The Residential Refresher course for members of the ITAT : Expectation of stake holders – The Bench and the Bar are both trustees of the institution and the onus is on them to preserve its dignity, sanctity and purity.

In the Residential Refresher Course held from 17th July to 24 July 2017, at Judicial Academy in Mumbai, one of the subjects of discussion was the “Expectation of stake holders”. Representatives of different ITAT Bar Associations have made various suggestions which need to be considered in the right spirit for better administration of justice. Few of them are as under:

1. All the Bar associations have strongly opposed the new Rules for the appointment of members of the ITAT on tenure basis.

2. The Bar Associations are of the view that the President of the ITAT has to be selected from amongst the members of the ITAT.

3. The appointment of members of the ITAT and promotion of the members of the ITAT must be done on priority basis

4. There should not be any quota for disposal of number of matters by the Members which affects the quality of the orders.

5. Considering the pendency of the matters in any particular zone, the number of Benches may be increased or decreased to better suit the requirements of Bench strength.

6. Proper infrastructure must be provided for better administration of justice.

7. Appointment of departmental representatives on short term basis before the ITAT should be avoided.

We are of the opinion that an assessee rings the bell of justice in the Tribunal only when the assessing officer levies taxes or makes additions which are not in accordance with the law. As appeals involve time and money, both of which the assessee can ill afford to spend, it is natural that he makes a careful cost benefit analysis and elects to appeal only when the stakes are high and there are chances of success. An assessee is no academician and he does not derive any pleasure in obtaining a judgment for the sake of publicity or for laying down a legal precedent. The Tribunal is the final fact finding authority for Income Tax purposes, however the Tribunal being a creature of statute, it cannot traverse beyond the provisions of the statute. The Supreme Court in UOI v. Delhi Bar Association AIR 2002 SC 1347 has observed- ‘Tribunals whether they pertain to Income tax, Sales tax or Excise and Customs or Administration, have now became essential part of the judicial system in this country. Such specialised institutions may not strictly come within the concept of the judiciary, as envisaged by Article 50, but it cannot be presumed that such Tribunals are not effective part of the justice delivery system, like courts of law”. Therefore the Tribunals have greater responsibilities towards the taxpayers of our country. The members of the Tribunal may have to bear in mind that in hearing the appeals they are not merely adjudicating on the issues before them but they are invariably deciding on the fortunes of the assessees. It is moot to consider that a wrong decision against an assessee may ruin his life and relegate him to the position of a pauper. Hence the Tribunal has a greater responsibility towards the citizen. Judicial decisions should not be influenced by the media reporting or personal knowledge of the Members, the matters have to be decided as per the law and facts available on the record.

8. The Bar also has an equal responsibility to assist the Court to deliver qualitative judgments and strive for the independence of the Institution. The Federation has published a “Practical guide for appearing before ITAT” which was published in (2013) AIFTPJ and itatonline.org, for those who desire to make an effective representation before the Tribunal. Professionals may refer the same, which can save substantial time of the Tribunal and also help reducing the pendency before the Tribunal.

It is desired that there must be an Annual Refresher Course for the Members of the Tribunal which can help in rendering better administration of justice.

Proceedings of the inaugural session and first technical session on the subject of “Expectation of the stakeholders” is published on page 75 of this issue for the benefit of the readers. Readers may send their objective suggestion for better administration of justice.

Dr. K. Shivaram
Editor-in-Chief

  1. Law on Nuisance: Constitution of India Article 21

Peaceful living in one’s home is a right, as essential part of right to life. The law on nuisance is well settled. Nuisance in any form as recognised in the law of torts, whether private, public or common which results in affecting anyone’s personal or/and property rights gives him a cause of action/right to seek remedial measures in court of law against those who caused such nuisance to him and further gives him right to obtain necessary reliefs both in form of preventing committing of nuisance and appropriate damages/compensation for the loss, if sustained by him due to causing of such nuisance.

Balwant Singh v. Commissioner of Police and Ors. (2015) 4 SCC 801.

  1. Jurisdiction before two forum – Choice to file application available to a party before either of the forum

When two forums are available to party, he has a choice of instituting the suit in either of the forums. Both High Court being court of civil original jurisdiction and District court being court of civil original jurisdiction in the district , the application for setting aside the award u/s. 34 can lie in either of the court.

Ramesh Chand Kathuria & Anr v. M/s. Trikuta Chemicals Pvt Ltd. Anr. AIR 2015 J & K 52 Full Bench.

  1. Doctrine of Prospective overruling – Constitution of India, Article 141

The doctrine of prospective overruling can be considered to be a part of judicial legislation and has, therefore a binding effect under Article 141 of the Constitution of India so as to take care of the transitory situation like the laws made by Parliament or the State legislatures to save the past transactions and to prohibit their reopening of the concluded issues on the basis of new enactment.

Arun s/o Vishwanath Sonone v. State of Maharashtra and Ors. AIR 2015 Bombay 123.

  1. Equality before law – Constitution of India Article 14

When properties are acquired by the State, it acts as trustee thereof. It is not open for Ministers of State to direct restoration of some of such properties to erstwhile landowners as and by way of Special case. In absence of any reason or material for making of such order it was held that order was liable to be set a side.

Rashtriya Shikshan Mandal v. State of Maharashtra and ors. AIR 2015 (NOC) 655 Bom

  1. Precedent – Dismissal of SLP

Dismissal of SLP in limine would not constitute ratio of the decision.

Arun s/o Vishwanath Sonone v. State of Maharashtra and Ors. AIR 2015 Bombay 123.

  1. Word and Phares – Principal place of business – Reside

Word ‘’Principal place of business” means where governing power of corporation is exercised where those meet in council who have right to control its affairs.

Word ‘’Reside” means to dwell permanently or for considerable time, to have one’s settled or usual abode to live in or at particular place.

Dinesh Mehta v. STA Odisha and Ors. AIR 2015 Orissa 88.

  1. Order refusing to initiate contempt proceedings by Tribunal – Writ maintainable

When the Tribunal under the Act refuses to initiate a contempt proceedings, a writ petition under Article 226/227 against order of refusal is maintainable and it cannot be said that in such case only petition under Article 136 is maintainable.

Sujitendra Nath Singh Roy v. State of West Bengal & Ors. AIR 2015 SC 1831.

  1. Foreign Judgment – Enforcement

Foreign judgment is enforceable before court in India. Foreign judgment passed after considering evidence on merits, hence enforceable.

Masterbaker Marketing Ltd. v. Noshir Mohsin Chinwalla. Air 2015 (NOC) 771 (Bom.)

  1. Joint names of parties – Effect – Admissibility of document – Unregistered acknowledgement: Registration Act

If registered sale deed was in joint names of parties without indicating quantum of contribution, even if one of parties contributed entire sale consideration, same would be irrelevant and each co-owner would be entitled to one half of the property.

Secondly terms of registered sale deed cannot be varied or altered by unregistered document.

P. V. Krishnappa and Ors. v. . Ramaswamy Reddy. AIR 2015 (NOC) 763 (Kar.)

  1. Exemplary cost – Senior citizen

Petitioner visually impaired senior citizen suffered mental and financial harassment by compelling to contest matter, entitled to cost of Rs. 50,000/- .

Jaikishan Aggarwal (Total Blind) vs. Greater Noida Industrial Devp. Authority and Ors. Air 2015 (NOC) 884 (All)

  1. Right of Information Act, 2005 – S. 8(1)(j) : Return – Disclosure of income-tax returns of a politician on the ground that it is necessary for “purity of elections” and “probity in public life” is not possible as it is not in “public interest” [S. 6, 11]

    1. In Girish Ramchandra Deshpande v. Central Information Commission & Ors(2013) 1 Supreme Court Cases 212 it was held that the details disclosed by a person in his Income Tax Returns is personal information which has been exempted from disclosure under clause (j) of section 8(1) of the said Act, unless involved a larger public and the CPIO and or State Public Information Officer or the Appellate Authority is satisfied that the larger public interest justifies the disclosure of such information;

    2. What flows from the Judgments of the Apex Court is that the Income Tax Returns constitute personal information and are exempted from disclosure under section 8(1)(j) and that the said personal information can only be divulged if the CPIO or the State Public Information Officer reaches a conclusion that it would be in the larger public interest to reveal such information. In the instant case, the reason set forth in the first application filed by the Petitioner before the Public Information Officer hardly makes out a case for the information to be disclosed on the ground of public interest. In so far as the ground made out in the Appeal filed before the First Appellate Authority is concerned, the Petitioner has sought to make a general statement which does not specifically relate to the Respondent No. 3. The Petitioner has also sought to justify the information sought on the ground that the Income Tax authorities do not check the Income Tax Returns of those who are elected with their declared affidavits filed at the time of standing for elections. The said ground also does not make out any case of there being any public interest involved in the disclosure of the information sought by the Petitioner by way of the Income Tax Returns of the Respondent No.3 for the preceding three years. The Petitioner is in fact seeking the information by questioning the manner in which the Income Tax Department functions. Since the Petitioner is seeking information relating to the Respondent No.3 the Petitioner was required to demonstrate as to how the disclosure of the information relating to the Respondent No.3 would serve public interest. As indicated above, the Petitioner has made a general and sweeping statement which can hardly be said to satisfy the test of disclosure being made in public interest. (WP. No. 8753 of 2013, dated 11-6-2015.)

Shailesh Gandhi v. CIC & Ajit Pawar (Bom.) (HC); www.itatonline.org

Ajay R. Singh

  1. Whether samples of imported coal, not drawn in accordance with the Indian Standards are valid in law?

1) Facts

The assessee imported coking coal for the manufacture of coke. The customs department drew samples from the consignments without the presence of the agent of the assessee. The Department however alleged that the agent of the assessee was present when the samples were drawn, though they were drawn contrary to IS436. However, as the ash content was more than 12% as per the reports carried out by the Department, due to which the assessee could not avail of the exemption notification, SCNs were issued to the assessee for demanding differential duty. The Asst. Commissioner confirmed the duty and the Commissioner (Appeals) set aside the order of the Asst. Commissioner. The department approached the CESTAT and the CESTAT held that even though the samples were drawn contrary to IS 436, since the representative of the assessee was present, the assessee was estopped from turning around at a later stage inasmuch as they did not immediately object to the drawing of samples contrary to law.

2) Issue

Whether samples of imported coal, not drawn in accordance with the Indian Standards are valid in law?

3) Held

The Supreme Court held that since the samples were drawn contrary to law (IS 436), the tests report of the Department could not be looked at. As regards the Tribunal’s finding that even though the samples were drawn contrary to law, the assessee was estopped because their representative was present and did not object to such drawing of samples was perverse inasmuch as there is no estoppel against law. If the law required that something be done in a particular manner, it must be done in that manner, and if not done in that manner has no existence in the eye of law at all. The SC held that the Department was not absolved from following the law depending upon the acts of a particular assessee. Something that is illegal cannot convert itself into something legal by the act of a third person.

[Tata Chemicals v. CC, 2015-TIOL-120-SC-CUS]

  1. Whether recovery proceedings can be initiated without show cause notice under section 11A of the Excise Act, which is mandatory?

1) Facts

The Union of India, in 1997, unveiled an industrial policy for the North Eastern region giving tax incentives to such industries for 10 years. Pursuant to this, another Notification dated 8-7-1999 was issued granting new industrial units that had commercial production on or after December 24, 1997 and certain types of industrial units that increased their installed capacity after that date, certain exemptions. However, in 1999, another Notification was issued whereby exemption of Central Excise was withdrawn in respect of pan masala and tobacco products, which was challenged by various assessees. In the meantime,
vide Section 154 of the Finance Act, 2003, withdrawal of the benefit was effected from retrospective effect. Section 154 was however held to be constitutionally valid by the SC in R.C. Tobacco Private Ltd. v. Union of India & Anr. (2005) 7 SCC 725. Relying on section 154, the Department passed a recovery order demanding the duties with retrospective effect. The question that came up before the SC was whether recovery orders could be passed dispensing with the condition of SCN as required under section 11A of the Act even though the constitutional validity of section 154 was upheld in the R.C. Tobacco decision?

2) Issue

Whether recovery proceedings can be initiated without show cause notice under section 11A of the Excise Act, which is mandatory?

3) Held

The Supreme Court, after relying on its on various decisions, held that even when the duty was to be recovered from the assessee in view of the decision in R.C. Tobacco, it was held that the principles of natural justice could not be dispensed with. It further held that such recovery notices could not be issued without issuing a show cause notice to the assessee under section 11A of the Central Excise Act, 1944 as is mandatory in law.

[Dharampal Satyapal v. Dy. CCE, 2015-TIOL-121-SC-CX]

  1. Whether permission under Rule 16C of the Central Excise Rules can be denied to an assessee in view of the beneficial nature of the Rule?

1) Facts

The appellant is a manufacturer and got permission of the jurisdictional Commissioner of Central Excise, Pune, to remove the goods from its factory at Pune to the Bengaluru unit without payment of excise duty from Pune unit to Bengaluru unit from the financial year 2011-12 till 2014-15. However, the said permission was refused by the Commissioner for the financial year 2015-16 on the ground that that the appellant’s case cannot be considered to be falling under the category of “deserving case” as is prescribed under the Board’s Circular No. 844/02/2007-CX dated 31-1-2007.

2) Issue

Whether permission under Rule 16C of the Central Excise Rules can be denied to an assessee in view of the beneficial nature of the Rule?

3) Held

The Tribunal held that Rule 16C is a beneficial piece of legislation and is benevolent in nature, which permits a manufacturer to remove excisable goods manufactured in his factory without payment of duty for carrying out test or any other process not amounting to manufacture. The said discretion must be exercised by the department to benefit the assessee and facilitate trade and manufacturer of goods, more so when there was no allegation of violation of the procedures under the Act. In other words, when exercising a discretion, the Department has to take into account the commercial necessity of the assessee.

[Avery Dennison India Pvt. Ltd. v. CCE, 2015-TIOL-1556-CESTAT-Mum.]

  1. Whether refund can be granted under section 27 of the Customs Act without filing an application?

1) Facts

The assessee RDB palmolein and paid extra duty deposit (EDD) for the purpose of provisional assessment of the goods, pending survey report. After finalisation of assessment, the file of the assessee was forwarded to the refund section for refund of EDD. However, the Assistant Commissioner held that since no refund application was filed as required under Explanation II of section 27 of the Customs Act, the same is liable to be rejected. The assessee preferred an appeal and the Commissioner (Appeals) and the Tribunal held in favour of the assessee on the ground that since the EDD was only a deposit as a protection to safeguard the interests of the Department, and it was not a deposit of difference in terms of section 27, the EDD was to be refunded. It is against this that the Department filed an appeal before the Madras HC.

2) Issue

Whether refund can be granted under section 27 of the Customs Act without filing an application?

3) Held

The Madras High Court, after relying upon the decision of the Delhi HC in
CC v. Indian Oil Corporation, 2012 (282) ELT 368 (Del.) held that Explanation II to section 27 would only apply in a case where after the final assessment and the adjustment, the assessee was not satisfied with the adjustment and claimed excess amount of refund. Further, it held that the said explanation will have no application in cases where admittedly after final adjustment, refund is due to the assessee.

[CC v. Sayonara Exports Pvt. Ltd., 2015 (321) ELT 583 (Mad.)]

  1. Whether credit can be availed on outward transportation services post the amendment to the definition of input services w.e.f. 10-4-2008?

1) Facts

The assessee dealt in the manufacture and sale of cement. The sale of cement was made at the destination of the buyer and the assessee was be entitled to CENVAT credit on input service on transportation of the cement sold by the assessee. Initially, the period in dispute was from August, 2006 to October, 2007 and from November-2007 to July- 2008. In view of the change in definition of input service provided in Rule 2(l) of the CENVAT Credit Rules, 2004 w.e.f. 1-4-2008, the adjudicating authority as well as the First Appellate Authority had denied the benefit to the assessee for the entire period but the Tribunal granted the benefit of CENVAT credit to the appellant-assessee for the period up to 31-3-2008 but denied the same from 1-4-2008 to 31-7-2008, on the ground of a change in the definition of input services.

2) Issue

Whether credit can be availed on outward transportation services post the amendment to the definition of input services w.e.f. 1-4-2008?

3) Held

Since the sale was completed only after delivery was made to the buyer on ‘FOR basis’, the sale of the goods was finalized at the destination, which is at the doorstep of the buyer and the change in definition of ‘input service’ which came into effect from 1-4-2008 would not make any difference. The title of the goods had passed on from seller to buyer only at the place of destination, i.e. the place of removal, which is the address of the buyer. As such, the buyer had no right over the goods till delivered to it. Further, since the place of removal was the doorstep of the buyer, the assessee was entitled to the credit paid on outward transportation services.

[Madras Cements v. Asst. CCE, 2015-TIOL-1682-KAR-HC-CX]

Vipinkumar Jain

A. Classification of Service

Banking & Other Financial Service

1. The assessee supplied storage tanks to their customers for fixed term and charged consideration on monthly basis. The Tribunal held that, as per the agreement the property in tank always remained the property of the assessee and the same was only loaned for use to their customers without transferring the right to sell. Further, the assessee was not a banking company or financial institution hence not liable under Banking & Other Financial Service.

Inox Air Products Ltd. v. CCE, Nagpur 2015 (37) STR 1024 (Tri.-Mumbai)

2. The assessee in this case imposed commitment charges on the clients who did not draw the amount of loan that had been at their disposal. It was contended that these charges were for the loss of interest that the bank would have earned if the customer had drawn money from the loan account. The Tribunal held that, commitment charges are integrally connected with the lending which is taxable service and same cannot be separated from lending service, hence liable to service tax.

Punjab National Bank v CCE & ST Jaipur-II 2015 (38) STR 498 (Tri.-Del.)

3. The Tribunal held that stock brokers acquire shares, bonds etc. on behalf of client and therefore, are not financial institution as per RBI Act and hence, they were not liable to pay service tax.

2015 (38) STR 490 (Tri.-Mum.) Parag Parikh Financial Advisory Services Ltd. v. CST, Mumbai.

Business Auxiliary Services

4. Since the act of purchasing a car is a sale where property is delivered, any repair/service on purchased cars is done for oneself, the margin on sale and purchase of used cars by dealer would not be liable for service tax under the category of Business Auxiliary Services despite the fact that such cars were not registered with the RTO on purchase and some repairs/services were carried on such cars on purchase.

Sai Service Station v. CCE, C&ST (2015) 37 STR 516 (Tri.-Bang.)

5. The department in this case sought to demand service tax on service charges collected from cement and asbestos sheet companies for disposal of fly ash. The said services charges were for providing infrastructure, water, lighting, road maintenance etc. the Tribunal held that, activity of collection and removal of fly ash as per the rate of Tamil Nadu Government does not constitute infrastructural support service under BSS.

Mettur Thermal Power Station v. CCE (ST) Salem 2015 (38) STR 606 (Tri.- Chennai)

6. The department in this case sought to demand service tax on additional handling charges and facilitation charges on import of goods paid by importer/seller under BAS. The Tribunal held that, the assessee was importing impugned goods in own name and selling them on a principal basis to the buyer. Hence, he could not be held to be a service provider and expenses incurred before the transfer of goods formed a part of sale price and could not form a part of any service tax liability.

Indian Oil Corporation Ltd. v. CCE, Goa 2015 (38) STR 501 (Tri.-Mumbai)

7. The Tribunal held that the appellant provided marketing services of products of principal located outside India which is covered under BAS and qualifies as export of service.

CST, Mumbai-II v. Bayer Material Science P. Ltd. 2015 (38) STR 1206 (Tri.-Mumbai)

8. The assessee entered into an agreement with manufacturers of hoses, LPG stove etc. for marketing, business promotion, etc. for enhancing customer base in respect of said goods. The assessee contended that, they merely endorsed safety requirements under various regulations and therefore were not liable to service tax. The Tribunal observed that, the assessee not only promoted sale of goods of manufacturer by making available their marketing/distributor network but also added brand value to the products which attracted customers to buy the said products. Therefore it held that, the assessee provided Business Auxiliary Services to various manufacturers.

Hindustan Petroleum Corporation Ltd. v. CCE, Mumbai 2015 (38) STR 131 (Tri.-Mumbai)

9. The Tribunal held that multi-piece packing of soaps on job work basis amounts to deemed manufacture and hence cannot be taxed under Business Auxiliary Services. The matter was remitted back to give specific finding as to why the activity of the appellant did not amount to manufacture and if it does not amount to manufacture, why benefit of Notification No. 8/2005-S.T. cannot be extended.

Deshmukh Services v. CCE & ST [2015] 55 taxmann.com 111 (Mumbai- CESTAT)

10. The Tribunal held that purchase of goods from vendor and exporting the same to customer abroad at a markup value constitutes trading activity on principal to principal basis and cannot be regarded as business auxiliary service even if the markup is stated in the book as commission.

Behr India Ltd. v. CCE, Pune [2015] 55 taxmann.com 526 (Mumbai-CESTAT)

11. The process of cooling milk to a temperature below 5 degrees Celsius for the purpose of long distance transportation does not constitute a service rendered in relation to production or processing of goods (not amounting to manufacture) and hence not liable to service tax under the category of Business Auxiliary Services.

Sharma Ice Factory v. CCE (2015) 37 STR 660 (Tri.-Del.)

Cargo Handling Service

12. The Tribunal held that, loading/ unloading of coal by engaging tippers come within the purview of Cargo Handling Service. It was further held that, mining of sand from riverbed was within the Mining Service and not under scope of Cargo Handling Service. Extended period of limitation was not invoked in view of conflicting decisions of Tribunal and others.

Shreem Coal Carriers (P) Ltd. v. CCE, Nagpur 2015 (37) STR 1038 (Tri.-Mumbai)

13. The assessee collected barge (shipping) charges towards transportation of imported goods from the mother vessel to the jetty. The department sought to tax these charges under Cargo Handling Service. The Tribunal held that such transportation activity is a part of import transportation of bringing goods into India and liable for import duty and cannot be made liable to tax under Cargo Handling Service.

United Shippers Ltd. v. CCE, Thane-II 2015 (37) STR 1043 (Tri.-Mumbai)

Clearing and Forwarding Agent Services

14. The assessee was engaged in procuring orders from Government departments for cars manufactured by Maruti Udyog and in providing related liaison services between the two parties for a commission. The Tribunal held that the activity performed by the assessee could not be classified as clearing and forwarding agent services and therefore not liable to service tax.

CCE v. Amitdeep Motors (2015) 37 STR 637 (Tri.-Del.)

15. The Tribunal held that where the assessee merely procures purchase orders based on prices determined by the principal and does not deal with goods at all, his services would be that of Commission Agent and not of Clearing and Forwarding Agent.

Malhotra Distributors Pvt. Ltd. v. CCE [2015] 55 taxmann.com 245 (Mumbai – CESTAT)

16. The Apex Court held that supervising and liaisoning with coal companies and railways for verification of material as per requirement of cement companies cannot be termed as a clearing and forwarding agents service as they are not connected with clearing and forwarding operations.

Coal Handlers (P) Ltd v. Commissioner of Central Excise Range Kolkata – I [2015] 57 taxmann.com 402 (SC)

Club or Association Service

17. The assessee, an apex body of software companies, contributed subscription amounts for achievement of various objectives of public, industry and national importance including awareness/education/exports/ intellectual capital growth etc. The department sought to tax the subscriptions received from members under the category of Club or Association Service. The Tribunal held that subscription charged by the assessee was not liable to service tax.

NASSCOM v. CST Delhi 2015 (37) STR 1041 (Tri.-Del.)

18. The assessee was engaged in running a club for its members where activities relating to yoga, sports etc. were carried out. The Tribunal relying on decision in Ranchi Club Ltd., held that as per the principle of mutuality, services provided to members do not fall within the ambit of Club or Association Service. In case of other assessees, such as co-operative housing societies, which collected charges from members/ shareholders for managing and maintaining land and building belonging to the society, it was held that they were also not liable under Club or Association Service.

Matunga Gymkhana v. CST, Mumbai 2015 (38) STR 407 (Tri.-Mumbai)

19. The Tribunal held that FICCI and ECSEPC being charitable organisations who are dominantly pursuing activities of general public utility fall outside the purview of Club or Association Service. Further, any service provided to non-members prior to 1-5-2011 would not constitute a service under the head of Club or Association.

Federation of Indian Chambers of Commerce & Industry v. CST, Delhi 2015 (38) STR 529 (Tri.-Del.)

Construction Services

20. Construction Services in respect of embassy building and its staff quarters not meant for commercial or industrial use would not be liable for service tax under Commercial or Industrial Construction Services.

Bhayana Builders Pvt. Ltd. v. CCE (2015) 37 STR 525 (Tri.-Del.)

See also Paharpur Cooling Towers Ltd. v. CCE&C (2015) 37 STR 550 (Tri.-Del.)

21. The Tribunal held that where the assessee had constructed office buildings, the said service could not be classified under the category of ‘Construction of Residential Complex Services’ as office buildings would not be covered under the term residential complexes.

Singhania Enterprises v. CCE (2015) 37 STR 551 (Tri. – Del.)

Consulting Engineer Services

22. The assessee was engaged in providing data relating to drilling activities carried out by ONGC without providing any technical assistance / consultancy or analysis related to the data. Since the assessee was neither technically qualified nor an engineering firm, it could not be classified as a Consulting Engineer within the meaning contained in section 65(31) of the Act and therefore no service tax was payable under the category of Consulting Engineer Services

Halliburton Offshore Services Inc. v. CST (2015) 37 STR 634 (Tri.-Mum.)

Commercial Coaching & Training Services

23. The assessee conducted training in spoken English for duration of two weeks and claimed exemption as vocational institute. The Tribunal held that, even after undergoing training in English language for years together both in School and Colleges, it was difficult to attain proficiency, it was inconceivable that in a matter of two weeks, any proficiency or skill could be imparted or achieved. Further, training in languages, whether Indian or foreign had not been prescribed vocational training by Government of India and therefore, assessee was not eligible for benefit of Notification No. 9/2003-ST or its successor Notification No. 24/2004-ST.

Ulhas Vasant Bapat v. CCE, Pune-III 2015 (37) STR 1034 (Tri.-Mumbai)

24. The appellant provided courses in Information Technology, Marketing, Personnel Management, HRD etc. The Tribunal held that since the Institute is not affiliated to any University or approved by any Statutory Authority or under any other law, it was liable to service tax under Commercial Training or Coaching Service. It was further held that, courses conducted by the appellant cannot be qualified as vocational courses entitled for benefit of exemption under Notification No. 9/2003-ST and 24/2004-ST.

Balaji Society v. CCE, Pune-III 2015 (38) STR 139 (Tri.-Mumbai.)

Information Technology Software Services

25. The Tribunal held that where the overseas branches had received Information Technology and Software Services from the overseas sub-contractor and the payments for the same was also made out of EEFC A/c No. service tax under reverse charge mechanism can be demanded from the Indian Head Office since by virtue of section 66A the overseas branch would be considered as a separate person and it is who has received the sub-contractor’s services and not the Indian Head office

Infosys Ltd. v. CST (2015) 37 STR 862 (Tri.-Bang.)

Intellectual Property Service

26. The appellant had the requisite permissions to use his property in the name and likeness of the legendary martial artist “Bruce Lee”. The appellant had paid consideration to the Foreign Service provider for the visual images supplied to them by way of royalty. The property embodied in visual images would come squarely within the definition of artistic work as defined in section 14(c) of the Copyright Act. Since copyright is specifically excluded from the IPR service during the relevant period the question of levy of service tax on copyrights is not sustainable.

Indiagames Ltd. v. CST (2015)37 STR 299 (Tri.-Mum.)

Management Consultancy Service

27. The assessee was engaged in liaison services including administrative support, banking and loan arrangement etc. with various Government authorities. The department sought to tax the assessee under the category of Management Consultancy Services. The Tribunal held that, in absence of agreement or invoice, it was difficult to understand the nature of services. Since the activities undertaken by the assessee included advice and consultancy as well as executory functions connected with the advisory functions which were not related to routine or operational functions, the services were covered under Management Consultancy Services.

CST, Mumbai v. Essel Corporate Services Pvt. Ltd. 2015 (37) STR 943 (Tri.-Mum.)

28. The assessee was engaged in providing advice related to conceptualising, devising, development, modification, rectification, or up-gradation of working system of companies and also in relation to the commercial aspect, current development, import and export policy of India, potential problems and solutions, marketing strategies as well as alerting clients about potential misuse of their IPRs, economic and political scenario etc. The assessee contended that they were liable to service tax under BSS. The Tribunal held that, the services provided were in the nature of Management Consultant as BSS covered essentially executory service in nature.

Empro Oil (P) Ltd. v. CCE, Noida 2015 (38) STR 1038 (Tri.-Del.)

Mandap Keeper Services

29. The Tribunal held that marriage as a social function existed much before religions came into being and therefore it was futile to argue that marriage is a religious function. The mode of conducting the marriage either by following religious rituals or otherwise does not make marriage a religious function. The appellant was liable to pay service tax under Mandap Keeper Service.

CCE, Pune-II v. Central Panchayat 2015 (37) STR 1038 (Tri.-Mumbai)

Market Research Services

30. The Tribunal held that, market research services provided to companies abroad must be treated as export of service.

Kirloskar Ebara Pumps Ltd. v. CCE, Kolhapur 2015 (38) STR 488 (Tri.-Mumbai)

Outdoor Caterer Services

31. The assessee provided canteen service in the premises of service recipient. The Tribunal held that since the assessee was providing snacks and foods, it was liable to pay service tax under the category of Outdoor Caterer Service and set aside the penalty as the assessee was under bona fide belief that it did not have to pay service tax.

Masoji Caterers v. CCE, Raipur- I 2015 (38) STR 69 (Tri. – Del.)

32. The Tribunal held that a co-operative society of members being employees of a company engaged in preparation and serving of food to the employees are a provider of catering service.

Alfa Laval (India) Ltd. Employees Co-operative Consumer Society v. Commissioner of Central Excise. Pune-I [2015-TIOL-1184-CESTAT-MUM]

Port Services

33. The department sought to demand service tax on compensation received from ONGC for providing permission to lay their pipelines through port limits. The said compensation had been calculated @ 50% of wharfage charges paid. The Tribunal held that the assessee did not extend any facility, service or personnel in relation to pipeline or goods flowing through such pipelines and the amount received cannot be considered as amount paid towards any service rendered. The payment was received for permission and not for any port service. It was also held that, mere erection of wharfage by itself does not amount to rendering of port service and term ‘wharfage’ was used for merely determining compensation and not to determine nature of service rendered.

CST Mumbai v. Traffic Manager, Mumbai Port Trust 2015 (37) STR 993 (Tri.-Mumbai)

Programme Producer’s Services

34. The assessee had entered into agreements with various foreign entities who were required to make audio-visual coverage of the IPL cricket matches and uploaded the digitised images for broadcasting to the viewers of the cricket match all over the world, it was held that the activities carried out by the non-resident service providers were in the nature of “Programme Producer’s Services” and accordingly the assessees were liable to pay service tax on the services under the reverse charge basis. However, the amounts paid to overseas entities for booking of hotel, accommodation and transportation services for personnel in connection with recording of cricket matches to be held outside India it would not be covered under the category of Programme Producer’s Service, since the same is in the nature of support services

BCCI v. CST (2015) 37 STR 785 (Tri.-Mum.)

Rent-a-Cab Scheme

35. The issue at hand in the said case was whether service tax would be levied under the category of Rent-a-Cab Services where the motor vehicle was hired without the hirer having possession of the vehicle. The High Court, referring to section 75 of the Motor Vehicles Act and Rent-a-Cab Scheme, highlighted the difference between hiring and the Rent-a-Cab Scheme stating that in the case of hiring the owner of the vehicle retains control and possession whereas in the Rent-a-Cab Scheme the person is enabled to take the vehicle wherever he pleases subject to the terms of contract between him and the owner subject to the payment of rent. Therefore, the Court held that unless there is a transfer of control and possession of vehicle to the hirer there cannot be said to be a transaction liable for service tax under the category of Rent-a-Cab Services

CCC v. Sachin Malhotra (2015)37 STR 684 (Uttarakhand).

36. The Tribunal held that the assessee, a transport corporation, could not be considered as a person engaged in renting of cab service as the activity undertaken by them is to provide bus facility/transport facility to the citizens of city and main activity is running the buses in the city for convenience of citizens which was not a Rent-a-Cab Service operation.

Bangalore Metropolitan Transport Corpn. v. CST, Bengaluru 2015 (38) STR 976 (Tri.-Bang.)

37. The High Court held that when there is only a contract to hire and there is no renting of cab, there is no service tax payable.

CC & CE, Meerut- I v. R. S. Travels 2015 (38) STR 3 (Uttarakhand)

Renting of Immovable Property

38. The assessee had received rental income from renting out flats which were used as hostels / residential accommodation. The Tribunal held that no service tax was payable under the category of ‘Renting of Immovable Property’ as renting of buildings solely for residential purposes were specifically excluded from the charge of service tax.

Singhania Enterprises v. CCE (2015) 37 STR 551 (Tri. – Del.)

39. The assessee had received a security deposit from the licensee of the premises which provided security in case of default in rent or default in payment of utility charges and for prospective damages, if any. Thus where the revenue had sought to include the notional interest on security deposit within the value of taxable service of renting of immovable property but failed to provide evidence that the security deposit had influenced rent in any manner, the Tribunal held that the inclusion of notional interest on security deposit in value of taxable service was incorrect.

Murli Realtors Pvt. Ltd. v CCE (2015) 37 STR 618 (Tri. – Mum.)

40. The Tribunal in majority order held that payments collected towards lease and rent from various shop owners situated in stadium is liable to service tax under Renting of Immovable Property Service. In relation to the stadium rented out temporarily for conduct of social, official or business function, the Tribunal held that the assessee was liable to service tax under Mandap Keeper Service. It was further held that consideration received for staging the match, exclusive rights to use the advertising sites to sell and exhibit advertising of any kind is liable to service tax under sale of space or time for advertisement and that membership fees received for running a club for promoting cricket is not charitable in nature and therefore liable to service tax under Club or Association Service. With regard to conducting and telecast of cricket tournament, the Tribunal held that it is not in relation to any business or commerce and hence TV rights subsidy, BCCI tournament receipts, infrastructure subsidy etc. was not liable to service tax under BSS.

Vidarbha Cricket Association v. CCE, Nagpur 2015 (38) STR 99 (Tri.-Mumbai)

Share Transfer Agent Services

41. The Tribunal in this case held that, Share Transfer Agent Service and Registrar to an Issue service are liable to service tax w.e.f. 1-5-2006 and reimbursement of expenditure for the period prior to 1-5-2006 is not liable to tax at all. It is further held that, postage is in nature of duty/tax as per section 2(f) of Indian Post Act, 1898 and service tax cannot be levied on amount charged as tax. Also when postage/stationery recovered from service receiver on actual basis by service provider, service provider acts as a pure agent therefore, reimbursement made to pure agent is not includible in value of taxable service rendered.

Link In Time India Pvt. Ltd. v. CCE, Thane-I 2015 (38) STR 705 (Tri.-Mumbai)

Storage and Warehousing

42. The assessee was engaged in running a container freight station (‘CFS’) wherein it rendered cargo handling services such as loading, unloading, arranging for and supervising the examination of cargo, stuffing and de-stuffing of cargo and movement of empty containers amongst various other services, with respect to the export goods of its customers. For a few customers, the assessee provided storage and warehousing services for fixed monthly rentals in addition to the cargo handling services it rendered. The assessee did not pay service tax on the storage and warehousing services on the ground that the services were incidental to the cargo handling services rendered for the export goods of its customers and therefore not liable to service tax. On appeal, the Tribunal held that the storage services carried out pursuant to the agreement with the customers, were in addition to the normal activity of cargo handling services for which specific consideration was received and could not be considered as incidental to cargo handling services. The Tribunal held that if storage was to be considered as incidental to cargo handling services it would have specifically mentioned in the definition of cargo handling services and since it was not provided for in the definition the said services would be liable to service tax under the category of Storage and Warehousing Services

CCE v. Maersk India Pvt. Ltd. (2015) 37 STR 555 (Tri.-Mum.)

43. The assessee was a manufacturer and seller of liquid oxygen, nitrogen etc. for which it provided storage tanks to customers. The Tribunal observed that the assessee had no control on gas in the storage tank and whole responsibility was with the buyer only and held that as the assessee was not responsible for security of goods it was not liable to service tax under category of Storage and Warehousing Service.

Inox Air Products Ltd. v. CCE, Raigad 2015 (38) STR 179 (Tri.-Mumbai)

44. The appellant received incineration charges for usage of storage tank to store chemicals received from other factories and contended that it received amounts for sharing common expenses which were not liable to service tax. The Tribunal held that, the same is liable to service tax under Storage & Warehousing Services.

State Fertilizers & Chem. Ltd. v. CCEC&ST (A) Vadodara-I 2015 (38) STR 116 (Tri.-Ahmd.)

Technical Inspection and Certification Service

45. The Tribunal held that the activity of technical inspection and certification of seeds produced by seed producers would be liable for service tax under the category of Technical Inspection and Certification services.

Maharashtra State Seed Certification Agency v CC&CE (2015) 37 STR 655 (Tri. – Mum.)

Telecommunication Services

46. The Tribunal held that International Private Lease Circuit services are in the nature of telecommunication services. Hence when such services are received from a Service Provider located outside India no Service Tax would be payable on reverse charge basis since only telecommunication services provided by a person having a licence under Indian Telegraph Act would only be liable for service tax and the overseas service provider is not a person licensed under the said Indian Telegraph Act

Infosys Ltd. v. CST (2015) 37 STR 862 (Tri.-Bang.)

Tour Operator’s Service

47. The assessee provided bus services to companies for transportation of their employees from designated spots to the company and back on contract basis and used only contract carriage buses. The Tribunal held that, for the period prior to 10-9-2004, tours operated by the assessee under contract carriage permit were not operated in a tourist vehicle, and hence not liable to service tax.

Capricon Transways Pvt. Ltd. v. CCE, Raigad 2015 (37) STR 1027 (Tri.-Mumbai)

Transport of Goods Service

48. The assessee provided transportation of waste effluent material through pipeline for disposal. The Tribunal held that waste effluent was not goods as per section 2(7) of Sale of Goods Act, 1930 therefore services cannot be made taxable under transportation of goods through pipeline or conduit service.

Gujarat State Fertilizers & Chemicals Ltd. v. CCE, Vadodara 2015 (37) STR 1076 (Tri.-Ahmd.)

49. The assessee had to undertake the activities of – loading of the coal into the dumpers in the mine, transportation of the coal to railway siding; and unloading the same into railway wagon. A separate price for each of the above activities was mentioned in the contract. However the department had sought to tax the whole range of activities under the category of cargo handling service. On appeal, the Tribunal held that separate prices denote separate contracts as a part of one instrument. Accordingly, the Tribunal held that – The activity of loading and unloading of coal, would be liable for service tax under the category of Cargo Handling Services but the activities of transportation of coal, were in the nature of goods transportation agency services. However, no service tax would be payable since the liability to pay service tax in respect of these service was on the recipient of service.

Jai Jawan Coal Carriers Pvt. Ltd. v. CST (2015) 37 STR 509 (Tri.-Del.)

Works Contract Services

50. The Larger Bench held that the service element in composite works contract, involving transfer of property in goods and rendition of service, where such services are classifiable under Commercial or Industrial Construction, Construction of Complex or Erection, Commissioning or Installation, are subject to levy of service tax even prior to 1-6-2007 (when works contract service was notified)

Larsen & Toubro Ltd. v. CST, delhi 2015 (38) STR 266 (Tri.-LB)

51. The Tribunal held that where the assessee was engaged in only developing the land for township, by carrying out activities such as levelling, demarcation of plots/shops, construction of wall boundaries/roads/iron poles with lamps/underground cabling work/underground and overhead storage tanks, development of landscape lawns in earmarked areas etc. the same would not be liable for service tax under construction of complex service (for the period up to 30-5-2007) or under works contract service (for the period w.e.f. 1-6-2007)

Alokik Township Corporation v. CCE (2015) 37 STR 859

52. The Tribunal held that service tax could not be levied in relation to works contract services provided by sub-contractor to executive agency for and on behalf of Government department is not taxable as the intention is not to tax non-commercial projects undertaken by Government of India.

R.B. ChyRuchi Ram Khattar & Sons v. CST New Delhi 2015 (38) STR 583 (Tri.-Del.)

53. The Tribunal held that activities such as construction of sub-station and maintenance or repair of the sub-station undertaken by the appellant for transmission of electricity, though classifiable under the category of commercial or industrial construction services or works contract services would be exempt from payment of service tax since taxable services rendered in relation to transmission and distribution of electricity have been exempted under Notification No. 45/2010-ST dated 20-7-2010

Kedar Constructions v. CCE (2015) 37 STR 631 (Tri.-Mum.)

B. Valuation

54. The High Court held that the sale price of pager was restricted to hardware, i.e. pager units, and airtime charges and licence fees were not includible in it. The dealer did not do anything to the pager before or at the time by delivery and merely collected airtime charges and pro rata licence fees. Sale of pager was a standalone transaction, and activation of pager was subsequent to sale.

CST, Mumbai v. Page Point Service (P) Ltd. 2015 (37) STR 938 (Bom.)

55. The value of spare parts/accessories/ consumables such as lubricants and coolants etc. sold during the course of servicing the vehicles could not be included in the gross value of authorised service station services.

CCE&ST v. Krishna Swaroop Agarwal (2015) 37 STR 647 (Tri.-Del.)

56. The Tribunal held that reimbursable expenditure travel expense of the employees of appellant and providing output service shall not form part of the value of the taxable service.

Kirloskar Pneumatic Co. Ltd v. Commissioner of Central Excise, Pune – III. [2015-TIOL-538-CESTAT-MUM]

57. The appellant had paid VAT for defective auto parts replaced and raised service invoices for auto parts sold/used and for service charges. The Tribunal held that the value of parts sold/used not includible in value of taxable services.

Safeways Motors v. CCE, Nagpur 2015 (38) STR 1005 (Tri.-Mumbai)

58. The department sought to levy tax on handling charges collected as part of value of goods is composite activity of sale and service. The Tribunal held that charges collected on parts sold either independently or as a part of service and repair of automobiles on which VAT/ Sales tax had been paid would not be liable to service tax.

Automotive Manufactures P. Ltd. v. CCE & C, Nagpur 2015 (38) STR 1191 (Tri.-Mumbai)

59. The Tribunal held that where the assessee, a clearing and forwarding agent had sought to exclude the expenses such as godown rent, charges for unloading from wagons and loading into trucks, other misc. expenses, charges for transportation from rail head to godown, Unloading and stocking at godown, loading for onward movement, etc. reimbursed by the principals to the appellants from the taxable value of its services there was no legal obligation on the service recipient to incur such expenses hence the same cannot be excluded from the value of taxable services for the period April 2002 to September, 2006.

Clearchem Agencies v. CCEx, Indore (2015) 37 STR823 (Tri.-Del.) relying on Sri Bhagvathy Traders v. CCE (2011) 24 STR 290 (Tri.-LB)

60. Where the customers for commercial or industrial construction service have supplied free supply material, its value cannot be included in the value of taxable services.

Bhayana Builders Pvt. Ltd. v. CCE (2015) 37 STR 525 (Tri.-Del.)

Paharpur Cooling Towers Ltd. v. CCE&C (2015) 37 STR 550 (Tri.-Del.)

C. CENVAT Credit

61. The High Court held that combined reading of rules 3(1) & (4) of CCR, 2004 indicated that there was no legal restriction for utilisation of CENVAT credit which were not the output service of assessee.

CCE&C v. Panchmahal Steel Ltd. 2015 (37) STR 965 (Guj.)

62. The Tribunal allowed CENVAT credit of service tax paid on Rent-a-cab service used for transportation facility provided to customers air travel service for travel of partners and employees of the company for business purpose and rent of office premises, as each action was directly connected to the business of manufacture.

Nash Industries v. CC&ST, Bengaluru 2015 (37) STR 1060 (Tri.-Bang.)

63. The Tribunal allowed CENVAT credit of service tax paid on manpower supply services hired for maintaining occupational health centre at factory in terms of Rajasthan Factory Rule, 1951 and at project and corporate offices.

Binani Cement Ltd. v. CCE&ST, Jaipur-II 2015 (37) STR 1071 (Tri.-Del.)

64. The Tribunal allowed CENVAT credit of services availed for the construction of railway sidings for purpose of transportation of coal to captive power plant with the factory as transportation of coal was necessary for generation of electricity in the power plants and was connected with business of manufacturing of final product.

RSWM Ltd. (Fabric Division) v. CCE, Jaipur-II 2015 (37) STR 1074 (Tri.-Del.)

65. The assessee availed CENVAT credit on outdoor catering and mandap keeper services used by it for providing commercial training and coaching service. The Tribunal observed that, there is nothing on record to show whether any expenses were recovered from students and the appellant had not collected any money from students as it was felicitation-cum-promotional event. It held that, input service credit had been rightly availed by the assessee.

Palmtech Institutions India Pvt. Ltd. vs CCE & ST, Jaipur 2015 (38) STR 54 (Tri-Del.)

66. The Tribunal held that services used for setting up of factory are to be treated as input services eligible for CENVAT credit prior to amendment of Rule 2(1) of CCR, 2004.

Liugong Indian Pvt. Ltd. v. CCE & ST Indore 2015(38) STR 96 (Tri.-Del.)

67. The department denied credit of service tax paid on outdoor catering services on the ground that the said services were primarily used for personal use or consumption of employees and therefore excluded from the definition of input service. The Tribunal held that the cost of outdoor catering service used in relation to business activities form part of cost of final product and hence admittedly borne by the assessee and therefore CENVAT credit is not deniable.

Hindustan Coca Cola Beverages Pvt. Ltd. v. CCE, Nashik 2015 (38) STR 129 (Tri.-Mumbai)

68. The assessee was engaged in providing training or coaching service, management consultancy service and convention service. It claimed CENVAT credit of service tax paid on brokers’ services for the purpose of purchase/lease of flats or residential accommodation for its faculty. The Tribunal held that expenses incurred related to the output service which could not be provided without faculty being available. Hence credit was allowed.

Tata Management Training Centre v. CCE, Pune-III 2015 (38) STR 157 (Tri.-Mumbai)

69. The Tribunal allowed CENVAT credit of service tax paid on club house services availed for holding meetings with foreign delegates and event management services availed for training of employees as they pertained to the business of export service and consequently allowed the refund of the same.

Willis Processing Services (I) Pvt .Ltd. v. CCE, Mumbai-II 2015 (38) STR 169 (Tri.-Mumbai)

70. The appellant availed CENVAT credit against bills raised by commission agents. The Tribunal observed that as per the agreement said commission agent performed sales promotion activities such as procuring of orders, soliciting customers and promoting products which were to be treated as input service.

Novozymes South Asia Pvt. Ltd. v. CCE, Bangalore 2015 (38) STR 204 (Tri.-Bang.)

71. The appellant claimed CENVAT credit on all services used for providing taxable and exempted services without maintaining separate accounts. The department contended that, appellant is liable to pay 8%/6% of value of exempted service as it had not followed the provisions of Rule 6(3)/(3A). The Tribunal observed that, proportionate amount of Rs. 927/- attributable to exempt service has been paid by the appellant before issue of SCN and held that it would be too harsh to enforce payment of Rs. 24,194/- being 8%/6% of value of exempt service because of non-payment of Rs. 927/- on time as per the provision of Rule 6(3)(3A). It is further held that, no assessee would intentionally evade payment of Rs. 927/- hence demand was not justified.

Rathi Daga v. CCE, Nashik 2015 (38) STR 213 (Tri.-Mumbai)

72. The Tribunal allowed CENVAT credit of service tax paid on construction service rendered for fabrication/erection and labour charges for construction of temporary storage shed for cement, steel and other construction material and also for cutting of shrubs, vegetation etc as the said services qualified as input service.

Rathi Daga v. CCE, Nashik 2015 (38) STR 213 (Tri.-Mumbai)

73. The Tribunal held that all input services used for modernisation, renovation or repair to office premises were input services and that advertising for manpower recruitment was also input service. It further held that service of supply of food whose expenditure was met by employees was not an input service and that there was no restriction in availing CENVAT credit before registration is granted.

CST, Mumbai-II v. J .P. Morgan Services India Pvt. Ltd. 2015 (38) STR 410 (Tri.-Mumbai)

74. The Tribunal held that manpower supply services used for cleaning of the yard within sugar mill, weighment of sugarcane and its unloading at factory and care area survey and educating farmers etc. were input services and were to be treated as having nexus with manufacturing business of appellant.

Mawana Sugars Ltd. v. CCE & ST, LTU, Delhi 2015 (38) STR 410 (Tri.-Mumbai)

75. The Tribunal held that MS Pipes/Channels/Angles, Grinders, Bars, Structures, Plates, Shapes and Sections used in manufacture of technical structures of capital goods are eligible for credit as “capital goods”.

Commissioner of Central Excise, Chandigarh v. Parabolic Drugs Ltd – [2015] 55 taxmann.com 4 (New Delhi – CESTAT)

76. The Tribunal held that utilisation of CENVAT credit on capital goods is allowed to the extent of 50% in financial year of receipt and balance in subsequent financial year, even if capital goods are pending installation.

Commissioner of Central Excise, Customs and Service Tax, Rajkot vs .Reliance Ports and Terminals Ltd. [2015] 55 taxmann.com 73 (Ahmedabad – CESTAT)

77. The Tribunal held that CENVAT credit is admissible on towers and cabins used as Passive Telecom Infrastructure for providing output service.

GTL Infrastructure Ltd. v. Commissioner of Service Tax, Mumbai [2015] (37) STR 377 (Tri.-Mumbai)

78. A canteen essentially promotes the welfare of employees as it elicits a better performance from them which in turn improves the production of goods. Therefore CENVAT of outdoor catering service is allowed although the assessee has no obligation to provide such facility.

Resil Chemicals Pvt. Ltd. v. CCE (2014) 36 STR 1260 (Kar.)

79. Merely because service tax on advertisement charges was paid by Unit-1 for the advertisement of product of Unit-II is no ground for denying credit since both units are under the umbrella of the same company though the units were at different places.

Greaves Cotton Ltd. v. CCE 2015(37) STR 395 (Tri.-Chennai)

80. CENVAT credit availed on Rent-a-cab service availed prior to 1-4-2011 would be permissible in view of the Board Circular No.943/4/2011-CX, dated 29-4-2011.

Prayas Engineering Ltd. v. CCE&ST (2015) 37 STR 508 (Tri. – Ahmd.)

81. In this case, the assessee was engaged in providing its clients passive telecom infrastructure [to be used by Cellular Telecom Operators], and it paid service tax on the services it provided, under the category of Business Auxiliary Services. The Tribunal held that credit of tax paid on tower or BTS cabins etc., which have been used for providing the output services would be admissible since the same would be dealt with under the definition of inputs as defined in Rule 2(k)(ii) of the Credit Rules .

GTL Infrastructure Ltd. v. CST (2015) 37 STR 577 (Tri.-Mum.)

82. Where service tax is paid on insurance of plant and machinery, goods in transit, cash in transit, vehicles and laptops, using the credit of service tax is admissible since the abovementioned activities are in nexus with the business of the assessee.

Hindustan Zinc Ltd. v. CCE (2015) 37 STR 608 (Tri.-Del.)

83. In the instant matter the Tribunal decided that certain input services are eligible for CENVAT credit of service tax paid on Group Medical Insurance, Consultancy Services-for filing of tax returns in U.S. and legal consultancy, Outdoor Catering Services except to the extent of consumption of alcoholic beverages and subscription to International Taxation (website) for getting information and knowledge pertaining to tax compliance.

CCE v. HCL Technologies (2015) 37 STR 716 (All.)

84. The assessee had availed CENVAT credit on outdoor catering services received by it with respect to its factory canteen but had recovered only a part of the amount from its employees. It was held that, the availment of CENVAT credit to the extent of the amount recovered from the employees was not permissible.

Cama Electric Lighting Products India P. Ltd. v. CCEX (2015) 37 STR 718 (Guj.)

85. The Tribunal in this case held that banking and other financial services utilised for sale of shares to raise finance for carrying out manufacturing operations is having nexus with manufacturing activity and therefore input service.

CCE, C&ST, Visakhapatnam-I v. GMR Industries Ltd. 2015 (38) STR 509 (Tri.- Bang.)

86. The department in this case sought to deny the CENVAT credit on the ground that invoice issued is not in the name of assessee but in the name of assessee’s head office. The Tribunal held that when there is no dispute regarding consumption of service and service tax has been duly paid thereon, the assessee is entitled to take Cenvat credit even though the invoice is in the name of the head office.

CCE&ST, Raipur v. Dayalal Meghji & Co. 2015 (38) STR 557 (Tri.-Del.)

87. The Tribunal in this case held that, since zonal office of the appellant was not registered at the material time, it cannot be considered eligible to pass on credit to their respective branch.

CCE&ST Chandigarh-I v. Punjab National Bank 2015 (38) STR 586 (Tri.-Del.)

88. The Tribunal held that CENVAT credit availed on services provided by commission agent in relation to promotion of sales of its products is admissible.

Bhurka Gases Ltd. v. CCE (2015) 37 STR 818 (Tri.-Bang.)

89. The Tribunal held that CENVAT credit on input service used for providing call centre services exported outside India was admissible under Rule 5 of the CENVAT Credit Rules relying on
Repro India Ltd. (2009) 235 ELT 614 (Bom.) and Drish Shoes Ltd. (2010) 254 ELT 417 (HP). As regards the BPO services which were exported outside India, it held that since this service became liable for service tax only under definition of “Business Support Services” w.e.f 1-5-2006 the CENVAT credit availed in respect of these services would not be entitled to the benefit of Rule 5 of CENVAT Credit Rules, 2004 and hence the same would be disallowed.

IBM Daksh Business Process Services (P) Ltd. v. CCE (2015) 37 STR 833(Tri.-Del.)

90. The Tribunal held that CENVAT Credit in respect of Group Health Insurance premium, to the extent it relates to the employees of the assessee and not the family members of the employee is admissible. Further it was held that Credit of service tax paid on construction of global training centre which was used for providing commercial Training/Coaching services would be admissible for the period up to 31-3-2011. Gym & hostel constructed by the assessee for its employees was not in the nature of premises used for providing output services and hence credit of service tax paid in construction of the same would not be admissible.

Infosys Ltd. v. CST (2015) 37 STR 862 (Tri.-Bang.)

91. The Tribunal held that where the appellant had availed CENVAT credit on GTA services which were used for transportation of inputs to job worker’s premises and for transportation of finished products from the job workers premises to depot the same would not be permissible since the appellant had not manufactured the goods.

Lotte India Corporation Ltd. (2015) 37 STR 876 (Tri.-Che.)

92. The assessee was engaged in providing passive telecom infrastructure by way of telecom towers to various cellular telecom operators and discharged service tax liability under BSS. It claimed CENVAT credit of duty paid on steel structural viz. brackets, mounting poles, clamps, cables, pre-fabricated buildings etc. used in erection of telecom towers. The department denied the credit on the ground that the said goods were not covered under the definition of capital goods. The Tribunal held that there was nexus between the good purchased and service provided and hence the assessee was entitled to claim the credit.

Reliance Infratel Ltd. v. CST, Mumbai-II 2015 (38) STR 984 (Tri.-Mumbai)

93. The Tribunal allowed Cenvat credit of service tax paid on rent, insurance for sugar stacked at Ludhiana and commission paid for sale of sugar after clearance from factory as integral part of manufacturing and sale activity.

Dhampur Sugar Mills Ltd. v. CCE, Meerut – II 2015 (38) STR 1004 (Tri.-Del.)

94. The High Court held that service tax paid on mobile phones which are used by employees/staff of manufacturer are eligible as input service credit.

Commissioner of Central Excise, Goa v. Hindustan Coca Cola Beverages (P) Ltd. – [2015] 57 taxmann.com 72 (Bom. HC)

95. Services relating to residential colony of employees and the clubs are welfare activities having no nexus with the business of manufacturing of final product. CENVAT Credit cannot be availed on service tax paid on

  • Security service provided at the colony

  • Repairs of mixer used in the canteen

  • Civil work done at the colony, furniture/wooden partition for VIP rooms and telephone lines installed at the residence of officer/club rooms as these are welfare activities for the staff and have no nexus with the business of manufacturing the final product.

Mahindra & Mahindra Ltd. v. Commissioner of Central Excise [2015-TIOL-1065-CESTAT-MUM]

96. The Tribunal held that CENVAT credit related to HR Steel Sheets and plates used for repair and maintenance of storage tank is covered under “capital goods” definition eligible for credit as ‘inputs’.

Hindustan Petroleum Corporation Ltd. v. Commissioner of Central Excise, Customs and Service Tax, Vishakhapatnam –I [2015] 57 taxmann.com 152 (Bangalore CESTAT)

97. The Tribunal held that CENVAT credit in respect of House-keeping services was allowable as the same were pollution control measures required under Prevention and Control of Pollution Act and therefore had nexus with manufacturing activity.

CCE, Delhi –III v. Maruti Suzuki India Ltd 2015 – (38) STR503 (Tri.-Del.)

D. Others

Appeal

98. Summons issued by an investigating authority under provisions of section 14 of Central Excise Act, 1944 cannot be considered to be in the nature of a decision or order as mentioned in section 35 of the said Act and hence no appeal can be filed against the same on the ground that conduct of enquiry by Revenue is illegal and arbitrary.

Neesa Leisure Ltd. v. CCE&ST (2015) 37 STR 482 (Tri.-Ahmd.)

99. The High Court held that CESTAT must not reject the application for condonation of delay without giving opportunity of being heard on merits specially when the petitioner shows sufficient cause for delay in filing appeal. Accordingly, the petition was allowed along with direction to CESTAT to decide the matter in accordance with law and on merits.

Sanjayraj Hotels And Resorts Pvt. Ltd v. Union of India – [2015] 37 STR 970 (Guj.)

100. The time limit for filing an appeal before the CCE (Appeals) is 3 months (which is 3 British calendar months) and not 90 days from the date of receipt of order. Thus where the order was received by the appellant on 8-10-2011 the time limit of filing appeal would expire on 8-1-2012. Further if the day on which the period of filing appeal or the further period up to which the delay can be condoned expires falls on a public holiday then the same can be filed immediately on the next working day.

CCE v. Ashok Kumar Tiwari (2015) 37 STR 727 (All.)

101. The Tribunal held that pre-deposit is mandatory even in respect of orders passed prior to 6-8-2014 and appeals filed thereafter.

M/s. AI Champdany Industries Ltd., v. Commissioner of Central Excise, Kolkatta–IV – [2015-TIOL-576-CESTAT-Kol.]

Demand – Extended Period

102. Something more than mere non-registration, non-filing returns or non-payment of service tax is required for sustaining the allegation of suppression of facts for invocation of extended period of limitation. There has to be some act of omission or commission, which points towards an intent to evade payment of service tax.

M.P. Laghu Udhyog Nigam
Ltd. v. CCE, Bhopal, 2015(37) STR 308 (Tri.-Del.)

103. Extended period cannot be invoked on the basis that when in doubt the appellant should have approached the department for clarification. This is because; there is no such statutory provision wherein an assessee can seek advisory opinion from departmental officers. This is a misconception that has no legislative basis.

Affinity Express India Pvt. Ltd. v. CCE (2015) 37 STR 333

104. When the adjudicating officer himself had interpreted the provisions in the favour of the assessee and dropped the demand, the Tribunal observed that the provisions are capable of two interpretations and hence there was no mala fide intention on the part of the assesse. Accordingly, the extended period of limitation was not evocable.

IFB Industries Ltd. v. CCE (2015) 37 STR 529 (Tri.-Del.)

Jai Jawan Coal Carriers Pvt. Ltd. v. CST (2015) 37 STR 509 (Tri.-Del.)

Penalty

105. The act of the assessee of depositing service tax along with interest prior to adjudicating order supported their contention that they were under a
bona fide belief of not being liable to pay service tax on provident fund received from the recipient of the service to whom manpower supply services were provided. No act of fraud, collusion, wilful misstatement or suppression of facts or contravention with intent to evade payment of service tax. Hence the penalty was condoned u/s. section 80 (reasonable cause).

H. M. Singh and Co. v. CCE & ST 2015(37) STR 172 (All.)

106. Where the assessee had collected service tax but had failed to deposit the same with the Government the amounts were recoverable under section 73A of the Act. The assessee contested that no penalty under sections 76 and 78 would be imposable since the same would be attracted only in case tax is recovered under section 73 and not under section 73A. On appeal the Tribunal held that penalty under sections 76 and 78 were attracted. However, following the decision of jurisdictional High Court
[CCE v. First Flight Couriers [2011(22) STR 622] (Punjab & Haryana)] only penalty under section 78 was imposed and penalty u/s. 76 was waived.

CCE&ST v. Ajay Kumar Gupta (2015) 37 STR 626 (Tri.-Del.)

107. Where the issue involved related to interpretation of an exemption notification and statutory provisions, it was held that imposition of penalties was not warranted

Kedar Constructions v. CCE (2015) 37 STR 631 (Tri.-Mum.)

108. Where the assessee had discharged the service tax liability along with interest before issuance of show cause notice, no penalties can be imposed on it.

Sunita Tools Pvt. Ltd. v. CST (2015) 37 STR 644 (Tri.-Mum.)

109. Where there was a short levy/ short payment of service tax on account of fraud, collision, wilful misstatement, suppression etc. the fact that the tax along with interest had been paid before issuance of show cause notice would not exempt the assessee from penalty proceedings.

India Gateway Terminal P. Ltd. v. CC, CE&ST (2015) 37 STR 665 (Tri.-Bang.)

110. The High Court held that, once assessee proves reasonable cause for failure to pay service tax, section 80 of FA, 1994 starts to operate insulating imposition of penalties under sections 76, 77 or 78 and hence the CESTAT order limiting its benefit to section 78 only and not extending to section 76 is liable to be set aside.

Akbar Travels of India (P) Ltd. vs. CCEC & ST, Thiruvananthapuram 2015 (38) STR 957 (Ker.)

111. The Court held relying on Supreme Court Judgment in the case of
Pratibha Processors v. Union of India, AIR 1997 SC 139, that where the assessee originally provided housekeeping services which was not taxable, registered themselves and paid service tax but surrendered the registration without claiming refund and subsequently when they rendered ‘back office services’ which was taxable they failed to pay the tax on time and paid the entire tax before adjudication, penalties u/s. 76 (delay in payment), 77 (failure to register) & 78 (failure to pay tax with an intent to evade) were not imposable taking into consideration the past conduct of the assessee from where it concluded that they did not have any intent to evade tax due to bona fide confusion and there was no contumacious conduct or deliberate violations of the provisions of law. Further, there was also a reasonable cause u/s. 80 to condone the penalties

CCE v. Busy Bee (2015) 37 STR 932 (Mad.)

Refund

112. The Tribunal held that section 26(i) (e) of SEZ Act, 2005 provides exemption to all services imported into SEZ for the purpose of carrying out authorised operations in SEZ. Section 51 provides an overriding effect over other Acts and Notification No. 15/2009-ST cannot nullify overriding provisions of section 51. If a service provider pays service tax on services provided to an SEZ unit, recipient of services is bound to get refund unless assessment of the service provider is re-opened and refund given to service provider.

Barclays Technology Central India (P) Ltd. v. CCE, Pune-III 2015 (38) STR 35 (Tri.-Mumbai)

113. The assessee paid service tax on persuasion by Department without the receipt of assessment order/adjudication order. However it made request for refund within 3 months from the date of payment of duty. The Tribunal held that since there was no demand made under law, tax collected was not payable at all and therefore the assessee was entitled to refund along with interest.

CKP Mandal v. CST, Mumbai-II 2015 (38) STR 73 (Tri.-Mumbai)

114. Where the revenue had not questioned the taking of credit when the same was taken, eligibility of the same cannot be questioned at the time of granting refund

Morgan Stanley Advantage Services Ltd. v. CST (2015) 37 STR 639 (Tri.-Mum.)

115. The Tribunal held that the time limit for filing refund claim under Notification No. 41/2007-S.T dated 6-10-2007 would not be governed by provisions of section 11B of Central Excise Act, 1944 made applicable to service tax vide section 83 of Finance Act, 1994 but would be governed by the time limit given in Notification No.41/2007-S.T., dated 6-10-2007.

H.R. International (Unit-II) v. CCE (2015) 37 STR 649 (Tri.-Del.)

116. The Tribunal held that refund of service tax paid on the input services of terminal handling charges is permissible under Notification No. 17/2009-ST dated 7-7-2009

CST v. Adani Enterprise Ltd. (2015) 37 STR 667 (Tri.-Ahmd.) relying on Commissioner v. Adani Enterprises Ltd. (2014) 35 STR 741 (Guj.)

117. The High Court held that relevant date for filing the refund claim under Rule 5 of the CENVAT Credit Rules, 2004 is the date of receipt of payment and not the date when the services were provided.

Commissioner of Customs, Central Excise and Service Tax v. M/s Hyundai Motor India Engineering (P) Ltd. – [2015-TIOL-739-HC-AP-ST]

118. The Tribunal held that when substantive conditions of the Rebate Notification No.12/2005-ST dated 19-4-2005 were fulfilled by the assessee, rebate claim could not be denied merely for not filing the declaration in time, if the contents of the declaration are such that they can be verified from the records maintained.

Crest Premedia Solutions (P) Ltd. v. CCE – [2015] 55 taxamann.com 69 (Mumbai – CESTAT)

119. The Tribunal held that, jurisdiction for claiming refund is from where the consignments are exported and services are received and not where registered office is situated.

CCE & C, Nagpur v. Noble Grains India Pvt. Ltd. 2015 (38) STR 525 (Tri.- Mumbai)

120. The assessee in this case provided investment advisory services to a customer located outside India having no office in India and received payment in convertible foreign exchange. The Tribunal held that it was a case of export of service and therefore the assessee was entitled for refund claim.

CST, Mumbai v. Greater Pacific Capital Pvt. Ltd. 2015 (38) STR 656 (Tri.-Del.)

121. The Tribunal held that, once the service tax had been collected by the department from appellant by treating their services as BAS at the time of considering the claim for rebate of service tax so paid then the classification of service could not be questioned. Denial of refund on the ground that in absence of service agreements, the nature and classification is not ascertainable is not sustainable.

Alar Infrastructures Pvt. Ltd v. CCE, Delhi-I 2015 (38) STR 1087 (Tri.-Del.)

122. The Tribunal held that input services without which the quality and efficiency of output services exported cannot be achieved are eligible for refund.

Commissioner of Service Tax, Mumbai-ii v. Syntel Sterling Bestshores Solutions Pvt. Ltd. [2015-TIOL-1085-CESTAT-MUM]

123. The Tribunal held that as service tax was paid inadvertently on export of services, limitation period of 1 year shall be counted from the date of payment of service tax since refund claim is filed within 1 year from such payment, the appeal was allowed.

Kirloskar Ebara Pump Ltd. v. CCE, Kolhapur – 2015 (38) STR 488 (Tri.-Mum.)

Service of Order

124. It was held that in terms of section 37C of the Central Excise Act, an order needs to be served through registered post with acknowledgement due. However Service of order on the assessee through speed post has also been held to be valid since in terms of India Post Office Act, 1898, a speed post is also considered to be a registered post.

Jay Balaji Jyoti Steels Ltd v. CESTAT Kolkata (2015) 37 STR 673 (Ori)

Show Cause Notice

125. The Hon’ble Tribunal held that demand for service tax would not be sustainable if the show cause notice did not contain any allegations regarding how certain charges received by the assessee were liable for service tax under a particular category of service.

Ruchi Infotech Ltd. v. CCE (2015) 37 STR 131 (Tri.-Del.)

126. The Commissioner (Appeals) confirmed demand under BAS, whereas the SCN was issued for demand of service tax under BSS. The Tribunal after relying on Apex Court judgment in
Ballarpur Industries Ltd. 2007 (215) ELT 489 (SC) and Brindavan Beverages Ltd. 2007 (213) ELT 487 (SC) held that Order in Appeal travelled beyond scope of SCN therefore, unsustainable and liable to be set aside.

Deepak & Co. vs CCE, New Delhi 2015 (38) STR 1010 (Tri.-Del.)

Miscellaneous – Import of Service

127. It was held that exhibition services, technical inspection and certification services were categorised under performance based category of Import of service Rules and since the services were provided outside India and the resultant payment for these services were made overseas, no liability to pay service tax arose.

K.G. Denim Ltd. v. CST (2015) 37 STR 616 (Tri.-Chennai)

Sunil Moti Lala
 

1. Appeal against time-barred assessment order

The J & K State Sales Tax (Appellate) Tribunal, Srinagar under the J.K. GST Act, 1962, u/s 11 was required to consider whether appeal against the time barred assessment order lies or not ? The facts were, appeal against the Order of the AO u/s. 7(11) reassessing the return of the assessee accepted by Dy. CCT directing the AO to pass fresh Order after giving opportunity of hearing to the assessee on the ground that statutory notice prescribed for initiating reassessment proceedings against the assessee had not been served on him. But by that time the period prescribed for finalising the assessment had passed out. But what could not be done by the AO, could not be permitted to be done in appeal by the DCCT and the Tribunal. An assessment which had become time-barred by the efflux of time could not be given a fresh lease of life through a remand order by the appellate or revisional authority or the Tribunal. As the time passed against the impugned order by the Appellate Authority, the reassessment proceedings had already been barred by the period of limitation, the Appellate Authority giving direction for
de novo assessment was not warranted by law. Hence, appeal accepted by the Tribunal the Order of the Appellate Authority to the extent of de novo assessment was set-aside and the order of the AO for reassessment was quashed.

Valley Motor Corporation, Srinagar v. AACT, Srinagar & Ors. (2015) 51 PHT 417 (J&K-STAT)

2. Attempt to evade tax

Section 51(12) of the PVAT Act, 2005 pertained to attempt to evade tax by producing ingenuine documents attracting penalty provisions. Appellant-company dispatched 3 consignments of biscuits from their office at Zirakpur to M/s Sidhu Gas Services, Jagraon, Sumitra Enterprises, Khanna & Shivalik Gas Company, Barewal, containing 31,176 packets of biscuits without any invoice or delivery challan or any credit or debit note but only with a certificate that – “we are sending 7992 packets of Treat-O biscuits for sampling purposes. They do not have any commercial value” TIN No. of the consignees was also not mentioned over the documents i.e. GRs’ of the Bharti Road Carrier, Zirakpur. The representative of the appellant stated that they were sent not for sale but have been sent free of cost and there was no copy of any agreement or other documents entered with the consignment companies. Hence, penalty was levied. Tribunal, keeping in view the ill intention of the company to evade tax upheld the penalty order and dismissed the appeal.

Britannia Industries Ltd., Dist. Mohali v. State of Punjab (2015) 51 PHT 381 (PVT)

3. Defective and non-speaking order in spite of remand

Attempt to evade tax and penalty. Defective and non-speaking order in spite of remand involving penalty amount of Rs. 10,95,435 whereas penalty order was served to the appellant for Rs. 8,97,372 which showed non-application of mind of a lady officer. Although she tried to cover up the mistake by passing the rectified order which itself was not a self-speaking order and she had rectified only one mistake whereas there were so many mistake in her previous order, so she should have passed the self speaking order. Tribunal held, all this shows that the Officer was very casual in her approach while passing and signing the order. This much could not be expected from a quasi-judicial authority. The copy of the judgment be sent to the ET Commissioner, Punjab for a probe and to proceed accordingly.

Rezondi Retail (India), Ludhiana v. State of Punjab (2015) 51 PHT 378 (PVT)

4. Deferred amount of tax – Recovery thereof

Under Haryana GST Rules, 1975, Rule 28-C pertained to recovery of deferred amount of tax. Appellant was allowed deferment of tax with a cap of Rs. 3,103.65 lakhs w.e.f. 7-5-1993 to 6-5-2002 u/r. 28-A HGST Rules, 1975. Appellant availed this benefit upto 29-9-2000 which was determined at Rs. 2,072.62 lakhs. Out of this deferred tax, an amount of Rs. 1,868.12 lacs was transferred as interest free loan by the Industries Dept. and the balance amount of Rs. 204.5 lakhs remained recoverable. Thereafter, the appellant switched over to tax concessions u/r 28-C for the remaining period. The appellant was assessed to tax for the A.Ys. 1999-2000 and 2000-2001 under the HGST Act and CST Act. No appeals were filed against the assessment orders. Appellant served with a notice initiating recovery proceedings, as the appellant had availed deferment of tax collected by him and that had become recoverable after the prescribed period. Plea of the assessee that nothing was due against the appellant was without any basis, because for deferment units demand is not treated like tax arrears as in the case of normal dealers, because in such cases tax recovery is deferred for a particular period. Recovery proceedings are taken up only after the lapse of the prescribed period for which the dues are deferred. Hence, the argument carries no weight and was rejected. Therefore, appeal against a communication from ETO was not maintainable.

Haryana Telecom Ltd., Rohtak v. State of Haryana (2015) 51 PHT 384 (HTT)

5. Duplicate issue of ‘C’ forms

Turnover, assessment, invoices etc. and not the factor of delay in applying for a ‘C’ form, was the requirement of law as need for ‘C’ form arises mostly at the time of assessment and in appeal. As the appeal has been finalised during 2014 for the A.Y. 2006-07, the delay for producing ‘C’ form was allowed.

Amba Shakti Ispat Ltd. v. E.T. Commissioner, Himachal Pradesh (2015) 51 PHT 408 (HPTT)

6. Rebate / Refund – Sale price – lpg cylinders

In this case, the Rajasthan HC following the SC judgment in the case of MRF Ltd. v. Collector of Central Excise, Madras (1997) 5 SCC 104 held – On conjoint reading of the definition of the ‘Sale Price’ and ‘Turnover’, both paid and payable and amount received or receivable had been used under the Act – payable and receivable would mean that the assessee was entitled to receive the amount of Rs. 682 per cylinder initially and did receive but on account of rate revised by the oil companies on the basis of some expert report therefor it cannot be said that payable or receivable would mean final amount determined @ Rs. 645 per cylinder. (Para No. 15) – the view expressed by the Tax Board appears to be well justified, it needs no interference and is to be sustained – the question of law is answered against the assessee and in favour of the revenue. Accordingly, revision dismissed.

M/s Universal Cylinders Ltd. v. CTO, Alwar 2015 NTN (Vol. 58)-251 (Raj)

7. Recovery – Arrears of Sales Tax

Immovable property of an industry was taken over by Tamil Nadu Industrial Investment Corporation Ltd. for default of payment of loan invoking section 29 of S.F.C. Act, 1951. The property in question was purchased by the petitioner in public auction conducted by the said Corporation. However, Sub-Registrar refused to register the document in favour of the petitioner, as the property was already attached by the Commercial Tax Dept. The HC held that the refusal of the Sub-Registrar was not justified when a secured creditor took possession of the property invoking section 29 of the S.F.C. Act, the principle of “First Charge” of the State over the property not applicable. Accordingly, the Sub-Registrar was directed to consider the document of the petitioner on merit as per law.

Manikandan T. v. CTO And Ors. (2015) 23 KTR 293 (Mad.)

8. Schedule Entries

A. Flavoured Milk – Rate of tax – Clarification

“Flavoured Milk” held – was not covered by any of the entries in the Schedules appended to the Haryana VAT Act, 2003, and, therefore was liable to be taxed as unclassified goods @12.5%. Moreover, these are packed in a manner that their shelf life is increased. In this way, a new commodity emerges. Also, the same view was taken by the Haryana Tax Tribunal in the case of
Punjab State Co-op. Milk Producers Federation Ltd. v. State of Haryana (2010) 37 PHT 250 (HTT).

Pindori Copy House, Faridabad v. Addl. Chief Secretary to Govt. of Haryana (2015) 51 PHT 329 (Hr.-CC)

B. Gujarat Sales Tax Act, 1969 – Section 55 r/w Schedule-Ii-A – Works Contract

Appellant M/s Voltas Ltd. was engaged, amongst others, in the business of exhibition of jobs design, supply and installation of Air Conditioning Plants. M/s Aupam Colours and Chemical Industries, Mumbai, placed an Order with it for water chilling plant at its factory at Vapi. The basic design parameters were – (i) Tonnage of Refrigeration – 11 Tr., (ii) Final Temperature or chilled water – 5-6ºC; (iii) Quantity of chilled water – 12,000 litres. The assessee-appellant was to provide to the customer with the layout drawings and necessary information required for the construction of the plant. Sales Tax authority charged sales tax (composite) @15% as per Entry No. 2, whereas, assessee insisted for charging at 5% as per Entry 5 of Schedule. Assessee-appellant since did not succeed up to HC level, they filed the appeal before the SC.

Supreme Court observed that the work order of the appellant in clear terms did enjoin that the design parameters pertaining to the tonnage of refrigeration, final temperature of the water to be made available for the process of manufacturing pigments and quality of chilled water essential therefor indispensable and were in addition to other specifications as offered by the appellant. The exercise as a whole as contemplated by the work order thus was neither intended nor can be reduced to mere installation of the finally emerging apparatus. The work order had been apparently tailor-made to the requirements from which no departure was intended. Apex Court thus held that the inescapable conclusion was that the appellant’s works contract for fabrication and installation of water chilling plant at the factory of Anupam Colours & Chemicals at Vapi would fall under Entry–5 of the Schedule to the Notification dated 18-10-1993 issued u/s 55A of the Act and would be taxable @5% as prescribed thereby. In coming to this conclusion, the Apex Court interpreted the provisions of taxing statute, burden of proof regarding rate of tax on whom lies and also interpreted the words “Words and Phrases”. After doing this analysis, the Apex Court held in favour of the appellant-assessee i.e. the rate of tax applicable to the works contract was at 5%.

Voltas Ltd. v. State of Gujarat (2015) 51 PHT (SC) 300 (FB)

C. Liability to tax – Yarn imported from outside India

AO levies tax at 20% on yarn imported from outside and 4% on yarn of other kind. The Allahabad HC applying the golden rule held that the words of the statute must prima facie be given their ordinary meaning. The Court came to the conclusion that the tax was in the nature of entry fees over the foreign items brought in the State of U.P. It has got no relationship with either the sale or purchase or the import or export of goods. Imposition of tax at Entry level where sale or purchase of goods were not involved, did not seem to come within the purview of sub-clause (b) of clause 1 of Article 286. Accordingly, it was held that the writ petitions filed were lacking merit and, hence, they were dismissed accordingly.

Brij Mohan Amit Kumar And Ors. v. State of U.P. And Ors. 2015 NTN (Vol. 58) – 346 (All.)

D. The Karnataka VAT Act, 2003 – Entry 3 of Schedule–III – Whether the commodity namely – Vegit-Aloo hara bara kebab, Vegit-aloo veg cutlet, Vegit-aloo yummy cheese balls, Vegit-majedar bonda and Vegit-aloo jatpat tikki, were covered by Entry 3 of the Third Schedule of the Act attracting levy of tax @ 4% or fell under the Residuary Entry, liable to be taxed at a higher rate?

Earlier, the learned Commr. by Order dated 24-7-2010 clarified that the commodities in question were unscheduled goods liable to tax @12.5% up to 31-3-2010 and @13.5% from 1-4-2010. This clarification of the Commissioner was challenged in Writ Petition. The learned Single Judge of the HC by Order dated 10-2-2011 allowed the W.P. by setting aside the clarification of the Commissioner. Against the said Order, the State appealed to the Division Bench of the HC. Upon hearing the State and the dealer and noticing 8 judgments of the courts, the Division Bench held that the commodities in question fell under the residuary entry and thus taxable at higher rate of tax as may be applicable.

State of Karnataka v. Merino Industries Ltd. 2015-16 (20) KCTJ 35 (Md)

E. Rate of tax on Prepared Rubber Accelerators

Revenue relying on classification of Commissioner on commodity ‘Disposal’, classifying petitioner’s product under Residuary Entry taxable at 12.5%. HC held – not proper. Assessment Order based on Commissioner’s clarification quashed. Assessing Authority was directed by the Court to look into the issue whether the product classified by Commissioner is similar to the commodity in question. Further, principles enunciated in Reckitt Benckiser India Ltd. (2009) 17 KTR 443 along with Explanatory note to H.S.N. and scientific literature on the products to be adhered to.

Joseph Scaria v. CTO & Ors. (2015) 23 KTR 289 (Ker.)

D. H. Joshi

S. 2(22)(e) : Deemed dividend – loans and advances given for business transaction between the parties does not fall within the definition of “deemed dividend”

Payments made by a company through a running account in discharge of its existing debts or against purchases or for availing services, such payments made in the ordinary course of business carried on by both the parties could not be treated as deemed dividend for the purpose of section 2(22)(e). The deeming provisions of law contained in section 2(22)(e) apply in such cases where the company pays to a related person an amount as advance or a loan as such and not in any other context. The law does not prohibit business transactions between related concerns, and, therefore, payments made in the ordinary course of business cannot be treated as loans and advances. (AY. 2005-06)

Ishwar Chand Jindal v. ACIT (Delhi) (Trib).www.itatonline.org

S. 2(24) : Income – Deduction at source – Advance payment – Does not automatically lead to the conclusion that it is income of the recipient-Addition was deleted. [S. 194C]

Certain advances were received by the assessee against jobs to be carried out. The party paying the amount showed the nature of payment of Rs. 34,00,000/- as ‘transportation charges’ in its TDS certificate for Rs. 70,000/- issued to the assessee. But, a clarificatory letter was also issued along with a sworn affidavit that the TDS was against the advance payment against job work and the TDS certificate mentioning transportation charges was an error. The Assessing Officer made an addition of Rs. 34,00,000 as transportation charges income based on the TDS certificate. It was held that merely because the transportation charges was mentioned as payment in TDS certificate that cannot be a conclusive evidence that income has accrued to the assessee. The fact that it was a mistake was duly clarified by the party paying the amount. The addition was deleted. (AY. 2004-05)

ITO v. Shree Vinayak Udyog (2015) 170 TTJ 390 (Kol.)(Trib.)

S. 11 : Property held for charitable purposes – Anonymous donations – Cash credits – Identity of donors was established – Donations cannot be assessed as anonymous donations [Ss. 12A, 68, 115BBC]

  1. The trust is registered u/s. 12A of the Act. There is no dispute that the entire voluntary donations have been disclosed by the trust as income in the Income and Expenditure account. The income so disclosed has been applied for charitable purposes as provided u/s. 11(1) of the Act and hence cannot be included in total income of the trust. Adding part of the voluntary donations again as unexplained cash credits u/s. 68 to the total income of the trust amounted to taxing, the same income twice which is not permissible

  2. To obtain the benefit of the exemption under section 11, an assessee is required to show that the donations were voluntary. In the instant case, the assessee had not only disclosed its donations, but had also submitted a list of donors. The fact that the complete list of donors was not filed or that the donors were not produced, did not necessarily lead to the inference that the assessee was trying to introduce unaccounted money by way of donation receipts. That was more particularly so in the facts of the case where admittedly, more than 75 per cent of the donations were applied for charitable purposes;

  3. Section 68 had no application to the facts because the assessee had in fact disclosed the donations as its income and it could not be disputed that all receipts, other than corpus donations, would be income in the hands of the assessee. There was, therefore, full disclosure of income by the assessee and also application of the donations for charitable purposes. It was not in dispute that the objects and activities of the assessee were charitable in nature, since it was duly registered under the provisions of section 12A;

  4. Section 115BBC of the Act was not violated by the trust and the donations received from the nine donors cannot be categorised as anonymous donations. To be excluded from the definition of expression “anonymous donation” the person receiving the voluntary contributions referred to in section 2(24)(iia) is required to maintain a record of identity indicating the name and address of the contributor and such other particulars as may be prescribed. Since no other particulars have been prescribed under the provisions the person receiving the donation is under obligation to maintain the identity of donors indicating the name and address only. On perusal of the details furnished by the trust it is seen that the trust has not only furnished the names and addresses of the donors but also furnished a number of other details in respect of such donors viz., their PANs, copy of ITRs, copy of bank statements their confirmations, financial statements, computation of income etc. In view of the above it is held that the trust has established the identity of donors as provided u/s. 115BBC of the Act and the donations cannot be categorised as anonymous donations and subjected to tax as per provisions of section 115BBC of the Act. (AY. 2010-11)

ITO v. Saraswati Educational Charitable Trust (Luck.)(Trib.) ; www.itatonline.org

S. 12AA : Procedure for registration – Trust or institution – Assessee filing application for registration on last day of previous year – Entitled to exemption from assessment year to which previous year relates [S. 11]

The assessee, a statutory Board created by the Government of Andhra Pradesh, applied for registration under section 12A of the Income-tax Act, 1961 on March 31, 2008. The Director of Income-tax (Exemption) granted registration under section 12AA of the Act with effect from the date of filing the application. In a petition under section 154 of the Act, the assessee contended that, since the application was made on March 31, 2008, the assessee was entitled to exemption from the assessment year 2008-09. On appeal :

Held, allowing the appeal, that the DIT(E) had failed to mention the applicability of provisions under section 11 of the Act from a particular assessment year. In terms of section 12A(2) of the Act, the assessee would be entitled to exemption under section 11 of the Act for the assessment year following the financial year in which the application for registration was made under section 12A of the Act. Admittedly, the assessee had applied for registration in the financial year 2007-08. Hence, the provisions of sections 11 and 12 of the Act would be applicable to the assessee from the assessment year 2008-09 and not the financial year 2008-09. (AY. 2008-09)

Andhra Pradesh Pollution Control Board v. DIT (E ) (2015) 38 ITR 539 (Hyd.) (Trib.)

S. 14A : Disallowance of expenditure – Exempt income – Satisfaction – Investments in subsidiaries & joint ventures are for strategic purposes and not for earning dividend and so the expenditure cannot be disallowed, (ii) If the AO does not deal with the assessee’s submissions and merely says “not acceptable” it means he has not recorded proper satisfaction. [R. 8D]

  1. Investment in subsidiary companies and joint venture companies are long term investments and no decision is required in making the investment or disinvestment on regular basis because these investments are strategic in nature and no direct or indirect expenditure is incurred for maintaining the portfolio on these investments or for holding the same. The department has not disputed that the purpose of investment is not for earning the dividend income but having control and business purpose and consideration. Therefore, prima facie the assessee has made out a case to show that no expenditure has been incurred for maintaining these long term investments in subsidiary companies. The Assessing Officer has not brought out any contrary fact or material to show that the assessee has incurred any expenditure for maintaining these investments or portfolio of these investments. Therefore, no disallowance u/s 14A or Rule 8D can be made .

  2. The observations of the High Court in
    Godrej And Boyce Mfg. Co. Ltd. v. Dy. CIT & Another [2010] 328 ITR 81 (Bom.) and Maxopp Investment Ltd. & Ors. v. CIT, (2012) 247 CTR 162 (Del.),
    clearly show that the satisfaction of the Assessing Officer with regard to the correctness or otherwise of the claim made by the assessee must be based on reasons and on relevant considerations. Ostensibly, the invoking of Rule 8D of the Rules in order to compute the disallowance u/s. 14A of the Act is to be understood as being conditional on the objective satisfaction of the Assessing Officer with regard to the incorrectness of the claim of the assessee, having regard to the accounts of the assessee. In order to examine the aforesaid compliance with the precondition, we have perused the assessment order and find that no reasons have been advanced as to why the disallowance determined by the assessee was found to be incorrect, having regard to the accounts of the assessee. The only point made by the Assessing Officer is to the effect that “the said disallowance was not acceptable”. In-fact, we find that the assessee made detailed submissions to the Assessing Officer. As per the assessee, the determination of disallowance u/s. 14A of the Act of Rs. 5,00,000/- was based on the employee costs and other costs involved in carrying out this activity. Further, assessee also explained that the shares which have yielded exempt income were acquired long back out of own funds and no borrowings were utilised. The mutual fund investments were claimed to be also made out of surplus funds. It was specifically claimed that no fresh investments have been made during the year under consideration in shares yielding exempt income. All the aforesaid points raised by the assessee have not been addressed by the Assessing Officer and the same have been brushed aside by making a bland statement that the disallowance is “not acceptable”. Therefore, in our view, in the present case, the Assessing Officer has not recorded any objective satisfaction in regard to the correctness of the claim of the assessee, which is mandatorily required in terms of section 14A(2) of the Act and therefore his action of invoking rule 8D of the Rules to compute the impugned disallowance is untenable. (A Y. 2009-10)

U P Electronics Corporation Ltd. v. DCIT (Luck.)(Trib.); www.itatonline.org

S. 28(i) : Business income – Income from other sources –Construction activity started – Advances received from customers put temporarily in Fixed Deposits – Interest received is business income [S. 56].

The assessee was engaged in the business of development and construction of properties. The assessee firm had received advances from customers and money received through such advances which were not required immediately was deposited in FDRs etc. on temporary basis. The interest credited on such deposits was deducted from the work in progress. However, Assessing Officer taxed such interest as ‘income from other sources’. On behalf of the Revenue, reliance was placed on the decision of Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd v. CIT. It was observed that the facts in this case were completely different and, therefore, decision in the case of
Tuticorin Alkali Chemicals and Fertilisers Ltd. v. CIT was not applicable. The decision of the Hon’ble Supreme Court in the case of
CIT v. Bokaro Steel Ltd. 236 ITR 315 (SC) held that interest income is to be assessed as business income because the assessee had already commenced business. In this background the interest income was held to be not taxable. Since the facts of the assessee’s case were identical to the facts of
CIT v. Bokaro Steel Ltd. case, therefore, following the decision, it was held that the interest income cannot be treated as ‘income from other sources’ but the same was to be reduced from the work in progress and the same is not taxable as income from other sources. The addition of interest as income from other sources was directed to be deleted. (AY. 2008-09)

Samar Estate (P) Ltd. v. ITO (2015) 170 TTJ 14 (UO)(Chd.)(Trib.)

S. 35: Scientific research – Any material is purchased for research & development, same should be allowed as deduction and it is immaterial whether material is consumed or held as closing stock

When a material is purchased for research and development purpose, it is immaterial whether the material is consumed during the year or held as closing stock and the entire expenditure incurred on raw material for the purpose of research and development qualifies for deduction u/s. 35 irrespective of the accounting treatment of the same in the books of account. (AYs. 2007-08 to 2009-10)

Balaji Amines Ltd. v. Addl. CIT(2015) 153 ITD 20 (Pune)(Trib.)

S. 37(1) : Business expenditure –Corporate entity – Even if no business is carried, the expenditure incurred to maintain the corporate entity has to be allowed as a deduction

Permission/denial by the RBI to register an assessee as NBFC does not decide the issue of carrying of business or make the business illegal. If the assessee had violated any provisions of law under the RBI Act it would be penalised by the appropriate authority. But that does not mean that the systematic organised activity carried out by the assessee for earning profit would not be treated as business. The explanation to section 37(1) of the Act is not at all applicable to the case under consideration. In the scrutiny assessment, completed in the earlier years, the AO had assessed the interest income as business income and had allowed all the expenditure related with the business activity. The rule of consistency demands that for deviating from the stand taken in the earlier AY, the AO should bring on record the distinguishing feature of that particular year. We find that the AO or the FAA has not mentioned even a single line as to how the facts of the case under appeal were different from the facts of the earlier or subsequent years. We find that the disallowance of the expenses was without any basis. In the case of
Rampur Timber & Turnery Co. Ltd. (129 ITR 58), the Hon’ble Allahabad High Court has held that expenditure incurred for retaining the status of the company, namely miscellaneous expenses, salary, legal expenses, travel expenses would be expenditure wholly and exclusively for the purpose of making and earning income. There is no doubt that the assessee is a corporate entity. Even if it is not carrying on any business activity it has to incur some expenditure to keep up its corporate entity. Therefore expenditure incurred by it has to be allowed. (AY. 2006-07)

Preimus Investment and finance Lt. v. DCIT (Mum.) (Trib). www.itatonline.org

S. 40(a)(ia) : Amounts not deductible – Fees for technical services – Amount paid as management fees – Not liable to deduct tax at source. [S.9(1)(vii), 195]

The Tribunal held that the payment cannot be considered as ‘fees for included services’ so as to be charged to tax in the hands of foreign AE. Once the amount is not chargeable to tax in India as per Article 12 of the DTAA there can be no question of any liability on the payer-assessee to make deduction of tax at source. Tribunal held that section 9(1)(vii) is not applicable so disallowance made under section 40(a)(i) is deleted. (AY. 2009-10)

Hughes Systique India (P) Ltd. v. DCIT (2015) 169 TTJ 193 (Delhi)(Trib.)

S. 40(a)(i): Amounts not deductible – Deduction at source – Non-resident – Income deemed to accrue or arise in India (Independent personal services) – Payment to foreign agent, on account of legal consultancy fee for initiating anti-counterfeiting proceeding, since agent was not having any fixed base in India, it could not be taxed in India in respect of fees paid by assessee –Not liable to deduct tax at source – DTAA – India-Morocco [S. 9(1)(i), 195, Articles 5, 14].

Assessee Company was engaged in business of licensing, protection and defence of trademark. Assessee paid a certain sum to Saba, a trademark and patent agent of Morocco, on account of legal consultancy fees for initiating and prosecuting an anti-counterfeiting proceedings before Tribunal of Commerce at Rabat (Morocco). Though services rendered by lawyers are included in independent personal services as per Article 14 of DTAA, but since Saba was not having any fixed base in India, condition of Article 14 was not fulfilled and, Saba could not be taxed in India in respect of said fees and disallowance under section 40(a)(i) was not justified. (AY. 2008-09)

Kirloskar Proprietary Ltd. v. Dy. CIT (2015) 153 ITD 11 (Pune)(Trib.)

S. 40(a)(ia) : Amounts not deductible – Deduction at source – The amendment is clarificatory and retrospective w.e.f. 1-4-200 – Tax deducted was deposited before due date of filing of return-Disallowance was deleted. [S. 139(1)]

It is not in dispute, in the light of a series of judgments of Hon’ble jurisdictional High Court, that the amendment brought to Section 40(a)(ia), which provides that as long as the taxes deducted at source have been deposited before the due date of filing return under section 139(1), disallowance under section 40(a)(ia) cannot be invoked for delay in depositing the tax deducted at source, is only clarificatory in nature and it will also apply to the assessment years prior to the assessment years 2010-11 as well. In the case of
CIT v. Omprakash R. Chaudhury & Others (TA No. 412 of 2013; judgment dated 22nd November 2013), it was held that the amendment made in section 40(a)(ia) of the Income-tax Act, 1961, as retrospective in operation having effect from 1st April 2005, i.e. from the date of insertion of Section 40(a)(ia) of the Act. (AY. 2006-07)

Shri. Umeya Corporation v. ITO (Ahd.) ( Trib.) ; www.itatonline.org

S. 40(a)(ia) : Amounts not deductible – Deduction at source – Finance Act 2012, with effect from 1-4-2013, second proviso is curative and retrospective – Legitimate business expenditure cannot be disallowed if the payee has paid tax thereon. [S. 194A]

  1. The second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax. It has for long been the legal position that if the payee has paid tax on his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount.

  2. The settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. In the similar circumstances, the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by the Hon’ble Calcutta High Court in ITAT No. 302 of 2011, GA 3200/2011,
    CIT v. Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. (AY. 2007-08)

Santosh Kumar Kedia v. ITO (Kol.) (Trib.); www.itatonline.org

S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Amount continued to be shown as creditors in the Balance Sheet – liability has not ceased to exist – No addition can be made

The books of the assessee showed certain creditors who were having opening balances and there were no purchases during the year under consideration. The Assessing Officer made an addition u/s. 41(1) mentioning that the liability is not existing at present. It was held that as per Explanation 1 to section 41(1), if the assessee has written back the liability in his accounts then it will be considered that even by unilateral act of the assessee, there is remission or cessation of the liability. But in the assessee’s case, the assessee has not written back the liability in his accounts. In the light of these provisions of section 41(1) and the judgment of Hon’ble Supreme Court in the case of
Kesaria Tea Co. [2002] 254 ITR 434 (SC) and another judgment of Hon’ble Supreme Court rendered in the case of
CIT vs. Sugauli Sugar 236 ITR 518, the addition made by the Assessing Officer was held to be not sustainable. (AY. 2009-10)

ITO v. Sheikh Abdul Farid (2015) 170 TTJ 49 (UO)(Luck.)(Trib.)

S. 43(5) : Speculative loss –Business loss – Hedging transaction – Foreign exchange loss – Import and Export business of diamonds – Premature cancellation of such forward contracts to minimise the anticipated future losses – Not a speculative loss. [S.28(i)]

The Tribunal held that the foreign exchange loss incurred by the assessee on account of entering into forward contracts with the banks for the purpose of hedging the loss in connection with his import-export business of diamonds cannot be held to be a speculative loss rather a business loss which can be set off against profits & gains of business subject to the condition that the assessee will have to satisfactorily prove that the maturity of hedge did not exceed the maturity of underlying transaction and further to explain the requirement/necessary for premature cancellation of such forward contracts or that such cancellation or re-bookings were done to minimise the anticipated future losses from such transactions. The Tribunal set aside the order of CIT(A) and restored back to the file of AO to decide the same accordingly after giving proper opportunity to the assessee to represent its case. (AY. 2009-10)

Jaimin Jewellery Exports (P) Ltd. v. ACIT (2015) 169 TTJ 121 (Mum.)(Trib.)

S. 43(5) : Speculative loss – Business loss- Forex derivative contracts – Loss suffered on account of forex derivative contracts (Exotic Cross Currency Option Contracts) cannot be treated as speculative loss to the extent that the derivative transactions are not more than the total export turnover of the assessee. If the derivative transaction is in excess of export turnover, the loss in respect of that portion of excess transactions has to be considered as speculative loss because the excess derivative transaction has no proximity with export turnover. [S. 28(i), 73]

The assessee was engaged in the business of manufacturing and export of hosiery garments. During the course of export, the assessee entered into derivative contract. The assessee incurred loss in this transaction. The assessee claimed it as business loss. According to the Assessing Officer this loss was not business loss and it is a speculative loss and this transaction is speculative in nature as such the loss incurred on this transaction cannot be set-off against business income of the assessee. On appeal by the assessee HELD:

  1. The derivative transaction cannot fall under section 73. Explanation to section 73 creates a deeming fiction by which among the assessee, who is a company, as indicated in the said Explanation dealing with the transaction of shares and suffer loss, such loss should be treated to be speculative transaction within the meaning of section 73 of the Act, notwithstanding the fact that the definition of speculative transaction mentioned in section 43(5) of the Act, the transaction is not of that nature as there has been actual delivery of the scrips of share. As per the definition of section 43(5), trading of shares which is done by taking delivery does not come under the purview of the said section. Similarly, as per clause (d) of secyion 43(5), derivative transaction in shares is also not speculation transaction as defined in the said section. Therefore, both profit/loss from all the share delivery transactions and derivative transactions are having the same meaning, so far as section 43(5) of the Act is concerned. Again, in view of the fact that both delivery transactions and derivative transactions are non-speculative as far as section 43(5) is concerned, it follows that both will have the same treatment as far as application of Explanation to section 73 is concerned. Therefore, aggregation of the share trading profit and loss from derivative transactions should be done before the Explanation to section 73 is applied. The above view has been taken by Special Bench of this Tribunal, Mumbai Bench, in the case of
    CIT v. Concord Commercial Pvt. Ltd. (2005) 95 ITD 117 (Mum)(SB).

  2. From the above, it is concluded that both trading of shares and derivative transactions are not coming under the purview of section 43(5) of the Act which provides definition of “speculative transaction” exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transactions in shares and derivative transactions are non-speculative as far as section 43(5) is concerned goes to confirm that both will have same treatment as regards application of the Explanation to Section 73 is concerned, which creates a deeming fiction. Now, before application of the said Explanation, aggregation of the business profit/loss is to be worked out irrespective of the fact, whether it is from share delivery transaction or derivative transaction .

  3. However, we make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly. (AY. 2009-10 & 2010-11)

Majestic Exports v. JCIT (Chennai)(Trib.) ; www.itatonline.org

S. 45 : Capital gains – Development agreement – Stock- in-trade – Short term capital gains – Business income – None can make profit by dealing with himself – Valuation will be at cost or market value whichever is less – When right exercised in part or in full profit can be taxed – Additions confirmed by CIT(A) were deleted. [Ss. 2(14), 2(42B), 2(47)(v), 4, 5, 28(i), Transfer of Property Act, 1882, S. 53A, 55A]

The assessee was engaged in the business as a builder and was the owner of a piece of land, which was held as stock-in-trade. The assessee entered into a development agreement with Menorah Realties Pvt. Ltd. (MRPT) under which MRPT was to construct a residential apartment building at its cost. In consideration of the land of the assessee being used for this project, MRPT was to give 40% of total saleable constructed area, parking spaces and undivided interest in the said property. In effect, the assessee was to transfer entire land holding to this project, and, in consideration of the land being used for this housing project, receive 40% of total saleable area, parking space and undivided interest in the property. By way of a subsequent modification to this agreement, in consideration of delay in execution of project, the assessee was to get an additional 2% share in the constructed area, parking space and undivided interest in the property. The assessee claimed that even though the assessee had entered into a development agreement in the relevant previous year, no gains arose as a result of this agreement since the proposed building project was not even cleared by the regulatory bodies. It was pointed out that the licence to construct the building project was received in the subsequent previous year, and, therefore, no capital gains could be said to have arisen in this year. However, the AO relied on
CIT v. Dr. T. K. Dayalu [(2011) 202 Taxman 531 (Kar.)] and Chatubhuj Dwarkadas Kapaida v. CIT [(2003) 260 ITR 491 (Bom.)] and held that there is a transfer u/s. 2(47)(v) and capital gains will arise in the year in which full control and possession of the land in question is given. This was upheld by the CIT(A). On appeal by the assessee to the Tribunal HELD allowing the appeal:

  1. Once the land is held to be a part of the stock-in-trade, it ceases to be a capital asset. The gains on the transfer of this land could only arise by the virtue of the increase of closing stock value in respect of the right to 42% share in the constructed building. Relevance of Section 55A of the Transfer of Property Act is only for the purpose of transfer under section 2(47) which, in turn, is relevant, only for the purposes of capital assets under the Income-tax Act. What holds good for transfer of a capital asset, for the purposes of triggering taxability of capital gains, is in the context of a specific legal fiction, which is introduced in the Act for a limited purpose, cannot be treated as omnibus in effect.

  2. The business transaction entered into by assessee is that the assessee contributed a trade asset consisting of a piece of land on which a group housing project was to be constructed, and what he got in consideration of this transfer is the right to sell 1,28,940.26 sq. ft. constructed area in this project. In his closing stock, even if he is to substitute the part ownership of the land transferred with the value of this right to sell 1,28,940.26 square feet constructed area, it would not make any difference to the profit figures because, as far as this assessee, is concerned the cost of acquiring this right is the same as the cost of giving up the right in the land, and, as is the settled legal position, the closing stock can only be valued at cost price or market price – whichever is less. Obviously, the cost price of this right to sell 1,28,940.26 sq. ft., which has been treated as a trading asset, is less than the market price of these rights, and, therefore, these rights can only be valued at cost in the accounts.

  3. What the assessee has got today is only a right to sell the 1,28,940.26 sq. fts. of constructed area in the Alexandria project and the profits, howsoever certain they may appear to be, will only fructify and be realised, and can even be quantified, only when this right is exercised – in part or in full. That stage has not yet come, and until that stage comes, such profit cannot be taxed. Unlike in a case of a capital gain which arises on parting with the capital asset at the first stage itself, it is a case of business transaction which is completed when the rights so acquired by the assessee are exercised; none can make profits by dealing with himself. (AY. 2010-11)

Dheeraj Amin v. ACIT (Bang.)(Trib.); www.itatonline.org

S. 45 : Capital gains – Business income – Dealer and investor –Share broker – Shares held as investment could not be treated as business income [S. 28(i)]

The assessee is already having investment in shares as established by the fact of earning dividend income and long term capital gains on sale of shares. All these facts are taken into consideration, it is found that there is no reason for the AO to treat the short-term capital gains as business income of the assessee. The AO was prompted by the difference in the rate of tax as the rate of tax for short-term capital gains earned out of sale of shares is 10 per cent and the rate of tax for business income is 30 per cent. Tribunal held that short-term capital gains on sale of shares held as investment could not be treated as business income of assessee. (AY. 2007-08)

Chona Financial Services Ltd. v. ACIT (2015) 153 ITD 119 (Chennai)(Trib.)

S. 50C : Capital gains – Full value of consideration (circle rate) is to be worked out on basis of circle rate prevailing on the date of registration of agreement to sell and not on the date of execution of sale deed

The assessee entered into an agreement to sell its land and the said agreement was registered on 27-5-2004. Thereafter the sale deed was executed on 16-9-2004. The circle rate on date of agreement was Rs. 13,000/- per sq. mtr. However, the circle rate on date of execution of sale deed was increased to Rs. 20,000/- per sq. mtr. The AO made addition applying the circle rate on execution of sale deed for computing capital gains. On appeal the Appellate Tribunal held that the enhancement of circle rate is beyond the control of assessee and buyer had not paid anything above amount that had been agreed. Hence, addition made by AO is unjustified. (AY. 2005-06)

ITO v. Modipon Ltd. (2015) 168 TTJ 480 (Delhi)(Trib.)

S. 54 : Capital gains – Profit on sale of property used for residence – Booking a flat which is going to be constructed by the builder is a case of “construction” of the flat. If the flat is booked prior to the date of transfer of the old flat, deduction u/s. 54 is not available. The date of receiving possession of the new flat cannot be regarded as the date of “purchase” of the new flat [S. 45]

Mr. A sold a flat on 27-3-2008 and generated long-term capital gain of Rs. 1.55 crores thereon. The assessee claimed deduction u/s. 54 of the Act pertaining to the cost of another flat. The assessee had booked the flat with M/s. Life Style Property Venture in the year 2004 and the agreement was registered on 1-12-2004. He paid the consideration in instalments as per the agreement. He finally got the possession on 30th June, 2007. The assessee claimed that the date of possession of flat should be considered as the date of purchase of flat, where as the AO took the view that the date of purchase should be considered as the date of entering of agreement, viz., 1-12-2004. Since the deduction u/s. 54 of the Act could be availed, inter alia, only if the residential house was purchased within one year prior to the date of house giving rise to capital gain and since the date of purchase of flat, according to AO, fell beyond the period of one year, the AO rejected the claim for deduction u/s. 54 of the Act. The CIT(A), however, agreed with the contentions of the assessee and accordingly allowed the deduction u/s. 54 of the Act. On appeal by the department to the Tribunal HELD allowing the appeal:

The booking of a flat which is going to be constructed by a builder has to be considered as a case of “Construction of flat”. Deduction u/s. 54 is available only if the assessee constructs a new house within three years after the date of transfer. In the instant case, the assessee has constructed a house prior to the date of transfer of original house, in which case, the assessee is not entitled to claim deduction u/s. 54 of the Act in respect of the cost of new flat. (AY. 2008-09)

ACIT v. Sagar Nitin Parikh (Mum.) (Trib.) ; www.itatonline.org

S. 56 : Income from other sources – Compensatory interest – builder’s failure to deliver flat by a specified date, compensatory interest received by assessee on refund of deposit amount was assessable as interest income – Lump sum awarded as compensation was held to be capital in nature [Ss.2(28A), 4 ]

Assessee entered into an agreement with a builder for purchase of two residential flats. Flats booked were not delivered despite lapse of considerable time. Assessee received entire amount from builder along with interest at contracted rate besides another amount by way of compensation. Excess amount received by assessee under contract as interest at specified rate represented a compensation on non-performance of contract by a specified date and, thus, same being revenue receipt was assessable as interest income u/s. 56. Tribunal also held that lump sum amount awarded by common forum as compensation was on capital account. (AY. 2006-07)

Kumarpal Mohanlal Jain v. ITO (2015) 153 ITD 292 (Mum.)(Trib.)

S. 56(2)(v) : Income from other sources – Family settlement –Income/Amount received under Family settlement claim exempt

The assessee an individual has received substantial income under Family settlment/agreement and claimed whole such amount as deduction under section 56(2)(v). The AO summoned donor, verfied transaction genuieness and creditworthiness of the donor but added the income concluding the assessee intentionally and deliberately understated the real consideration by adopting a colourable device, as the gift deeds are not properly stamped. CIT(A) quashed the addition. Tribunal also held, the fact remains that the entire property was in existence at the time of partition in which concerned family members were having their interest/shares, and by way of the mutual settlement only the respective shares were determined therefore, it was clearly a family settlement. Therefore, the family arrangement is not taxable and no addition was warranted on the income which never arose to the assessee. (AY. 2007-08)

DCIT v. Paras D. Dundecha (2015) 169 TTJ 1 (Mum) (Trib.)

S. 68 : Cash credits – Profits chargeable to tax – Remission or cessation of trading liability – Bogus credits – Unclaimed liabilities to creditors, even if fictitious and bogus, cannot be assessed u/s. 41(1) in the absence of a write-back. The bogus credits can be assessed u/s. 68 only in the year the credits were made and not in the year they are found to be not payable [S. 41(1)]

  1. Having held that the sundry creditors are not payable and fictitious, the next question that comes up for our consideration is the year in which the amount is taxable under what provisions of law either under Section 41(1) or 68 of the Act. We are required to examine whether this amount should be brought to tax in the year in which credit was made first time in the books of account or in the year in which these are found not payable. An identical issue had come up for consideration before the Hon’ble Gujarat High Court in the case of CIT v. Bhogilal Ramjibhai Atara in Tax Appeal No. 588 of 2013, dated 4-2-2013, in which it was held that that even if the debt itself is found to be non-genuine from the very inception there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(1) of the Act. The Jurisdictional High Court in the case of CIT v. Shri Vardhman Overseas Ltd., (2012) 343 ITR 408 (Del.), has dealt with the issues of taxability under section 41(1) of the Act in a case where long outstanding sundry creditors were treated as taxable. The High Court after referring to the decisions of Hon’ble Supreme Court in the cases of
    CIT(Chief) v. Kesaria Tea Co. Ltd., (2002) 254 ITR 434(SC) and
    CIT v. Sugauli Sugar Works P. Ltd (1999) 236 ITR 518 (SC), has held that such amounts cannot be brought to tax under Section 41(1) of the Act. The Hon’ble Suprme Court in the case of
    CIT v. Sugauli Sugar Works P. Ltd. (supra) held that a unilateral action cannot bring about a cessation or remission of the liability because a remission can be granted only by the creditor and a cessation of the liability can only occur either by reason of operation of law or the debtor unequivocally declaring his intention not to honour his liability when payment is demanded by the creditor, or by a contract between the parties, or by discharge of the debt.

  2. Applying the ratio in the cases mentioned supra, the amount in question cannot be brought to tax in the year under appeal under the provisions of Section 41(1) of the Act. It is trite law that an addition under Section 68 can be made only in the year in which credit was made to the account of the creditors in the books of account maintained. Kindly refer to the Supreme Court in the case of
    Damodar Hansraj v. CIT, (1969) 71 ITR 427 (SC). Admittedly, in this case the credit to the account of creditors was made in the earlier years and therefore, the amount even cannot be brought to tax under Section 68 in the year under appeal. However, it is open to the Department to levy tax on such amount by resorting to the remedies available under the provisions of Act by duly following the procedure known to the law. (AY. 2007-08)

Perfect Paradise Emporium Pvt. Ltd. v. Ito (Delhi)(Trib.) ; www.itatonline.org

S. 70 : Set-off of loss – One source against income from another source – Same head of income – Though the LTCG on sale of equity shares (subject to STT) is exempt from tax u/s. 10(38), the long-term capital loss on sale of such shares can be set-off against the taxable LTCG on sale of another asset. [S.10 (38), 45, 71 ]

  1. The main issue is whether long term capital loss on sale of equity shares can be set-off against long term capital gain arising on sale of land or not, as the income from long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT. First of all, long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a Long term capital asset. Section 2(14) defines “capital asset” and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the charging section for any profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been enumerated from sections 48 to 55. Further sub-section (3) of section 70 and section 71 provides for set-off of loss in respect of capital gain.

  2. The whole genus of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular “provision” of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions.

  3. Section 10(38) provides exemption of income only from transfer of long term equity shares and equity oriented fund and not only that, there are certain conditions stipulated for exempting such income i.e., payment of security transaction tax and whether the transaction on sale of such equity share or unit is entered into on or after the date on which chapter VII of Finance (No. 2) Act 2004 comes into force. If such conditions are not fulfilled then exemption is not given. Thus, the income contemplated in section 10(38) is only a part of the source of capital gain on shares and only a limited portion of source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of long term capital asset and, further fulfils the conditions mentioned in sub-section (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable.

  4. Section 10 provides that certain income is not to be included while computing the total income of the assessee and in such a case the profit or loss resulting from such a source of income does not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, the income in respect of which is excluded in the computation of total income. For instance, if the assessee has income from short term capital gain on sale of shares; long term capital gain on debt funds and long term capital gain from sale of equity shares, then while computing the taxable income, the whole of income would be computed in the total income and only the portion of long term capital gain on sale of equity shares would be removed from the taxable income as the same is exempt u/s. 10(38). This precise issue had come up for consideration before the Hon’ble Calcutta High Court in
    Royal Calcutta Turf Club v. CIT (1983) 144 ITR 709 (Cal).

  5. Though in CIT v. Hariprasad & Company Pvt. Ltd. (1975) 99 ITR 118 (SC), the Supreme Court opined that if loss was from the source or head of income not liable to tax or congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer under any obligation to compute or assess it much less for the purpose of carry forward, the ratio and the principle laid down by the Apex Court would not apply here in this case, because the concept of income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon’ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon’ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon’ble Supreme Court and held that the same will not apply in such cases.

  6. Thus, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of long term capital asset or short term capital asset being shares. Accordingly, long term capital loss on sale of shares would be allowed to be set off against long term capital gain on sale of land in accordance with section 70(3) (AY. 2007-08)

Raptakos Brett & Co. Ltd. v. DCIT (Mum) (Trib.) ; www.itatonline.org

S. 80P : Co-operative society –Assessee providing credit facilities to its members – Assessee not co-operative bank – Entitled to deduction [S. 80P(2)(a)(i)]

The assessee, a co-operative society, registered under the Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995. For the assessment years 2007-08 to 2009-10, the assessee claimed deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, on the income from providing credit facilities to its members. The Assessing Officer, relying on Circular No. 6 of 2010 dated September 20, 2010 ([2010] 328 ITR (St.) 63), rejected the claim. The Commissioner (Appeals) noticed that the subject matter in the circular was with reference to eligibility of regional rural banks for deduction under section 80P and did not apply to the assessee. He held that the assessee was a co-operative society and not a co-operative bank and the provisions of section 80P(4) would not apply and therefore it was entitled to deduction under section 80P(2)(a)(i) of the Act. On appeal :

Held, that the order of the Commissioner (Appeals) did not call for any interference. (A Y. 2007-08 to 2010-11)

ACIT v. Metrocity Criminal Courts Employees Mutually Aided Co-operative Credit Society Ltd. (2015) 39 ITR 1(Hyd.)(Trib.)

S. 92C : Transfer pricing –Arm’s length price – While benchmarking international transactions where assessee had advanced money to its AE and charged interest, international rates fixed being LIBOR + rate would be applicable and not domestic prime lending rates

The Appellate Tribunal held that while benchmarking international transactions what has to be seen is comparison between related transactions, i.e., where assessee has advanced money to its associated enterprises and charged interest, then said transaction is to be compared with a transaction as to what rate assessee would have charged, if it had extended loan to third party in foreign country and in that case, international rates fixed being LIBOR + rates would have an application and domestic prime lending rates would not be applicable. The Appellate Tribunal has further held that where assessee had made borrowings on LIBOR + rates and advanced same at LIBOR + rates, then said transaction was at arm’s length price.

Varroc Engineering (P) Ltd. v. ACIT (2015) 168 TTJ 514 (Pune)(Trib.)

S. 92C : Transfer pricing – Arm’s length price – Where prices charged to Associated Enterprises are higher than prices charged to non-Associated Enterprises, a transaction based benchmarking approach should not be rejected

The Hon’ble Appellate Tribunal held where prices charged to Associated Enterprises are higher than prices charged to non-Associated Enterprises, though yearly average is a good and reasonable indicator for benchmarking under CUP approach, but a transaction based benchmarking approach should not be rejected especially when rejection of a transaction-based benchmarking may lead to some distortion. (AY. 2007-08)

Saertex India (P) Ltd. v. ACIT (2015) 168 TTJ 139 (Pune)(Trib.)

S. 92C : Transfer pricing – Arm’s length price – Where a particular company was wrongly excluded for determining ALP for an earlier year, same could not debar the assessee from including it in list of comparables in succeeding year

It has been held by the Appellate Tribunal that simply because a particular company was wrongly excluded by assessee in determining ALP of an international transaction for an earlier year, could not debar him from including it in list of comparables in succeeding year, if it was actually comparable. (AY. 2006-07)

Microsoft Corporation India (P) Ltd. v. Addl. CIT (2015) 168 TTJ 314 (Delhi)(Trib.)

S. 92C : Transfer pricing – Arm’s length price – Even if the loan to the 100% subsidiary is intended to be a long term investment in the subsidiary and it has a crucial role to play in the assessee’s business plans, it cannot be treated as “quasi-capital”. The ALP of the loan has to be determined on the basis of LIBOR interest [S. 92CA(3)]

The assessee established a wholly owned subsidiary, by the name of Soma Textiles FZE, in the United Arab Emirates (UAE), and invested Rs. 21,71,723 in share capital of Soma Textiles FZE and also advanced Rs. 16,75,88,215 to this company. The AO and TPO held that these transactions are covered by the scope of ‘international transactions’, as defined under section 92CA(3) of the Act. The basic contention of the assessee that the entire amount of Rs. 16.75 crore advanced to the Soma Textiles FZE was out of the foreign exchange proceeds of assessee’s Global Depository Receipts (GDRs) issue and that it was in nature of “contribution towards quasi-capital of the said company” was rejected. It was held that commercial expediency of the transaction was not relevant in as much as what is to be examined, while ascertaining the arm’s length price, is the price at which such transactions would have been entered into by the parties if these parties were independent enterprises. As regards the claim for the advance being in the nature of quasi-capital, the TPO relied upon the decision in the case of
Perot Systems TSI v. DCIT [(2010) 130 TTJ 685 (Del.)] where it was held that “the argument that the loans were in reality not loans but quasi-capital cannot be accepted because the agreements show them to be loans and there is no special feature in the contract to treat them otherwise”. The TPO proceeded to treat LIBOR plus 2% as arm’s length price of this loan and made an adjustment in respect of the same. This was upheld by the CIT(A). On appeal by the assessee to the Tribunal HELD:

  1. The relevance of ‘quasi-capital’, so far as ALP determination under the transfer pricing regulation is concerned, is from the point of view of comparability of a borrowing transaction between the associated enterprises. It is only elementary that when it comes to comparing the borrowing transaction between the associated enterprises, under the Comparable Uncontrolled Price (i.e. CUP) method, what is to be compared is a materially similar transaction, and the adjustments are to be made for the significant variations between the actual transaction with the AE and the transaction it is being compared with. Under Rule 10B(1)(a), as a first step, the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified, and then such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market. Usually loan transactions are benchmarked on the basis of interest rate applicable on the loan transactions simplicitor which, under the transfer pricing regulations, cannot be compared with a transaction which is something materially different than a loan simplicitor, for example, a non-refundable loan which is to be converted into equity. It is in this context that the loans, which are in the nature of quasi-capital, are treated differently than the normal loan transactions.

  2. The expression ‘quasi-capital’ is relevant from the point of view of highlighting that a quasi-capital loan or advance is not a routine loan transaction simplicitor. The substantive reward for such a loan transaction is not interest but opportunity to own capital. As a corollary to this position, in the cases of quasi-capital loans or advances, the comparison of the quasi-capital loans is not with the commercial borrowings but with the loans or advances which are given in the same or similar situations. In all the decisions of the
    Coordinate Benches (Perot Systems TSI v. DCIT [(2010) 130 TTJ 685 (Del.), Micro Inks Ltd. v. ACIT [(2013) 157 TTJ 289 (Ahd.)], Four Soft Pvt. Ltd. v. DCIT [(2014) 149 ITD 732 (Hyd.)], Prithvi Information Solutions Pvt Ltd. v. ACIT [(2014) 34 ITR (Tri.) 429 (Hyd.)],
    wherein references have been made to the advances being in the nature of ‘quasi-capital’, these cases referred to the situations in which (a) advances were made as capital could not be subscribed due to regulatory issues and the advancing of loans was only for the period till the same could be converted into equity, and (b) advances were made for subscribing to the capital but the issuance of shares was delayed, even if not inordinately. Clearly, the advances in such circumstances were materially different than the loan transactions simplicitor and that is what was decisive so far as determination of the arm’s length price of such transactions was concerned. The reward for time value of money in these cases was opportunity to subscribe to the capital, unlike in a normal loan transaction where reward is interest, which is measured as a percentage of the money loaned or advanced.

  3. The assessee’s contention that whenever it can be said that the loan transaction is in the nature of quasi-capital, and the grant of loan was intended to be a long term investment in the subsidiary which has a crucial role to play in its business plans, its arm’s length price should be ‘nil’ rate of interest is not acceptable. On a conceptual note, several types of debts, particularly long term unsecured debts, and revenue participation investments could be termed as ‘quasi-capital’. So far as arm’s length price of such transactions are concerned, this cannot be ‘nil’ because under the comparable uncontrolled price method, such other transactions between the independent enterprises cannot be at ‘nil’ consideration either. Nobody would advance loan, in arm’s length situation, at a nil rate of interest. The Comparable uncontrolled price of quasi-capital loan, unless it is only for a transitory period and the de facto reward for this value of money is the opportunity for capital investment or such other benefit, cannot be nil. As for the intent of the assessee to treat this loan as investment, nothing turns on it either. Whether assessee wanted to treat this loan as an investment or not does not matter so far as determination of arm’s length price of this loan is concerned; what really matters is whether such a loan transaction would have taken place, in an arm’s length situation, without any interest being charged in respect of the same. As for the contention regarding crucial role being played by, or visualised for, this AE, there is no material on record to demonstrate the same or to justify that even in an arm’s length situation, a zero interest rate loan would have been justified to such an entity. A lot of emphasis has also been placed on the fact that the loan was out of the GDR funds, and, for this reason, the interest free loan was justified. We are unable to see any logic in this explanation either. Even when the loan is given out of the GDR funds held abroad, the arm’s length price of the loan is to be ascertained. The source of funds is immaterial in the present context. We have also noted that the assessee has not offered any assistance on the quantum of ALP adjustment in respect of this loan transaction, and that in the subsequent assessment years, the assessee himself has accepted ALP adjustment by adopting the LIBOR + 2% interest rate. In this view of the matter, no interference is warranted on the quantum of the ALP adjustment either. (AY. 2007-08)

Soma Textiles & Industries Limited v. ACIT(Ahd.)(Trib); www.itatonline.org

S. 143(3) : Assessment – Bogus sales and purchases – Natural justice – Reliance on statement of supplier who confesses to providing accommodation entries without giving assessee right of cross-examination violates principles of natural justice and the addition has to be deleted in toto – Sales made was not questioned – Addition was deleted. [Ss. 69, 131]

  1. The assessment was reopened on the basis of the statement of Shri Hiten L. Rawal, the proprietor of M/s. Zalak Impex. In this statement recorded u/s 131 of the Act, Shri Rawal confessed to have provided accommodation entries in the form of sales and purchases, to various parties. The assessee was stated to have obtained bills for non-existing parties, amounting to Rs. 4,09,12,718, during the year under consideration. It remains undisputed that the assessee was never provided any opportunity to cross-examine Shri Hiten L. Rawal, though he specifically asked for such cross-examination. On the other hand, the burden was sought to be shifted on the assessee by the AO by asking him to produce Shri Rawal, even though it was the AO who had relied on the statement of Shri Rawal, without either confronting this statement to the assessee, or providing opportunity to the assessee to cross-examine Shri Rawal. Therefore, the reassessment order is as a result of violation of the natural principle of
    audi alteram partem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. Hence, on this score alone, the reassessment order is unsustainable in the eye of law and we hereby cancel the same. As a consequence, the order of the ld. CIT(A) is also cancelled in toto.

  2. Further, even otherwise, before the AO, the assessee had contended that the assessee being in an export promotion zone, the movement of its goods is controlled and customs approved; that the purchases being approved purchases, there was no question of their being bogus purchases. The assessee enclosed the custom approved invoices in respect of purchases from Zalak Impex. As per these invoices, the goods purchased had been verified and approved by the Customs Authority. This clearly shows that the goods had actually been purchased and received by the assessee. As such, these purchases could not have, by any stretch of imagination, been treated as bogus purchases. It is also noteworthy that the payments made by the assessee to Zalak Impex were through account payee cheques only. Neither of the taxing authorities, however, took these invoices into consideration and wrongly held the assessee’s purchases from Zalak Impex to be bogus purchases. Nothing has been brought on record to show that these invoices were self-made or fabricated. Moreover, the comparative chart of purchases made during the year and the selling price has not been refuted and this also goes to prove the theory of bogus bills and accommodation entries to be wrong. Therefore, the order under appeal is a result of complete misreading and non-reading of cogent documentary evidence brought on record by the assessee. For this reason also, along with the reason that the sales made by the assessee were never questioned, the addition is deleted in toto. (AY. 2006-07)

ACIT v. Tristar Jewellery Exports Pvt. Ltd. (Mum.) (Trib.); www.itatonline.org

S. 147 : Reassessment – Non-resident – Royalty – Tax was deducted at 15% whereas tax leviable at 30% – Reassessment was held to be valid. – DTAA-India-USA. [S.44D, 115A, 143(1) 148]

The assessee, a non-resident company filed its return of income declaring income received as royalty from its Indian subsidiary and discharged its tax liability by way of taxes deducted at source by its wholly owned subsidiary in India. Taxes were deducted at the rate of 15 per cent claiming beneficial provisions of the India-US tax treaty in contrast to section 44D read with section 115A that stipulates tax rate of 30 per cent. The return of income was processed under section 143(1) and thereafter assessment was reopened under section 147 by issuing notice under section 148 and reassessment proceedings were completed accepting the returned income but the Assessing Officer taxed it at the rate of 30 per cent applying section 115A read with section 44D. It was held by the ITAT that the expression “relief in the return” employed in sub-clause (b) of Explanation 2 section 147 would bring in its ambit the benefit that an assessee got by virtue of non-making an assessment or by non-determining its tax liability. Thus, if an assessee offered income by applying lower rate of tax and it was not determined by way of an assessment order then, to that extent assessee would get relief in the return and would fall in the ambit of escaped income. (AY. 2002-03 to 2004-05)

DDIT v. McDonald’s Corporation (2014) 48 taxmann.com 332 / (2015) 170 TTJ 722 (Delhi)(Trib.)

S. 153A : Assessment – Search or requisition – Undisclosed income – Additional ground – No material was found in the course of search – Assessment was not pending – No jurisdiction to make the addition – Addition was held to be bad in law. [Ss. 69A, 254(1)]

The assessee raised additional ground before the Tribunal that the reassessment proceedings under section 153A should confine to the material in possession of the AO detected during the course of search and entire assessment is not open before him. The addition under section 69A and sustained by CIT(A) at Rs. 1,80,000/- is without there being any material found in course of search and is beyond the scope of reassessment proceedings under section 153A.

The Tribunal admitted the additional ground of appeal keeping in view the decision of Apex Court in the case of
National Thermal Power Ltd. v. CIT (1998) 229 ITR 383. Further held that when assessment is not pending at the time of search and no incriminating material is found during the course of search, AO has no jurisdiction to make addition in the assessment framed under section 153A. The addition of Rs. 1,80,000/- made by the AO and confirmed by the learned CIT(A) is bad in law. (AY. 2000-01)

Rawal Das Jaswani v. ACIT (2015) 169 TTJ 1 (UO)(Raipur)(Trib.)

S. 153A : Assessment – Search or requisition – Share transactions – Capital gains – No incriminating material was found – Assessment was held to be void [S. 45, 132]

No incriminating material found during search to indicate bogus long-term capital gains arising out of sale of shares. Assessment of sale proceeds as income without considering details of purchase of shares produced by assessee. Assessment was held to be void. (AY. 2004-05 to 2006-07)

Vasantraj Birawat v. CIT (2015) 39 ITR 450 (Mum.) (Trib.)

S. 153A : Assessment – Search or requisition – Notice – There is no requirement to issue a notice u/s. 143(2) before making an assessment u/s. 153A – Assessment is not null and void [Ss. 143(2), 158BC]

The Third Member had to consider whether the issue of a notice u/s. 143(2) was mandatory for the completion of an assessment u/s. 153A and whether the non-issue of such a notice rendered the s. 153A assessment null and void. HELD by the Third Member:

  1. There is no specific provision in the Act requiring the assessment made under section 153A to be after issue of notice under section 143(2) of the Act. Learned counsel for the assessee places heavy reliance on the judgment of the Hon’ble Supreme Court in
    ACIT v. Hotel Blue Moon v. DCIT ( 2010) 321 ITR 362 (SC) wherein it was held that the where an assessment has to be completed under section 143(3) read with section 158BC, notice under section 143(2) must be issued and omission to do so cannot be a procedural irregularity and the same is not curable. It is to be noted that the above said judgment was in the context of Section 158BC. Clause (b) of Section 158BC expressly provides that “the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of Section 142, sub sections (2) and (3) of Section 143. Section 144 and Section 145 shall, so far as may be, apply. This is not the position under section 153A. The law laid down in
    Hotel Blue Moon, is thus not applicable to the facts of the present case.

  2. It is also to be noted that Section 153A provides for the procedure for assessment in case of search or requisition. Sub-section (1) starts with non-obstante clause stating that it was “notwithstanding” anything contained in sections 147, 148 and 149, etc. Clause (a) thereof provides for issuance of notice to the person searched under Section 132 or where documents etc are requisitioned under Section 132(A), to furnish a return of income. This clause nowhere prescribes for issuance of notice under Section 143(2). Learned counsel for the assessee/appellant sought to contend that the words, “so far as may be applicable” made it mandatory for issuance of notice under Section 143(2) since the return filed in response to notice under Section 153A was to be treated as one under Section 139. The words “so far as may be” in clause (a) of sub section (1) of Section 153A could not be interpreted that the issue of notice under Section 143(2) was mandatory in case of assessment under Section 153A. The use of the words “so far as may be” cannot be stretched to the extent of mandatory issue of notice under Section 143(2). As is noted, a specific notice was required to be issued under Clause (a) of sub-section (1) of Section 153A calling upon the persons searched or requisitioned to file return. That being so, no further notice under Section 143(2) could be contemplated for assessment under Section 153A. (AY. 1999 to 2000 to 2005-06)

Sumanlata Bansal v. ACIT (TM)(Mum.)(Trib.) ; www.itatonline.org

S. 153C : Assessment – Income of any other person – Search and seizure – the AO of the searched parties have not recorded any satisfaction that some money, bullion, jewellery or books of account or other documents found from those persons belonged to assessee, initiation of proceedings under section 153C on assessee is void ab initio. [S. 132]

A search and seizure action under s. 132 of the Act was carried out in the cases of Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. on 20-10-2008. The AO of the assessee recorded in the instant assessment order that during the course of search on the above three persons, certain documents belonging to the assessee were seized. Proceedings were initiated against the assessee under section 153C read with section 153A of the Act on the basis of such documents. The AO finalized the assessment order on the basis of said documents found during the course of search of the third parties. On appeal the Appellate Tribunal held that the AO of the third parties on whom search has been conducted has not recorded any satisfaction that some money, bullion, jewellery or books of account or other documents found from these persons belonged to assessee. Hence, the initiation of proceedings under section 153C of the Act is without any basis. (AY. 2003-04)

Tanvir Collections (P) Ltd. v. ACIT (2015) 168 TTJ 145 (Delhi)(Trib.)

S. 189 : Firm – Dissolved – Discontinued – no addition under section 69 of the Act can be made on the basis of document found from the third party for the period after the dissolution of the firm [S. 69]

The assessee firm was dissolved on 31-3-2002 and all necessary formalities for closure were completed. During the course of search and seizure action carried on a third party, some documents were seized which revealed that a sum of Rs. 1.5 crore was paid to a party by assessee in month of December, 2003. The AO made the addition on the basis of said document found. On appeal the Appellate Tribunal held that there is no evidence to suggest that the transaction allegedly noted on lose paper with name analogous to the name of the assessee firm pertains to the year in which the assessee firm was in existence. Hence, no addition can be made as unexplained investment in the hands of the assessee. (AY.:2004-05)

Mantri Developers v. ITO (2015) 168 TTJ 372 (Pune)(Trib.)

S. 194C : Deduction at source – Contractors – No obligation to deduct TDS at stage of making provision for expenditure if payee cannot be identified. No obligation to deduct TDS if services (roaming charges) are rendered without human intervention and are not “technical services”. [S.194J, 201(1), 201(IA)]

  1. The assessee, a telecom operator, made provision for site restoration expenses, however, TDS was not made. The provision was made for dismantling the towers and restoration of site to its original position after termination of the lease period. The lease period is normally 20 years and above. The assessee by placing reliance on the Accounting Standard – 29 claims that a provision would be made in respect of an obligation. In other words, the assessee had an obligation to incur the expenditure after termination of the lease period. The Revenue contended that due to misconception and ignorance of law and with an intention to circumvent the statutory provisions, the assessee made the provision. The fact remains that the payment was not made to anyone and it is not credited to the account of any party or individual. The account does not disclose the person to whom the amount is to be paid. The contractor who is supposed to be engaged for dismantling the tower and restore the site in its original position is not identified. As contended by the assessee, the assessee by itself engaging its own labourers may dismantle the towers and restore the site to its original position. In such a case, the question of deducting tax at source does not arise. The assessee has to pay only the salary to the respective employees. Suppose the work is entrusted to a contractor, then definitely the assessee has to deduct tax. In this case, the contractor would be identified after the expiry of lease period. Therefore, even if the assessee deducts tax, it cannot be paid to the credit of any individual. The assessee has to issue Form 16A prescribed under Rule 31(1)(b) of the Income-tax Rules, 1962 for the tax deducted at source. The assessee has to necessarily give the details of name and address of deductee, the PAN of deductee and amount credited. In this case, the assessee could not identify the name and address of deductee and and his PAN. The assessee also may not be in a position to quantify the amount required for incurring the expenditure for dismantling and restoration of site to its original position. In those circumstances, the provision which requires deduction of tax at source fails. Hence, the assessee cannot be faulted for non-deduction of tax at source while making a provision.

  2. As regards the year-end provisions, the assessee made arrangement with other service provides for providing value added services. There may be justification with regard to the expenditure for availing the services of identification and verification for the last month of financial year, since the assessee may not have the exact details on verification done by the concerned persons and the amount required to be paid. However, in respect of the downloads and value added service, etc. the entire details may be available in the system. Therefore, wherever the particulars and details available and amount payable could be quantified, the assessee has to necessarily deduct tax. In respect of value added services like daily horoscopes, astrology, customer acquisition forms are all from specific service providers and these value added services are monitored by system. Therefore, even on the last day of financial year, the assessee could very well ascertain the actual quantification of the amount payable and the identity of the payee to whom the amount has to be paid. To that extent, the contention of the assessee that the payee may not be identified may not be justified. The Assessing Officer has to examine whether the payment to the party/payee is identifiable on the last day of financial year and whether the quantum payable by the assessee is also quantified on the last date of financial year. In case the Assessing Officer finds that the payee could not be identified on the last day of financial year and the amount payable also could not be ascertained, the assessee may not require to deduct tax in respect of that provision. However, in case the payee is identified and quantum is also ascertainable on the last day of the financial year, the assessee has to necessarily deduct tax at source.

  3. As regards roaming charges, the Supreme Court held in
    CIT v. Bharti Cellular Limited (330 ITR 239) that whenever there was a human intervention, it has to be considered as technical service. In the light of the above judgment of the Apex Court, the Department obtained an expert opinion from the Sub-Divisional Engineer of BSNL. The Sub-Divisional Engineer clarified that human intervention is required for establishing the physical connectivity between two operators for doing necessary system configurations. After necessary configuration for providing roaming services, human intervention is not required. Once human intervention is not required, as found by the Apex Court, the service provided by the other service provider cannot be considered to be a technical service. It is common knowledge that when one of the subscribers in the assessee’s circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention. It is due to configuration of software system in the respective service provider’s place. The subscriber can make and receive calls, access and receive data and other service without any human intervention. Like any other machinery, whenever the system breaksdown, to set right the same, human intervention is required. However, for connecting roaming call, no human intervention is required except initial configuration in system. Human intervention is necessary for routine maintenance of the system and machinery. However, no human intervention is required for connecting the roaming calls. Therefore, as held by the Apex Court in Bharti Cellular Limited (supra), the roaming connections are provided without any human intervention and therefore, no technical service is availed by the assessee. Therefore, TDS is not required to be made in respect of roaming charges paid to the other service providers. (AY. 2007-08 to 2011-12)

Dishnet Wireless Limited v. DCIT (Chennai) (Trib.) ; www.itatonline.org

S. 194C: Deduction at source – Contractors – Only payments “in pursuance of a contract” are subject to TDS. Payments made under a legal obligation are not covered. [Ss. 201(1), 201(IA)]

The appellant has made payments to Punjab Water Supply and Sewerage Board for execution of work relating to sewerage pipelines and for treatment of polluted water of the city. However, such payments are out of legal obligations rather than contractual arrangements. It is only when payments are made “in pursuance of a contract” that the provisions of section 194C come into play. The contract may be oral or written, express or implied but there must be a contract nevertheless. In the present case, the payment is on account of legal obligation under section 24(1) of the Punjab Water Supply and Sewerage Board Act 1976. Accordingly, the provisions of section 194C did not come into play on the facts of this case. Therefore, the impugned demands under sections 201(1) and 201(1A) r.w.s. 194C are wholly devoid of any legally sustainable merits. (AY. 2007-08 to 2010-11)

Jalandhar Improvement trust v. ITO (Asr.)(Trib.); www.itatonline.org

S. 201(1A) : Deduction of tax at source – Failure to pay – Delay in remitting deducted tax to Government – Interest to be computed taking period of thirty days – Not British calendar month

The interest payable under section 201(1A) of the Income-tax Act, 1961 for the delay in remitting tax deducted at source to the Government account is to be computed taking a period of thirty days as a month instead of the British calendar month. (AY. 2012-13)

Navayuga Quazigund Expressway P. Ltd. v. Dy. CIT (2015) 39 ITR 612(Hyd.) (Trib.)

S. 234E : Fee – Default in furnishing the statements – Prior to the amendment to section 200A w.e.f. 1-6-2015, the fee for default in filing TDS statements cannot be recovered from the assessee –deductor. [S.200A]

  1. Section 200A was amended by the Finance Act 2015 with effect from 1st June 2015 to provide that in the course of processing of a TDS statement and issuance of intimation under section 200A in respect thereof, an adjustment could also be made in respect of the fee computed in accordance with the provisions of section 234E. As the law stood prior to 1st June 2015, there was no enabling provision therein for raising a demand in respect of levy of fees under section 234E. While examining the correctness of the intimation under section 200A, we have to be guided by the limited mandate of Section 200A, which, at the relevant point of time, permitted computation of amount recoverable from, or payable to, the tax deductor after making the adjustments (a) on account of “arithmetical errors” and “incorrect claims apparent from any information in he statement” and (b) interest computed on the basis of sums deductible as computed in the statement. No other adjustments in the amount refundable to, or recoverable from, the tax deductor, were permissible in accordance with the law as it existed at that point of time. Accordingly, the adjustment in respect of levy of fees under section 234E was beyond the scope of permissible adjustments contemplated under section 200A.

  2. This intimation is an appealable order under section 246A(a), and, therefore, the CIT(A) ought to have examined legality of the adjustment made under this intimation in the light of the scope of the section 200A. The CIT(A) has not done so. He has justified the levy of fees on the basis of the provisions of Section 234E. That is not the issue here. The issue is whether such a levy could be effected in the course of intimation under section 200A. The answer is clearly in negative. No other provision enabling a demand in respect of this levy has been pointed out to us and it is thus an admitted position that in the absence of the enabling provision under section 200A, no such levy could be effected. As intimation under section 200A, raising a demand or directing a refund to the tax deductor, can only be passed within one year from the end of the financial year within which the related TDS statement is filed, and as the related TDS statement was filed on 19th February 2014, such a levy could only have been made at best within 31st March 2015. That time has already elapsed and the defect is thus not curable even at this stage. In view of these discussions, as also bearing in mind entirety of the case, the impugned levy of fees under section 234E is unsustainable in law. (AY. 2013-14)

Sibia Healthcare Private Limited v. DCIT (Asr.)(Trib.); www.itatonline.org

G. Indhirani (Smt.) v. DCIT (Chennai) (Trib.); www.itatonline.org

S. 250 : Appeal – Commissioner (Appeals) – Binding precedent –Orders of the ITAT are binding on the lower authorities and should be followed unreservedly. Blatant failure to do so could attract contempt of court proceedings.[S. 80IB (10), 254 (1)]

The CIT(A), instead of following the order of the Tribunal, followed the order of his predecessor even though it had been set aside by the Tribunal. He also blatantly observed in the order that he cannot sit in judgment over the view taken by his predecessor. On appeal by the department to the Tribunal HELD allowing the appeal:

  1. The findings of the CIT (Appeals) clearly show that instead of deciding the appeal on merits and in compliance with the order of the Tribunal dated 23-11-2011, he preferred to follow the view and order passed by his predecessor. The CIT(A) has even gone to the extent of noting in the impugned order that the view taken by his predecessor was correct. Thus it is clear that the CIT(A) has shown disobedience to the order of the Tribunal by which the earlier order of the predecessor of the CIT (A) was set aside by the Tribunal in toto. The earlier order of the predecessor of the CIT(A) would not stand in the eyes of law;

  2. It is a clear case of showing disrespect to the order of the Tribunal. Therefore, contempt proceedings could have been initiated against the CIT(A) for blatantly disobeying the order of the Tribunal. The Madhya Pradesh High Court in
    Agrawal Warehousing & Leasing Ltd. v. CIT 257 ITR 235 held that the CIT(A) cannot refuse to follow the order of the Appellate Tribunal. The CIT(A) is a quasi-judicial authority and is subordinate in judicial hierarchy to the Tribunal. The orders passed by the Tribunal are binding on all the revenue authorities functioning under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities
    (Union of India v. Kamlakshi Finance Corporation AIR 1992 SC 711 referred);

  3. The order of the CIT(A) cannot be sustained in law and is clearly in defiance of the order of the Tribunal. Since it is a first matter reported to us during the course of arguments by the DR that the order of the CIT(A) shows complete defiance of the order of the Tribunal, therefore, we do not propose at the stage to initiate contempt proceedings against the CIT(A). However, we warn him to be careful in future in following the order of the Tribunal in accordance with law and should not show any defiance to the order of the Tribunal. (AY. 2007-08)

DCIT v. Sham Sunder Sharma (Chd.) (Trib.); www.itatonline.org

S. 251 : Appeal – Commissioner (Appeals) – Powers – In an appeal against an order passed by the AO to give effect to the ITAT’s order, the CIT(A) has no jurisdiction to enhance the assessment with respect to a new source of income or disallowance of expenditure [S. 40(a)(ia), 68, 254(1)]

The ITAT directed that the assessee be granted sufficient opportunity to rebut the evidence used by the Assessing Officer regarding the addition of Rs. 89,39,92,188 made by the Assessing Officer on account of alleged short receipts declared in the profit and loss account violating the principles of natural justice. In compliance, the Assessing Officer made the assessment on the issue afresh under section 254 read with section 143(3) of the Act making the addition of Rs. 4,55,41,557 out of Rs. 89,39,92,188 which was questioned before the CIT(Appeals). The CIT(Appeals) not only upheld the addition of Rs. 04,55,41,557 made on account of short receipts declared in profit and loss account but enhanced the income by directing the Assessing Officer to disallow payments made by the assessee under section 40(a)(ia) of the Act. The assessee claimed that by directing the Assessing Officer to make the disallowance of payments made by the assessee under sec. 40(a)(ia) of the Act, the CIT(Appeals) has introduced in the assessment a new source of income, which is not allowed in an assessment which was made by the Assessing Officer strictly in compliance of the order of the ITAT for reconsideration of addition of Rs. 89,39,92,188 after examining the evidence and upholding opportunity of being heard to the assessee. HELD by the Tribunal:

  1. The direction to the Assessing Officer by the CIT(Appeals) to disallow payments made by the assessee under section 40(a)(ia) of the Act was a question of taxability of income from a new source of income which has not been considered by the Assessing Officer, hence it was exceeding of jurisdiction by the CIT(Appeals) in a matter set aside by the ITAT in the present case. Though the CIT(Appeals) has co-terminus powers as of the Assessing Officer and is empowered to do what an Assessing Officer can do for the assessment, the directed disallowance was new source of income, which was not the subject matter of setting aside order by the ITAT, in compliance of which assessment under section 254 read with section 143(3) was framed.

  2. The power of the CIT(Appeals) to set aside assessment, which does not involve a proposal for enhancement cannot be used for the purpose of expanding whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the appellate authority. (AY. 2007-08)

Cheil India Pvt. Ltd. v. ITO ( Delhi)(Trib.) ; www.itatonline.org

S. 253 : Appellate Tribunal – CIT(A) – Stay – Appeal in the ITAT can be filed against order of the CIT(A) on a stay application. Stay should be granted if relevant criteria of existence of prima facie arguable case, irreparable loss and financial position are not considered by the CIT(A). [Ss. 201(1), 250]

Considering the fact that the issue on merits is yet to be decided by the CIT(A) and being of the view that the findings arrived at in para 5 have not taken into consideration the relevant criteria for deciding the issue namely the existence of
prima facie arguable case in favour of assessee or not; irreparable loss if any and the financial position of the assessee etc. as no reference to these settled legal parameters is found mentioned in the order. It also seen that the merits of the order of the Assessing Officer till date have not been tested by any Appellate Authority. Thus, in these peculiar facts and circumstances, we direct the Revenue authorities from refraining to take any coercive action against the assessee till the passing of the order of the CIT(A) on merits. In view of the same, the Ld. CIT(A) is directed to pass a speaking order in the appeals on merit after giving the assessee a reasonable opportunity of being heard. (AYs. 2010 -11 to 2015-16)

Bharat Heavy Electricals Ltd. v. ITO(TDS) (Delhi) (Trib.) ; www.itatonline.org

S. 254(2A) : Appellate Tribunal – Power – Stay – Tribunal has power to stay the prosecution proceedings initiated under section 276C(1) [Ss. 271(1)(c), 276C(1)]

The stay application has been filed by the assessee for keeping in abeyance the launching of prosecution proceedings. The Tribunal held that the Tribunal has power to stay proceedings initiated by the AO by issuing show cause notice for launching prosecution under section 276C(1) in view of the proviso to section 254(2A). Outcome of the appeals pending before the Tribunal relating to the validity of the additions made by the AO in the assessment made pursuant to the order passed under section 263 and penalty imposed under section 271(1)(c) in respect of the said additions will have a direct bearing on the question whether prosecution is to be launched or not and therefore, stay is granted against the proceedings initiated by issuing show cause notice for launching prosecution under section 276C(1) till the disposal of appeals. (AY. 2008-09)

Jindal Steel & Power Ltd. v. ACIT (2015) 169 TTJ 704 (Delhi)(Trib.)

S. 263 : Commissioner – Revision of orders prejudicial to revenue – In a case where there is inadequate inquiry but not lack of inquiry, the CIT must conduct inquiry and verification and record the finding how the assessment order is erroneous. He cannot simply remand the matter to the AO for verification. [Ss. 24(b), 143 (3), 153]

In cases where there is inadequate inquiry but not lack of inquiry, the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if inquiry and verification is conducted by the CIT and he is able to establish and show the error and mistake made by the AO, making the order unsustainable in law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. In this situation, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further inquiry without a finding that the order is erroneous. The distinction must be kept in mind by the CIT while exercising judgment under Section 263 of the Act and in absence of the finding that the order is erroneous and prejudicial to the interest of revenue, the exercise of jurisdiction under said section is not sustainable. The finding that the order is erroneous is the condition or requirement which must be satisfied for exercise of jurisdiction u/s. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. In most of the cases of alleged inadequate investigation, it would be difficult to hold that the order of the AO, who had conducted inquiries and had acted as an investigator is erroneous without CIT conducting verification/inquiry. It was also laid down that the CIT can direct reconsideration of assessment on this ground but only when the order is erroneous and an order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous and such order is not permissible under the provisions of section 263 of the Act. The jurisdictional pre condition for invoking section 263 of the Act is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. (AY. 2009-10)

Maya Gupta v. CIT (Delhi)(Trib.) ; www.itatonline.org

S. 263 : Commissioner – Revision of orders prejudicial to revenue Depreciation – Windmill, generated wind power and sold it to state electricity board prior to 30th September of year, income from which was taxed, depreciation was to be allowed at full rate – Revision order was set aside [S.32]

The assesse was in the business of power through windmill. The assessment was completed u/s. 143(3). Depreciation loss of 80% on the cost of a new windmill was allowed. In revision proceedings under section 263, Commissioner held that erection invoices showed that the windmill erection was completed on 30-9-2007 hence he directed to restrict the depreciation to 40%. On appeal the Tribunal held that, the assessee’s windmill was erected and generated power before 30-9-2007. The same was sold to state electricity board and sale proceeds were being offered for taxation. Department had not questioned certificate issued by State Electricity Board, it could not be said that assessee had not erected windmill on or before 30-9-2007,hence allowance of depreciation at 80% was held to be justified. Order of Commissioner was quashed. (AY. 2008–09)

D.M. Kathir Anand v. ACIT (2014) 29 ITR 753/ (2015) 153 ITD 115 (Chennai)(Trib.)

S. 269SS : Acceptance of loans and deposits – Otherwise than by account payee cheque or account payee bank draft – Penalty – Journal entries – Section does not apply to non-monetary book entry transactions of loans and advances [S. 271D]

Section 269SS indicates that it applies to a transaction where a deposit or a loan is accepted by an assessee, otherwise than by an account payee cheque or an account payee draft. The ambit of the Section is clearly restricted to transaction involving acceptance of money and not intended to affect cases where a debit or a liability arises on account of book entries. The object of the Section is to prevent transactions in currency. This is also clearly explicit from clause (iii) of the explanation to Section 269SS of the Act which defines loan or deposit to mean “loan or deposit of money”. The liability recorded in the books of account by way of journal entries, i.e. crediting the account of a party to whom monies are payable or debiting the account of a party from whom monies are receivable in the books of account, is clearly outside the ambit of the provision of Section 269SS of the Act, because passing such entries does not involve acceptance of any loan or deposit of money. (AY. 2007-08)

CIT v. Mahagun Technologies Pvt. Ltd. (Delhi)(Trib.); www.itatonline.org

S. 271(1)(c) : Penalty – Concealment – Revised return filed beyond time – Assessment was done to validate invalid return – Levy of penalty was held to be not justified. [S. 139(5)]

Assessee declaring profit from firm in revised return filed beyond time after search proceedings revealed firm bogus. No escapement of income detected during original assessment proceedings and no proceedings initiated against assessee after search. Assessment proceedings carriedout just to validate invalid revised return.No escapement of income. Penalty cannot be levied.(AY. 1998-1999 to 2000-2001)

Ranjana Sud v. ACIT (2015) 39 ITR 356 (Mum.) (Trib.)

S. 271(1)(c) : Penalty – Concealment – Validity of assessment can be objected in penalty proceedings – Satisfaction was recorded of person searched – Donation was not disclosed in the original return – Belated return was filed – Revised return was held to be not valid – Levy of penalty was held to be justified [S. 32 (4), 139(5), 153C, 158BD]

  1. The argument that the satisfaction ought to have been recorded by the AO of the searched person and copy of such satisfaction should be available in the record of searched person is not acceptable because the AO of the searched person as well as of the assessee is a common authority. The same AO has jurisdiction over both the assessees. He has recorded the satisfaction for satisfying himself that money belonged to the assessee was found at the premises of the assessee. His action is being challenged that he has recorded the satisfaction while taking cases of the present assessee i.e. when he took cases of such other persons, whereas he should have recorded satisfaction in the capacity of AO of searched person. There is built-in fallacy in the arguments of the assessee. The fallacy became evident if the argument if tested by envisioning to the facts of the present case. There is no dispute that notice under section 153C was issued by the AO after recording the satisfaction extracted
    supra. The AO is the same AO who has jurisdiction over the searched person as well as the other person i.e. the assessee. Let us take a situation, the AO was examining the file of Shri Bhaskar Ghosh. On perusal of his statement recorded under section 132(4) coupled with the fact of cash found during the course of search and buttressed by the Managing Director (Finance) of the KPC Group of companies, visualised that cash belonged to the assessee, he immediately took a piece of paper and recorded his satisfaction that the money belongs to the assessee, therefore notice under section 153C is to be issued in the case of assessee. The question is, where this paper was placed by him? Whether in the order sheet entries of Shri Bhaskar Ghosh’s assessment proceedings; in a separate file or in cupboard available in his room. There is no dispute that this satisfaction was not recorded within the stages contemplated by the Hon’ble Supreme Court in the case of
    CIT v. Calcutta Knitwears 362 ITR 673. The attempt at the end of the assessee is that there should be a straight jacket system, whereby the satisfaction recorded even by the same AO then, that should be placed in the file of searched person and if it is placed in some other cupboard in his room by the AO then, there cannot be any satisfaction, we fail to appreciate that technical approach at the end of the assessee. The law does not require the manner and the procedure of keeping the files. The section only requires that a satisfaction be recorded and it should be during the period propounded by Hon’ble SC in
    CIT v. Calcutta Knitwears 362 ITR 673, that has been recorded in the present case. The second scenario can also happen that seized material of KPC group might be kept in a common bundle, wrapped in a cloth where all the files are emanating from search and survey are being placed. If the above satisfaction note was found to be tagged with other file would it be held that no satisfaction was recorded. In our understanding the reply will be that satisfaction was recorded;

  2. The most important feature of section 271(1)(c) is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished. On examination of the facts, we find that firstly, there is no explanation at the end of assessee, why it has not disclosed these donations in the original return(s)? There is no
    bona fide in the alleged explanation of the assessee that it had received the money through account payee cheque and, therefore, harboured a belief that donations are genuine. This explanation is wholly for the sake of explanation. The assessee failed to spell out specific facts and circumstances or reason which operated in the minds of its managing director, finance while preparing the return and treating these donations as genuine. Looking to the facts of these five donors, no prudent man would, however, harbour a belief that such companies can give donation. It is pertinent to note that it cannot be a coincidence or a chance that five companies managed by a common director, having assets of less than Rs. 1 lakh, not done any business but would give donations of Rs. 33 crores. These circumstances in itself suggest a well designed scheme at the behest of the assessee, because it is the assessee who is ultimately getting the benefit. Therefore, there was no explanation at the end of assessee for not showing these donations as its income in the original return(s) or in the return(s) filed in response to notice under section 153C. The CIT(A) has rightly confirmed the penalty upon the assessee. (AY. 2007-08 to 2009-10)

KPC Medical college & Hospital v. DCIT ( Kol.) (Trib.); www.itatonline.org

S. 271AAA : Penalty – Search initiated on or after 1st June, 2007 – Undisclosed income – “dumb” document – Surrender of income – Levy of penalty was held to be not justified

  1. Undisclosed income means “any income represented by any documents” found during the course of search, which are not recorded in the books of account of the assessee. In the instant case, the additions of cash expenses and payments of Rs. 71,90,623 is the result of cash available out of the disclosed cash of Rs. 6.84 crores which was included in the disclosure petition. Further, addition of Rs. 15 lakh on account of alleged cash receipts from Sampoorna Logistics, which was alleged to be reimbursement, it is clear that expenditure recorded in the books of account can be held to be undisclosed income of the assessee if the said expenditure is found to be false. It is the Department on whom, onus of proving that expenditure recorded in the books is bogus or false based on documentary evidences found in the course of search. Here in the present case, no documentary evidences establishing the falsity of claim of transportation charges paid to Sampoorna Logistics was found in the course of search. According to us the said expenditure cannot be held to be undisclosed income of the assessee for the purpose of levying penalty u/s. 271AAA of the Act;

  2. A charge can be levied on the basis of document only when the document is a speaking one. The document should speak either out of itself or in the company of other material found on investigation and/or in the search. The document should be clear and unambiguous in respect of all the four components of the charge of tax. If it is not so, the document is only a dumb document. No charge can be levied on the basis of a dumb document. A document found during the course of a search must be a speaking one and without any second interpretation, must reflect all the details about the transaction of the assessee in the relevant assessment year. Any gap in the various components for the charge of tax must be filled up by the Assessing Officer through investigations and correlations with other material found either during the course of the search or on investigations. A document was bereft of necessary details about the year of transaction, ownership, nature of transaction, necessary code for deciphering the figures cannot be relied upon;

  3. Penalty cannot be levied merely on the admission of the assessee and there must be some conclusive evidence before the AO that entry made in the seized documents, represents undisclosed income of the assessee. Where the assessee for one reason or the other agrees or surrenders certain amounts for assessment, the imposition of penalty solely on the basis of the assessee’s surrender will not be well-founded. (AY. 2008-09)

SPS Steel & Power Ltd. v. ACIT (Kol.) (Trib.); www.itatonline.org

S. 275 : Penalty – Bar of limitation – Penalty – Concealment – Period of limitation within six months from the end of the financial year in which the order is received by the Commissioner – Challenge by assessee to validity of penalty order entertained in Dept’s appeal despite lack of cross objection or cross-appeal by assessee – Penalty order was held to be barred by limitation [S.271(1)(c)]

On a combined reading of Section 275(1)(a) along with its proviso it becomes clear that main section 275(1)(a) talks of a period of six months from the date on which the order is received by Commissioner and main section also talks of orders passed by Commissioner appeals as well as by Tribunal talk whereas the proviso which is applicable from 1-6-2003 talks about orders passed by Commissioner Appeals only and here, the period of limitation for passing penalty order is one year from the date Commissioner receives Tribunal order. We find that in the present case quantum proceedings travelled up to Hon’ble ITAT and therefore, main section 275(1)(a) will be applicable wherein the period of limitation has been mentioned as six months from the end of financial year in which order is received by Commissioner. The proviso to section 275(1)(a) will not be applicable. Proviso talks about orders passed by Commissioner (Appeals) only. Admittedly, the quantum order in the present case was received on or before 11-5-2007 as noted in reply to RTI application and therefore, penalty order should have been passed on or before 30th November, 2007 whereas, the penalty order has been passed on 10-1-2008 which is beyond the limitation period of six months. In view of above, as the penalty order has not been passed within six months from the end of month in which order was received by Commissioner, the penalty order passed by AO is bad in law and is therefore, quashed. (AY. 2001-02)

ITO v. Pandit Vijay Kant Sharma (Delhi) (Trib.); www.itatonline.org

S. 282: Service of notice – The postal authorities are the agent of the recipient. There is a presumption that handing over notice to the postal department means that it has been served on the assessee. [S. 143(2), 147, 148, CPC, order V Rule 19A]

The provisions of Section 282 of the Act with regard to the service of notice have been duly complied with by the Revenue. Since the notice u/s. 143(2) of the Act has not been received back unserved within thirty days of its issuance, there would be presumption under the law that notice has been duly served upon the assessee. The notice was under transmission by handing over to the postal authority who acted as an agent of the recipient. The speed post notice has not been returned mentioning the address as wrong or undelivered which is a standard practice of the postal Department. Assessee’s AR in the initial hearings never indicated that 148 notice was not properly served. The lame objection is taken at the fag end of assessment, which clearly smack of a design. (AY. 2003-04)

ITO v. Shubhashri Panicker (Jaipur) (Trib.); www.itatonline.org

S. 292BB : Notice of demand to be valid in certain circumstances – Reassessment – Dead person – Issue of notice in the name of the deceased person renders the assessment order null and void even if the order is passed in the name of the legal heir. The fact that the legal heir attended the proceedings does not make it a curable defect u/s. 292BB. [Ss. 69, 143(2), 147, 148]

The AO recorded the reasons for issuing the notice u/s. 148 of the Act in the name of the deceased assessee and got the approval of the Addl. CIT also in the same name. The AO issued notice dated 31-3-2010 u/s. 148 of the Act in the name of the deceased assessee and also mentioned in the body of the assessment order that the notice u/s. 148 of the Act was issued and served upon the assessee by post within the statutory time period prescribed. Though the legal heir of the deceased assessee informed the AO that the assessee had expired and the return in the name of deceased assessee was filed by the legal heir, the AO did not issue any notice u/s. 148 of the Act or 143(2) of the Act in the name of the legal heir. Therefore, the assessment framed by the AO on the basis of the notice issued u/s. 148 of the Act in the name of the deceased assessee was invalid and void ab initio. (AY. 2003-04)

ITO v. Late Som Nath Malhotra (Delhi) (Trib.); www.itatonline.org

Research Team

S. 2(1A) : Agricultural income – Tilling of land, weeding, watering etc. – Sale proceeds from said business of nursery carried on by assessee constitute income from agriculture. [S. 10(1)]

Assessee HUF had carried out operations such as tilling of land, weeding, watering, etc. upon land owned by it and when plants were established in soil they were shifted in suitable containers for sale. Sale proceeds from said business of nursery carried on by assessee constitute income from agriculture. (AY. 1986-87 & 1991-92)

Puransingh M. Verma v. CIT (2015) 230 Taxman 470 (Guj.)(HC)

S. 4 : Charge of Income-tax – Words “discontinued business” Professional fees received by assessee after elevation to post of Judge would not be taxable as income. [S. 176(4)]

Assessee was a sitting Judge of High Court. Prior to this he was practicing as an advocate in High Court. After being elevated to post of judge he discontinued his legal profession as an advocate. Assessee received certain outstanding dues from his past clients. Professional fees received by assessee after elevation to post of Judge would not be taxable as income. (AY. 1996-97 & 1998-99)

CIT v. Anil R. Dave (2015) 230 Taxman 395 (Guj.)(HC)

S. 4 : Charge of Income-tax – Mutuality – Club – Guest charge – Guest charge received by assessee club from its members would not be liable to tax

Assessee-club received ‘guest charge’ from its members and utilised it for benefit and development of club members. Since principal of mutuality would apply to transaction with member; guest charge received by assessee club from its members would not be liable to tax.

Junagadh Gymkhana v. ITO (2015) 230 Taxman 460 (Guj.)(HC)

S. 5 : Scope of total income – Method of accounting – Cash system – Interest on fixed deposit – Interest earned on fixed deposit which was not received during the year would not be added as income of relevant year. [S. 145]

Assessee had not shown interest earned on fixed deposit in relevant year on plea that same would be paid to it in near future along with original sum. On reference the Court held that since assessee consistently followed cash system of accounting, interest on fixed deposit would not be added to its income in relevant assessment year. (AY. 1989-90)

CIT v. Adamsons Inc. (2015) 230 Taxman 72 (Bom.)(HC)

S. 9(1)(vi) : Income deemed to accrue or arise in India – Income from supply of software embedded in hardware equipment or otherwise to customers in India – Does not amount to royalty –DTAA – India-France. [Article 13(3)]

Held, dismissing the appeals, that the income of the assessee from supply of software embedded in the hardware equipment or otherwise to customers in India did not amount to royalty under section 9(1)(vi).)

CIT v. Alcatel Lucent Canada (2015) 372 ITR 476/231 CTR 87/56 taxmann.com 413 (Delhi) (HC)

S. 10(17A) : Awards and rewards in cash or kind – Amount received as an award is a capital receipt and hence not taxable. [Ss.2(24), 4]

The assessee was an editor of an English magazine claiming exemption of amounts received as awards for excellence in journalism. The AO disallowed the same on the ground that the award did not satisfy conditions of section 10(17A). The CIT(A) reversed the order of the AO holding that the award received was not income as per section 2(24) and thus there was no question of its taxability. The Tribunal upheld the order of the AO.

The High Court following the decision of the Karnataka High Court in the case of
International Instruments (P.) Ltd. v. CIT (1982) 133 ITR 283 observed that a receipt may not be ‘income’ at all within the proper connotation of that term and yet may come within the express exemption under section 10, due to the over-anxiety of the draftsman to make the fact of non-taxability clear beyond doubt and hence held that an award would be a capital receipt and hence not taxable. (AY. 1991-92)

Aroon Purie v. CIT (2015) 231 Taxman 349 / 277 CTR 1 / 118 DTR 105 (Delhi)(HC)

S. 10(26) : Exemption – Member of scheduled tribe should reside in specified area – Residence refers to stay in area for a long time for purposes of livelihood – Member of Scheduled Tribe in one area residing in another specified area – Entitled to exemption – Certificate of exemption to be obtained under section 197 – Certificate valid for one year. [S.197, Constitution of India Article 366(25)]

Any income derived by a member of a Scheduled Tribe from any source in the specified area is not to be included in his total income u/s. 10(26). Such a person should satisfy the following three conditions: (i) the person claiming exemption should be a member of a Scheduled Tribe as defined in Article 366(25) of the Constitution; (ii) he should be residing in the specified areas ; and (iii) the income in respect of which exemption is claimed must be an income which accrues or which arises to him (a) from any source in the specified area; or (b) by way of dividend or interest.

A member of a Scheduled Tribe would be entitled to the benefit of section 10(26) only when he is posted in the specified areas. Once he is posted outside the specified areas then he ceases to reside in the specified area and the income does not accrue to him in the specified area. The scope and ambit of the word “residing” has to be given its natural meaning that a person has an abode and is living in a particular area for his work and livelihood for a reasonably long length of time. However, whether a person is actually residing or not is a question of fact to be decided on the facts of each case. Any member of a Scheduled Tribe declared to be so under Article 342 of the Constitution, even though he does not belong to the specified area, would be entitled to the benefit of section 10(26) when posted to at a station in the specified area and residing therein in connection with his employment. A member of Scheduled Tribe is bound to obtain a certificate of exemption in terms of section 197. The validity of the certificate will be for one assessment year only.

Chandra Mohan Sinku v. UOI (2015) 372 ITR 627/230 Taxman 118/276 CTR 385/118 DTR 65 (FB) (Tripura) (HC)

S. 10A : New industrial undertaking – Computer software – Carrying on business both in unit within Software Technology Park and another unit –Maintaining separate accounts for two units – Software Technology Park unit not formed splitting up or reconstruction or transfer of used assets of an existing unit –Entitled to exemption

The assessee was engaged in the business of computer software development and business process outsourcing. During the financial year 2005-06, the assessee ran its business from a unit not registered with the Software Technology Parks of India in rented premises. In this period the assessee applied for permission to set up a unit registered with the Software Technology Parks of India at the ground floor of the same premises for development of computer service/information technology enabled services. The assessee started the business in the newly set up unit during the financial year 2006-07. The assessee continued to carry on its business from the other unit also. Separate books of account were maintained by the assessee for the two units. In respect of the unit registered with the Software Technology Parks of India the claim for deduction under section 10A, made by the assessee was rejected on the ground that it was formed by splitting of the existing unit. The Commissioner (Appeals) extended the benefit under section 10A to the unit registered with the Software Technology Parks of India for the three assessment years 2007-08, 2008-09 and 2009-10. This was confirmed by the Tribunal. On appeals:

Held, dismissing the appeals, that the unit established by the assessee for which section 10A exemption was claimed was not formed by splitting up or reconstruction or transfer of the used assets of an existing unit and, hence, the assessee was entitled to exemption under section 10A. (AY. 2007-08, 2008-09, 2009-10)

CIT v. Quest Informatics P. Ltd. (2015) 372 ITR 526 (Karn) (HC)

S. 10B : Export Oriented Undertakings – Part activities out sourced – Deduction cannot be denied

Deduction cannot be disallowed if part of the activities are outsourced to third parties by the assessee which are to be performed under the direct control and supervision of the assessee. (AY. 2007-08 to 2009-10)

MKU (Armours) (P) Ltd. v. CIT (2015) 119 DTR 169 (All)(HC)

S. 10B : Export Oriented Undertaking – Manufacture – Preparation of data for printing amounted to manufacture

Held, dismissing the appeal, that the work which ultimately resulted as the culmination of the assessee’s efforts of compiling, editing, digital designing, etc. was “transmitted or exported from India to any place outside India by any means”. It was, therefore, computer software that are produced or manufactured, to qualify for benefit under section 10B. (AY. 2003-04 to 2006-07)

CIT v. Kiran Kapoor (Ms.) (2015) 372 ITR 321/231 Taxman 474/274 CTR 343 (Delhi) (HC)

S. 11 : Property held for charitable or religious purposes – Investment contravening the provisions –Exemption on entire income cannot be denied. [S.13]

Exemption under section 11 can be denied only to extent of investment contravening provisions of section 11(5) read with section 13(1)(d) and not on entire income. (AY. 1997-98 to 2001-02)

CIT v. Orpat Charitable Trust (2015) 55 taxmann.com 211 / 230 Taxman 66 (Guj.)(HC)

S. 12AA : Procedure for registration – Trust or institution – Charitable purpose – Activities of trust such as providing education, developing natural talents of women and charging fees for the same does not amount to carrying on trade commerce or business. [S. 2(15)]

The High Court observed that the motive of the assessee is not the generation of profit but to provide training to the needy women for their development. It further observed that the nature of activities carried on by the trust was to provide education and the occasional sales made by the assessee for the trust’s fund generation and furthering of objects were not indicative of trade, commerce or business. The High Court held that the proviso to section 2(15) would not apply and hence would not be liable to cancellation of registration.

DIT v. Women’s India Trust (2015) 118 DTR 173 (Bom.)(HC)

S. 13 : Denial of exemption – Services of trustees – Payment to trustees – Denial of exemption was held to be not justified. [Ss. 11, 12A]

Assessee Trust was availing services of Trustees and on account of such services there was substantial growth in Trust activities. Assessing Officer denied the exemption under section 11 on the ground that the assessee had violated the provisions of section 13(1)(c) by making payments to Trustees. CIT(A) set aside the order of Assessing Officer. Tribunal affirmed the order of CIT(A). On appeal by revenue , dismissing the appeal of revenue the Court held that; where assessee Trust was availing services of Trustees and on account of such services there was substantial growth in Trust and its activities, payments for such services could not be said in contravention of section 13(1)(c) and benefit under section 11 could not be denied to assessee.

CIT v. CMR Jnanadhara Trust (2015) 230 Taxman 238 (Karn)(HC)

S. 14A : Disallowance of expenditure-Exempt income – Disallowance of expenditure on earning non-taxable income –Disallowance only to extent of expenditure incurred by assessee in relation to tax exempt income – No reason for disallowance of sum volunteered – No scrutiny of accounts – Entire tax exempt income lower than disallowance

Allowing the appeal of assessee the Court held that ; the entire exempt income was Rs. 48,90,000, whereas the disallowance ultimately directed worked out to nearly 110 per cent. of that sum, i. e., Rs. 52,56,197. Section 14A or rule 8D cannot be interpreted so as to mean that the entire exempt income is to be disallowed. The window for disallowance was indicated in section 14A and was only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the exempt income surely cannot swallow the entire amount. (AY. 2009-10)

Joint Investments P. Ltd. v. CIT (2015) 372 ITR 694 (Delhi)(HC)

S. 14A : Disllownce of expenditure – Exempt income – In the absence of any tax free income earned by assessee, disallowance could not be made. [R.8D]

In the absence of any tax free income earned by assessee, disallowance could not be made. (AY. 2008-09)

CIT v. Shivam Motors (P) Ltd ( 2015) 230 Taxman 63 ( All) (HC)

S. 28(i) : Business income – Income from house property – Primary source of income of assessee letting out godowns and warehouses to manufacturers, traders and companies carrying on warehousing business – Income assessable as business income [S. 22]

The assessee was engaged in the business of warehousing, handling and transport business. Held, dismissing the appeals, that the Commissioner (Appeals) as well as the Tribunal had not only gone into the object clauses of the memorandum of association of the assessee but also into individual aspects of the business to come to the conclusion that it was a case of warehousing business and, therefore, the income would fall under the head “Business income”. Thus, the income of the assessee from letting out its warehouse was chargeable under the head “Income from business” and not under the head “Income from house property”. (AY. 2004-2005 to 2009-2010 )

CIT v. NDR Warehousing P. Ltd. (2015) 372 ITR 690 (Mad.) (HC)

S. 28(i) : Business income – Income from house property – Business of establishing facilities as are available in an information technology park – Assessable as business income. [S. 22]

Assessee was engaged in business of establishing facilities as available in IT Park and in letting out hotels, commercial complexes in an integrated manner with fully operational infrastructure facilities. Rental income derived from tenants was claimed as ‘business income’. Revenue authorities treated 60 per cent of income as ‘income from business’ and 40 per cent as ‘income from house property’. Which was affirmed by Tribunal. On appeal by assessee allowing the appeal the Court held that since facilities given by assessee along with buildings/commercial establishments were inseparable, and entire construction and interiors of buildings was done with sole intention of carrying on business, assessee was entitled to treat entire income as ‘business income’. (AY. 2004-05)

Mysore Intercontinental Hotels Ltd. v. ACIT (2015) 230 Taxman 418 (Karn.)(HC)

S. 28(i) : Business loss – Application money forgone by assessee for subscribing to right issue as a matter of commercial expediency in order to make said issue successful is allowed as business loss

The assessee was a promoter and shareholder of a company, which declared a rights issue of secured redeemable non-convertible debentures. The company further entered into an agreement with the UTI wherein the allottees of debentures could surrender all their debentures to UTI after the application was made and UTI would pay balance allotment money and secure the debenture registered in its name. The assessee opted for the arrangement and claimed before the AO that the loss incurred on account of such arrangement was a business loss. The AO held that the assessee merely acted as a conduit in the transaction and that the assessee was not acting in his own capacity and hence the loss was not allowable as business loss. The Tribunal however held that the same was a business loss.

The High Court observed that both the UTI as well as the assessee stood to benefit – UTI picked up the debentures at a discounted rate, i.e., Rs. 389 whereas its face value was Rs. 500 each (that amount being the redeemable value at the end of the maturity period) and the assessee was entitled to one dividend warrant which enabled them to an equity share of Rs. 200. The purpose of issue was commercial and they were not issued only to attract subscriptions to the dividend warrants attached thereto. Therefore the High Court held that assessee company suffered loss on their sale and such loss was business loss that constituted allowable deduction.

CIT v. Abhinandan Investment Ltd. (2015) 118 DTR 145 / 230 Taxman 558 / 277 CTR 86 (Delhi) (HC)

S. 32 : Depreciation – Gas cylinder – 100% depreciation – Block of asset – Each cylinder is less than Rs. 5,000 – Less than 180 days –Depreciation is allowable at 100% [S. 2(11)]

The assessee-agency was involved in the supply of gas cylinders and allied activity. The assessee filed its return claiming 100 per cent depreciation on value of cylinders. The assessee claimed that the value of each cylinder was less than Rs. 5000 and in terms of first proviso to section 32 it was entitled to claim depreciation. The revenue authorities however, applied third proviso to section 32 and finding that the cylinders were kept to use for less than 180 days, only 50 per cent depreciation was allowed. The Tribunal, however, allowed the assessee’s claim. On revenue’s appeal, the Court held that once an asset is covered by first proviso to section 32, it cannot be subjected to any other test including one stipulated under third proviso to section 32, therefore, where an article i.e. gas cylinder, whose cost was less than Rs. 5,000, it could not form part of block of assets and depreciation thereon could not be subjected to any test as to extent of use as specified in third proviso to section 32. The appeals are dismissed. (AY. 1993-94 & 1994-95)

CIT v. PKL Ltd. (2015) 230 Taxman 80 (AP)(HC)

S. 37(1) : Business expenditure – Capital or revenue – Technical collaboration agreement – The very nature of a licence agreement is that it is not of a permanent nature. The fact that the payment is spread over a period of 10 years does not make the assessee the owner of the technical knowhow. The payment is not of an enduring nature.

The department argued before the High Court that the reliance placed by the ITAT on the decisions in
Premier Automobiles Ltd. vs. CIT, (1984) 150 ITR 28 (Bom.) and
Travancore Sugars and Chemicals Ltd. vs. CIT (1966) 62 ITR 566 (SC), to hold that the payment of technical knowhow fees is revenue in nature is misplaced because in those cases the assessees were manufacturing units and therefore different considerations would apply. It was urged that inasmuch as the essential business of the assessee was entirely dependent on the technical knowhow provided by SMCL, the benefit to the assessee was of an enduring nature and the expenditure incurred should be treated as capital expenditure. HELD by the High Court dismissing the appeal:

A perusal of the TCA shows that the payment by the assessee to SMCL is for the technical knowhow given to the assessee as a licensee. Although the payment is spread over a period of 10 years, it does not make the assessee the owner of the technical knowhow. The very nature of the licence agreement is that it is not of a permanent nature. The view taken by the CIT(Appeals), and concurred with by the ITAT, cannot in the circumstances be said to be improbable or contrary to the settled legal position. The Court, therefore, concurs with the view of the CIT(A) and the ITAT that the benefit to the assessee as a result of payment of royalty for technical knowhow was not of an enduring nature, and therefore cannot be construed to be a capital expenditure.(AY. 2008-09 to 2010-11)

CIT v. SMCC Construction India Ltd. (Delhi) (HC); www.itatonline.org

S. 37(1) : Business expenditure – Expenditure on construction/ acquisition of new facility subsequently abandoned is allowable in the year of write-off

The High Court allowing the assessee’s appeal relied on the decision of the Supreme Court in the case of
CIT v. Indian Mica Supply Co. Pvt. Ltd. (1970) 77 ITR 20 and held that the decision of the assessee to abandon the project was the cause for claiming deduction and further the decision was made in the relevant year and hence it could be said that the expenditure, allowable for a deduction, arose in the relevant year. (AY. 2002-03)

Binani Cement Ltd. v. CIT (2015) 118 DTR 61 (Cal.)(HC)

S. 37(1) : Business expenditure – Commercial expediency – In order to avoid execution of said decree against it by way of attachment, arrest and to protect name of assessee, said amount was paid by assessee held to be allowable

Assessee, along with others, secured loan taken by company ‘E’ by executing bills of exchange which were accepted on behalf of assessee by its managing director. When default was committed, creditors moved High Court for repayment of loans against ‘E’ and, thus, co-acceptors of bills of exchange. Suit was decreed against assessee and three others and in order to avoid execution of said decree against it by way of attachment, arrest and to protect name of assessee, said amount was paid by assessee. Dismissing the appeal of revenue the Court held that there was commercial expediency in payment of such amount and, therefore, it was allowable as expenditure. (AY. 2004-05)

CIT v. Hitachi Koki India Ltd. (2015) 230 Taxman 643 (Karn.)(HC)

S. 37(1) : Business expenditure – Capital or revenue – Premium paid for leasehold land is allowable as revenue expenditure

Premium paid for leasehold land is allowable as revenue expenditure. (AY. 1997-98)

United Phosphorus Ltd. v. Addl. CIT (2015) 56 taxmann.com 354 / 230 Taxman 596 (Guj.)(HC)

S. 40(a)(ia) : Amounts not deductible – Deduction at source – Deduction u/s. 194C instead of u/s 194J renders the shortfall liable for disallowance u/s. 40(a)(ia). [S. 194C, 194J, 201]

The assessee, a hospital, entered into an agreement with M/s. Lakeshore Hospital and Research Centre Limited by which, the latter had undertaken to perform various professional services in the assessee’s hospital. On the payments made, the assessee deducted tax at the rate of 2% under Section 194C. However, assessment was completed on the basis that tax deductible was at 5% as prescribed under Section 194J and the entire tax in this regard was disallowed under Section 40(a)(ia)of Act. The CIT(A) confirmed the assessment and the Tribunal also rejected the appeal filed by the assessee concerning the assessment year 2005-06. However, in 2006-07, the Tribunal followed the Calcutta High Court judgment in
Commissioner of Income Tax v. S. K. Tekriwal [2014] 361 ITR 432 (Cal.)
and held that where tax is deducted by the assessee, even if it is under a wrong provision of law, as in this case, the provisions of Section 40(a)(ia) of the Act cannot be invoked. On appeal to the High Court HELD dissenting from Commissioner of
Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal.):

  1. As per these provisions of the agreement, M/s. Lakeshore Hospital and Research Centre had undertaken to render professional services to the assessee and this was not a case where they were undertaking a contract work. If that be so, tax was deductible under Section 194J and not under Section 194C as done by the assessee.

  2. Section 40(a)(ia) (supra) is not a charging Section but a machinery section and such a provision should be understood in such a manner that the provision is workable. The expression “tax deductible at source under Chapter XVII-B” occurring in the section has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B. Therefore, as in this case, if tax is deductible under Section 194J but is deducted under Section 194C, such a deduction would not satisfy the requirements of Section 40(a)(ia). The latter part of this Section that such tax has not been deducted, again refers to the tax deducted under the appropriate provision of Chapter XVII-B. Thus, a cumulative reading of this provision, therefore, shows that deduction under a wrong provision of law will not save an assessee from Section 40(a)(ia).

  3. In so far as the judgment of the Calcutta High Court in
    Commissioner of Income Tax v. S. K.Tekriwal [2014] 361 ITR 432 (Cal.), which was relied on by the Tribunal is concerned, with great respect, for the aforesaid reasons, we are unable to agree with the views that if tax is deducted even under a wrong provision of law, Section 40(a)(ia) cannot be invoked.( ITA No. 16 of 2014, dated 20-7-2015) (AYs. 2005-06, 2006-07)

CIT v. PVS Memorial Hospital Ltd. (Ker.)(HC); www.itatonline.org

S. 40(a)(ia) : Amounts not deductible – Disallowance can be made even if the payment has already been made by the assessee to the payee/contracting party [S. 194C]

The assessee made certain payment to the contracting party without deducting tax at source u/s. 194C. The AO disallowed the payment made u/s. 40(a)(ia). The assessee argued that the disallowance u/s. 40(a)(ia) cannot be made if the payment had already been made by the assessee to the payee/contracting party. The CIT(A) and Tribunal rejected the contention of the assessee and upheld the order of the AO. On an appeal by the assessee, the High Court held that the term “payable” used in the section is descriptive of the payments which attract the liability to deduct tax at source. It does not categorise defaults on the basis of when the payments are made to the payees of such amounts which attract the liability to deduct tax at source and, hence, disallowance u/s. 40(a)(ia) can be made even if payment has already been made by the assessee to the payee/contracting party (ITA No. 716 of 2009 dated 29-4-2015). (AY. 2005-06)

P. M. S. Diesels v. CIT(2015) 119 DTR 212 (P&H)(HC)

S. 43B: Deduction on actual payment – Service tax – Not received from parties – No disallowance can be made

Where it was found that, before end of the year, the amount on which service tax was payable had not been received from parties to whom services were rendered, no disallowance can be made for such unpaid service tax amount. (ITA No 1023 of 2013 dated 17-4-2015) (AY. 2007-08)

CIT v. Ovira Logistics (P) Ltd. (2015) 119 DTR 269 (Bom.)(HC)

S.45 : Capital gains – Transfer – Joint development agreement – Accrual – Entering into a joint development agreement with an irrevocable power of attorney in favour of the developer does not result in a “transfer” for purposes of capital gains – Not liable to pay capital gains tax – For the purposes of taxability, the income is not hypothetical and it has really accrued to the assessee [Ss. 2(47)(v), 2(47)(vi), 48, Transfer of Property Act, 1882, S. 53A]

Tribunal has held that the joint development with an irrevocable power of attorney in favour of the developer results in a transfer and liable to pay capital gains tax. Against the judgment of the ITAT Chandigarh Bench in
Charanjit Singh Atwal v. Income-tax Officer/[2013] 144 ITD 528, the High Court had to consider the following issues relating to the taxability of capital gains pursuant to a Joint Development Assessment (JDA) with a developer coupled with an irrevocable general power of attorney:

  1. The scope and legislative intent of Section 2(47)(ii), (v) and (vi) of the Act;

  2. The essential ingredients for applicability of Section 53A of 1882 Act;

  3. The meaning to be assigned to the term “possession”?

  4. Whether in the facts and circumstances, any taxable capital gains arises from the transaction entered by the assessee?

HELD by the High Court revering the Tribunal:

  1. Clause (vi) of Section 2(47) of the Act, as explained by CBDT in its circular No. 495 dated 23-9-1987, makes it clear that it was intended to cover those cases of transfer of ownership where the prospective buyer becomes owner of the property by becoming a member of a company, co-operative society etc. In the present case, JDA was executed between the society and the developers and there was no transaction involving the developer becoming member of a co-operative society/company etc. in terms of Section 2(47)(vi) of the Act. The surrender of right to obtain plot by the members was for facilitating the society to enter into the JDA with the developers. There was no change in the membership of the society as contemplated under Section 2(47)(vi) of the Act. Equally Clause (ii) of Section 2(47) of the Act has no applicability in as much as there was no extinguishment of any rights of the assessee in the capital asset at the time of execution of JDA in the absence of any registered conveyance deed in favour of the transferee in view of judgments in
    Alapati Venkataramiah vs. CIT, (1965) 57 ITR 185 (SC) and Additional CIT v. Mercury General Corporation (P) Limited, (1982) 133 ITR 525 (Delhi);

  2. Section 53A of 1882 Act has been bodily transposed into section 2(47)(v) of the Act and the effect of it would be that section 53A of 1882 Act shall be taken to be an integral part of section 2 (47)(v) of the Act. In other words, the legal requirements of section 53A of 1882 Act are required to be fulfilled so as to attract the provisions of section 2(47)(v) of the Act. Section 53-A of Act is clear to the effect that the person claiming benefit under it, must have “taken possession of the property”. This can happen, if the transferee was delivered physical possession of the property. It can also happen when a symbolical delivery of possession was effected, such as by attornment of the existing lease over such property. Where the contemplated transfer relates to an undivided share, section 53-A takes a different colour. The reason is that, there cannot be delivery of possession of property by a co-owner, of an undivided property, or the corresponding taking possession of such property by the transferee;

  3. The concept of possession to be defined is an enormous task to be precisely elaborated. “Possession” is a word of open texture. It is an abstract notion. It implies a right to enjoy which is attached to the right to property. It is not purely a legal concept but is a matter of fact. The issue of ownership depends on rule of law whereas possession is a question dependent upon fact without reference to law. To put it differently, ownership is strictly a legal concept and possession is both a legal and a non-legal or pre-legal concept. The test for determining whether any person is in possession of anything is to see whether it is under his general control. He should be actually holding, using and enjoying it, without interference on the part of others. It would have to be ascertained in each case independently whether a transferee has been delivered possession in furtherance of the contract in order to fall under section 53A of the 1882 Act and thus amenable to tax by virtue of section 2(47)(v) read with section 45 of the Act;

  4. On facts, perusal of the JDA dated 25-2-2007 read with sale deeds dated 2-3-2007 and 25-4-2007 in respect of 3.08 acres and 4.62 acres respectively would reveal that the parties had agreed for pro-rata transfer of land. No possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25-2-2007 so as to fall within the domain of section 53A of 1882 Act. The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee. Further section 53A of 1882 Act, by incorporation, stood embodied in section 2(47)(v) of the Act and all the essential ingredients of section 53A of 1882 Act were required to be fulfilled. In the absence of registration of JDA dated 25-2-2007 having been executed after24-9-2001, the agreement does not fall under section 53A of 1882 Act and consequently section 2(47)(v) of the Act does not apply;

  5. Viewed from another angle, it cannot be said that any income chargeable to capital gains tax in respect of remaining land had accrued or arisen to the assessee in the facts of the case. In
    Commissioner of Income Tax, Bombay City v. Messrs Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) it was observed that income tax is a levy on income and where no income results either under accrual system or on the basis of receipt, no income tax is exigible. In
    CIT v. Excel Industries Limited (2013) 358 ITR 295 (SC) held that income tax cannot be levied on hypothetical income. Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability, the income is not hypothetical and it has really accrued to the assessee. (ITA No. 200 of 2013, dated 22-7-2015) (AY. 2007-08)

C. S. Atwal v. CIT (P & H) (HC); www.itatonline.org

S. 45 : Capital gains – Conversion of firm into company – Transfer of assets means a physical transfer or intangible transfer of rights to property – Conversion of shares of partners to shares in company.[S. 45(4)]

The assessee-firm transformed into a private limited company. The entire assets and liabilities of the firm were made over to the company. The respective partners were issued shares by the company corresponding to the value of their share in the firm. The Assessing Officer took the view that there was transfer of assets from the firm to the private limited company and thereby the capital gains tax under section 45 became payable. The Commissioner (Appeals) and the Tribunal held that section 45 was not applicable. On appeal to the High Court:

Held, dismissing the appeal, that the shares of the respective shareholders in the assessee-company were defined under the partnership deed. The only change that had taken place on the assessee being transformed into a company was that the shares of the partners were reflected in the form of share certificates. Beyond that, there was no physical distribution of assets in the form of dividing them into parts, or allocation of assets to the respective partners or even distributing the monetary value thereof. Section 45 was not applicable. From a perusal of section 45(4), it becomes clear that two aspects become important, viz., the dissolution of the firm and the distribution of assets as a consequence thereof. The distribution must result in some tangible act of physical transfer of properties or intangible act of conferring exclusive rights vis-a-vis an item of property on the erstwhile shareholder. Unless these or other legal correlatives take place, it cannot be inferred that there was any distribution of assets. Appeal of revenue is dismissed. (AY. 1993-94)

CIT v. United Fish Nets (2015) 372 ITR 67/ 228 Taxman 302 (T & AP) (HC)

S. 45(2) : Capital gains – Conversion of a capital asset in to stock-in-trade – On the basis of the evidence before lower authorities, it was clear that land was originally a capital asset and tax would be payable only in the year in which the assessee ultimately sold the stock-in-trade. [S. 45]

The assessee, engaged in the business of developing property and following project completion method, claimed that no sale was made during the year. The AO found that premises were sold. However, portion of such premises was originally a capital asset which was later on converted into stock-in-trade. The HC upheld the order of the Tribunal holding that land was originally a capital asset of the assessee, and setting aside the matter to the AO to decide the year of conversion of land into stock-in-trade since income would be chargeable only at the time when the assessee ultimately sells the stock-in-trade. (AY. 2003-04)

CIT v. Saffire Hotels (P) Ltd. (2015) 116 DTR 385 (Bom.)(HC)

S. 54 : Capital gains – Capital asset – Even booking rights or rights to purchase or rights to obtain title of property is also capital asset – Profit on sale of property used for residence – Expenses incurred to acquire another property – Amount spent towards cost of improvement – Provisional booking of property – Amounts to acquisition of a new capital asset – Entitled to exemption. [Ss. 2(14) 2(47), 45]

The assessee sold his half share in two residential properties. He claimed that he used a sum of Rs. 73,27,000 to acquire another property within the period stipulated in section 54 of the Act, that he had spent a sum of Rs. 25,14,700 towards the cost of improvement. The Assessing Officer held that in the absence of an agreement to sell, the rights acquired by the provisional booking of the property did not meet the requirements spelt out under section 54, i.e., acquisition of the new capital asset. He also held that the cost of improvement was not deductible. The appellate authorities allowed the claim of the assessee. On appeal:

Held, dismissing the appeal, (i) that the question was not whether the assessee sold the booking rights and was, therefore, entitled to the benefit of capital gains. It was, rather, whether entering into the transaction and acquiring a property for Rs. 73,27,000 (cost of acquisition) amounted to acquiring a capital asset. In the light of the definitions of “capital asset” under section 2(14) and “transfer” under section 2(47) there was no doubt that the assessee’s contentions were acceptable.

(ii) That the Revenue did not dispute the acquisition of the second property, it had to necessarily follow that the cost of improvement was deductible. Even booking rights or rights to purchase or rights to obtain title of property is also capital asset. (AY. 2009-10)

CIT v. Ram Gopal (2015) 372 ITR 498/ 230 Taxman 205 (Delhi) (HC)

S. 54F : Capital gains – Investment in a residential house – Amount spent on construction of house –Entitled exemption. [S. 45, 263]

Assessee sold agricultural land and long-term capital gain arose to him. Amount was spent towards construction of house. The assessee filed his return of income which included capital gain. The Assessing Authority allowed the benefit under section 54F to the assessee.

The Commissioner invoked his powers under section 263 and reviewed the order. The Tribunal held that the benefit extended to the assessee was strictly in conformity with section 54F. There is no scope for the different interpretation as sought to be made out by the Revisional Authority and therefore, he allowed the appeal setting aside the order passed by the Revisional Authority. On appeal by revenue dismissing the appeal of revenue; the Court held that even before sale of agricultural land, assessee, with help of borrowed housing loan, had started construction on site belonging to him after sale of agricultural land amount spent towards said construction of house was more than consideration received by sale of agricultural land. Assessee was entitled to benefit of section 54F. (ITA No. 193 of 2009 dated 25-11-2014) (AY. 2004-05)

CIT v. Anandraj (2015) 230 Taxman 534 (Karn.)(HC)

S. 68 : Cash credits – Peak credit – Benefit of peak credit would be available unless otherwise established by the Revenue that it was invested elsewhere. [S. 69]

The assessee accounted for certain purchases in the cash book on later dates than the date of bills. An addition u/s. 69 was made by the AO on the same. On appeal, the HC held that items purchased were at short intervals, hence funds rotated and benefit of peak credit can be invoked and entire addition could not be made. If the AO comes to a finding that withdrawn amount was used or spent by assessee for any other investment or expenditure than the benefit of peak of such credit, in such circumstances, may not be available. (AY. 1994-95)

Sind Medical Stores v. CIT (2015) 117 DTR 78 (Raj.)(HC)

S. 68: Cash credits – Failure by creditors to participate in inquiry and furnish accounts – Does not mean that creditors lacked identity – No material to show that amounts advanced by creditors in reality represented money belonging to assessee – Sums cannot be treated as cash credits

Dismissing the appeal of revenue the Court held that; omission on the part of the creditors to subject themselves to the enquiry initiated by the Revenue or their failure to furnish accounts would not lead to the conclusion that the creditors lacked identity, without any other contradiction of facts and particulars of the transactions between them furnished by the assessee being uncontroverted. The Tribunal while deleting the addition had held in substance with regard to each of those loan transactions, that the Revenue had failed to bring any other material on record to show that the amounts advanced by the creditors were not in reality and in fact, money belonging to the assessee. (AY. 1994-95 )

CIT v. Chandela Trading Co. P. Ltd. (2015) 372 ITR 232/58 taxmann.com 45 (Cal.)(HC)

S. 68: Cash credits – Confirmation and balance sheet was filed – Deletion of addition was held to be justified.

Dismissing the appeal of revenue the Court held that; Appellate authorities after considering balance sheet of lender as well as confirmatory certificates in respect of advances given to assessee, deleted addition made by Assessing Officer, order so passed did not give rise to any substantial question of law. (AY. 2009-10)

CIT v. Avant Garde Carpets Ltd. (2015) 54 taxmann.com 216 / 230 Taxman 165 (All.)(HC)

S. 79 : Carry forward and set off losses – Change in share holdings – Companies in which public are not substantial interested –Amalgamation – Where there was no change in shareholding pattern on date of allotment of shares, set off of business loss would be allowed

Assessee-company claimed business loss pursuant to an amalgamation. However, Assessing Officer disallowed same by holding that there was a change in shareholding pattern of assessee-company. Dismissing the appeal of revenue the Court held that; where there was no change in shareholding pattern on date of allotment of shares, set off of business loss would be allowed. (AY. 1990-91)

Dy. CIT v. Chemstar Organics (India) (P.) Ltd. (2015) 230 Taxman 197 (Guj.)(HC)

S. 80-IA : Industrial undertakings – Infrastructure development – For approval of Information Technology Park an assessee can obtain occupation certificate phase wise or stage wise, based on completion of construction of industrial area

The assessee executed a declaration with a view to develop land for constructing an Information and Technology Park. The assessee preferred an application under section 80-IA(4)(iii) for approval of the Information Technology Park under the Industrial Park Scheme, 2008 but the same was rejected on the ground that assessee failed to obtain occupation certificate for the entire building from the competent authority.

The High Court observed that there was no legal position which prohibited grant of certificate phase wise or stage wise based on the completion of construction of areas. The High Court held that there was no other requirement which remained to be complied with and it was not for the Board to probe by whom the industrial park was going to be used, etc. and hence sent the matter back for fresh application of facts and details provided by the assessee.

Techniplex v. CBDT (2015) 118 DTR 185 (Bom.)(HC)

S. 80-IA : Industrial undertakings – Infrastructure development – Losses of assessment years before the initial assessment year already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business

The High Court following the decision of
Velayudhaswamy Spinning Mills Pvt. Ltd. v. ACIT (2010) 231 CTR 368 dismissed the appeal of the revenue and held that since the assessee had claimed the benefit of deduction u/s. 80-IA and their losses were set off already against other income of the business enterprise, the assessee fell within the parameters of section 80-IA and losses could not be notionally brought forward for set off against eligible business income.

CIT v. Sri Ranganathar Industries (P) Ltd. (2015) 118 DTR 285 (Mad.)(HC)

S. 80-IA : Industrial undertakings – Infrastructure development – Joint venture or special private venture – Entitled to deduction

Where total income of assessee includes any profit and gains from enterprises, i.e., Joint venture or special private venture, carrying on defined business of developing or operating or maintaining any infrastructure, it would be entitled to deduction under section 80-IA(4). (AY. 2005-06)

CIT v. PNC Construction Co. Ltd. (2015) 55 taxmann.com 21 / 230 Taxman 193 (All.)(HC)

S. 80-IA : Industrial undertakings – Infrastructure development – Container Freight Station (CFS) is part of inland port – Eligible for deduction

Container Freight Station (CFS) is part of inland port and, therefore, is an infrastructure facility as defined in Explanation to section 80-IA(4)(i). (AY. 2009-10)

CIT v. A. L. Logistics (P.) Ltd. (2015) 230 Taxman 194 (Mad.)(HC)

S. 80-IB : Industrial undertakings – Other than Infrastructure development – Term “employs ten or more workers in a manufacturing process” – Works Manager and supervisor who were also counted as worker

Where assessee was engaged in manufacturing of certain items and employed 10 workers including Works Manager and supervisor who were also counted as worker under section 80IB(2)(iv) in said manufacturing process, she was eligible for 80-IB deduction.(AY. 1999-2000 to 2005-06)

CIT v. Bimla Rani (Smt.) (2015)230 Taxman 629 (P&H)(HC)

S.80P : Co-operative societies – Amounts invested in banks – Interest so earned was attributable to carrying on business of banking and, therefore, it was entitled to be deducted

Assessee a co-operative society was engaged in activity of carrying on business of providing credit facilities to its members. Amount not immediately required to be lent to members was invested in banks to earn interest. This amount was in nature of profits and gains and interest so earned was attributable to carrying on business of banking and, therefore, it was entitled to be deducted in terms of section 80P(1). (AY. 2009-10)

Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (2015) 230 Taxman 309 (Karn.)(HC)

S. 92C : Transfer Pricing – Arm’s length price – Guarantee Commission – No comparison can be made between guarantees issued by commercial banks as against a corporate guarantee issued by a holding company for benefit of its AE, for computing ALP of guarantee commission

The assessee provided a corporate guarantee for repayment of borrowings made by its AE from the bank for purchase of assets and inventories, for working capital and as a term loan. The assessee had charged guarantee commission at the rate of 0.5% from its AE. The TPO found that the guarantee fee charged was at a lower rate. He came to the conclusion that the banks and companies were charging at least 3% for providing guarantees and, therefore, the arm’s length price for the guarantee given by the assessee to bank for the benefit of the AE was at 3% of the amount of guarantee. Accordingly, he made an adjustment for the differential 2.5%.

On appeal, the CIT(A) upheld the order of the TPO on the basis that the bank rate and guarantee of the relevant period was 6% whereas PLR was 10.5%, which showed that the return for bearing received was 4.5%. Therefore, the CIT(A) found that the return of 3% arrived at by the TPO was justified. Against the dismissal of appeal by the CIT(A), the assessee approached the Tribunal. The Tribunal reversed the order of the CIT(A) and deleted the adjustment.

On appeal by the Department before the High Court, the High Court upheld the order of the Tribunal on the basis that the considerations which apply for issuance of a corporate guarantee are distinct and separate from that of a bank guarantee and, accordingly, comparison cannot be made between guarantees issued by commercial banks as against corporate guarantees issued by holding companies for the benefit of its AE, a subsidiary company. (AY. 2007-08)

CIT v. Everest Kento Cylinders Ltd. (2015) 119 DTR 394 (Bom) (HC)

S. 94(7) : Loss in purchase and sale of shares – No proximate cause for disallowance – Allowable as business loss – Dividend stripping – Provision against not applicable for assessment years prior to 2002-03. [S.94(7)]

The assessee was engaged in the business of trading in stocks and shares. The Assessing Officer, for the assessment year 2001-02, disallowed the claim to deduction of expenditure/loss in the purchase and sale of units. The appellate authorities confirmed the disallowance. On appeals contending that buying and selling of units resulting in inflow of dividends but at the same time business loss on sale of the units after the record date could not be equated to the transaction in terms of section 94(7), which came into effect only from April 1, 2002:

Held, allowing the appeals, that in the case of the assessee, the assessment year was 2001-02. Therefore, section 94(7) would not be applicable, as the section had come into force only on April 1, 2002, i.e., and was not enforceable for the previous assessment year, viz., 2001-02. Thus, the assessee was entitled to claim the amount as business loss during the assessment year. Followed,
CIT v. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC) (AY. 2001-2002)

Patco Investment and Consultancy Services P. Ltd. v. ACIT (2015) 372 ITR 195 (Mad.) (HC)

S. 133 A: Survey – Income from undisclosed source – Retraction of statement – No other evidence of suppression of income – Addition of income not justified. [S.69]

Dismissing the appeal of revenue, the Court held that; while making the additions in the hands of the partner as well as in the hands of the firm, the Assessing Officer solely relied upon the statement of the partner recorded at the time of search, which subsequently came to be retracted or explained within the period of 19 days. Except the statement recorded at the time of search which was subsequently retracted, there was no other material or corroborative material with the Assessing Officer, on which, the addition of Rs. 6 lakhs in the hands of the partner and Rs. 7,00,500 cash in hand and Rs. 25,50,320 as unexplained investment in stock in the hands of the firm could be justified. Under the circumstances, the deletion of the additions was justified. (AY. 2007-08)

CIT v. M.P. Scrap Traders (2015) 372 ITR 507 (Guj.) (HC)

S. 143 : Assessment – Joint venture – Project work done by one of assessee’s constituents – Receipts for project work reflected in books of account and in return of constituent – Return accepted and assessment completed – Income cannot be taxed in hands of assessee. [S. 3]

The assessee was a joint venture. Tribunal found that the assessee did not execute the contract work and the work was done by one of its constituents, namely, SMS. The receipts for the project work were reflected in the books of account of SMS and in the return, SMS had disclosed that income. The return was accepted by the Assessing Officer in the assessment made under section 153A read with section 143(3). The Tribunal held that the same income could not have been taxed again in the hands of the assessee. On appeal:

Held, dismissing the appeal, that the assessee had filed the return of income of and claimed credit of the tax deduction at source. When a query was raised by the Assessing Officer about the receipts for the project work represented by the certificates of tax deduction at source certificate and the absence of any mention thereof in the profit and loss account of the assessee, it submitted that due to oversight and inadvertently the credit of the tax deduction at source was shown by it. It requested and sought leave to withdraw the claim of the tax deduction at source. If the tax deduction at source claim was not erroneous, the income could have been shown in the account of the assessee. If leave to withdraw was being sought with some ulterior motive, the income would have been reflected in the account of the assessee. The consideration either by the Assessing Officer or the appellate authorities did not show this position. On the other hand, the Assessing Officer had worked out income-tax at 3% of the contract value at the hands of the assessee. Such guess work would not have been essential, had the assessee actually received the amounts and those amounts would have been reflected in the books of account. The Department would have procured some material to show receipts by the assessee towards contract. There was no finding of receipt of any income by the assessee on account of the contract.

CIT v. SMSL UANRCL (JV) (2015) 372 ITR 429 (Bom.) (HC)

S. 143 : Assessment – Additions to income – Benami transactions – Statement on oath – Retraction – Addition merely on the basis of statement was held to be not justified. [Ss. 132, 132(4)]

During search conducted at assessee’s business premises, his statement was recorded under section 132(4) wherein he admitted that few benami concerns were being run by assessee in name of his employees, thereafter, during assessment proceeding, he retracted from said admission contending that it was made at mid night under pressure and coercion. Assessing Officer, however, made addition on basis of disclosure made by assessee in statement recorded under section 132(4). Tribunal deleted the addition . On appeal by revenue, dismissing the appeal the Court held that; merely on basis of admission that few benami concerns were being run by assessee could not be subjected to such addition when despite retraction revenue could not furnish any corroborative evidence in support of such admission. (AY. 1989-90 to 1991-92)

CIT v. Chandrakumar Jethmal Kochar (2015) 230 Taxman 78 (Guj.)(HC)

S. 144 : Best judgment assessment – Taxable income from business would be computed on net profit rate and not on the basis of gross profit rate

While making best judgment assessment under section 144, assessee’s taxable income from business would be computed on basis of net profit rate shown by assessee in immediate preceding year and not based on gross profit rate of said year

ITO v. Om Silk Mills (2015)230 Taxman 189 (Guj.)(HC)

S. 145 : Method of accounting – Rejection of accounts – Normal deductions allowable – Denial of deduction of salaries to partners and interest on financial charges – Not justified. [Ss. 44AD 144]

Once a provision of the nature of sub-section (2) of section 44AD was not incorporated under sections 144 and 145 the contention of the Department that once the assessment was shown under section 145, it was deemed to be comprehensive and no other deductions were permissible could not be accepted. Once it was held that even where the assessment is done under section 145 normal deductions are to be allowed, the Assessing Officer could not have denied deduction of the salaries to the partners and interest on financial charges. It was not even mentioned that the claims are not factually correct. (AY. 1994-95)

CIT v. Inter Continental Constructions (2015) 372 ITR 141 (T & AP) (HC)

S. 147 : Reassessment – Additional details sought or verification proposed to be done cannot be a substitute to reasons for re-opening. [Ss. 143(1), 148]

The assessee is a private limited company and while filing its return of income, added back an amount being book value of shares transferred as gift to its business income. The AO accepted the returned income and losses carried forward u/s. 143(1). However subsequently it issued notice u/s. 147 and provided reasons recorded for reopening but did not give an opportunity to the assessee to file its objections. The assessee produced its objections which were rejected.

The High Court observed that the revenue did not state that any income had escaped assessment and all the revenue wanted to do was verify certain details pertaining to a gift. The High Court held that merely for verification of the value of shares and whether the computation was made at market rate, etc. the revenue could not resort to section 147. (AY. 2010-11)

Nivi Trading Ltd. v. UOI (2015) 118 DTR 339 (Bom.)(HC)

S.147 : Reassessment – Transfer – Reassessment on the basis of amendment was held to be invalid. [S. 2(47)(v)]

Amendment with effect from 1-4-1988 by Finance Act, 1987 enlarging scope of word ‘transfer’ used in section 2(47)(v) was not retrospective in nature and, therefore, re-opening of assessment for assessment year 1977-78 on basis of said amendment was invalid.

Narayan Construction Co. v. ACIT (2015) 230 Taxman 316 (Guj.)(HC)

S. 147 : Reassessment – After the expiry of four years – Satisfaction of Chief Commissioner or Commissioner – No such permission was obtained before issuing notice – Change of opinion – Reassessment notice was held to be not valid. [Ss. 148, 151]

The assessment for the AY. 2006-07 was reopened. The reasons accompanied a letter dated November 25, 2013, of the Department and stated that the assessee had claimed excess cost of acquisition and income from capital gains had been underassessed. The reasons were dated February 5, 2013. On a writ petition:

  1. Held, allowing the petition, that there could be no formation of an opinion by the Commissioner to issue such a notice under section 148 on January 30, 2013, in the absence of cogent reasons, which were recorded later on February 5, 2013. The notice under section 148 was also dated February 5, 2013. A specific declaration in the notice that it was being issued after obtaining the necessary satisfaction of the Commissioner and the Chief Commissioner was scored out. Therefore, in the absence of reasons on January 30, 2013, the Commissioner could not have recorded satisfaction under section 151.

  2. That the assessment was sought to be reopened on a mere change of opinion, the change of opinion being with regard to estimation of the indexed cost of acquisition on April 1, 1981. It had been declared in the formal reasons that the justification for reassessment was to be found the view of the Income-tax Officer, Chennai. On the face of the records the Department was acting on a change of opinion. The reasons dated February 5, 2013, had been sought to be improved in the affidavit-in-opposition which was not permissible. Therefore, the reassessment was not valid. ( AY. 2006-07)

Asiatic Oxygen Ltd v. Dy. CIT (2015) 372 ITR 421 (Cal.) (HC)

S. 147 : Reassessment – Change of opinion – Notice can be sustained only on grounds mentioned in recorded reasons – Bad debts allowed in original assessment after considering material on record – Reassessment proceedings to disallow the claim as capital loss – Held to be not valid. [Ss. 36(2), 148]

Dismissing the appeal of revenue the court held that; during the original assessment proceedings itself the issue of bad debts was investigated by the Assessing Officer by raising a specific query with regard to the bad debts of Rs. 1.35 crores. Reassessment proceedings to consider the amount as a capital loss were not valid, as they were based on a mere change of opinion of the Assessing Officer. The power of reassessment is not a power to review an assessment order. At the time of passing the assessment order, it is expected of the Assessing Officer that he will apply his mind and pass an order. If the Assessing Officer had considered and formed an opinion on the material in the original assessment itself he would be powerless to start the proceedings for reassessment. (AY. 2005-06)

CIT v. Jet Speed Audio P. Ltd. (2015) 372 ITR 762 /230 Taxman 430 (Bom.) (HC)

Ss. 147 : Reassessment – Change of opinion – Depreciation – Non- compete fees – Intangible assets – Good will – Reassessment was held to be not valid. [Ss. 32, 148 ]

Where assessee’s claim of depreciation on non-compete fees was accepted by Assessing Officer in regular assessment after considering details furnished by assessee in response to queries raised by Assessing Officer, notice issued for reassessment on change of opinion was not sustainable. (AY. 2002-03)

Godrej Agrovet Ltd. v. CIT (2015) 230 Taxman 633 (Bom.)(HC)

S. 147 : Reassessment – Income from other sources Sworn statement was not furnished to the assessee before reassessment – Reassessment proceeding was quashed. [Ss. 56, 148]

Assessing Officer initiated reassessment proceedings on ground that assessee purchased certain shares out of income that escaped assessment and same was liable to tax under head ‘Income from other sources’ . However, reassessment was initiated on basis of sworn statement given by a person regarding said transaction and copy of same was not furnished to assessee before reassessment. On writ the Court held that reassessment was held to be not justified. (AY. 2009-10)

Devichand Kothari (HUF) v. ITO (2015) 230 Taxman 301 (Karn.)(HC)

S. 147 : Reassessment – Export business – Assessee supporting manufacturer – As the reassessment proceedings against manufacturer was quashed, reassessment proceedings against the assessee was also quashed. [Ss. 80HHC, 148]

Assessees were supporting manufacturer who supplied goods to ‘A’ for purpose of export. Benefits under section 80HHC was allowed to ‘A’ and also to assessees on basis of disclaimer certificate issued by ‘A’. Notice under section 148 was issued to ‘A’ for denying benefit under section 80HHC on certain ground. Reopening notice was also issued in case of assessees on ground that in absence of benefit of section 80HHC being available to ‘A’ it was not in position to issue a disclaimer certificate. However, notice issued in case of ‘A’ was set aside as being without jurisdiction. Allowing the petition the Court held that view of this fact, notices issued in case of assessees also did not survive. (AY. 2000-01)

Frigorifico Allana Ltd. v. ITO (2015) 230 Taxman 435 (Bom.)(HC)

S. 147 : Reassessment – Export business – Merger – Reassessment proceeding was quashed. [S. 80HHC]

Assessee, engaged in export of diverse commodities, claimed deduction of Rs. 5 crores under section 80HHC. Assessing Officer restricted benefit to Rs. 3.98 crores. On appeal, Commissioner (Appeals) granted certain relief which resulted in making available deduction of Rs. 4.83 crores under section 80HHC to assessee – Thereafter Assessing Officer without giving effect to order of Commissioner (Appeals) issued notice under section 148 to recompute deduction under section 80HHC on certain ground. On a writ, allowing the petition the Court held that; as assessment order would stand merged/modified in/by order passed by Commissioner (Appeals), Assessing Officer ought to have considered modified figures of deduction while applying his mind to reach prima facie view that income chargeable to tax had escaped assessment. Even otherwise since very issue which formed reason for issuing notice was a subject-matter of consideration in assessment order, impugned notice was not sustainable. (AY. 1999-2000)

Allanasons Ltd. v. ACIT (2015) 230 Taxman 436 (Bom.)(HC)

S. 158BC : Block assessment – Search and seizure –Amalgamation – Assessee-company dissolved on amalgamation – Block assessment framed thereafter in assessee’s name – Not valid – Assessment framed in name of non-existing company – Not a procedural irregularity to be cured [S. 292B, Companies Act, 391, 394]

Assessment on a company which had been dissolved by amalgamation under sections 391 and 394 of the Companies Act, 1956, was invalid. Once the assessment was framed in the name of the non-existing entity, it was not a procedural irregularity of the nature which could be cured by invoking the provisions of section 292B. (AY. 2003-04 to 2008-09)

CIT v. Micron Steels P. Ltd. (2015) 372 ITR 386 (Delhi) (HC), 117 DTR 89

S. 194C : Deduction at source – Contractors and sub-contractors Providing buses for giving pick-up and drop facilities – Rightly deducted tax at source as contractor – Payment cannot be termed as rent hence provisions of section 194-I cannot be applicable.[S. 194-I]

Assessee-company entered into contract with transporters for providing buses for giving pick-up and drop facilities to its employees. In terms of contract, possession of buses remained with transporters. Further, transporters were contractually obliged to maintain buses in proper condition and drivers and conductors were also to be provided by them. Assessee deducted tax at source under section 194C whereas revenue authorities opined that tax was to be deducted under section 194-I while making payments to transporters. On facts, agreement between assessee and transporters was not akin to taking of any ‘plant’ or ‘machinery’ on lease or any other similar arrangement and, therefore, assessee had correctly deducted tax at source under section 194C. (ITA Nos. 642 & 643 of 2012 dated 11-8-2014) (AY. 2008-09 & 2009-10)

CIT v. Bharat Electronics Ltd. (2015) 230 Taxman 651 (All.)(HC)

S. 194J : Deduction at source –Fees for professional or technical services – Doctors receiving fixed or variable remuneration, with or without written contracts, are professionals and cannot be treated as employees as per their terms and conditions

Payments were made by the assessee, a charitable trust managing a hospital, to doctors. The payments were either fixed or variable, with or without written contract. The AO alleged that such doctors were employees of the assessee and tax ought to be deducted u/s. 192 and not u/s. 194J. It was held by the HC that the terms and conditions of the doctors would be crucial and material. The doctors drawing fixed or variable remuneration could not be treated as regular employees since benefits like provident fund, retirement benefit, etc. were not paid to them. They could not be considered to be employees merely because they were required to spend a fixed time at hospital, treat fixed number of patients or attend them as indoor patients and out patients. The doctors were free to carry on their private practice but beyond hospital timings. (AY. 2008-09)

CIT v. Grant Medical Foundation (2015) 116 DTR 45 (Bom)(HC)

S.194J : Deduction at source – Fees for professional or technical services – Stockists – Assessee received amount of sale price at rate fixed under agreement but had neither paid nor credited any amount to stockist, question of invoking section 194J against assessee did not arise

Assessee-company was engaged in manufacture and distribution of drugs. It appointed one ‘Z’ as its superstockist. In terms of agreement, assessee sold its manufactured drugs to ‘Z’ for its onward distribution in open market. Assessing Officer concluded that ‘Z’ was manager of assessee and, therefore, assessee was liable to deduct tax under section 194J. Dismissing the appeal of revenue the Court held that; since assessee had received amount of sale price at rate fixed under agreement but had neither paid nor credited any amount to stockist, question of invoking section 194J against assessee did not arise. (AY. 2007-08 to 2011-12)

CIT v. Piramal Healthcare Ltd. (2015) 230 Taxman 505 (Bom.)(HC)

S. 201 : Deduction at source – Failure to deduct – Limitation – Proceedings initiated after four years from end of financial year – Barred by limitation

Initiation of the proceedings under section 201 after four years from the end of the financial year was barred by limitation. (AY. 1999-2000 to 2001-02)

CIT (TDS) v. C. J. International Hotels P. Ltd. (2015) 372 ITR 684/56 taxmann.com 458 (Delhi) (HC)

S. 254(1) : Appellate Tribunal – Orders – Action of the ITAT in disregarding its own order without reason and remanding matter to AO for fresh consideration is “arbitrary” and “failure to perform basic judicial function” and a “lapse” which should not occur again – Order of Tribunal was set aside. [S. 10A]

The issue before the Tribunal was regarding disallowance made on account of claim for deduction under section 10A of the Act. This very issue was covered in favour of the Petitioner by the decision of the Tribunal for A.Y. 2005-06 in the Petitioner’s own case. The departmental representative before the Tribunal also accepted the position. In spite of the agreed position between the parties, the Tribunal by the impugned order yet remands this very issue to the Assessing Officer for fresh examination/determination. This is without in any manner even attempting to indicate why and how its earlier decision will not apply to the facts for the subsequent assessment year. The Tribunal should not completely disregard its earlier order without some reason. This is the minimum expected of any quasi-judicial / judicial authority. If the Tribunal has failed to perform its basic judicial functions in such arbitrary manner, the approach of the Tribunal must be corrected, so as to ensure that such lapses do not occur again. (AY. 2009-10)

Hinduja Global Solution Ltd. v. UOI (Bom.)( HC); www.itatonline.org

S. 254(1): Appellate Tribunal –Natural justice – Right to cross examine is a part of the audi alteram principle – Order of Tribunal was set aside

The AO disallowed the expenses on the basis of statement of the parties who have stated that they have provided hawala bills. The assessee requested for copy of statement and opportunity for cross examination. The assessee also filed affidavit of party stating that they have rendered the services and the transaction with the assessee was genuine. AO disallowed the payment without providing an opportunity for cross examination. Order of the AO was confirmed by the CIT(A) as well as Tribunal. On appeal to High Court allowing the appeal the Court held that without providing an opportunity of cross examination to the assessee resulted into a breach of principles of natural justice hence the order of the Tribunal was set aside to the AO with the direction to provide an opportunity of cross examination and pass the order in accordance with law. (AY. 2007-08)

R. W. Promotions P. Ltd. v. ACIT (Bom)(HC) www.itatonline.org

S. 254(1) : Appellate Tribunal –Additional ground – Grounds not raised before the CIT(A) can also be raised before the Tribunal. [S. 253, Tribunal Rule, 11]

Assessee has right to raise additional ground before Tribunal and if same is beneficial to assessee, same should be considered by Tribunal even though said issue was not adjudicated before Commissioner (Appeals). (AY. 2002-03)

CIT v. Indian Bank (2015) 55 taxmann.com 372 / 230 Taxman 635 (Mad.)(HC)

S. 254(2A) : Appellate Tribunal – Stay

Third proviso cannot be interpreted to mean that extension of stay of demand should be denied beyond 365 days even when the assessee is not at fault. ITAT should make efforts to decide stay granted appeals expeditiously.

DIT v. Vodafone Essar Gujarat Limited (Guj.); www.itatonline.org

S. 260A : Appeal – High Court – Strictures passed regarding the “casual and callous” and “frivolous” manner in which senior officers of the dept authorise filing of appeals

Strictures passed regarding the “casual and callous” and “frivolous” manner in which senior officers of the dept. authorise filing of appeals. Strictures also passed against counsel for acting as a “mouthpiece” of the Dept. in persisting with unmeritorious appeals. CBDT directed to take appropriate action. (AY.1997-98)

DIT v. Credit Agricole Indosuez (No. 1) (Bom)(HC) ; www.itatonline.org

S. 263 : Commissioner – Revision of orders prejudicial to revenue – Assessing Officer raising certain queries and assessee responding – Failure to discuss or mention this in assessment order – Revision on ground Assessing Officer did not apply his mind or that he had not made inquiry on the subject– Not justified

Once inquiry was made, a mere non-discussion or non-mention thereof in the assessment order could not lead to the assumption that the Assessing Officer did not apply his mind or that he had not made inquiry on the subject and this would not justify interference by the Commissioner by issuing notice under section 263. Revision was held to be not justified. (AY. 2008-09)

CIT v. Krishna Capbox (P) Ltd. (2015) 372 ITR 310 (All) (HC)

S. 271(1)(c) : Penalty – Concealment – The rigors of penalty provisions cannot be diluted only because a small number of cases are picked up for scrutiny. No penalty can be levied unless if assessee’s conduct is “dishonest, mala fide and amounting concealment of facts”. The AO must render the “conclusive finding” that there was “active concealment” or “deliberate furnishing of inaccurate particulars”

  1. Section 271(1)(c) of the Act lays down that the penalty can be imposed if the authority is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of such income. The Apex Court in
    Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC)
    applied the test of strict interpretation. It held that the plain language of the provision shows that, in order to be covered by this provision there has to be concealment and that the assessee must have furnished inaccurate particulars. The Apex Court held that by no stretch of imagination making an incorrect claim in law, would amount to furnishing inaccurate particulars.

  2. Thus, conditions under section 271(1)(c) must exist before the penalty can be imposed. Mr. Chhotaray tried to widen the scope of the appeal by submitting that the decision of the Apex Court should be interpreted in such a manner that there is no scope of misuse especially since minuscule number of cases are picked up for scrutiny. Because small number of cases are picked up for scrutiny does not mean that rigors of the provision are diluted. Whether a particular person has concealed income or has deliberately furnished inaccurate particulars, would depend on facts of each case. In the present case we are concerned only with the finding that there has been no concealment and furnishing of incorrect particulars by the present assessee.

  3. Though the assessee had given interest free advances to its sister concerns and that it was disallowed by the Assessing Officer, the assessee had challenged the same by instituting the proceedings which were taken up to the Tribunal. The Tribunal had set aside the order of the Assessing Officer and restored the same back to the Assessing Officer. Therefore, the interpretation placed by assessee on the provisions of law, while taking the actions in question, cannot be considered to be dishonest, mala fide and amounting concealment of facts. Even the Assessing Officer in the order imposing penalty has noted that commercial expediency was not proved beyond doubt. The Assessing Officer while imposing penalty has not rendered a conclusive finding that there was an active concealment or deliberate furnishing of inaccurate particulars. These parameters had to be fulfilled before imposing penalty on the assessee.

  4. The case of Commissioner of Income Tax v. Zoom Communications P. Ltd. [2010] 327 ITR 510 (Delhi) is clearly distinguishable on facts. In that case the assessee had conceded before Assessing Officer that its action of claiming revenue deductions was not correct at all. It was not the case of the assessee therein, throughout the proceedings, that the deductions carried out by the assessee was a debatable issue. The Delhi High Court noted that even before it the assessee could not explain the circumstances and its conduct. Appeal of revenue was dismissed. (AY. 2003-04)

CIT v. Dalmia Dyechem Industries (Bom)(HC); www.itatonline.org

S. 271(1)(c) : Penalty – Concealment – Addition on estimate basis – Levy of penalty was not justified. [S. 145]

During search excess stock was found on physical verification as against book stock worked out as on date of search. Assessee did not file return of income for relevant year in which search had been conducted. Assessing Officer completed assessment for relevant assessment year on basis of materials available with him. Penalty proceedings were initiated for concealing particulars of income. Dismissing the appeal of revenue the Court held that; since no return had been filed by assessee and income was assessed on estimate basis by revenue, no penalty under section 271(1)(c) could be levied for concealment of income. T. A. No. 152 of 2005 dated 3-11-2014)

ITO v. Bombaywala Readymade Stores (2015) 230 Taxman 313 (Guj.)(HC)

S. 277A : Offences and prosecutions – Falsification of books – False TDS certificate – Tax practitioner – Refund on the basis of TDS certificates – Respondent had no role in preparing TDS certificates – ITO could not initiate criminal proceedings for commission of offences punishable under IPC. [IPC, Ss. 378(4), 418, 465, 471]

Respondent-accused, an advocate, was a tax practitioner. Main assessee, a Railway contractor, had engaged him for purpose of submission of his returns and supplied him requisite documents, including TDS certificates. Respondent filed return on behalf of main assessee and claimed a refund on basis of TDS certificates. Complainant – ITO opined that TDS certificates were not genuine and refund was wrongly claimed. He thus filed complaint against respondent-accused for commission of offences punishable under sections 418, 465, 468 and 471 of IPC. Trial Court dismissed said complaint. On appeal to High Court dismissing the appeal of revenue the Court held that; since complainant ITO had miserably failed to point out that respondent was liable for preparing false documents which were rather supplied to him by main assessee, Trial Court was justified in dismissing complaint filed against him. (AY. 1988-89)

T.D. Gandhi, ITO v. Sudesh Sharma (2015) 230 Taxman 572 (P&H)(HC)

S. 279 : Offences and prosecutions – Sanction – Chief Commissioner – Commissioner – Where the assessee had already furnished all relevant details in reply to show cause notice u/s. 142(1), revenue cannot initiate criminal prosecution u/s. 279 against the assessee for non-compliance of said notice. [S. 142(1)]

The assessee had a foreign bank account which existed with the HSBC Private Bank, Geneva, Switzerland. The peak amount lying in the account during the relevant year was around US $ 1.3 million. The account was closed in the year 2007. The notice u/s. 142(1) was issued to the assessee to furnish details of its bank accounts, in reply to which the assessee furnished the same. The Revenue authorities, however, rejected details submitted by the assessee. Thereupon, on the basis of sanction issued by the Commissioner on account of non-compliance of S. 142(1), the respondent launched criminal prosecution u/s. 279.

On a writ filed by the assessee, the High Court quashed the order passed in Criminal prosecution and remanded back the matter for disposal afresh after considering the assessee’s reply to the notice u/s. 142(1).)

Shravan Gupta v. ACIT (2015) 119 DTR 80 (Delhi) (HC)

Research Team

S. 32: Depreciation – Sale and lease back transaction – On facts the depreciation was held to be not allowable – No question of law

Assessee is said to have purchased a machinery from APSEB and leased the same to the latter itself. All the authorities below have found as a fact that there was no such purchase of machinery and the transaction in question is sham and hence disallowed the depreciation. On appeal dismissing the appeal of assessee the Court held that finding recorded by the authorities being pure finding of fact no question of law arises. (AY. 1996-97)

Avasarala Technologies Ltd v. JCIT ( 2015) 278 CTR 111/ 120 DTR 309 (SC)

S. 32 : Depreciation – Gas cylinders – Manufacturing business-Lease – Lease income is assessed as business income – Entitle depreciation

The assessee purchased Cylinders. Since the manufacturing unit had not started functioning, assessee leased out the gas cylinders to two parties to through income. The income was assessed as business income. The AO disallowed the depreciation on the ground that the Gas cylinders were not purchased for leasing business. Disallowance was confirmed by High Court. On appeal allowing the depreciation the Court held that the assessee has proved ownership of gas cylinders and use of gas cylinders for business purposes. Once these ingredients are proved, the assessee was entitled to depreciation.

K.M. Sugar Mills Ltd. v. CIT ( 2015) 278 CTR 100 (SC)

S. 37(1) : Business expenditure – Commission – Commission disallowed in the absence of sufficient proof of its payment and when agents could not have been appointed by the assessee

The assessee, a manufacturer of alcoholic beverages, claimed that it had paid commission to agents to co-ordinate with retailers and State Corporations for ensuring continuous supply of alcohol to the ultimate consumer. The HC after looking into Government circulars which prohibited liaisoning by manufacturers to obtain supply order and affidavits filed by Government agencies to the effect that no liaisoning activity was conducted by the said agent appointed by the assessee, held that commission expense incurred by the Assessee was to be disallowed. The SC upheld the order of the HC in disallowing the claim by the Assessee since sufficient documents were not filed by it to prove its claim.

McDowell & Co. Ltd. v. Dy. CIT (2015) 116 DTR 233 (SC)

S. 80HHC : Export business- Conditions under third and fourth provisos to S. 80HHC inserted by Taxation Laws (Second Amendment) Act, 2005 would not operate retrospectively and, for the period prior to that, cases of exporters having a turnover below Rs. 10 crore and those above Rs. 10 crore would be treated similarly

Amendment to S. 80HHC(3) was made by the Taxation Laws (Second Amendment) Act, 2005 with retrospective effect i.e. with effect from 1st April 1998 (AY 1998-99 onwards). By this amendment, benefit of deduction u/s. 80HHC was also extended to income taxable u/s. 28(iiid) and 28(iiie). Such benefit under the amendment was carved out for two categories of exporters, namely:

  1. Those whose export turnover was less than Rs. 10 crores during the previous year and

  2. those whose export turnover was more than Rs. 10 crores during the previous year. In so far as entitlement of these benefits to exporters having turnover of more than Rs. 10 crores was concerned, the amendment provided that deduction would be available only if the exporter had satisfied two conditions stipulated in the third and fourth proviso to the said amendment, i.e., the assessee has necessary and sufficient evidence to prove that:

    1. He had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and

    2. The rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme.

The assessee, being an exporter falling under the second category (i.e. whose exports were greater than Rs. 10 crore), filed a writ petition challenging the conditions mentioned in the third and fourth proviso to S. 80HHC(3) contending that these conditions are severable and therefore these two conditions should be declared ultra vires. The High Court decided the issue in favour of the Petitioner by concluding that the operation of the above stated conditions under third and fourth proviso to S. 80HHC could be given effect from the date of amendment and not in respect of earlier assessment years on the basis that, the retrospective amendment should not be detrimental to any of the assessees having an export turnover of more than Rs. 10 crore and whose assessments were still pending. On a Special Leave Petition filed by the Department, the Supreme Court concurred with the judgment given by the High Court, and gave a direction that conditions stipulated in the third and fourth proviso to S. 80HHC would not operate retrospectively and cases of exporters having a turnover below Rs. 10 crore and those above Rs. 10 crore would be treated similarly during the period prior to the amendment (i.e. 1st April 2005).

CIT v. Avani Export (2015) 119 DTR 352 (SC)

S. 194I: Deduction at source – Rent – In deciding whether a payment is for “use of land”, the substance of the transaction has to be seen. If the payment is for a variety of services and the use of land is minor, the payment cannot be treated as “rent ” [S.194C, 201(1))

The Supreme Court had to consider the conflict of judicial opinion between the Delhi High Court in
CIT v. Japan Airlines Co (2010) 325 ITR 298 (Del.) and that of the Madras High Court in CIT v. Singapore Airlines Ltd. (2013) 358 ITR 237 (Mad.)
on the question whether landing/ parking charges paid by an airline company to the AAI were payments for a contract of work under Section 194-C and not in the nature of ‘rent’ as defined in Section 194-I. The Delhi High Court decided the issue in favour of the department following its earlier decision in the case of United Airlines v. CIT (2006) 287 ITR 281. It took the view that the term ‘rent’ as defined in Section 194-I had a wider meaning than ‘rent’ in the common parlance as it included any agreement or arrangement for use of land. The High Court further observed that the use of land began when the wheels of an aircraft touched the surface of the airfield and similarly, there was use of land when the aircraft was parked at the airport. However, the Madras High Court dissented from the view of the Delhi High Court. HELD by the Supreme Court reversing the Delhi High Court and affirming the Madras High Court:

  1. From the reading of section 194-I, it becomes clear that TDS is to be made on the ‘rent’. The expression ‘rent’ is given much wider meaning under this provision than what is normally known in common parlance. In the first instance, it means any payment which is made under any lease, sub-lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as ‘rent’. In the second place, such a payment made even under any other ‘agreement or arrangement for the use of any land or any building’ would also be treated as ‘rent’. Whether or not such building is owned by the payee is not relevant. The expressions ‘any payment’, by whatever name called and ‘any other agreement or arrangement’ have the widest import. Likewise, payment made for the ‘use of any land or any building’ widens the scope of the proviso;

  2. The charges which are fixed by the AAI for landing and take-off services as well as for parking of aircrafts are not for the ‘use of the land’. That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges are for services and facilites offered in connection with the aircraft operation at the airport. There are various international protocols which mandate all such authorities manning and managing these airports to construct the airports of desired standards which are stipulated in the protocols. The services which are required to be provided by these authorities, like AAI, are aimed at passengers’ safety as well as on safe landing and parking of the aircrafts. Therefore, it is not mere ‘use of the land’. On the contrary, it is the facilities, that are to be compulsorily offered by the AAI in tune with the requirements of the Protocol, which is the primary focus;

  3. When the airlines pay for these charges, treating such charges as charges for ‘use of
    land’ would be adopting a totally naïve and simplistic approach which is far away from the reality. The substance behind such charges must be kept in mind. When matter is looked into from this angle, keeping in view the full and larger picture in mind, it becomes very clear that the charges are not for use of land per se and, therefore, it cannot be treated as ‘rent’ within the meaning of Section 194-I of the Act;

  4. However, the reason given by the Madras High Court that the words ‘any other agreement or arrangement for the use of any land or any building’ have to be read ejusdem generis and it should take its colour from the earlier portion of the definition namely “lease, sub-lease and tenancy” and to thereby, limit the ambit of words ‘any other agreement or arrangement’ is clearly fallacious. A bare reading of the definition of ‘rent’ contained in explanation to Section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy which is to be treated as ‘rent’. That is rent in traditional sense. However, second part is independent of the first part which gives much wider scope to the term ‘rent’. As per this whenever payment is made for use of any land or any building by any other agreement or arrangement, that is also to be treated as ‘rent’. Once such a payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent a very wide connotation. To that extent, High Court of Delhi appears to be correct that the scope of definition of rent under this definition is very wide and not limited to what is understood as rent in common parlance. It is a different matter that the High Court of Delhi did not apply this definition correctly to the present case as it failed to notice that in substance the charges paid by these airlines are not for ‘use of land’ but for other facilities and services wherein use of the land was only minor and insignificant aspect. Thus it did not correctly appreciate the nature of charges that are paid by the airlines for landing and parking charges which is not, in substance, for use of land but for various other facilities extended by the AAI to the airlines. Use of land, in the process, becomes incidental. Once it is held that these charges are not covered by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act. (AY. 1997-98 to 1999-2000 )

Japan Airlines Co. Ltd. v. CIT (SC) ; www.itatonline.org

S. 260A : Appeal – High Court – Small tax effect – Matter has a cascading effect – Circular dated 9th February 2011, should not be applied ipso facto – Liberty is given the department to move High Court

Allowing the appeal of Revenue the Court held that; where the matter has a cascading effect, there are cases in which common principle may be involved in subsequent group matters or large number of matters, in such cases attention of High Court has to be drawn. Circular dated 9th Feb, 2011, should not be applied ipso facto. Liberty is given the department to move High Court.

CIT v. Century Park (2015) 278 CTR 110/120 DTR 308 (SC)

S. 261: Appeal – Supreme Court – Small tax effect – Appeal was dismissed solely on the ground that the tax effect thereof is Rs. 4,22,830/- [S. 260A, 268A]

Appeal filed by the assessee was not entertained and is dismissed solely on the ground that the tax effect is Rs. 422, 830/ only.

Alexander George v. CIT (2015) 278 CTR 112/ 120 DTR 310 (SC)

Levy of service tax on Advocates – Constitutional validity – Operation and implementation of Bombay High Court Judgement is stayed

Bombay High Court in P.C. Joshi and Others v. UOI (2015) 273 CTR 113/113 DTR 41 (Bom) (HC) has held that levy of Service tax on Lawyers is Constitutionally valid. In SLP against the said order, Supreme Court in its Interim order stayed the operation and implementation of the said order by observing.”

“Until further orders, there shall be interim stay of the operation and implementation of the impugned final order and judgment passed by the High Court of Judicature at Bombay in WP (L) No. 1764 of 2011, dated 15-12-2014.”

Bombay Bar Association v. UOI – SLP No. 13944 of 2015, dt. 10/8/2015 (SC)

Research Team

My beloved Members,

I. Parliament session not prorogued, Government hopeful of Gst

The Govt. has said that it was still hopeful of rolling out the new Goods & Services Tax (GST) law from April 1, 2016. It has decided not to prorogue Parliament but to retain the option of ‘continuing’ the session to pass the Constitution (One Hundred and Twenty Second) Amendment Bill. “I will not expose the Government strategy. But we are determined to meet the deadline (of April, 2016)”, FM Jaitley said.

2. Meantime, 30,000 signatures have been put on online petition by the trade and industry organisations including eminent industrialists. It is the general serious concern of trade and industry that the ruling NDA and Opposition should co-operate to herald the key tax reform of goods and services tax. Both sides have been guilty – the NDA, when the UPA had been in office, and now – of stalling the reform for reasons unrelated to the reform itself. Right now, the Congress’ objection is not to GST but to three elements of the Bill: the wholly undesirable, cascading, 1% tax on inter-State sales, absence of a cap on the combined Central plus State GST rate, and leaving parties to the dispute to resolve the GST disputes. What is the problem in addressing these objections ?

3. And, are our political parties serious about GST? The tax creates multiple audit trails to income generation that goes totally undetected at present and finances much of politics. There is no sign of any effort to change how politics is funded. Can we, then, have GST? This is the million dollar question which the lawmakers are required to answer to the experts in this field of taxation.

II. Nationalised Banks get infusion of capital

India has unveiled a seven-step revamp plan to shake up its struggling State-run banks including a Rs. 20,000 crore capital infusion within a months time besides hiring private sector executives for the first time to run public sector banks. A new umbrella structure under the ‘Bank Board Bureau’ will guide policy, functioning and appointments. The lender banks have been assured by the Government that it would not interfere in their functioning.

Who gets how much Rs.

Sl. No. Name of Bank Amount Rs. (in crores)
1 State Bank of India 5,531
2 Bank of India 2,455
3 I.D.B.I. Bank 2,229
4 Bank of Baroda 1,786
5 Punjab National Bank 1,732
6 Canara Bank 947
7 Indian Overseas Bank 2,009
8 Union Bank of India 1,080
9 Corporation Bank 857
10 Andhra Bank 378
11 Bank of Maharashtra 394
12 Allahabad Bank 283
13 Dena Bank 407

2. In the above context of infusion of capital, Mr. Jaitley said:
“Government was reviewing PSBs’ health from time to time and believes there is no cause for panic since issues are capable of being fixed.”

3. In contrast, there is news from CAG report that about Rs. 5.75 lakh crores revenue is not recoverable which is about 95% of the outstanding dues. CAG also criticised Income Tax Dept. as well as Income Tax Settlement Commission for this sordid affairs. In 2013-14, the arrears went by 18% and the outstandings rose upto Rs. 5.75 lakh crores. Out of the above arrears Rs. 2.18 lakh crores are pending in various cases with the Settlement Commission. And 1.80 lac crores are pending in various courts in appeals, etc. As per TOI news dated 17-8-2015, the IT Dept. has discovered unaccounted income of over Rs. 300 crores, including large seizure of cash and jewellery, during the raids conducted on the Chettinad Group two months ago. The Tax Dept. alleges that the money is linked to businessman MAMR Muthiah. This backdrop scenario clearly indicates that the taxes collected are not really spent for welfare projects meant for the society in general. The banks capital infusion as mentioned above is to clear the backlog towards large amounts of NPAs accumulated over number of years during which periods no sustained action was taken by the nationalised banks themselves. Regrettably, even the Government did not think it wise to order fixing responsibility of the banks for the NPAs. This policy decision is a specimen of how treasury money is spent by each successive Government without any accountability.

With best wishes and regards,

J.D. Nankani
National President

Tribute to the People’s President

Avul Pakir Jainulabdeen Abdul Kalam
(October 15, 1931 – July 27, 2015)

The Editorial Board of AIFTP with deepest respect and honour pays its tribute to Bharat Ratna Dr. A. P. J. Abdul Kalam, who passed away on 27th July, 2015 at the age of 84 years.

Popularly called the “Missile Man” of India, Dr. A. P. J. Abdul Kalam rose from humble beginnings and earned the reputation of being the most admired
“People’s President” who endeared himself to all sections of society, especially the youth.

We present a brief illuminating life sketch of Dr. Kalam to enable us to appreciate and keep record of his great missionary but highly professionally skilled contribution in making our country a super nuclear power by world standards. We have tapped herein various press media sources as well as from the books written by him to ignite the minds of the young generation.

The son of a boat owner, he assumed office as the 11th President on July 18, 2002 and was seen as a figurehead who could help heal some of the scars of the communal riots which broke out in Gujarat just a few months before.

Dr. A. P. J. Kalam, who received several prestigious awards including the Bharat Ratna played a crucial role when India tested its nuclear weapons at Pokhran in 1998 when the Vajpayee Government was in office. A vegetarian and a bachelor, Kalam was quoted as saying that like most of the technology sectors he spearheaded, he himself was “Made in India”, having never been trained abroad.

Gracious in both life and death

There were many faces behind the missile man of India – A prolific poet, sensitive human being, a patriot who always thought that unless my motherland becomes a nuclear nation, it would not enjoy the respect in the league of nations. He was known to play with kids at the Rashtrapati Bhavan.

Bharat Ratna Dr. A. P. J. Abdul Kalam brought about the blue revolution by heading the integrated guided missile development programme, but very few know that he used to play
‘Rudraveena’ with ease. In one of his poems (in Tamil) Kalam refers to the Agni missile, the ICBM intercontinental ballistic missile which has a range of 2,500 miles, as his son and writes,:
“My parents were sad when I decided against marriage, they were worried as their family name would not be continued, but today when Agni has hit the target of 2,500 km in sea, I am remembered. If they would have been alive, they would have been so happy to see that their grandson ‘Agni’ is so powerful.”

Kalam’s family along with his grandchildren once visited the Rashtrapati Bhavan. Interestingly, Kalam did not use the kitchen and ordered food. He did not bill anything to Rashtrapati Bhavan’s accounts.

“We have often asked ourselves and others why India in its several thousands years of history has rarely tried to expand its territories or to assume a dominant role. Many of the experts and others with whom we had dialogue referred to some special features in the Indian psyche which could partly explain their greater tolerance, less discipline, the lack of sense of retaliation, more flexibility in accepting outsiders, greater adherence to hierarchy and emphasis on personal safety over adventure.” This is what Dr. A. P. J. Abdul Kalam, with co-author Y. S. Rajan wrote in the famous book
‘India Vision 2020’. A vision for the ‘New Millennium’ (1998) – Kalam has raised this profound issue that sourced our national confusion over a couple of thousand years since Ashoka became the role model of India by giving up war altogether. Kalam is being profiled by his millions of admirers as a People’s President, teacher, scientist, visionary, thinker and patriot. He is certainly all these and more. He had bombs and missiles on the one hand with Veena and Gita on the other. The huge bandwidth of the man brings out the complete philosopher-nationalist that he was. He can be deeply noticed and appreciated at greater length in his books, namely,
Wings of Fire, Turning Points, A. P. J. Abdul Kalam, Target 3 Billion, Guiding Souls and Envisioning an Empowered Nation.

When he spoke, he shone – few shining gems

  • Black colour is sentimentally bad. Every blackboard makes students lives bright.

  • You cannot change your future, but you can change your habits. Surely habits will change your future.

  • Look at the sky. We are not alone. The whole universe is friendly to us and conspires only to give the best to those who dream and work.

  • No matter what is the environment around you it is always possible to maintain your brand of integrity.

  • The best brains of the nation may be found on the last benches of the classrooms.

  • You have to dream, dream again before your dreams can come true.

  • Excellence is a continuous process and not an accident.

  • Dream is not that which you see while sleeping, it is something that does not let you sleep.

  • Be more dedicated to making solid achievements than in running after swift but synthetic happiness.

  • All birds find shelter during rain. But eagle avoids rain by flying above the clouds.

  • If our country is to become corruption free and a nation of beautiful minds, I strongly feel there are three key societal members who can make a difference. They are the father, the mother and the teacher.

International and National leaders paid tributes to Dr. Kalam

  • Russian President Vladmir Putin in a condolence message said that former Indian President A. P. J. Abdul Kalam, terming him an
    “Outstanding scientist and wise Statesman.”

  • Scientist of the world: China. The Chinese academic community paid rich tribute to India’s ‘Missile Man’ saying “he was not simply scientist of India, but of the entire world.”

  • Irreparable loss
    Bangladesh Prime Minister Sheikh Hasina described Kalam as
    “a rare combination of great Statesman, acclaimed scientist and a source of inspiration to the young generation of South Asia and said his death is an irreparable loss to India and beyond”.

  • President of India Hon’ble Pranab Mukerjee
    “In Kalam’s passing away, we have lost a great son of India who dedicated his entire life for the welfare of the motherland and its people. Dr. Kalam was a People’s President during his lifetime and will remain so even after his death. Kalam will be remembered for his passion for science and innovations and his contributions as an eminent scientist, administrator, educationist and writer. His achievements as leader of India’s defence research vastly enhanced the safety and security of the nation.”

  • Prime Minister Hon’ble Narendra Modi
    “He was a great scientist who contributed immensely to the fields of science and technology and space. I have lost a marga darshak. He was a source of inspiration for the whole country, particularly the youth. Even in his last days, he remained connected.”

  • A. S. Kiran Kumar, ISRO Chairman
    “It is a terrible loss to the country. He wanted an update on the GSLV MK-III (Project, an earlier version of which he headed) and was very happy with the progress.”

  • N. R. Narayana Murthy:
    “President Kalam was a true patriot and a Statesman. As a President, he connected with and inspired so many people, particularly youngsters. At a personal level he was a very simple, kind and genuine man – a great role model.”

  • Eminent Scientist Dr. Raghunath Mashelkar
    “I remember addressing the gathering, which was chaired by Dr. Kalam. While beginning the lecture, I addressed him as ‘Mr. Technology of India’. I went on to dwell on the theme of India’s big challenge in the coming years as we opened up. My penchant for patents was well known then. I referred to this issue of ‘patent literacy’ and said as to how this illiteracy had to be removed in order for India to face stiff global competition. After the lecture, there was a lunch. Dr. Kalam came to me and said “Mashelkar, you have address me as “Mr. Technology of India”. You also talked about patent literacy movement. But, can I tell you that your ‘Mr. Technology of India’ is also “Mr. Patent Illiterate of India !”
    What a great person he was!

  • A.M. Naik, L&T Chairman
    “We at L&T are proud to have been closely associated with him. On a personal note, I was very honoured that Dr. Kalam came to Mumbai a couple of months ago and handed me a unique memento on my completing 50 years in L&T. The nation will remember Dr. Kalam as one of India’s finest Presidents.”

From Brahmos to poetry, Kalam’s legacy lives on

The Brahmos, largely Kalam’s brain child, continues to shine forth as pillar of special and privileged strategic partnership between India and Russia. Therefore, he will always have a special pride of place in Russia. The first launch of Brahmos in 2001 turned into a giant step in India-Russia strategic co-operation, heralding a new stage in mass production of this supersonic missile for the army, navy, aircraft carriers and submarines of both countries. He was awarded an honour to be a Honorary Professorship of Moscow State University.

In 2002, on a visit to Russia, President Kalam was emotionally moved while visiting the Tomb of the ‘Unknown Soldier’ at the Red Square in Moscow, and instantly on the spot he penned a poem in the memory of Soviet soldiers who had sacrificed their lives in World War-II. The poem read as follows:

“Life is a phoenix, can rise from the ashes

Presents a future at challenging situations

This altar of ashes is a fountain of new life

War was trusted, martyrdom shined

Memories of soldiers ignite duties of life

Phoenix is a metaphor of life in its action

Ashes remind us to celebrate greatness of those lives.”

In a unique gesture, President Kalam presented the poem to President Putin during the banquet hosted in his honour at the Kremlin. This was the quintessential Dr. Kalam, brimming with great love and respect for Russia.

“Can India become a great power?”

The Economist magazine (March 30, 2013) in its cover story asking “Can India become a great power?” answered it at the end of its editorial:
That India can become a great power is not in doubt. The real question is whether it wants to be. This is what the nationalist-philosopher Dr. A. P. J. Abdul Kalam wanted this nation of 1.25 billion to say in one voice: “Yes we want to be!” Instituting an in-depth study of our history to learn and internalise the lessons from it is the greatest tribute to this great man. We are confident that the nation hereafter will walk on the path shown by its great leader of the century and he will be the role model for the entire country in the years ahead!

With this we pay and record our humble tribute to Dr. A. P. J. Abdul Kalam!

Dr. K. Shivaram
From the Editorial Board