DIRECT TAXES – Supreme Court

  1. S. 56 : Income from other sources – Capital or revenue – Amount received for relinquishing secretaryship of educational society cannot be treated as a capital receipt – Assessable as income from other sources.
    [S.4, 45]

    Amount received by assessee for relinquishing secretaryship of educational society cannot be treated as a capital receipt. The question of the principle of capital asset being invoked does not arise. The receipt is assessable as income from other sources. It may have been a different matter if it was a case of life time appointment of the assessee as Secretary of the concerned Institution but no such evidence was produced by the assessee. (BP 1-4-1990 – 14-7-2000)
    (CA 8594/2010, dt. 21.11.2019)

    H. S. Ramchandra Rao v. CIT (SC) www.itatonline.org

    Editorial : Order in CIT v. Ramachandra Rao (2011)330 ITR 322 (Karn ) (HC) is affirmed)

  2. S. 68 : Cash credits – Bogus share capital – Ex parte order – Recall of ex-parte order – A power of attorney holder is an agent and Principal Officer u/s. 2(35) – If a Chartered Accountant is granted a Power of Attorney holder service upon him of a notice is valid – If a notice is duly served upon the litigant through its authorized representative, and it was provided sufficient opportunity to appear before the Court and contest the matter but the litigant chooses to let the matter proceed ex parte, the order cannot be recalled. [S. 2(35) 261, 262, Art. 136]

    Application was filed for re-call of the judgement dt. 5-3-2019 in C.A. No. 2463 od 2019 PCIT v. NRA Iron & Steel Pvt. Ltd. (2019) 412 ITR 161 (SC) on the ground that the applicant company was not served with the Notice of SLP at the registered office of the company, nor was a copy of the SLP served on the applicant company. The applicant learnt the judgement dated 5-3-2019 passed by the Court from a news clipping published in the Economic Times on 7-3-2019 and the application for re -call was filed on 12-3-2019. The applicant on inspection found that the affidavit of service by the Revenue department on 19-12-2018 showed an acknowledgement receipt by Mr Sanjeeva Narayan the Chartered Accountant of the appellant company on 13-12-2018. Chartered Accountant affirmed the receipt of the service however due to health not handed over the copy to the applicant. In an affidavit filed by the revenue it was brought to the notice of the Court that Mr. Sanjeev Narayan has appeared before the tax authorities even after surgery. Court held that Mr. Sanjeev Narayan admittedly being the power of Attorney holder of the Applicant, NRA Iron & Steel Pvt. Ltd. for the AY. 2009-10, was the agent of the assessee and hence and hence notice could be served on him as the agent of the assessee-company. Court also observed that Mr. Narayan appeared before the Income-tax authorities to represent the applicant company and its sister concerns on various dates prior to his surgery i.e. on 14-12-2018, 21-12-2018, 28-12-2018 and 29-12-2018. Court also held that a Power of Attorney holder is an agent and Principal Officer u/s. 2(35). If a Chartered Accountant is granted a Power of Attorney holder, service upon him of a notice is valid. Accordingly the Court held that the applicant company having failed to make out any credible or cogent ground for Re-call of the judgement dt 5-3-2019, the application for recall is dismissed. (CA No. 2463 of 2019, dt. 25-10-2019).

    PCIT v. NRA Iron & Steel Pvt. Ltd. (2019) 311 CTR 263 / 183 DTR 60 (SC) www.itatonline.org

  3. S. 69 : Unexplained investments – Bogus purchases – Assessemnt – Addition cannot be made without providing a copy of the statements and opportunity of cross Examination – Initial burden is discharged by the assessee by producing various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their income-tax return. [S.68, 143(3)]

    Dismissing the review petition on merits the Court held that disallowance cannot be made solely on third party information without subjecting it to further scrutiny. The assessee has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their income -tax return. The AO has also not provided a copy of the statements to the assessee, thus denying it opportunity of cross examination. (RP No. 22394 of 2019 in CA Nos. 9604-9605 of 2018, dt. 21-8-2019)

    CIT v. Odeon Builders Pvt. Ltd. (2019) 311 CTR 258/ 183 DTR 25 (SC) www.itatonline.org

  4. S. 143(2) : Assessment – Notice –Mere mentioning of new address in the return of income is not enough. If change of address is not specifically intimated to the AO, he is justified in sending the notice at the address mentioned in PAN database – If the notice is sent within the period prescribed in s. 143(2), actual service of the notice upon the assessee is immaterial – CIT(A) is directed to decide the appeal on merits. [S.250, 282, 292BB]

    The assessee participated in the assessment proceedings. However, the assessee challenged the notice under sections 143(2) and 142(1) of the Act on the ground that the said notrices were not served upon the assessee as the assessee company never received those notrices and subsequent notices served and received by the company were beyond the period of limitation prescribed under proviso to S.143 of the Act. The AO has not accepted the contention of the assessee. On appeal the CIT(A) held that the order is bad in law, however the appeal was not decided on merits as regards the merits of the addition. Order of CIT(A) is affirmed by the Tribunal and High Court. On appeal by the revenue allowing the appeal the Court held that mere mentioning of new address in the return of income is not enough. If change of address is not specifically intimated to the AO, he is justified in sending the notice at the address mentioned in PAN database. If the notice is sent within the period prescribed in S. 143(2), actual service of the notice upon the assessee is immaterial. Order of High Court and Tribunal is set aside and CIT (A) is directed to decide the appeal on merits on other grounds. (AY. 2006-07) (CA No. 8132 of 2019, dt. 18-10-2019)

    PCIT v. Iven Interactive Ltd. (2019) 311 CTR 165 /182 DTR 473 (SC), www.itatonline.org

    Editorial : Order in PCIT v. Iven Interactive Ltd. (Bom) (HC), (ITA No. 94 of 2016 dt. 27-6-2018) is set aside.

  5. S. 143(3): Assessment – Undisclosed income – Admission by a letter without prejudice offer cannot be treated as admission of non-disclosure or as an unconditional offer to pay tax. Also, the disclosure is by the USA Co. and not by the assessee – It is not the case of the Dept. that the amount has been received in the accounts of the assessee or spent for and on behalf of the assessee so as to be treated as undisclosed income of the assessee. [S.69]

    Question raised before the High Court was “whether the Income tax Appellate Tribunal was correct in law deleting the undisclosed income of the assessee as recorded by the Securities and Exchange Commission in USA ?”

    High Court reversed the order of the Tribunal placing reliance on two letters written by the assessee and assumed that it was in the form of admission of non-disclosure and an offer was given by the assessee to pay tax and penalty as the case may be. Reversing the order of the High Court the Supreme Court held that a letter written in refutal of allegations contained in a news item without prejudice offer cannot be treated as admission of non-disclosure or as an unconditional offer to pay tax. Also, the disclosure is by the USA Co. and not by the assessee. It is not the case of the Dept. that the amount has been received in the accounts of the assessee or spent for and on behalf of the assessee so as to be treated as undisclosed income of the assessee. (Note : Order in CIT v. Goodyera India Ltd. (Delhi) (HC) (ITA No. 223 of 2005 dt. 28-4-2008) is set aside. (CA Nos. 7703-7707 of 2012, dt. 16-10-2019)

    Goodyear India Ltd. v. CIT (2019) 311 CTR 260/ 183 DTR 57 (SC), www.itatonline.org

  6. S. 246A : Appeal – Commissioner (Appeals) – Appealable orders –Denial of liability – Not confined only to the lability to be assessed u/s 143(3) of the Act- Liability to pay tax u/s 115Q is also appealable order – Alternative remedy is available – Writ is not maintainable. [S. 15QA, 143(3), Art. 226]

    The expression “denies his liability to be assessed” in S. 246A takes within its fold every case where the assessee denies his liability to be assessed under the Act. It is not confined to the liability to be assessed u/s. 143(3) but applies also to the liability to pay tax u/s. 115QA. If there is adequate appellate remedy, a Writ Petition under Article 226 cannot be entertained. Order of High Court is affirmed. (CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) & CIT v. Chhabil Dass Agarwal ( 2013) 357 ITR 357 (SC) followed). (CA No. 8945 of 2019 @ SLP(C) No. 20728 of 2019, dt. 22-11-2019)

    Genpact India Private Ltd v. DCIT (2019) 111 taxmann.com 402 (SC), www.itatonline.org

    Editorial: Order in Genpact India Private Ltd v. DCIT ( 2019) 108 taxann.com 340 (Delhi) (HC) is affirmed.

  7. S. 260A : Appeal – High Court – Delay of 1,754 days – No knowledge of passing of order which was stated in the affidavit – Contents of the affidavit was not disputed by the respondent – Delay was condoned – Matters are restored to the file of High Court to decide the appeals on merit in accordance with law.

    The appeal of the assessee was delayed by 1,754 days before the High Court against the order of the Appellate Tribunal. In the application for condonation of delay the assessee stated that they had no knowledge of passing the order dated 29-12-2003, until they were confronted with the auction notices in June 2008 issued by the competent authority fixing auction of the properties of the appellant. First time orders of the Tribunal was filed on 24-7-2008 by the revenue. Appellant has filed the appeal along with condonation delay on 24-10-2018. The application was supported by the affidavit. Condonation of delay was dismissed by the High Court. Allowing the appeal the Apex Court held that stand of the applicant in the affidavit that they had no knowledge about the passing of the order is not expressly refuted by the respondent, the question of disbelieving the stand of the applicant cannot arise. For this reason, indulgence should be shown to the applicant by condoning the delay. Accordingly the delay was condoned and the appeals were restored to the file of High Court to decide in accordance with law. (CA Nos. 6671-6676 of 2010, dt. 7-11-2019)

    Senior Bhosale Estate (HUF) v. ACIT (SC), www.itatonline.org

  8. S. 260A : Appeal – High Court – Tribunal order passed after High Court remanded the matter – Remedy against that order is by filing an appeal under S. 260A and not by way of SLP to Supreme Court. [S. 10A(6), 260A, 261]

    The Tribunal held that assessee was not entitled to the benefits of section 10A(6) of the Act for three AYs. The High Court noted that assessee had not claimed any deduction in these years and remanded the matter to the Tribunal. Subsequently the Tribunal passed final order. Remedy of the assessee lay in filing an appeal under S.260A of the Act to the High Court. Thus, Supreme Court held that it could not interfere with the order of the High Court. (SLP (C) No. 26334 of 2017 dt. 22-4-2019) (AYs. 1993-94 to 1995-96)

    CIT v. Phoenix Lamps Ltd (2019) 179 DTR 121 / 263 Taxman 338 (SC)

  9. S. 260A : Appeal – High Court – Delay in filing appeal on account of difference in opinion between two officers and the time taken in obtaining legal opinion was condoned on payment of cost.

    The Supreme Court condoned the delay in filing appeal which delay was on account of difference in opinion between two officers and the time taken in obtaining legal opinion. (CA No. 863 of 2019; dt. 14-1-2019)

    CIT (E) v. Progressive Education Society (2019) 308 CTR 198 (SC)

  10. Interpretation – Precedent – Recalled order cannot be relied upon as precedent.

    Court held that since the relief upon order had already been recalled, fresh decision made on its basis flawed. Accordingly the order is set aside and matter remanded to CESAT CA No. 10950 of 2017 dt. 1-8-2019

    CIT of CX. CUS & S. T. v. Bakelite Hylam Ltd. (2019) (27) G.S.T.L. 641 (SC)

    Interpretation – Allied law

  11. No estoppel against law – Concession in law which is contrary to the statutory rules is not binding on the litigant.

    A concession given by Counsel, if it is a concession in law and contrary to the statutory rules, is not binding on the litigant for the reason that there cannot be any estoppel against law (see also Himalayan Co-operative Group Housing Society v. Balwan Singh (2015) 7 SCC 373 Bharat Heavy Electricals Ltd v. Mahendra Prasad Jakhmola & V. Ramesh v. ACIT (Mad) (HC) (CA No. 7577 of 2019 dt. 26-9-2019)

    Directorate of Elementary Education v. Pramod Kumar Sahoo. (SC), www.itatonline.org

    Contempt of Courts Act, 1971

  12. S.2(a):Contempt of court – Advocate – Held to be proper – Judicial independence and courage to be shown while delivering the justice. [S. 12]

    Dismissing the petition in respect of contempt proceedings against an Advocate the Court held that debarment from entering court premises / debarment from making appearances in addition to, or in substitution of imprisonment and fine under the Contempt of Courts Act is held to be valid. Followed Mahipal Singh Rana v. State of U.P (2016) 8 SCC 335. Court also observed that in the instant case the advocate has acted contrary to the obligations. He has set a bad example before others while destroying the dignity of the court and the judge. The action has the effect of weakening of confidence of the people on courts. The judiciary is one of the main pillars of democracy and is essential to peaceful and orderly development of society. The Judges have to deliver justice in a fearless and impartial manner. He cannot be intimidated in any manner or insulted by hurling abuses. Judges are not fearful saints. They have to be fearless preachers so as to preserve the independence of the judiciary which is absolutely necessary for survival of democracy.

    Rajesh Tiwari, Advocate v. Alok Pandey, Chief Judicial Magistrate (2019) 6 SCC 465

    West Bengal Sales Tax Act, 1994 -Service tax – Finance Act 1994.

  13. S.2(30): Club – Mutuality – A club registered as a ‘company’ u/s. 25 of Companies Act is not like other companies as it has no shareholders, no dividends declared, and no distribution of profits takes place. Such clubs cannot be treated as separate in law from their members – when a club supplies goods to its members, there is no “sale” and sales-tax cannot be levied – From 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on members’ clubs in the incorporated form. [S. 2(5), 2(10) 2(30), Constitution of India, Art. 366 (29-A), 367, Contract Act, 1872, S. 2(d), Companies Act, 1956, S. 25(1)(b), Income-tax, 1961, S. 2(24)(vii), 2(31), 44, 45, Indian Contract Act 1872, S.2(d), General Clauses Act, 3 (42), Finance Act, 1994, S. 65 (105) (zze), 65B (37), 66B, 66D 68]

This Appeal arises out of a reference order by a Division Bench of this Court, in State of West Bengal v. Calcutta Club Limited (2017) 5 SCC 356. Three questions to be answered by a larger Bench as follows: “(i) Whether the doctrine of mutuality is still applicable to incorporated clubs or any club after the 46th Amendment to Article 366 (29-A) of the Constitution of India? 30.2. (ii) Whether the judgment of this Court in Young Mens Indian Assn. [CTO v. Young Mens Indian Assn., (1970) 1 SCC 462] still holds the field even after the 46th Amendment of the Constitution of India; and whether the decisions in Cosmopolitan Club [Cosmopolitan Club v. State of T.N., (2017) 5 SCC 635 : (2009) 19 VST 456 (SC)] and Fateh Maidan Club [Fateh Maidan Club v. CTO, (2017) 5 SCC 638 : (2008) 12 VST 598 (SC)] which remitted the matter applying the doctrine of mutuality after the Constitutional amendment can be treated to be stating the correct principle of law? 30.3. (iii) Whether the 46th Amendment to the Constitution, by deeming fiction provides that provision of food and beverages by the incorporated clubs to its permanent members constitute sale thereby holding the same to be liable to sales tax?”

After considering various case laws the Court held that a club registered as a ‘company’ u/s. 25 of Companies Act is not like other companies as it has no shareholders, no dividends declared, and no distribution of profits takes place. Such clubs cannot be treated as separate in law from their members. The ratio decidendi in Bacha F. Guzdar v. CIT (1955) 27 ITR 1 does not apply to such clubs. When a club supplies goods to its members, there is no “sale” and sales-tax cannot be levied (Bangalore Club v. CIT (2013) 350 ITR 509 (SC), ITO v. Venkatesh Premises Co-operative Society Ltd. (2018) 402 ITR 670 (SC) Court also held that from 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on members’ clubs in the incorporated form. The appeals of the Revenue are, therefore dismissed. WP (C) No. 321 of 2017 is allowed in terms of prayer (i) therein. Consequently, show-cause notices, demand notices and other action taken to levy and collect service tax from incorporated members’ clubs are declared to be void and of no effect in law. ( CA No. 4184 of 2009, dt.03-10-2019)

State of West Bengal v. Calcutta Club Ltd. (2019) 182 DTR 409/ 311 CTR 121/ 2019 (29 ) G.S.T.L 545 (SC).www.itatonline.org

Comments are closed.