiate reassessment proceedings taking a view that excess benefit was granted under section 36(1)(viii). The assessee challenged the said notice in writ petition. Allowing the petition the Court held that AO has no power to review assessment order under shelter of re-opening of assessment under sections 147/148, it was not open for AO to re-look at same material only because he was subsequently of view that conclusion arrived at earlier was erroneous. Reassessment proceedings were quashed. (A.Y. 1999-2000)

Housing Development Finance Corporation Ltd. v. J. P. Janjid (2014) 225 Taxman 81 (Mag.) / 48 taxmann.com 28 (Bom.)(HC)

365. S. 147 : Reassessment Premium notes – Interest – Capital or revenue – Pendency of appeal before Tribunal – Reassessment was held to be bad in law [S. 37(1)]

Assessee issued secured premium notes and claimed interest liability and other related expenditure. AO held impugned expenditure as capital in nature and made addition to income. CIT(A) allowed the said expenditure as revenue. Revenue went in appeal before Tribunal. Pending appeal, AO issued notice for reopening on ground that liability in respect of said expenditure did not accrue during relevant period. On appeal CIT(A) and Tribunal held that reassessment was bad in law. On appeal by the revenue, confirming the order of Tribunal the Court held that such plea could not be taken by revenue pending appeal before Tribunal and thus, intimation of reassessment was bad in law. (A.Y. 1997-98)

CIT v. Nirma Ltd. (2014) 225 Taxman 49 (Mag.) / 47 taxmann.com 415 (Guj.)(HC)

366. S. 147 : Reassessment – Dealers commission – Business expenditure – Attempt to revisit for third time – Nothing but the tax authorities effort to overreach the law and resultantly a sheer harassment of the petitioner – Reassessment was quashed [S. 37(1)]

The assessee, a telecom service provider filed its return and claimed commission expenses. During assessment proceedings and first reassessment proceedings questions regarding dealer’s commission as well as TDS on those amounts were replied to AO. Revenue considering same, disallowed certain portion. Notice was issued once again on the same issue. Allowing the petition the Court held that an attempt of AO to revisit same issue for the third time without any tangible or fresh material could not be held as valid reassessment. Action of AO was noting but the tax authorities’ effort to overreach the law and resultantly a sheer harassment of the petitioner. (A.Y.1997-98)

Vodafone South Ltd. v. Union of India (2014) 363 ITR 388 / 225 Taxman 46 (Mag.) / 44 taxmann.com 471 / 112 DTR 227 (Delhi)(HC)

367. S. 147 : Reassessment – Business of electricity – Separate report of each undertaking was not filed along with the return – Interest earned on late payment of sales – Reassessment was not justified [Ss. 80-IA, 148]

Assessee engaged in business of generation of electricity, claimed deduction under section 80-IA. AO initiated reassessment proceeding on ground that separate report as required to be submitted at time of filing return by each undertaking and enterprise of assessee claiming deduction, had not been furnished and that interest earned on late payment of sale was eligible for deduction. The assesee challenged the notice in writ. Allowing the petition the Court held that, it was found that required report was filed during assessment proceedings and that interest issue is settled by Supreme Court that interest from trade debtor is not required to be excluded from profits for purpose of section 80-IA deduction. Since neither ground was sustainable, permitting notice for reassessment to be pursued would be an exercise in futility. (A.Y. 2004-05)

Gujarat Paguthan Energy Corporation (P.) Ltd. v. Dy. CIT (2014) 225 Taxman 70 (Mag.) / 45 taxmann.com 564 (Guj.)(HC)

368. S. 147 : Reassessment – Industrial undertakings – Merger – Quantum of deduction – Reassessment was held to be not valid [S. 80-IB]

Assessee, engaged in business of contracts for erection, commissioning and pressure die casting, claimed deduction under section 80-IB which was disallowed. CIT(A) granted relief to assessee and said order was subsequently given effect to by AO. Thereafter, department sought to review order passed by Assessing Officer questioning quantum of deduction. Meanwhile, Tribunal had confirmed order passed by CIT(A). Since order passed by AO got merged with order of Tribunal which also had attained finality, Department’s action was not justified. Reassessment was quashed. (A.Y. 2001-02)

CIT v. Flothern Engineers (P.) Ltd. (2014) 225 Taxman 223 (Mag.)/ 45 taxmann.com 546 (Mad.) (HC)

369. S. 147 : Reassessment – Within four years – Change of opinion- Disallowance of claim partly in assessment proceedings – Reassessment was held to be not valid. [S. 80-IB (8A)], 143(3), 148]

During original assessment, assessee’s claim was processed at length and after calling for detailed explanation from it, same was accepted. Merely because a certain element or angle was not in mind of Assessing Officer while accepting such a claim, could not be a ground for issuing notice under section 148 for reassessment. Mere failure of AO to raise such a question would not authorise him to reopen assessment even within period of 4 years from end of relevant assessment year, any such attempt on his part would be based on mere change of opinion, therefore, notice issued under section 148 was liable to be quashed. (A.Y. 2007-08)

Cliantha Research Ltd. v. Dy. CIT (2014) 225 Taxman 102 (Mag.) / 35 taxmann.com 61 (Guj.)(HC)

370. S. 147 : Reassessment – Unutilised CENVAT – Exclusive method of accounting – Change of opinion – Reassessment was held to be not valid. [S. 145, 148]

Where issue of accounting treatment in respect of unutilised CENVAT credit for purpose of valuing closing stock was already examined by Assessing Officer during scrutiny assessment, reopening of assessment on same issue without any tangible material was mere change of opinion and hence not sustainable. (A.Y. 2008-09)

Heavy Metal & Tubes Ltd. v. Dy. CIT (2014) 225 Taxman 86(Mag.) / 35 taxmann.com 288 (Guj.) (HC)

371. S. 147 : Reassessment – Bad debts – Capital account – Change of opinion – Reassessment was held to be bad in law [Ss. 36(1)(vii), 143(3)148]

During scrutiny assessment, Assessing Officer had asked for details regarding bad debts written off, but had not made any disallowance for same. Subsequently assessment was reopened and bad debts written off was disallowed on account of it being on capital account. On writ the Court held that where Assessing Officer had raised a specific query with regard to bad debts written off, it could be concluded that he had examined issue at time of making original assessment and had formed an opinion by not making any addition in respect thereof. Therefore, reopening of assessment on issue of bad debts written off was nothing but a mere change of opinion, and hence, not permissible. (A.Y. 2003-04)

Maruti Suzuki India Ltd. v. Dy. CIT (2014) 225 Taxman 104 (Mag.) / 34 taxmann.com 225 (Delhi) (HC)

372. S. 147 : Reassessment – After expiry of four years – Disallowance of expenditure – Exempt income – Deduction at source – No allegation that failure of assessee to disclose truly and fully all material facts – Reassessment was bad in law. [Ss. 14A, 40(a)(ia)]

On verification of records available during scrutiny assessment, Assessing Officer issued notice for reopening after expiry of four years from end of assessment year on ground that interest on loan and depreciation were not allowable, no disallowance had been made under section 14A and that disallowance was required for non deduction of tax at source. Notice for reopening was issued beyond four years on basis of verification of material available during scrutiny assessment, and Assessing Officer had not alleged failure of assessee to disclose truly and fully all material facts, reopening was not sustainable (A.Y. 2006 -07)

Patel Alloy Steel (P.) Ltd. v. ACIT (2014)225 Taxman 84 (Mag.) / 35 taxmann.com 353 (Guj.)(HC)

373. S. 147 : Reassessment – Subsequent assessment year – Tangible material – Reopening of assessment was held to be valid. [Ss. 37(1), 148, 195(2)]

Assessee-company claimed deduction on account of business support charges, guarantee fees and other service charges paid to its holding company and it was allowed deduction accordingly. However, Assessing Officer noticed that in assessment proceedings for assessment year 2007-08, business support charges and guarantee fees paid to holding company were disallowed being not for business expediency. On basis of said order, Assessing Officer reopened assessment for assessment year 2006- 07 – Records revealed that Assessing Officer for assessment year 2006-07 did not evaluate or consider said issues . Moreover, assessment order for assessment year 2007-08 could be said to be tangible material to form belief that income had escaped assessment. Reopening was justified. (A.Y. 2006-07)

Rabo India Finance Ltd. v. Dy. CIT (2014) 225 Taxman 92 (Mag.) / 34 taxmann.com 228 (Bom.) (HC)

374. S. 147 : Reassessment – Within four years – Infrastructure development Road bridge – Change of opinion – Reassessment was quashed. [S. 80-IA(4)(ia]

Petitioner, a company, entered into agreement with Gujarat State Road Development (GSRD) corporation for construction of four-Lane-Rail over bridge for which it was allowed to collect toll at a specified rate for a certain period. It claimed deduction under section 80-IA with respect to its income of toll collection which was allowed by Assessing Officer in original assessment. Assessing Officer reopened assessment on ground that assessee had not entered into any agreement with Central Government or State Government or local authority or any other statutory body as required in section 80-IA(4)(i)(a). However, it was found that during original assessment several questions were raised by Assessing Officer and only upon being satisfied by replies of petitioner said claim was accepted. Further, said claim was sole claim made by petitioner. Since assessee’s claim was granted after thorough examination and only upon being satisfied that assessee was entitled to such claim, any subsequent attempt on part of Assessing Officer to revisit such a claim would be based on a mere change of opinion, therefore, impugned notice for assessment was required to be quashed. (A.Y. 2008-09)

Ranjit Projects (P.) Ltd. v. Dy. CIT (2014) 225 Taxman 176 (Mag.)/ 46 taxmann.com 110 (Guj.) (HC)

375. S. 147 : Reassessment – Infrastructure development – Within four years – Change of opinion – Contractor and not developer – Reassessment was held to be not valid. [S.80- IA(13)]

Assessee, a contractor claimed deduction under section 80-IA. Assessing Officer issued notice under section 147 on ground that assessee was a contractor and not developer and, thus, it was not entitled to claim deduction under section 80-IA. Only ground which had made Assessing Officer to initiate proceedings of reassessment was amendment by way of insertion of Explanation to sub-section (13) of section 80-IA by Finance Act, 2009 which substituted earlier Explanation giving retrospective effect to said provision from 1-4-2000. Since such provision being always there on record and Assessing Officer having already scrutinised entire issue thread bare, issuance of such notice had to be held as nothing but a change of opinion on part of Assessing Officer. Reassessment was bad in law. (A.Y. 2006-07)

Classic Network Ltd. v. Dy. CIT (2014) 225 Taxman 174 (Mag.) / 45 taxmann.com 234 (Guj.)(HC)

376. S. 147 : Reassessment – After expiry of four years – Biodegradable waste – Collecting and processing – Change of opinion – Reassessment was not valid [S. 80-IB, 80JJA, 148]

The assessee was engaged in business of manufacturing of Enzyme. He filed return of income along with tax audit report. The case was selected for scrutiny and notice under section 143(2) was issued to assessee. The assessee declared income at nil after claiming deduction under sections 80-IB and 80-JJA The Assessing Officer passed assessment order, allowing the deductions claimed by assessee and assessing total income at nil.

After period of four years from the end of assessment year, notice under section 148 was issued to assessee for reassessment of his income with respect to claim made under section 80-JJA. On writ allowing the petition the court held that, it was found that assessee’s case was selected for scrutiny assessment in which specific query was raised vide a notice with respect to claims made by assessee. Assessee replied same and Assessing Officer allowed deductions, after due application of his mind. It could not be said that there was any concealment/or non disclosure of true facts by assessee therefore, original assessment could not be permitted to be reopened/reassessed merely on change of opinion. (A.Y. 2006-07)

MAPS Enzymes Ltd. v. Dy. CIT (2014) 225 Taxman 160 (Mag.) / 43 taxmann.com 422 (Guj.) (HC)

377. S. 147 : Reassessment – Power – Discovery – Production of evidence – Reference to District valuation officer – No assessment was pending – No authority to issue commission – Reassessment notice was held to be bad in law. [Ss. 131(1)(d), 148]

Assessee, had been constructing a commercial complex in which substantial investment was made. Assessing Officer in order to ascertain cost of construction, referred case to District Valuation Officer (DVO) under section 131(1)(d). Subsequently, on basis of report of DVO, notice was issued under section 148 for initiating reassessment proceedings. Assessee filed writ petition raising objection to initiation of reassessment proceedings. Since there was no assessment proceedings pending against assessee, Assessing Officer did not have authority to issue commission to DVO under section 131(1)(d) therefore, impugned proceedings initiated against assessee deserved to be quashed. (A.Ys. 1990-91 to 1998-99)

CIT v. Baldev Plaza (2014) 225 Taxman 276 / 42 taxmann.com 373 (All.)(HC)

378. S. 147 : Reassessment – Income from house property – Intimation – Reassessment was held to be valid. [S. 143(1)]

The Court held that even though return has been accepted under section 143(1), if ingredients of section 147 are satisfied the AO is empowered to initiate proceedings, even though no proceedings were taken under section 143(3) of the Act. Reassessment proceedings were held to be valid. (A.Y. 2002-03)

Rayala Corporation P. Ltd. v. ACIT (2014) 363 ITR 630 / 264 CTR 282 (Mad.)(HC)

379. S. 147 : Reassessment – After four years – Allocation of common expenditure between section 80- IB unit and non-section 80-IB unit disclosed – Deduction allowed after considering material – Notice was held to be not valid [Ss. 80-IB, 148]

Court held that the material which formed the basis of reason to believe that income had escaped assessment was the allocation of expenditure between the two units of the assessee leading to higher deduction under section 80-IB of the Act. During the assessment proceedings, the AO had examined the claim for deduction under section 80-IB of the Act and for that purpose had called upon the assessee to file details of expenses claimed in its profit and loss account. Therefore, there was no tangible material to lead to a reason to believe that income had escaped assessment, it was only a change of opinion on the part of the AO on the material available. There had been disclosure of material facts truly and fully for purposes of assessment. The notice of reassessment was not valid. (AY. 2006-07)

Lalitha Chem Industries P. Ltd. v. Dy. CIT (2014) 364 ITR 213 / 225 Taxman 225 (Mag.) / 265 CTR 348 (Bom.)(HC)

380. S. 147 : Reassessment – Survey- Change of opinion – Reason must be based on new and tangible materials – Assessment after considering documents impounded during income-tax survey – Notice based on same documents – Reassessment was held to be not valid. [Ss. 133A, 148]

Court held that a perusal of the original assessment order made it abundantly clear that the AO had not only referred to the documents and records found in course of the survey under section 133A of the Income-tax Act, 1961, from the business and office premises of the assessee but also those were test checked and evaluated in undertaking that exercise. The endeavour on the part of the Assessing Officer to initiate a reassessment proceeding under sections 147 / 148 of the Act on the purported ground that the same records/documents disclosed that the amount had escaped assessment was unconvincing and untenable as well. The notice of reassessment was not valid as it was based on mere change of opinion of the AO. (A.Y. 2003-04)

CIT v. Vardhman Industries. (2014) 363 ITR 625 / 224 Taxman 68 (Mag.) / 264 CTR 580 (Raj.) (HC)

381. S. 147 : Reassessment – Notice after four years – Scrutiny assessment based on material submitted by assessee – Notice after four years to recompute income – Notice not valid [S.148]

Where a notice of reassessment is issued after four years it would have to be ascertained whether there was any failure on the part of the assessee to disclose truly and fully all necessary facts for the assessment.

Held accordingly, allowing the petition, that in the reasons, the Assessing Officer had recorded that “on verification of computation of income it was noticed that”. Full facts were there before the AO in the form of declarations made in the returns filed as well as through correspondence during the course of scrutiny assessment. The notice of reassessment after four years was not valid. (A.Y. 2006-07)

Ferromatik Milacron India P. Ltd. v. ACIT (2014) 363 ITR 461 / (2013) 217 Taxman 136 (Mag.) (Guj.) (HC)

382. S. 147 : Reassessment – Notice within four years – Assessee declaring its book profits after reducing amount of deduction under section 10AA during original proceedings – Both issues not subject matter of consideration in original assessment proceedings – Reasonable belief that income chargeable to tax has escaped assessment – Reassessment was held to be valid. [Ss.10AA, 143(3), 148]

Court held that the non-receipt of convertible foreign exchange within a period of six months from the end of the assessment year was not the subject matter of consideration nor the fact that the assessee had declared its book profits after reducing the amount of deduction under section 10AA during the original proceedings. Both these issues were not the subject matter of consideration during the original assessment proceedings leading to the assessment order in relation to the assessment. Thus, it was permissible for the AO to have a reasonable belief that income chargeable to tax had escaped assessment and it did not stem from a change of opinion. Only a prima facie view of the Assessing Officer is necessary to issue notices and not a cast iron case of escapement of income. Therefore, no fault could be found with the notice issued under section 148. (A.Y. 2008-09)

Eleganza Jewellery Ltd. v. CIT (2014) 364 ITR 232 (Bom.)(HC)

383. S. 147 : Reassessment – Notice – Reasons recorded before issuance of notice for reopening assessment quashed by High Court – Supplementary reasons recorded after issue of notice have no validity – Notice not valid. [S. 148]

The validity of notice for reopening must be judged on the basis of the reasons recorded. Such reasons in terms of section 148(2) have to be recorded before issuance of the notice.

Held accordingly, allowing the petition that the original assessment was not made after scrutiny. The validity of the Assessing Officer’s belief that income chargeable to tax had escaped assessment on the strength of the reasons recorded before issuance of the notice for reopening had already been set aside in the case of the very assessee by the High Court. The supplementary reasons were recorded well after issuance of the notice. The Assessing Officer, therefore, could not support the notice of reopening on the basis of any reasons recorded subsequent to the notice itself. Therefore, the notice was liable to be quashed. (A.Y. 1999-2000)

India Gelatine and Chemicals Ltd. v. CIT (No.2) (2014) 364 ITR 655 (Guj.)(HC)

384. S. 147 : Reassessment – Notice – After four years – Provision for doubtful debts – Depreciation – Failure to deduct tax at source – Reassessment was held to be in valid [Ss. 11, 148]

Assessee’s income and expenditure account reflecting provision for doubtful accounts there was no suppression of facts. Reduction of amount from income from investments and deposits, queries answered and AO was satisfied with explanation and details given by assessee in original assessment. Reopening on ground of double deduction mere change of opinion. Income of assessee exempted under section 11. Assessee not carrying on any business hence notice on basis of section 40(a)(ia) misconceived. Claim of depreciation on fixed assets in addition to allowance of capital expenditure held in favour of assessee in previous year reassessment notice was held to be invalid.

Bombay Stock Exchange Ltd. v. Dy. DIT(E) (No. 2) (2014) 365 ITR 181 (Bom.)(HC)

385. S. 147 : Reassessment – Notice after four years – Investment in companies subsequently found to be bogus – Sanction of Commissioner was obtained – Reassessment was held to be valid. [Ss. 148, 149(1)(b), 151(2)]

Assessment accepting assessee’s investments shown as funded by three companies. Companies found subsequently to be bogus. Disclosure rendered untrue. Reopening after four years permissible. Requirement that AO should specify that income escaping assessment exceeds Rs. 1 lakh. Met if such statement recorded while placing reasons for approval of Commissioner prior to issuance of notice. Sanction of Commissioner, merely stating “yes”. No inference that Commissioner did not apply mind while granting sanction. (A.Y. 2006-07)

Lalita Ashwin Jain v. ITO (2014) 363 ITR 343 (Guj.) (HC)

386. S. 147 : Reassessment – Search and seizure – Gift – Reassessment proceedings were held to be valid. [Ss.68, 132, 139, 143(2), 148, 158BC]

During post search enquiry, it became known that gift cheques shown in return filed under section 139 were a sham transaction. Court held that material found in post search enquiries could form a ‘reason to believe’ that income had escaped assessment by issuance of a notice under section 148, since period under section 143(2) had expired, AO having genuine reasons to believe that income had escaped assessment, could issue a notice under section 148. Accordingly the AO was justified in forming an opinion, that income had escaped assessment and was, therefore, justified in issuing notice under section 148. (A.Ys. 1999-2000 to 2001-02) Anand Prakash Agrawal v. CIT (2014) 367 ITR 526/ 225 Taxman 40 (Mag.) / 47 taxmann.com 80 (All) (HC)

Usha Agrawal (Smt.) v. CIT (2014) 367 ITR 626 (All.)(HC)

Mohit Agrawal v. CIT (2014) 367 ITR 626 (All.) (HC)

387. S. 147 : Reassessment – After expiry of four years – Deduction at source – Commission – Payment to non-resident – Less than full disclosure – Reassessment was justified. [Ss. 40(a)(i), 143(3), 195]

Assessment was reopened on the ground that assessee had made payment of commission to foreign agent without deducting tax at source and thus, said payment was liable to be disallowed under section 40(a)(ia). Assessee contended that there was no failure to make a full and true disclosure of all material facts necessary for assessment, initiation of reassessment proceedings after expiry of four years from the end of relevant assessment year was not sustainable. The Court held that it was noted from records that commission paid to foreign party was not shown separately but added to cost of purchase while commission paid on local purchases had been shown in profit and loss account and not added to costs. In view of aforesaid facts there had been less than full disclosure of all material facts during assessment proceedings and therefore, reopening of assessment was held to be justified in law. (A.Y. 2005-06)

Rosy Blue (India) Ltd. v. Dy. CIT (2014) 227 Taxman 89 / 47 taxmann.com 332 (Bom.)(HC)

388. S. 148 : Reassessment – Notice – Order passed without recording reasons – Liable to be quashed. [S. 147]

Where AO passed reassessment order without recording reasons for initiating reassessment proceedings despite repeated requests for same, order so passed being invalid, deserved to be quashed. (AY. 2001-02)

Torrent Power SEC Ltd. v. ACIT (2014) 225 Taxman 78 (Mag.) / 45 taxmann.com 561 (Guj.)(HC)

389. S. 148 : Reassessment – Third notice for reassessment – Return filed – Participated in the proceedings – Reassessment notice was held to be valid – Matter was set aside to decide on merit [Ss. 147, 151]

Notice under section 148 was issued to assessee and, consequently, assessee filed return, however, it was found that said notice did not specify period for which assessee was supposed to file return hence the said notice was dropped. Thereafter, another notice was issued but it was also dropped for want of approval under section 151. Then again third notice under section 148 was issued and assessment completed. Assessee challenged assessment as void ab initio on ground that no valid returns were filed. The Court held that since assessee had not only participated in proceedings but accepted his return filed in response to first notice under section 148, as return filed in response to third notice, assessment order could not be said to be void ab initio and matter was set aside to file of Tribunal to decide on merit. (AYs. 1998-99 and 1999-2000)

CIT v. R. Jayavelu (2014) 225 Taxman 83(Mag) / 45 taxmann.com 480 (Kar.)(HC)

390. S. 148 : Reassessment – Notice – Reason for reassessment must be recorded before issuing notice. [S. 147]

Sub-section (1) of section 148 of the Income-tax Act, 1961, pertains to a notice to be issued by the Assessing Officer before making the assessment, reassessment or recomputation of income under section 147 of the Act. Sub-section (2) of section 148 provides that the Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.

Held accordingly, that on the date of issue of the notice under section 148, no reasons for doing so had been recorded. The notice was not valid. (AY. 2007-08)

Gujarat Borosil Ltd. v. Dy. CIT (2014) 363 ITR 293 / (2013) 217 Taxman 139 (Mag.) (Guj.) (HC)

391. S. 153 : Assessment – Reassessment – Limitation – Finding or direction – Where no express finding or direction was there, reassessment could be made under section 153(3)(ii). [Ss. 148, 149]

Whenever an income is deleted or excluded from one year a corresponding inclusion in appropriate year by resorting to reopening of assessment for that year is specifically permitted by Explanation 2 to section 153(3) and therefore limitation provided under sections 148 and 149 has to be considered in light of section 150 and sub-section (3) of section 153, read with Explanation 2 thereof. Thus, reassessment of escaped income, without any express ‘finding’ or ‘direction’ could be made under Explanation 2 to section 153(3) and in a case where no express finding or direction was there, reassessment could be made under section 153(3)(ii). Appeal of revenue was allowed. (A.Y. 1996-97)

CIT v. Glass Equipment (India) Ltd. (2014) 366 ITR 59 / 269 CTR 363 / 225 Taxman 65 (Mag.)/ 47 taxmann.com 138 (Cal.)(HC)

392. S. 158BA : Block assessment – Undisclosed income – Return of income – Books of account not maintained – Benefit of exemption was held to be not allowable. [S. 139(1)]

The premises of the assessee was searched. The Assessing Officer found that the assessee carried out manufacturing activity and had not maintained books of account. Therefore, he assessed the income on total undisclosed income without giving any benefit of the exemption allowed to the assessee in terms of section 139. On appeal, the Tribunal upheld the same. On appeal the Court held that, none of provisions of Chapter XIV-B contemplates that an assessee shall be entitled to exemption even if he has not maintained any books of account or produced documents to satisfy Assessing Officer that income generated is not part of undisclosed income – Held, Yes – Whether, therefore, it is entire undisclosed income, which is liable to higher rate of tax and assessee is not entitled to exclude basic exemption granted to assessee under section 139(1) without satisfaction of Assessing Officer regarding genuineness of books of account or other documents in respect of his income. (A.Y. BP. 1986-87 to 1996-97)

Satpal Singh v. ACIT (2014) 225 Taxman 204 (Mag.) / 45 taxmann.com 435 (P&H)(HC)

393. S. 158B : Block assessment – Undisclosed income – Wrong claim of depreciation – Assessable as undisclosed income. [Ss. 32, 132]

In regular assessments, assessee had been claiming depreciation year after year on building owned by it which was shown in balance sheet as business asset. In search, it was found that said building had been rented out to third parties and had not been used for business and, hence, no depreciation could be allowed. There was no explanation from assessee for illegally claiming depreciation, building was let out, in regular assessment claim of depreciation was made without any foundation even when there was absolutely no scope for claiming depreciation. Tribunal had not erred in disallowing depreciation under section 32 in block assessment proceedings under section 158BB by treating said amounts as undisclosed income as defined under section 158B(b) even when said depreciation was claimed by assessee in regular assessment for relevant assessment years treating building as business asset; same would no more be a matter to be considered during course of regular assessment and, thus, there was no need for relegating matter for regular assessment. (A.Y. 1995-96)

Medical Land v. CIT (Appeals) (2014) 363 ITR 81 (Ker.)(HC)

394. S. 158BC : Block assessment – Procedure – Business income – Undisclosed income – Set off of miscellaneous receipts – No evidence was produced hence set off was not allowed [S. 28(i)]

Assessee-company was engaged in business of manufacturing rectified spirit. Search was conducted at premise of assessee during which evidences with regard to unaccounted sale of rectified spirit and other discriminating documents were seized. In pursuance to notice under section 158BC, assessee filed return for block period declaring undisclosed income of Rs. 49,47,000 and also set off of Rs. 31,95,000 toward miscellaneous receipt as recorded in books. During course of assessment proceedings, assessee had admitted that except business of rectified spirit, they are not doing any other business. Since assessee had failed to produce any material or evidence to support claim with regards to miscellaneous receipts and also failed to maintain true and correct account, no set off could be allowed. Appeal of revenue was allowed. (BP. 1-4-1991 to 27-4-2001)

CIT v. Sri Lakshmi Narasimha Distilleries (P.) Ltd. (2014) 225 Taxman 343 / 45 taxmann.com 455 (Kar.) (HC)

395. S. 158BC : Block assessment – No incriminating material found during search – Difference between cost of construction estimated by District Valuation Officer and cost shown in accounts less than 15 per cent – Addition to income in block assessment – Not justified. [Ss. 132, 158BB]

Tribunal deleted the addition made by the AO based on the valuation report of District Valuation Officer. On appeal by the revenue following the ratio in ACIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC), the Court held that there was no material found during the search indicating that there were expenses incurred on construction by the assessee that were not recorded in the books of account. In the absence of any seized material and solely on the basis of the report of the District Valuation Officer, there could not be any finding with regard to the undisclosed income. (BP 1-4-1989 to 28-1-2000)

CIT v. Vasudev Construction (2014) 363 ITR 247 (Karn.)(HC)

396. S. 158BD : Block assessment – Undisclosed income of any other person – Additional ground – Tribunal was directed to decide the additional ground on merits. [S. 254(1)

In course of block assessment proceedings, Assessing Officer made certain additions to assessee’s income. Commissioner (Appeals) sustained a part of said additions. In appellate proceedings, assessee raised an additional ground challenging validity of notice under section 158BD. Tribunal remitted matter back to file of Commissioner (Appeals) to decide said issue. in view of fact that no additional evidence was required to examine issue relating to validity of notice under section 158BD. Tribunal was to be directed to decide said additional ground itself on merits without remitting it back to Commissioner (Appeals). Matter remanded.

J. B. Construction v. ACIT (2014) 225 Taxman 194 (Mag.) / 45 taxmann.com 401 (Guj.)(HC)

397. S. 158BD : Block assessment – Assessment of third person – Incriminating material relating to assessee discovered during search of third person – Information forwarded to Assessing Officer having jurisdiction over assessee – Notice under section 158BD is Valid – On merit addition based on project report was deleted. [Ss. 69, 158BC ]

During the search operation incriminating material relating to the assessee had been discovered. The authorised officer did pass on information to the Assessing Officer, who had the jurisdiction and who proceeded to assess. The proceedings under section 158BD were valid.

However the revenue had not discharged the burden of proving unexplained investment in terms of section 69. The addition based on the project report was held to be not justified. [BP. 1-4-1995 to 20-3-2002]

CIT v. Vinayak Plasto Chem P. Ltd. (2014) 363 ITR 596 / 221 Taxman 439 / 264 CTR 313 (Raj.)(HC)

398. S. 158BC : Block assessment – Undisclosed income – Addition based on admission by assessee – False claim of depreciation – Assessment as undisclosed income was held to be valid. [Ss. 32, 132(4), 158B]

Dismissing the appeal of assessee the Court held that the addition was supported by the voluntary statement given under section 132(4). The statement was not retracted. The addition was valid. As regards claim of depreciation it was held that said claim was made quite without any basis. In view of the amended definition of “undisclosed income” such claim would render it undisclosed income. (A.Y. 1995-96)

Medial Land v. CIT (Appeals) (2014) 363 ITR 81 (Ker.)(HC)

399. S. 158BD : Block assessment – Assessment of third person – Assessee participating in assessment – Assessment not invalid on ground no search conducted against assessee [Ss. 132, 158BC]

Assessment based on materials gathered in course of search conducted in case of two other assessees residing in same premises as assessee. Assessee understanding this and participating in assessment. Assessment not invalid on ground no search conducted against assessee.

Kailash Sarda v. CIT (2014) 363 ITR 36 (Mad.)(HC)

400. S. 194H : Deduction at source – Commission or brokerage – Payments in relation to services relating to securities – Disallowance under section 40(a) (ia) is not warranted. [S. 40(a)(ia)]

Tribunal held that the remuneration paid by the assessee to Tapasya Projects Ltd. (TPL) was for canvassing, inducing or for motivation of investors and was, hence, excluded from the purview of section 194H by the terms of the Explanation. On appeal by revenue :

Held, dismissing the appeal, that once it was an admitted position that TPL had motivated potential investors to invest through the assessee in mutual fund schemes, these services which were rendered in relation to a transaction in “securities” stood excluded from the definition of “brokerage or commission” under section 194H. The services which were rendered by TPL were in relation to “securities”. No other services had been rendered. Consequently, the disallowance under section 40(a)(ia) was not warranted. (A.Y. 2007-08)

CIT v. Tandon and Mahendra (2014) 363 ITR 454 / 224 Taxman 153 (All)(HC)

401. S. 199 : Deduction at source – Credit for tax deducted – Directed to refund the tax deposited on behalf of D credit of such refund was only to be given to D

As per the order of tax authorities the tax was deposited on behalf of D. Against the said order writ petition was filed and the Court held that such income was not taxable in India and tax authorities were directed to pass fresh orders excluding the income received by D. Subsequently the assessee requested the tax authorities that it is entitled for refund of TDS deposited on behalf of D but the department refuted the claim by holding that since TDS was deposited on behalf of D and D had claimed the credit for such TDS deposited in its return of income. Petitioner company was not entitled for such refund. On writ the Court held that since TDS was deposited by petitioner company on behalf of D, credit of such refund was only to be given to D. Court also directed the respondent to deposit the said amount along with interest in accordance with law in the court. (AYs. 1990- 91, 1991-92)

Grasim Industries Ltd. v. ACIT (2014) 227 Taxman 90 (Mag.) / 45 taxmann.com 385 (Bom.)(HC)

402. S. 201 : Deduction at source – Failure to deduct or pay – Alternative remedy is available – Writ is not maintainable [S. 194H, Article 226

Assessee, a company, failed to deduct TDS and, hence, treated as assessee-in-default under section 201(1). Assessee filed writ petition against such order of Dy. CIT. Dismissing the petition the Court held that where assessee had statutory alternative remedies available in form of filing an appeal before Commissioner and further appeal to Tribunal if required. Invoking jurisdiction of High Court was disallowed. (A.Y. 2012-13)

Jagran Prakashan Ltd. v. Dy. CIT (2014) 225 Taxman 39 (Mag.)/ 47 taxmann.com 82 (All) (HC)

403. S.220 : Collection and recovery – Stay – CIT (A) has the power to deal with stay application – Respondents are restrained from taking any coercive measure till the disposal of stay application by CIT (A) [S. 220(6)]

When the appeal was pending before the CIT (A), the tax recovery officer passed an order attaching bank accounts of assessee. The assessee filed the Writ Petition. Allowing the petition the Court held that it would be appropriate for the CIT(A) to dispose the stay application of assessee. Till such time the respondents are restrained from adopting any further coercive measures for recovery of its due. (A.Y. 2010-11)

Haresh Ravji Majithiya v. ACIT (2014) 227 Taxman 211 (Mag)(Bom)(HC)

404. S.220 : Collection and recovery – Stay – CIT(A) – AO must deal with the prima facie merits – On merits if the order is favour of assessee by decision of superior forum, issue of financial hardship may not arise – Assessee was directed to deposit 10% of demand and balance is stayed till the disposal of appeal by CIT(A) [Ss. 2(15), 220(6)]

Court held that in view of introduction of proviso to section 2(15) earlier decision of assessee may not apply; however while rejecting the stay application AO must deal with the prima facie merits of the assessee’s case in appeal and if the same is covered against the revenue in view of a decision of superior forum then the question of considering the issue of financial hardship may not arise. Financial hardship is relevant only when the assessee is unable to make out a case on merits for an unconditional stay of demand. On the facts assessee was directed to deposit 10% of demand and balance is stayed till the disposal of appeal by CIT(A). (A.Y. 2011-12)

Slum Rehabilitation Authority v. DIT (E) (2014) 112 DTR 209 (Bom.)(HC)

405. S. 220 : Collection and recovery tax – Stay – Income not chargeable – 23 per cent of total tax demand was recovered – Demand for balance amount was stayed

Assessee filed stay petition against the Director (Exemption). Authority directed to pay the tax in ten equal installments. Assessee filed the writ petition and contended that it was an agent of State Government and thus income earned in said capacity was not chargeable to tax. It was found that by way of adjustment of refund the revenue had already recovered 23 per cent of total tax demanded. In the interest of justice balance amount was stayed. (A.Y. 2010-11)

Mumbai Metropolitan Region Development Authority v. Dy. DIT (2014) 227 Taxman 104 (Mag.) / 42 taxmann.com 402 / 112 DTR 210 / (2015) 273 CTR 317 (Bom.)(HC)

406. S. 226 : Collection and recovery – Modes of recovery – Commissioner (Appeals) – Inherent power to grant stay – Application for stay was pending recovery proceedings was held to be not valid. [S. 250]

Assessing Officer passed assessment order raising demand – Assessee filed appeal before Commissioner (Appeals). Pending said appeal, Assessing Officer initiated recovery proceedings and passed an order under section 226(3) attaching bank account of assessee calling upon bank to pay assessee’s dues. Assessee filed application for granting stay. Assessing Officer should not be allowed to withdraw any amount from assessee’s bank account, till Commissioner (Appeals) decided assessee’s stay application. However, attachment of bank account would continue till Commissioner (Appeals) would decide stay application.

Nikhil Kelkar v. ITO (2014) 225 Taxman 196 (Mag.)/ 42 taxmann.com 279 (Bom.)(HC)

407. S.226 : Collection and recovery – Modes of recovery – Writ petitioners could not challenge orders and notices without challenging Tribunal’s decision against which remedy of appeal under section 260A is available – Writ is not maintainable [S. 260A, Article 226]

Orders and notices under section 226(3) were issued. Same was challenged before Commissioner (Appeals) and Tribunal respectively who dismissed appeals. Writ petitioners could not challenge orders and notices without challenging Tribunal’s decision against which remedy of appeal under section 260A is available. Writ petition was not maintainable.

State of Himachal Pradesh v. CCIT (2014) 225 Taxman 197 (Mag.)/ 40 taxmann.com 211 (HP)(HC)

408. S. 234B : Interest – Advance tax – Assessment order refers to interest to be charged as per Rules – No error in charging of interest. [S. 234C]

Where in assessment order, it was clearly stated that interest be charged as per rules, interest charged under sections 234B and 234C could not be challenged.

Ramesh Prasad Dhahayat v. CIT (2014) 225 Taxman 191 (Mag.)/ 45 taxmann.com 446 (MP)(HC)

409. S. 234B : Advance tax – Interest – Mandatory – Shortfalls taxable – Levy of interest justified

Section 234B provides that shortfalls have to be taxed under section 43(3). Interest contemplated under sections 234A, 234B and 234C is mandatory in nature. Therefore, interest under section 234B was rightly levied. (A.Y. 2005-06)

South Indian Bank Ltd. v. CIT (2014) 363 ITR 111 / 226 Taxman 130 (Ker)(HC)

410. S. 234B : Advance tax – Interest – Computation of interest – Minimum Alternate Tax – Credit of Minimum Alternate Tax must be given before charging interest. [Ss. 115JAA, 234C]

Credit for minimum alternate tax should be given to the assessee before charging of interest under sections 234B and 234C of the Income-tax Act, 1961. (A.Y. 2002-03)

CIT v. B.P.L. Ltd. (2014) 364 ITR 544 (Karn.)(HC)

411. S. 244 : Refunds – Interest on refund – Can be withdrawn while giving effect to appellate order

Amount paid to assessee as interest under section 244 can be withdrawn, while giving effect to an appellate order which has led to variation of amount being lesser amount chargeable under section 244.

Vipan Kumar Sudesh Kumar, HUF v. ITO (2014) 225 Taxman 200 (Mag.) / 46 taxmann.com 420 (P&H)(HC)

412. S. 245D : Settlement of cases – Case – Effect of CBDT circular dated 12-3-2008 – Application made after time-limit for issue of notice u/s. 143(2) had elapsed but before completion of assessment – Valid. [Ss.143(2), 245A(b)].

The Supreme Court in Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270 (SC) held that circulars issued by the Central Board of Direct Taxes which are beneficial to the assessee must be applied and observed that circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income-tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored.

Circular No. 3 of 2008, dated March 12, 2008, clarifies that it is immaterial for the purpose of filing an application before the Settlement Commission whether the time limit for issuing a notice under section 143(2) of the Incometax Act, 1961, has expired or not. The entire purpose and objective of Chapter IX-A of the Act providing for settlement is to give an opportunity to a tax defaulter to surrender and pay up the taxes in consideration of immunity from prosecution and penalty (either wholly or in part). Thus, a beneficial interpretation to the word “case” in section 245A(b) of the Act given by the Circular dated March 12, 2008, issued by the Board is understandable so as to mitigate/ lessen the rigour of the definition of the word “case”. Hence, an application for settlement of case made after the time for issue notice under section 143(2) had expired but before completion of assessment would be valid. (WP No. 1266 of 2013 dt. 30-8-2013 (A.Y. 2010-11)

CIT v. ITSC (2014) 364 ITR 410 / (2013) 262 CTR 28 (Bom.)(HC)

413. S. 254(1) : Appellate Tribunal – Additional ground – Issue raised before the AO has to be considered by the Tribunal though the CIT(A) did not render any view. [IT(AT)R. 11]

Issue specifically taken before the AO could not be refused to be considered by Tribunal merely because the CIT(A) did not give any view on it. Order of Tribunal was set aside.

Jehangir H. C. Jehangir v. ITO ( 2014) 112 DTR 262 (Bom.)(HC)

414. S. 254(2) : Appellate Tribunal – Duty of Tribunal – Rectification of mistake apparent from the record – If the Tribunal accepts that a mistake has crept in the order, interests of justice is served if the entire order is recalled (suo motu by the ITAT) & appeal re-heard. Appeals should not be disposed of in “light hearted” and “casual manner” [Ss. 254(1), 263]

During the pendency of the Appeal before the High Court, the Tribunal passed an order on the Miscellaneous Application and revived the appeal filed before it for hearing afresh on merits in relation to withdrawal of deduction u/s 36(1) (viia). However, as the assessee had not asked for recall of the ground challenging the exercise of powers u/s 263 by the CIT, the same was not recalled. HELD by the High Court:

(i) We are not happy in the manner in which the Tribunal has decided the Miscellaneous Application. If the Tribunal was required to devote so much time for assigning reasons in more than five paragraphs in a lengthy eight page order on the Miscellaneous Application so as to correct an obvious mistake by exercising powers under section 254(2) of the IT Act, then, interest of justice would have been sub-served and better had the Tribunal revived the entire Appeal and not partially. If there was a mistake with regard to the claim of deduction, we do not think that the Tribunal was justified in directing partial revival of the Appeal…… We do not think that interest of justice and equity is served by non consideration of vital materials by the last fact finding authority, namely the Income Tax Appellate Tribunal. That the Tribunal was required to recall its earlier orders and for the reasons which have been assigned by it would indicate that it failed to apply its mind at the initial stage to the grounds raised in the Appeal and in their entirety. It omitted from consideration crucial documentary material as well. In such circumstances, such partial revival of the Appeal would not meet the ends of justice.

(ii) We modify the order passed on the Miscellaneous Application and direct that the Appeal shall now be heard on its own merits and in accordance with law, permitting the assessee to raise all grounds that are to be found in the Memo of Appeal. … This direction issued by us in the exercise of our further appellate and inherent powers should serve as a reminder to the Tribunal that the matters of vital importance affecting the interest of public should not be disposed of in a light hearted or casual manner. The record must be perused in its entirety and properly and minutely. That is the function and which the judicial body is required to perform and oblige to carry out as well. In these circumstances and the unsatisfactory and unhappy manner in which the Miscellaneous Application has been dealt with and decided that we have directed the revival of the Appeal. (ITA No. 1481 of 2012, dt. 17-12-2014)

State Bank of India v. DCIT (2015) 370 ITR 438(Bom) HC)www.itatonline.org

415. S. 254 (2) : Appellate Tribunal – Rectification of mistake apparent from the record – Tribunal satisfied that assessee’s claim reasonable, but rejecting it relying on decision of court without analysing facts – Tribunal justified in exercising its power under section 254(2)

On a miscellaneous petition under section 254(2), the case of the assessee was that the decision of the Karnataka High Court had absolutely no application to the facts and circumstances of its case and the Tribunal, having held that the table does not use the word “exclusively” and having been satisfied that the assessees claim was reasonable, committed a serious mistake in rejecting the assessees claim. The Tribunal was satisfied that the decision of the Karnataka High Court would not apply and, therefore, recalled the order and restored the appeal to be heard afresh on the point of depreciation alone. On appeal.

Held, dismissing the appeals, (i) that the order of the Tribunal had caused prejudice to the assessee and such prejudice was attributable to the Tribunal’s mistake. This was because the Tribunal was satisfied that the assessee’s claim was reasonable, nevertheless it rejected the claim solely relying on the decision of the Karnataka High Court, without analysing the facts, which were the subject matter of the decision before the High Court. Thus, the order passed by the Tribunal under section 254(2) was wholly within its jurisdiction and was justified.

Honda Siel Power Products Ltd. v. CIT [2007] 295 ITR 466 (SC) applied.

(A.Ys. 1995-96, 1996-97)

CIT v. TTG Industries Ltd. (2014) 363 ITR 44 (Mad.)(HC)

416. S. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Application for rectification – Limitation – Starting point for limitation – Actual date of receipt of order of Tribunal

Section 254(2) of the Income-tax Act, 1961, is in two parts. Under the first part, the Tribunal may, at any time, within four years from the date of the order, rectify any mistake apparent from the record and amend any order passed by it under sub-section (1). Under the second part, the reference is to the amendment of the order passed by the Tribunal under subsection (1) when the mistake is brought to its notice by the assessee or the Assessing Officer. In short, the first part refers to the suo motu exercise of the power of rectification by the Tribunal whereas the second part refers to rectification and amendment on an application being made by the Assessing Officer or the assessee pointing out the mistake apparent from the record. The statute has conferred the right in favour of the assessee or even the Revenue to prefer a rectification application within a period of four years and, therefore, even if the Rectification Application/Miscellaneous Application is submitted on the last day of completion of four years from the date of receipt of the order, which is sought to be rectified, it is required to be decided on the merits and in such a situation the assessee is not required to give any explanation for the period between the actual date of receipt of the judgment and order, which is sought to be rectified and the date on which the Miscellaneous Application is submitted. Held, that the Tribunal passed the order which was sought to be rectified on February 20, 2007, and it had been admittedly received by the assessee on November 19, 2008. The assessee preferred the application on May 9, 2012. The application was not barred by limitation. (A.Y. 1996-97)

Peterplast Synthetics P. Ltd. v. ACIT (2014) 364 ITR 16 (Guj)(HC)

417. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Two views – Rental income – AO accepting the return after calling explanation allowing capitalisation of rental income- Revision was held to be not valid. [S. 22, 56]

The assessee was engaged in developing a film project and while doing so it received rental income which was directly interlinked with the activity. Since the business had not yet started, it filed a nil return for the assessment year 1995-96. After examining the details, the income returned was accepted. CIT held that rental income should not have been capitalised. On appeal Tribunal held that. AO capitalising receipt as connected with main activity. Commissioner has no jurisdiction to revise because one of two possible views was taken by AO. (AY. 1995-96, 1996-97)

CIT v. UshaKiran Movies Ltd. (2014) 363 ITR 165 / (2015) 228 Taxman 62(Mag)(AP)(HC)

418. S. 268A : Appeal – Application –Reference – Instructions– Tax effect less than Rs. 10 lakhs – Appeal was held to be not maintainable. [Ss. 68, 260A]

Revenue filed instant appeal against order passed by Tribunal deleting addition made under section 68. Assessee raised a preliminary objection that since tax effect in revenue’s appeal was less than Rs. 10 lakh, in view of Instruction No. 3, dated 9-2-2011, said appeal was not maintainable. Since revenue could not controvert aforesaid submission raised by assessee, instant appeal was to be dismissed being nonmaintainable. (A.Y. 2008-09)

CIT v. Gulab Wire Products (P.) Ltd. (2014) 225 Taxman 189 (Mag.)/ 42 taxmann.com 226 (Jharkhand)(HC)

419. S. 271(1)(c) : Penalty – Concealment – Lease transactions – Furnishing inaccurate particulars of income –All materials were before revenue – Deletion of penalty by Tribunal was held to be justified.

The assessee entered in to lease transactions. The AO disallowed the claim of depreciation on the ground that the lease transactions were not genuine and levied the penalty. Appellate authorities found that there was no concealment of particulars of income nor furnishing of inaccurate particulars of income, accordingly deleted the penalty. On appeal by revenue dismissing the appeal the Court held that all materials were before the revenue hence deletion of penalty by the Tribunal was held to be justified. (AY. 2001-02)

CIT v. Indusind Bank Ltd. (2014) 369 ITR 682 (Bom)(HC)

420. S. 271(1)(c) : Penalty – Concealment – Appellate Tribunal – Additional ground – Amalgamation of companies – Levy of penalty on transferor company – Additional ground raised before Tribunal with evidence contesting levy of penalty on non-existing entity – Impact and legal effect of a order of amalgamation and winding up of assessee on penalty proceedings pure legal issue – Tribunal ought not to have remitted legal issue to Assessing Officer – Tribunal directed to decide legal issue [S. 254(1)]

Court held that the Tribunal should have answered the legal issue itself. The Tribunal was not prevented in any manner and in law from considering a purely legal issue for the first time, especially, if this legal issue went to the root of the matter. The issue was of the impact and legal effect of an order of amalgamation and winding up of the assessee on the penalty proceedings. If the proceedings were initiated prior to the order of the winding up being passed or the scheme of amalgamation being sanctioned then whether the subsequent act of an order sanctioning the scheme would permit continuation of the proceedings against an entity or a company which was wound up and in terms of the provisions contained in the Act was, thus, a clear legal issue. It should have been answered by the Tribunal, particularly when it had admitted the question or ground and the additional evidence filed by the assessee. The only two documents which required to be looked into were the scheme of amalgamation and the order passed in pursuance thereof by the court. The Tribunal was obliged to answer the legal question. Its omission to answer it, therefore, was vitiated in law. The direction to remit and to remand it to the Assessing Officer was not justified and in the peculiar facts and circumstances. The Tribunal was directed to decide the legal issue. (A.Y. 2004-05)

Kansai Nerolac Paints Ltd. v. Dy. CIT (2014) 364 ITR 632 (Bom.)(HC)

421. S. 271(1)(c) : Penalty – Concealment –Mere admission of appeal by High Court on quantum addition would not give rise to the presumption that issue is debatable and penalty should be deleted [S.260A]

Court held that mere admission by the High Court on quantum addition would not give rise to the presumption that the issue is debatable hence penalty should be deleted. Matter was remanded to the Tribunal for fresh consideration according to law.

CIT v. Prakash S. Vyas (2014) 272 CTR 353 (Guj.) (HC)

Research Team

30. S. 36(1)(iii) : Interest on borrowed capital – Enhancement of lease rental – Question of fact [Ss. 37(1), 260A]

High Court dismissed the appeal of revenue in respect of allowability of interest paid on intercorporate deposits and enhancement of lease rental by holding the same as questions of fact. On appeal by revenue the same was dismissed by holding that the questions decided by Tribunal and High Court were purely on facts. (From the Judgment of Bombay High Court in ITA No. 452 of 2000 dated 28-1-2013) (A.Y. 1998-99)

CIT v. Essar Projects Ltd (2014) 365 ITR 363 / 223 Taxman 344 (SC)

31. S. 37(1) : Business expenditure – Guarantee commission – Matter remanded to High Court [S. 260A]

High Court refused to admit the question on allowability of guarantee commission on the ground that same question for earlier year has not been admitted. On appeal Supreme Court remanded the matter to High Court for disposal on merits, following the earlier year (A.Y. 1998-99)

CIT v. Essar Projects Ltd. (2014) 365 ITR 363 / 223 Taxman 344 (SC)

32. S. 132 : Search and seizure – Reason to believe – High Court appointed an advocate Commissioner to take inventory of goods – No reason was given the search and seizure action was illegal – Order passed by High Court was set aside

Court observed that how the High Court appointed an advocate Commissioner to take inventory of Goods in respect of which restraint order was passed by Revenue. Court also observed that High Court had not even remotely tried to see the reasons. Reasons, needless to say, can be recorded on the file and the Court can scrutinise the file and find out whether the authority has appropriately recorded the reasons for forming of an opinion that there are reasons to believe to conduct search and seizure. As is evident the High Court has totally misdirected itself in quashing the search and seizure action on the basis of the principles on non-traverse. Order of High Court was set aside matter remanded to the High Court to decide in accordance with law.

UOI v. Agarwal Iron Industries (2014) 272 CTR 313/ 112 DTR 137/(2015) 370 ITR 180 (SC)

Editorial: Decision in Ravi Iron Industries v Director of Investigation (2003) 264 ITR 28 (All.)(HC) is set aside.

33. S. 254(1) : Appellate Tribunal – Orders – Dismissal for default – No power to dismiss the appeal for want of prosecution even if the appellant therein or its counsel has not appeared when the appeal was taken up for hearing. CESTAT has to decide the appeal on merits. [Income-tax (Appellate Tribunal) Rules, 1963, R. 24, Central Excise Act, 1944 S. 35C(1)]

Question of law which arises for consideration in the present case was whether the Customs Excise and Service-Tax Appellate Tribunal has the power to dismiss the appeal for want of prosecution or not. Court held that Central Excise, Act 1944 enjoins upon CESTAT to pass order on appeal confirming modifying or annulling the decision or order appealed against or may remand the matter. It does not give any power to CESTAT to dismiss the appeal for default or for want of prosecution in case the appellant is not present when the appeal is taken up for hearing. Therefore CESTAT could not have dismissed the appeal filed by the assessee for want of prosecution and it ought to have decided the appeal on merits even if the assessee or its counsel was not present when the appeal was taken up for hearing. Matter was setaside and was directed to be decided on merit.

Balaji Steel Re-Rolling Mills v. CIT (2014) 272 CTR 205 (SC)

Research Team

ALL EYES ARE SET ON
THE UNION BUDGET

My Beloved Members,

The exercise of framing Union Budget by Hon’ble FM, Mr. Arun Jaitley under the supervision of the Prime Minister Mr. Narendra Modi has already commenced. This being the first budget of both, the expectations of all quarters are running very high!

The Prime Minister already met on the eve of first meeting of “Niti Aayog” and sought views from experts to find ways to boost economy as Government has set its full-fledged machinery for the preparation of budget. The meeting was attended by Finance Minister, Arun Jaitley and experts such as Mukesh Butani, Nitin Desai, Partha Sarathi Shome, Rajiv Lall, Swaminathan Aiyer, Vijay Kelkar, V. Reddy, among others. In this connection, it may be recalled that the Government set-up the ‘National Institute for Transforming India (NITI)’ by replacing Soviet-era Planning Commission on January 1. The Government earlier said that the said meeting was called for “interaction on the subject of the State of Economy and for inviting suggestions on the forthcoming Union Budget.”

Following is a ‘Wish List’ submitted by investors, common man and trade and industry bodies as well as the outline feedback given by the Finance Minister:

Fiscal discipline : The Finance Minister is expected to stick to the fiscal consolidation path, with the deficit target for 2015-16 and 2016-17 at 3.6% and 3% of GDP, respectively.

Subsidy reforms : Investors hope the budget will follow-up on reforms for other subsidised fuels, trim spending on food and fertilizer subsidies.

Welfare reforms : The budget is expected to streamline flagship welfare schemes like the National Rural Employment Guarantee Act.

Capital Spending : Jaitley is expected to create fiscal space to spend as much as $ 50 billion next fiscal on new roads, new rail lines, ports and irrigation facilities.

Manufacturing : The budget is expected to give a big push to Modi’s ‘Make in India’ campaign, with tax breaks and other incentives for several sectors.

Goods and Services Tax : Its passage depends on whether the FM can honour his promise to compensate States for potential revenue losses. The budget is expected to detail the promised compensation package which may be incorporated in the Finance Bill.

GAAR : Investors are seeking a new timeline for the implementation of General Anti- Avoidance Rules, (GAAR), aimed at Companies and investors routing money through tax havens.

Banking reforms : FM is expected to offer a road map to improve the health of ailing public sector banks, which have been hobbled by non-performing assets and corporate governance issues.

Substantial increase in Section 80-C investments : RBI Governor has expressed deep concern over the domestic saving rate going down to 30% which was 36.9% in the F.Y. 2007-08. He has therefore himself recommended to the government to increase substantially 80C investment limit from the present one at Rs. 1.5 Lakh, since the earlier limit of Rs. 1 Lakh was stationary for number of years. As a result, the saving rate on a National level has greatly reduced which is required to be greatly enhanced right now.

Seeking tax sops : The telecom Dept. also wants the government to increase tax depreciation rate from 15% to 65% on batteries used by telecom infrastructure service company. Many recommendations in its earlier list, did not find their way in this behalf.

AG ADVISES CENTRE TO ACCEPT BOMBAY HIGH COURT RULING

Attorney General Mr. Mukul Rohatagi has advised the Govt. to accept the orders of the Courts and Tribunals that have decided in favour of a taxpayer. On consideration of this advice the Centre accepted the decision and Bombay High Court judgment will be accepted so as to ensure stability and predictability in tax matters are important for long-term investors such as Vodafone. Several multinationals such as Shell and Nokia have complained of getting an unfair deal. The Dutch Oil Major won a similar transfer pricing case in the Bombay High Court. Therefore, CBDT Chief as well as Rohatgi’s views prevailed in the matter and the Government accepted their views, thereby a kind of signal has been given, Namely, where the IT liability is clear and unambiguous, it shall only be charge. Where it is over stretched without legal authority, the Govt. will be fair. Thus, it is now clear that income tax laws will be quite fair to foreign companies doing business in India.

Coming back to the working of the Association, members are aware of the National Tax Conference scheduled to be held on 18th and 19th April, 2015 at Darjeeling, a lovely place famous for watching early sunrise at Tiger Hill. The program and other details have been printed in AIFTP Times for February 2015. I take this opportunity and appeal to our members to attend the same in large numbers. Additionally, I request our brothers to make all efforts to enrol new members on this occasion.With best wishes and regards,

J.D. Nankani
National President