Query 1

Nature of Tax for intermediary service.

We find that there is burning controversy about nature of supply under GST Act for intermediary services, when recipient is out of India. What is the correct position, whether tax payable as intra-state or inter-state?

Reply :-

Deciding place of supply is required for deciding nature of supply i.e. whether intra-state or inter-state. As per bare provisions of CGST/IGST Act, the taxable person (TP) is expected to pay correct tax i.e. CGST/SGST or IGST as may be applicable. If tax is paid under wrong head then the TP is liable to pay correct tax and take refund of the wrong tax paid. Therefore paying correct tax for intermediary services is important.

Sections 7 and 8 of the IGST Act are relevant for deciding nature of Inter-state/ Intra-state supply. Relevant portions of above sections are reproduced below for ready reference.

“Section 7.

  1. …………..

  2. …….

  3. Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in––

    1. two different States;

    2. two different Union territories; or

    3. a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce.

  4. ……

  5. Supply of goods or services or both,––

    1. when the supplier is located in India and the place of supply is outside India;

    2. to or by a Special Economic Zone developer or a Special Economic Zone unit; or

    3. in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”

“Section 8

  1. ……

  2. Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply: Provided that the intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.

Explanation 1.— For the purposes of this Act, where a person has,– (i) an establishment in India and any other establishment outside India; (ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or (iii) an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons.

Explanation 2.— A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory”

It can be seen that if the location of supplier of service and place of supply of service are in different states, then it will be inter-state supply. However if the location of supplier and place of supply of service are in same state it will be intra-state supply.

Place of supply of service is to be ascertained as per provisions of Sections 12 and 13 of IGST Act. The relevant portions of said sections are reproduced below for ready reference.

  1. “(1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India……..

  2. (1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India.

(1) to (7)………

  1. The place of supply of the following services shall be the location of the supplier of services, namely:––

    1. services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders;

    2. intermediary services”

From above provisions it can be seen that Section 12 for deciding place of service is applicable when both, the supplier and the recipient are within India. Section 13 will apply when one of the parties i.e. either supplier or recipient is out of India.

As per section 13(8)(b), in relation to intermediary services, the place of supply of service is the location of the supplier. In other words, by above deeming provision the location of supplier and place of supply will always be within one state. Having this situation there is one view, wherein it is felt that the transaction will be intra-state in light of provisions of section 8(2).

However, there is another view which believes that provisions of section 8(2) are subject to provision of section 12. In other words it is believed that if section 12 is not applicable to the given facts and situation then section 8(2) will also not apply. Since one of the parties to the transaction is in foreign country, section 13 is only applicable and therefore section 8(2) will not apply and it cannot be intra-state supply. Pursuant to above, the further thinking is that section 7(5)(c), which provides that if the supply is not falling in the category of intra-state supply then it will fall in the category of inter-state supply will apply. In the present query, though, both, location of supplier and place of supply are in same state still it will not be covered by section 12 and hence it cannot be intra-state as per section 8(2). Therefore, by default, it falls under Inter-state category as per Section 7(5)(c). If so the supplier should pay IGST.

Advance Ruling

As on today there is advance ruling which throws light on the issue. Reference can be made to AR in case of Micro Industries (No GST-ARA-23/2018-19/B-87 Mumbai,dt 10.08.2018)

In application, following contention was made regarding payment of tax, if the transaction of the applicant is held to be intermediary services.

  1. “Now, therefore, the CGST/SGST will be payable in the Taxable Territory on account of the ‘place of supply’, being the place where the Supplier, i.e. Micro, is registered, that is in the State of Maharashtra.

  2. In the context of the case on hand, the aforesaid interpretative process makes taxable “intermediary services” rendered by Micro to the recipient abroad in non-taxable territory, liable tax in Maharashtra State, which is the place where the Supplier (Micro) is Registered and happens to be the place of supply;

    and fortunately further also the “destination state” or “consumption State”; because the Laboratory Equipment imported by M/S Panama Laboratory, Mumbai, would be used by the Purchasing Customer, who is also residing in the State of Maharashtra.

  3. Before looking at another example, a few words on new taxation Policy. Effective July 1, 2017 there has been a paradigm shift in taxation Policy, now, adopting the destination based tax. The basic difference between the Destination based tax and origin based tax lies in the fact that origin based taxation seeks to levy and collect tax on the basis of location of production and destination based taxation seeks to levy and collect tax on the basis of location of consumption. Further, a fundamental proposition under the new GST regime is that the concept of “place of consumption” also called and known as the “Place of supply”, merely determines that the tax would accrue to the State of consumption (jurisdictional aspect).

  4. Now, look at another case, in which Micro procures the P.O. from the Customer at Vadodara (formerly known as Baroda), in the State of Gujarat, for purchase of Laboratory Equipment from the same Germany seller. By virtue of section 13 (8) (b) read with 2(13) of IGST Act, the place of supply” remains the same i.e. “the place of Supplier”, State of Maharashtra. But the destination based or consumption based taxation Policy would get a jolt; because the actual use of the goods imported would be in the State of Gujarat, whereas the tax will accrue to the state of Maharashtra, where the place of supplier and the place of supply synchronize.

  5. The matter needs to be examined further.

  6. Actually, the “nature of supply” is determined under Section 7 and 8 of the IGST Act, 2017 which reads:

CHAPTER IV
 DETERMINATION OF NATURE OF SUPPLY

  1. Inter-State supply. – (1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in –

    1. two different States;

    2. two different Union territories; or

    3. a State and a Union territory,

    shall be treated as a supply of goods in the course of inter-State trade or commerce.

  1. Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.

  2. Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in –

    1. two different States;

    2. two different Union territories; or

    3. a State and a Union territory,

    shall be treated as a supply of services in the course of inter-State trade or commerce.

  3. Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.

  4. Supply of goods or services or both, –

  1. when the supplier is located in India and the place of supply is outside India;

  2. to or by a Special Economic Zone developer or a Special Economic Zone unit; or

  3. the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

  1. It is manifestly clear from the conjoint reading of section 7 (5) of the IGST Act read with Section 13 (8)(b) that the nature of transaction on hand is taken out of the IGST Act and by virtue of the Supplier’s Location and the Place of Supply make the transaction fall into the trap of the “intra-state” service and hence would attract 9% CGST+ 9% SGST, in the aggregate 18%, the services being Classifiable under the Residuary Tariff Classification, namely, 1997”

After noting above submission, the learned AAR, Maharashtra observed as under :-

“14. With the result that the benefit of “Zero rated tax” defined under Section 16 of the IGST Act, 2017 is unavailable, simply because the role played by the Micro is treated as “Intermediary Services” under section 13 (8) (b) of the IGST Act.

Since the applicant, being the supplier of service is located in India and the recipient of Service i.e. supplier of goods is located outside India, Section 13 of the IGST Act, 2017 would be applicable to determine the place of service. As per Section 13 (8) (b) of the said Act, the place of supply of Intermediary Services shall be the location of the supplier of services, in this case, the applicant. Since the place of supply of services in the instant case is in taxable territory, the said intermediary services cannot be treated as export of services under the provisions of the GST laws.

In order to classify as ‘export of service’, as per section 2(6) of the Integrated Goods and Service Tax Act, 2017, one of the crucial condition as contained under sub-clause (iii) requires that the place of supply of service should be outside India. In the subject case, the place of supply shall be location of the supplier of services and therefore such ‘intermediary services’ cannot be classified as ‘export of services’.

Further, we find that their contentions that though they are covered under the definition of ‘Intermediary’, the services being provided by them are not ‘Intermediary Services’ are not tenable for the reason that they are very clearly covered under the definition of Intermediary’ and the services being provided by them are clearly the services as given in the definition of ‘Intermediary’, as referred in the discussions above.We now discuss Inter-state provisions as well as Intra State provisions under the GST laws as follows:

Inter-state provisions are contained under section 7 of the Integrated Goods and Service Tax Act, 2017 and since none of the specific provisions are applicable, residuary provision contained under section 7 (5) (c) shall be made applicable in the case of intermediary service, which states that inter-state supply of goods or services or both in the taxable territory shall be treated to be a supply of goods or services or both in the course of inter-state trade or commerce, however, the same should not be an intrastate supply and should not be covered elsewhere in section 7 of the IGST Act.

Section 8 of the Integrated Goods and Service Tax Act, 2017 deals with the provisions of intra-state. Applying the provisions of section 8 (2) which states that ‘subject to the provisions of section 12, in case where the location of the supplier and the place of supply of services are in the same state or in the same union territory, the supply of service shall be treated as intra-state supply’.

The above provisions of inter-state supply and intra-state supply have clarity when both the recipient and the supplier of services are located in India. However as in the subject case, when the recipient is located outside India provisions of section 7(5)(c) shall be applicable. Section 7(5)(c) is reproduced as follows:-

Supply of goods or services or both

  1. When the supplier is located in India and the place of supply is outside India.

  2. To or by a Special Economic Zone developer or a Special Economic Zone unit; or

  3. In the taxable territory, not being an intra-State supply and not covered elsewhere in this section.shall be treated to be a supply of goods or services or both in the course of inter-State-trade or commerce.

As per intra-state provisions contained in Section 8(2), the said provisions are subject to the provisions of section 12 of the IGST Act. As per section 12, the provisions of section 12 would be applicable only for determining the place of supply of service where the location of supplier of services and the location of recipient of the services is in India. When recipient is located outside India the said provisions of section 12 cannot be made applicable and since provisions of section 8(2) are inter-linked with provisions of section 12, the same cannot be made applicable in case the recipient of service is located outside India.

Thus we find that in case the intermediary services are provided to the recipient located outside India, the inter-state provisions as contained under section 7(5) (c) shall be applicable and hence IGST is payable under such transaction.”

Thus, the legal position that emerges is that if the intermediary services fall under section 13(8)(b) the tax should be paid under IGST and not CGST/SGST.

  1. Which law will apply for TDS? On the date of deduction or on the date of bill? e.g. Bill dated 30th April 2020 is received for legal fees after lockdown and entry in books is made today i.e. in June 2020. Whether to deduct tax at old rate or new rate?

    Further no tax was deducted for March 2020 bills and now it is being deducted should it be at old rate or new rate?

    Ans. TDS is deductible at the time of credit in the books of account, or at the time of payment, whichever is earlier. Therefore, if there is no credit at an earlier date, tax would be deducted at the time of payment. If the 30th April bill is accounted for now in June 2020, assuming that it would be paid after this, tax would be deductible when it is accounted for in June 2020.

    Since tax would be deductible now in June 2020, tax deduction would be at the new rate.

    In case of March 2020 bills, if these bills are being accounted for in March 2020, tax was deductible in March 2020, and tax would be deductible at the old rates. However, if these bills are now accounted for in June 2020, tax would be deductible at new rates.

  2. A Pvt Ltd company was converted to LLP in July 2019. It had brought forward loss of 2 lakhs. Upto the date of conversion, the profit of the company is 50,000. How much of the loss is eligible to be set off and carry forward by the LLP?

    Ans. Section 72A(6A) provides that where a private company is succeeded by an LLP fulfilling the conditions laid down in the proviso to section 47(xiiib), the accumulated loss and unabsorbed depreciation of the predecessor company is deemed to be the loss and depreciation allowance of the successor LLP for the purpose of the previous year in which the business organisation was effected. The issue which arises is as to what is the quantum of unabsorbed loss of the company which becomes the loss of the LLP during the year of conversion – is it ₹ 2,00,00 being the accumulated loss at the end of the earlier previous year, or ₹ 1,50,000 after set off against the profits till the date of conversion?

    The company would be entitled to set off the brought forward loss against its profit till the date of conversion. Therefore, logically, only ₹ 1,50,000 would be the accumulated loss of the company, which would become the loss of the LLP during the year of conversion.

  3. In a Partnership firm consisting of two partners and one partner dies on 31st May 2020 and new partnership deed is made by and between existing firm with legal heir of deceased partner for continuation of partnership firm from date of death, as per clause in partnership deed providing for continuation of partnership in case of death of any partner with legal heir and firm shall not be dissolved.

Is there any deemed dissolution of the firm on the date of death of one partner and new partnership comes to existence? What are the implications under the Income tax Act?

Ans. The Supreme Court, in the case of Mohd. Laiquiddin v. Kamala Devi Mishra (deceased) by LRs, (2010) 2 SCC 407, held that on the death of a partner of a firm comprised of only two partners, the firm is dissolved automatically; this is notwithstanding any clause to the contrary in the partnership deed. The court took the view that Section 4 of the 1932 Partnership Act defines a ‘partnership’ as a contract between more than one person (since it uses the term ‘persons’). Therefore, if, in a firm comprised of only two persons as partners, one dies, the contract comes to an end. There cannot be any contract unilaterally without acceptance by the other partner.

In this case, the deed provided that the partnership was to continue for a period of 42 years and could be extended for a further 20 years at the option of the original defendant. Another clause in the partnership deed specifically provided that the death of any of the partners would not result in dissolution of the partnership.

The Supreme Court observed that if the legal representatives of the original plaintiff were not interested in continuing the firm or in constituting a new firm, they could not be asked to continue the partnership. There was no legal obligation on them to do so, as a partnership is not a matter of heritable status, but purely one of contract. Therefore, the firm stood dissolved on the death of one of the two partners.

In the facts of the query also, there is a dissolution of the partnership firm on the death of one partner. In case the legal heir of the deceased partner is admitted as a partner, this would constitute a new partnership firm.

Some of the implications from an income tax perspective are:

  1. The two firms would be regarded as separate entities with different permanent account numbers.

  2. The provisions of section 45(4) would get attracted to the capital assets on dissolution of the earlier partnership firm.

  3. The provisions of section 45(3) would apply to the capital assets of the earlier partnership firm introduced by the surviving partner of the earlier firm into the new partnership firm.

RULINGS OF ADVANCE RULING AUTHORITIES

  1. Supply of Die to foreign customers :

    Facts : Applicant first manufactures steel die as per requirement and specifications given by foreign customer. After seeking approval from foreign customer, applicant uses steel die for making aluminium and zinc die castings. These manufactured aluminium and die castings are exported to overseas customers along with sub-assemblies and other components against order. However, applicant retains steel die till completion of export order or completion of life of die.

    Applicant raises tax invoice for steel die in name of overseas customer in foreign currency for receipt of payment though die is not physically exported to foreign customer. After completion of export order, applicant either exports dies to overseas customer or scraps die at applicants end as per instructions of customer.

    Applicant seeks the procedure to be followed under GST Act for discharging GST liability.

    Observations & Findings : The applicant raises invoice after the manufacture of the die in the name of the foreign customer in foreign currency for receipt of payment. The date of issue of tax invoice by the applicant is the time of supply of die to the foreign customer as per section 12 of the CGST Act, 2017. Further, on date of issue of tax invoice the die is with the applicant and it is not moved either by the applicant or by the foreign customer. Hence the place of supply of goods, other than supply of goods imported into, or exported from India, shall be the location of such goods at the time of the delivery to the recipient as per clause (c) of sub section (1) of section 10 of the IGST Act 2017. Therefore, the place of supply of die in this case is the location of the applicant.

    In view of the above, the location of the supplier of die and place of supply of the die to the foreign customer are one and the same i.e., location of the applicant and such being the case said transaction shall be treated as infra-State transaction as per sub section (1) of section 8 of the IGST Act 2017 and the applicant has to issue the CGST and SGST tax invoice to the foreign customer and liable to collect and pay the CGST and SGST tax. Further if the said steel die is scrapped at applicant’s end without moving out of the country, as per the instruction of the overseas customer, the applicant has to issue intra/interstate tax invoice depending upon the nature of the transaction and collect and pay the applicable tax as per the provisions of the GST Act 2017, while supplying the die scrap.

    Ruling : In the case of manufacture of die by the applicant and invoiced to the recipient, without moving the goods, the applicant has to raise the tax invoice addressed to the foreign buyer. Since it is an intra-State supply, he has to collect the CGST and SGST and discharge the liability. The applicant is not eligible to claim said payment as input tax credit on the invoice raised by him as he is not the recipient. Further if the said steel die is scrapped at applicant’s end as per the instruction of the overseas customer without moving out of the country, while supplying the die scrap to the third party, the applicant has to issue intra/interstate tax invoice depending upon the nature of the transaction and collect and pay the applicable tax as per the provisions of the GST Acts.

    [[2020] 116 taxmann.com 746 (AAR – KARNATAKA) – Dolphine Die Cast (P.) Ltd.]

  2. Renting of immovable property :

    Facts : The applicant along with four others collectively has let out a Residential complex to a Company which is engaged in the business of providing affordable residential accommodation to students on a long term basis. The applicant contends that “renting of immovable property” is covered under Schedule II of CGST Act 2017 which defines it as the supply of services on which the applicable GST rate is 18%. The applicant further states that Schedule Il enlists activities to be treated as supply of goods or as supply of services. Entry 2(b) reads as any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. The applicant further refers to the Notification No. 9/2017 – lntegrated Tax (Rate) dated 28th June, 2017 in which certain exemptions have been prescribed for specified activities. Entry 13 of such Notification provides that: “Services by way of renting of residential dwelling for use as residence” are exempt from GST.

    Further, the Company has entered into sub lease agreement with students for providing residential accommodations with living amenities, security, entertainment facilities for a long stay for a period. Thereby, the Company has concluded that the rental accommodation services provided by yhem to the students will not attract GST. Consequently, there would be no GST obligation on them in case of lease arrangement with their lessor too, the applicant . Therefore, the Company is of the opinion that the lessor should not charge GST to them when issuing the invoice for the lease service.

    Observations & Findings : The lessor, of which the applicant is a part, is providing the right to use the immovable property without transfer of the ownership of the immovable property. For this transaction, they are collecting an amount which is the consideration for such transfer of right to use the property. This is in the course or furtherance of business and hence as per Section 7 (1) of the CGST Act, 2017, the transaction between the lessor and the Company would constitute a “supply”. Further, this would be a supply of service as per section 7 (1-A) of the CGST Act, 2017 read with the entry no. 2(b) of the Second Schedule to the CGST Act, 2017.

    With respect to “renting of residential dwelling” “for use as residence”. The contract of the applicant group with the Company is that what is given is an immovable property consisting of only rooms with attached toilets as per the Layout of the leased premises annexed to the Lease agreement and does not fit into the meaning of a dwelling which means a house. Even if the same is given for residential purposes, the services provided is not for use as residence by the lessee. Services by a hotel, inn, guest house, club site or campsite, by whatever name called, or other commercial places for residential or lodging purposes are covered by different entries in the schedule of this notification or under different notifications and this shows that rooms though given on rent for residential purposes would not amount to residential dwelling and hence the entry is not applicable for the transaction of the lessor with the lessee.

    Ruling : The lease services does not fall under the exemption “Services by way of renting of residential dwelling for use as residence” as listed in entry 13 of Notification No. 9/2017 – Integrated tax (Rate) dated 28th June 2017.

    [2020 (4) TMI 692 – AAR, Karnataka – Sri. Taghar Vasudeva Ambrish]

  3. Independent activity :

    Facts : NHAI has executed an agreement with a Contractor for the development of a four-lane highway. Under this agreement, the scope of work of the Contractor involves the four-lining of the highway, as well as highway facilities that are listed in Schedule of the Agreement. The service is categorised as construction of road as classified under Entry No. 3(iv)(a) of Notification No. 11/2017-CT (Rate), dated 28-6-2017 (as amended) and is taxable at 12% GST.

    The applicant is proposing to submit a bid for shifting / erection of electrical lines only to the main Contractor of NHAI. Thus the activity to be carried out by the applicant is restricted to shifting / erection of electrical lines only. Further, the details mentioned in the agreement, as description of work mentioned therein specifically indicates the independent nature of work to be carried out by the applicant for which such cost will be borne by the authority or by the owning entity of the respective utility.

    Further, such cost will be borne separately by the Authority or the utility owning entity. Hence, the payment of the above said work which will be made to the concessionaire (Main Contractor) is not part of the/main contract (concession agreement) which also indicates the work is of independent nature.

    The applicant sought to know, whether in the facts and circumstances of the case, does the activity carried out by the Applicant falls under Entry No. (iv)(a) of Notification No. 11/ 2017-CT(R)? Alternatively, whether in the facts and circumstances of the case, does the activity carried out by the Applicant falls under Entry No. (ix) of Notification No. 11/ 2017- CT(R)?

    Observations & Findings : We observe that the entry number 3(iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 allows concessional rate in case of works contract is for construction of road, bridge, tunnel or terminal for road transportation for use by general public. We observe that in the present case the proposed activity carried out by the applicant is of shifting /erection of 11 KV < lines only and the same cannot be categorised as construction of road as classified under Entry number 3 (iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 (as amended).

    We further, observe that since such cost of the above said activity will be borne by the Authority or by the entity owning such utility therefore such payment of above mentioned activity is not the part of the main contract i.e. construction of road as awarded to main contractor by NHAI. Thus, there establish no nexus between the main contract awarded for construction of road by the NHAI and the work proposed to be undertaken by the applicant. Therefore, the question of covering the activity under entry number 3(iv)(a) of the Notification No 11/2017-CT (Rate) dated 28.6.2017 does not arises.

    Ruling : a) The activity proposed to be undertaken by the applicant does not fall under entry no. (iv)(a) of the Notification No. 11/2017- CT(R) dated 28.6.2017.

    b) The activity proposed to be undertaken by the applicant does not fall under entry no. (ix) of the Notification No. 11/2017-CT(R) dated 28.6.2017.

    [[2020] 116 taxmann.com 734 (AAR- RAJASTHAN) – Sri. Gaurish Sharma]

  4. Storage and ware housing of agricultural produce :

Facts : The activity of the applicant is :

  1. They are dealing in services which are in the nature of storage and ware housing of agricultural produce, food grains including pulses and rice etc.;

  2. They are renting or leasing of agro machinery or vacant land with or without structure incidental to its use, in relation to agricultural produce;

  3. They are using leased premises for storage of agricultural produce which is exempted from GST and lessor is insisting to pay GST on lease charges and the lessee is denied to pay GST on lease charges where the lessee is using the premises for storage of agricultural produce only.

The taxpayer have contended that:

  1. Supply of services by way of renting immovable property for commercial purpose is a taxable supply under GST law and attracts levy of GST @ 18%;

  2. Having said so, services in the nature of storage and ware housing of agricultural produce, food grains including pulses, rice etc., are fully exempted from GST;

  3. Further, renting or leasing of agro machinery or vacant land with or without a structure incidental to its use, in relation to agricultural produce would also be exempt.

Observations & Findings : As per Sl. No. 54(e) of Notification Number 12/2017-CT (R) dated 28.06.2017 provides for exemption from GST in respect of supply of services rendered for storage in relation to the agricultural produce. It is noticed that the term ‘agricultural produce’ has been defined under clause 2(d) of the Notification ibid. Thus, the supply of service for storage or warehouse of goods is exempted if the same is provided in connection with storage or warehousing of ‘agriculture produce’ as defined in clause 2(d) of Not. No. 12/2017-CT (R) dated 28.06.2017 as amended. We further find that the notification is with regard to service supplied and not person specific. As such, the entry No. 54(e) is equally applicable for storage services in respect of agricultural produce of both the farmers and the traders.

Coming to the issue of tax liability on leasing services availed by the applicant with regard to the cold storage facility, we opine that if the agreement is purely for renting/leasing of the premises of cold storage by one entity to another entity, then the said activity amounts to renting/leasing of immovable property and does not fall within the ambit of storage services. In terms of clause (a) of para 5 of the Schedule II (appended to the GST Act), read with Section 7 of the GST Act, renting of immovable property is to be treated as supply of service. Thus, providing non-residential property on rental basis is a supply of service which is classifiable under SAC No. 997212. The said supply of service is chargeable to tax @18% under residuary entry at Sl. No. 35 of Not. No. 11/2017-CT (R) dated 28.06.2017 as amended.

Ruling : Using leased premises for Cold Storage purpose of agriculture produce on Leasing Charges is taxable @ 18%. Cold Storage Leased on rent for storage with or without preservation and maintenance to Private Enterprises is taxable @ 18%. Storage or Warehousing Seeds/Agricultural produce on behalf of Farmers and Traders is exempted from payment of GST.

[2020 (6) TMI 201 – AAR, Telangana – Gubba Cold Storage P Ltd.]

  1. Ex-factory supplies :

Facts : The applicants are manufacturers of cement having two cement plants in Telangana. They occasionally make inter-State sale of cement on ex-factory/works basis from their plants. As per section 10(1)(a) of IGST Act, 2017, place of supply shall be where movement of goods terminates; When they make ex-factory sales from their plant, delivery terminates at their factory gate itself and therefore, CGST and SGST should be charged on such type of supplies. However, in the said section it is also mentioned that the movement of goods can be by supplier or the recipient or any other person and place of supply shall be location of recipient where delivery terminates to recipient. In respect of exfactory sale, though for them supply terminates at factory gate, yet further movement is carried by the recipient or transporter (other person) of goods up to the billing address state. They sought to know what tax should be charged on ex-factory inter-State supplies made by them.

Observations & Findings : The ‘place of supply’ and ‘location of supplier’ determine whether a supply can be treated as an intra-State supply or an inter-State supply. In the case on hand, the applicant has no uncertainty as regards to ‘the location of supplier’ and they sought clarity only with regard to the ‘place of supply’. This leads us to refer to section 10(1)(a) of IGST Act, 2017 which contains provisions relating to determination of ‘place of supply’ of goods where the supply involves movement.

As stated by the applicant, there is a scope for inference that in case of ex-factory sales, since the delivery of goods to recipient takes place at factory gate so far as supplier is concerned, location of the supplier’s factory can be reckoned as place of supply. However a careful appraisal of the provisions of section 10(1)(a) does not suppose such inference. We noted that the usage of the words ‘whether by the supplier or by recipient’ after the words ‘where the supply involves movement of goods’ under the said section perceptibly indicates that the movement can be effected by the supplier or by the recipient or by any other person authorized by the recipient. This leads to the conclusion that, in terms of section 10(1)(a), movement of goods in case of ex-factory inter-State sales does not conclude at factory gate but terminates at the place of destination where the goods finally are destined as per the billing address.

Ruling : IGST is chargeable on ex-factory inter-State supplies.

[[2020] 116 taxmann.com 876 (AAR- TELANGANA) – Penna Cement Industries Ltd.]

ORDERS OF APPELLATE ADVANCE RULING AUTHORITIES

  1. Joint Development Agreements :

Facts : The Appellant is a Private Limited Company engaged in the business of property development. The Appellant has entered into a Joint Development Agreement (JDA) on 08/11/2017 with Land Owners for development of land into residential layout along with specifications and amenities. Cost of development shall be borne by Appellant. The consideration was agreed on revenue sharing basis in the ratio of 75% [for Land Owners] and 25% [for Developer / Appellant]. Pursuant to the JDA, the Appellant entered into an agreement with customers for sale of developed plots of land for consideration. In this connection the Appellant sought an advance ruling in respect of the following question:

  1. Whether the activity of development and sale of land attracts tax under GST?

  2. If the answer to the above question is yes, for the purpose of taxable value, whether provision of Rule 31 can be made applicable in ascertaining the value of land and supply of service?

The Advance Ruling Authority held that the activities as envisaged in the agreement between the Appellant and the Land Owners amount to supply of service and is liable to be taxed under GST. Rule 31 applies in the instant case and the value of the supply equals to the total amount received by the Applicant, which is equal to 25% of the market value of each plot.

Aggrieved by the above ruling, the appellant has filed this appeal.

Observations & Findings : The issue to be decided in this appeal is whether the activity of development and sale of land by the Appellant is a liable to tax under GST. The liability to GST arises when there is a supply of either goods or services or both. According to section 7 of CGST Act, 2017, the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, and includes activities specified in Schedule II to the CGST Act, 2017. However, as per entry 5 of Schedule III, the activity of sale of land has been treated as neither a supply of goods nor a supply of service. It is the contention of the Appellant that they are primarily engaged in the sale of land which has been developed by them and the development activity is incidental to the sale of land and hence they are not liable to GST in terms of the Schedule III of the CGST Act. However, a transaction shall be out of GST net only if the activity is exclusively dealing with transfer of title or transfer of ownership of land, which is immoveable property. If the transaction of sale of land is coupled with another activity such as infrastructure works, then this exclusion will not apply. Hence, the substance of the agreement between the parties is important.

The landowner approached the Appellant-Developer and offered the property for joint development given the Appellant’s expertise in residential plotted developments. Accordingly, based on the representations made by the landowner, the Appellant has agreed to develop the project on the property.

The Appellant has argued that the transaction in terms of the JDA is a composite supply where the principal supply being the sale of land is outside the purview of GST in terms of entry 5 of Schedule III of the Act. When we examine the provision of what constitutes a ‘composite supply’ as defined in Section 2(30) of the CGST Act, we find that composite supply means a supply made by a taxable person to a recipient.

  • consisting of two or more taxable supplies of goods or services or both, or any combination thereof,

  • which are naturally bundled

  • and supplied in conjunction with each other

  • in the ordinary course of business, one of which is a principal supply.

The definition of composite supply must be read with the definition of taxable supply and exempt supply. Sub-section (108) of section 2 defines a taxable supply as under:

“taxable supply” means a supply of goods or services or both which is leviable to tax under this Act;”

Sub-section (47) of section 2 defines an exempt supply as under:

“exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;”

In the instant case there are two activities involved, viz: development of land and sale of plots. The transaction relating to the sale of land is not a supply of either goods or service under GST (entry 5 of Schedule III of the CGST Act refers). This activity of sale of land cannot be considered as an ‘exempt supply’ for the reason that the activity is not at all a supply and hence the question exempting it under Section 11 of the Act does not arise. On the other hand, the activity of development of land is a supply in terms of Section 7 of the CGST Act. A combination of two activities one of which is not a supply under GST cannot be said to be a composite supply. We therefore, disagree with this contention of the Appellant.

The Appellant has also contended that there is no supply of any service by him to the landowners; that the JDA has been executed with a mutual agreement by both the parties to jointly develop the land and share the revenues out of the sale of land. In real estate transactions involving plotted development, one party owns the land and another party has the expertise to develop the land. The two parties come together with the common intention of developing the land and sharing the revenue accruing for the sale of the developed plots in the land. However, the landowners give the rights of using the land to the developer in exchange for which, the developer gives the service of developing the land of the owners. While the Joint Development agreement is entered into for the two parties to jointly reap the benefits of the sale of the land to customers, there is a clear rendering of a service by the developer to the landowner in developing the land which belongs to the landowner. Therefore, we hold that the activity of developing the land is a supply of service by the Appellant.

Order : We uphold the ruling passed by the Advance Ruling Authority and the appeal filed by the appellant stands dismissed on all accounts.

[2020 (5) TMI 415 – Appellate AAR, Karnataka – Maarq Spaces P Ltd.]

SUPREME COURT OF INDIA

State of Orissa

vs.

M/S B. Engineers & Builders Ltd. & Ors.

Civil Appeal No. 2516 of 2020

[A. M. Khanwilkar, Indira Banerjee And Dinesh Maheshwari, JJ]

Date of Decision: June 5, 2020

Sales Tax – Reimbursement of – Works contract – Contract inclusive of taxes paid on material procured by Contractor for use in contract – Contract also includes the clause that any Central or State sales tax and other taxes on completed items of works as may be levied and paid by the contractor shall be reimbursed by the employer – Circulars dated 07.11.2001 and 19.06.2002 issued for not reimbursing the tax on completed contract – On writ, High Court quashed the circulars directing reimbursement of tax paid by contractor on assessment – On appeal to Supreme Court

Held: The levy of sales tax in relation to a works contract is on “taxable turnover” and not on the entire turnover. It follows necessarily that the claim for reimbursement could only be made of the amount of sales tax that had been levied; and had been paid by the contractor. Hence, the suggestion as if the expression “completed item of work” refers to the end-product of a works contract is without any substance.

It remains trite that the terms of contract bind the parties thereto and unless there be any case of ambiguity or violation of law, ordinarily, the terms of contract, revealing the intent of parties, are required to be given effect to. It is, therefore, crystal clear that even when the contract provided that the rates quoted by the contractor shall be deemed to be inclusive of sales and other taxes and royalties on the materials, it was agreed to between the parties that sales tax and other taxes under completed items of work, as paid by the contractor were to be reimbursed.

On a plain reading of the aforesaid relevant terms of the contract, it is clear that while the contractor cannot claim any payment towards the taxes/duties/royalties etc. on the goods/materials purchased by it for performance of the contract but that does not disentitle the contractor from claiming reimbursement of the sales tax levied upon it by the employer, of course after proof of payment/assessment. It is also pertinent to mention that the respondent No. 1 only claimed reimbursement of the sales tax paid by it on the turnover of the works contract and not of any tax or duty or royalty paid by it on the material procured for the purpose of execution of the works contract.

Further on a reading of Circular dated 04.11.1986, it is evident that the State Government was fully conscious of its obligation towards reimbursement under the existing terms of contracts. The Circular dated 27.01.2000, and converse decision against the obligation of reimbursement, as stated in the Circular dated 07.11.2001, had only been of unwarranted attempts to wriggle out of the contractual obligations with rather perverse construction of the plain terms of the existing contracts. Appeal dismissed.

High Courts

HIGH COURT OF MADRAS

Jet Unipex

vs

Commissioner of Customs

[C. Saravanan, J]

W.P. No. 5233 of 2016

Date of Decision: May 19, 2020

Customs Act , 1962 – Cross examination –under valuation of goods – Statements of few persons recorded u/s 108 of Customs Act during investigation by officers regarding undervaluation of goods imported – Show cause notice issued based on differential duty appropriation – Cross examination denied to petitioner – Writ filed – nothing on record to show that statement was taken under threat – show cause notice indicative of admission regarding undervaluation of goods and cash payment to evade custom duty – Held respondent officer to take a call if the statements were made the sole basis of demand or the statements were used to corroborate the independent evidence – in latter case cross examination to be allowed by summoning but not in former case.

In the present case the petitioner had imported Plaster of Paris and allied goods between June 2010 and December 2013. The respondent made out a case of under valuation of the said goods by invoking Sec. 14 of the Customs Act r/w Rule 9 and Rule 4 of the Customs Valuation Rules, 2007. During the course of investigation, the statements were recorded from the two petitioners and two other employees of the two Custom House Agent of the petitioner in 2013 – 2014. The petitioner deposited a sum of Rs.45 lakhs in the course of investigation as differential tax for which a show cause notice was issued to appropriate the same towards the differential duty proposed in the said show cause notice. In year 2015 the petitioner requested for cross examination of the persons making statements which was denied vide communication dated 19.1.2016 on the grounds that the statement recorded from these persons were true and correct and that no reasons were furnished for cross examination and hence request could not be exceeded.

A writ is filed against the impugned communication dated 19.1.2016 requesting for cross examination of the persons whose statements were recorded under Section 108 of the Custom Act 1962 and the officers who recorded such statements.

HELD: The confirmation of demand solely based on statements recorded U/s 108 of the 1962 Act would require cross examination by the petitioner but if such statements are merely intended for corroboration of independent evidence, the cross examination need not be allowed. Therefore, it is for the first respondent to decide whether statements are to be solely relied for confirming the demand or relied for mere corroboration of evidence. If reliance is to be based on any statement of any person as a witness the respondent has to issue summons and produce it for cross examination. The respondent may inform the petitioner whether it proposes to confirm the demand solely based on statements of the persons and if it is so, produce them for cross examination.

Therefore, the writ petition is dismissed with the following observations:-

That the respondents shall complete the proceedings within a period of 9 months from the date of receipt of this order. The first respondent shall decide as to whether it proposes to solely rely on the statements recorded and shall produce such persons for cross examination in such case.

If reliance is placed on independent evidence gathered by the officers of the respondent, the respondent need not issue summons to the persons whose statements were recorded.

HIGH COURT OF GUJARAT

Shiv Agro

vs

State of Gujarat

[J. B. Pardiwala and Ilesh J. Vora, JJ]

R/Special Civil Application No. 7046 of 2020

Date of Decision: May 11, 2020

Alternate Remedy – Release of goods – writ filed for declaring action of respondent in stopping goods and conveyance as illegal – Held : since final order regarding confiscation of goods stood already passed by appellate authority, writ not entertained – Petitioner relegated to prefer statutory remedy u/s 107 of GST Act 2017 – Permission for provisional release of goods upon furnishing security till pendency of appeal granted – writ disposed of.

In the present case a writ was filed by the petitioner for setting aside the action of the respondent to stop the goods and conveyance by declaring the action as unlawful and illegal. It sought an interim relief by having his goods released till final hearing of the court.

Observing that the final order regarding the confiscation of goods and the conveyance already stood passed by the Appellate Authority, the Court declined to entertain the writ petition and relegated the petitioner to prefer a statutory remedy u/s. 107 of the GST Act, 2017. Also, the petitioner could apply for provisional release of its goods upon furnishing of security or execution of a bond till the pendency of the appeal.

PUNJAB AND HARYANA HIGH COURT

Shri Vishnu Processors

vs

Union of India Ors.

[Ajay Tewari and Avneesh Jhingan, JJ]

CWP No. 25129 of 2019

Date of Decision: March 20, 2020

Jurisdiction – Search of premises – Ineligible drawback and IGST – premises of petitioner searched by DRI in connection to a case of availing of ineligible drawback and IGST by procuring fake bills by two Ludhiana companies –link established between petitioner and Ludhiana exporters as Goods supplied by petitioner to those exporter companies – writ filed for quashing of memo contending that DRI officer has no jurisdiction to search its premises as he is not an exporter – Held: under section 105 of Custom Act 1962 Act search can be conducted if the authority deems there is a reason to find any document or thing related to such proceedings – objection regarding contents being added in panchnama by DRI officers on their own not entertained as basis to quash the memo – writ dismissed

In this case a writ is filed seeking quashing of Panchnama, memo dated 9.7.2019. The factory premises of the petitioner were searched by Director of Revenue Intelligence (DRI). The search was in connection with investigation going on for availing ineligible drawback and IGST by way of accumulating ITC by procuring fake purchase bills by two companies of Ludhiana to whom the petitioner had supplied materials. The petitioner contends that Panchnama be quashed as officials of DRI have no jurisdiction to conduct search at petitioner premises since he is not an exporter. However, if there was a doubt it was only the officials of GST Department who could have proceeded in the matter.

The Hon’ble Court has held that a perusal of Sec. 105 of the Custom Act 1962 is widely worded and search can be conducted if the Assistant or Deputy Commissioner of Custom if he has reasons to believe that there are any document or thing which would be useful or relevant to any proceedings under this Act or secreted at any place. The search is not restricted with importer or exporter. The petitioner being a supplier to the exporter of Ludhiana and an investigation that an ineligible drawback had been claimed establishes the relevance of search with proceedings under the Act.

The petitioner has also contested that the contents were added by the officials of DRI in Panchnama on their own. This aspect cannot be gone into at this stage and would not be a reason to quash the panchnama or declare the search illegal. The writ petitioner is dismissed.

HIGH COURT OF MADRAS

M. R. Motor Company

vs

The Assistant Commissioner (CT)

[C. Saravanan, J]

W.P. No. 31044 of 2013

Date of Decision: May 19, 2020

Refund – Input tax credit – Claim for refund in 2011 for assessment years 2006 to 2010 – Denial of on grounds that said amount is regularly adjusted towards its outstanding tax liability due till July 2013 – no set off made – writ filed – Held : Excess ITC to be adjusted towards outstanding dues as per clause 17 of Section 19 of TNVAT Act, 2006 – Refund to be made after such adjustment – No Rule provides for carrying forward of ITC for adjustment of tax liability for subsequent period – Excess ITC can be utilized only for adjusting dues of previous year – Writ allowed with a direction to refund excess ITC at the beginning of each financial year.

The petitioner had filed for refund on 9/11/2011 of the accumulated ITC for the years 2006 to 2010 under the relevant sections of the TNVAT Act, 2006. The petitioner filed a representation in 2013 requesting for refund of the accumulated ITC. The respondents rejected its claim on the ground that the petitioner is still in business and adjusting the amount regularly towards its output tax liability due till month of July 2013. After the coming of the GST Act the petitioner transited the credit amount under TNGST Act and no set off has been made. A writ is filed for quashing the order disallowing the refund of ITC.

Held:

As per clause (17) of Section 19, if the ITC determined exceeds the tax liability of a particular year, the excess can be adjusted towards any outstanding tax due from the dealer. Sub Clause (18) of Section 19 provides for refund or carrying forward after such adjustment. The Rules provide for refund and there is no provision for carrying forward such ITC for adjustment of tax liability for the subsequent period. The opening balance of the ITC lying unutilised could be adjusted only towards any tax outstanding for the previous assessment year. After that the assessing officer is to mandatorily refund ITC to the dealer in view of Rules.

Merely because the petitioner was a going concern the petitioner is not disentitled to such refund of excess ITC which it accumulated over a period of time.

Allowing the writ petition, the order passed by the respondent is quashed with a direction to refund the amount lying unutilised after adjustment at the beginning of each financial year.

HIGH COURT OF MADHYA PRADESH

M/s Munesh Enterprises

vs.

State of M.P. and another

[Sheel Nagu & Rajeev Kumar Shrivastava, JJ]

WP. 7965.2015

Date of Decision: May 11, 2020

Cross examination – Information received by department regarding purchases by petitioner from X –- Reassessment order passed and demand raised thereto without opportunity to cross examine – Revision sought – matter remanded by Revisional authority for reassessment with a direction to grant opportunity of cross examination – prayer for cross examining X brushed aside again – matter taken up again for revision u/s 62 of MP GST Act– revision dismissed with an observation that 17 year old records possibly would not be available for cross examination – writ filed – Held impugned orders passed without assigning reasons that stand test of reasonableness – impugned order of revision set aside – matter to be taken for reassessment by granting an opportunity to cross examining the documents in question or any witness in the know of such documents – writ allowed

For the assessment year 1993-94 and 1994-95, the assessment was framed which was reopened on the basis of some information received from Krishi Upaj Mandi Samiti as regards purchases made by the petitioner. Without giving an opportunity of hearing the order was passed in 2001 and an additional demand was raised. The petitioner filed revision and the matter was remanded back for fresh assessment. The petitioner sought opportunity of cross examination qua the record received from Krishi Upaj Mandi Samiti which was the foundation of reassessment proceedings. However, the order in the year 2006 was finalized without the opportunity of cross examination.

An application u/s 39/62 of MP GST Act was filed. The proceedings u/s 62 were initiated but revision was dismissed with finding that since period of assessment 1994-95 was about 17 years and, possibility of availability of records is remote and therefore opportunity of cross examination is futile. Hence a writ is filed against this order.

The matter was remanded only for the purpose of cross examination of records of Krishi Upaj Mandi Samiti.

However, on receipt of remand, the authority brushed aside the prayer for cross examination by presuming that 17 years old records may not be available. Atleast the petitioner should have been allowed to summon the records. Consequently, the writ is allowed and the impugned order of revision is quashed. The respondents are directed to conduct reassessment proceedings by granting reasonable opportunity to the petitioner of cross examination. In case of failure to produce the documents, the petitioner may cross examine any witness in the know of the said documents.

HIGH COURT OF RAJASTHAN

Mohit Vijay

vs

Union of India

[Sanjeev Parkash Sharma, J]

Criminal Misc. Bail Application No.7605 /2019.

Date of Decision: June 02, 2020

Bail – Wrongful claim of ITC – Arrest for offence under Section 132 of CGST Act, 2017 – Application for bail accepted on grounds that no further documents required by applicant – No recovery or further investigation due – Accounts already seized – Recovery due under GST Act not criminal law – Span of 450 days already spent in jail – Nothing on record to show threat to witnesses- Bail granted with certain conditions to be followed – Submission of bail bond and one surety – Application accepted.

In this case an application for bail has been filed against the arrest for committing an offence under Section 132 of the CGST Act 2017. It has been alleged that the petitioner issued forged invoices giving benefit to companies who availed the benefit of ITC fraudulently.

The Hon’ble court has observed that the complaint has already been filed before CJM. No further documents are required to be produced. The petitioner is not required for further investigation and no recovery is required to be made against them and their account also has been seized. The recovery is due under GST Act, 2017 and does not form part of criminal case. The contention that the petitioners can effect or threaten the witnesses is not made out as there is no such statement on record where a witness has been threatened. It is also noticed that the alleged offence is compoundable. The petitioners are already in jail for 450 days and no further investigation or recovery is to be made. The Court is thus inclined to grant bail subject to certain conditions. The petitioners shall submit a bail bond of ₹ 1 Lakh alongwith one surety.

HIGH COURT OF GUJARAT

Colgate Palmolive India Ltd.

vs

State of Gujarat

[Sonia Gokani & N. V. Anjaria, JJ]

Special Civil Application No. 7378 of 2020

Date of Decision: 11.06.2020

Mistake in documents – Detention of goods – Petitioner having two business units (factory and warehouse) in Ahmadabad – Single registration for both – order placed at Goa unit for goods i.e. Dental Cream flavour – Inadvertent mistake of address in e-way bill i.e warehouse address instead of factory address – Goods detained requested to be released – Hon’ble Court considered the issue of closure of business due to pandemic bearing in mind that goods in question were a necessary – Also noticed the fact of two units of petitioner being present in Gujarat – Request to release goods accepted subject to payment of entire tax and penalty amount of 10% – Petitioner to appear before authorities in accordance with the show cause notice issued.

The Petitioner has his principle place of business, a warehouse, at Vadodara and its manufacturing unit at Sananand, Ahmadabad. It has a single GST registration number for both factory and warehouse. The petitioner has placed an order to its unit at Goa for supply of Dental Cream flavour which is a basic raw material for manufacturing Dental Paste. The Goa Unit issued the e-way bill with all details as required but the address of the place of delivery in the e-way bill was inadvertently mentioned as Vadodara Warehouse Unit instead of Factory address. Therefore, the truck carrying goods from Goa was intercepted and the goods were detained due to the mismatch of place of delivery in invoice and e-way bill. Hence the petitioner has approached the Hon’ble High Court for release of its goods.

Considering the issue of closure of business in the pandemic for a long time and also bearing in mind the material which was being carried from Goa to Sananand was meant to prepare one of the necessaries and also noticing that there are two units within the state of Gujarat, the Hon’ble Court has exceeded to the request of release of goods detained subject to the deposit of entire amount of tax and 10% penalty amount. The Court has directed the petitioner to appear before the concerned authority in accordance with the show cause notice served U/s 129(3) on 16.6.2020.

HIGH COURT OF DELHI

Kanak Exports

vs.

Union of India and Ors.

[Navin Chawla, J]

W.P.(C) 3059/2018

Date of Decision: May 18, 2020

Duty Free Credit Entitlement Scheme – Third party exports – status holder – Application filed contending that out of the total exports, exports worth 714.66 crores were entitled for the benefit of the DFCE Scheme – application rejected relying upon the judgment of the Supreme Court and observing that in terms thereof, the petitioner is not eligible to any benefit under DFCE Scheme as claimed. On writ :

HELD THAT:- The Supreme Court in its judgment dated 27.10.2015 had inter alia considered that the petitioner has shown an exponential growth in its exports of 3816% against the National Growth of Export of merely 18%. This modus operandi was used by the exporters in inflating their exports to claim benefit of the DFCE. These misdeeds led to the issuance of the Notifications dated 21.04.2004 and 23.04.2004. In the counter affidavit, specific reference of the petitioner was made by the respondents.

The petitioner in fact, filed a Review Petition seeking review of the said judgment, which was also dismissed by the Supreme Court. In the Review Petition, the petitioner had categorically contended that the finding of the Supreme Court that held the petitioner as having resorted to paper transactions was not justified as the respondents had not placed any material on record against the petitioner to prove the same. The Review Petition was, however, dismissed by the Supreme Court. Through this petition, the petitioner cannot seek to agitate same issues to claim benefits of DFCE.

Moreover, merely because the respondents have granted some relief to M/s Adani Export Ltd. or have not made any recoveries from it, cannot entitle the petitioner, by itself, to claim benefit under the DFCE Scheme in spite of the clear and categorical judgment of the Supreme Court holding it to be not entitled for the same.

Petition dismissed.

HIGH COURT OF KERELA

K sasilal

vs.

State of Kerela

[Amit Rawal, J]

WP No. 6857 of 2020

Date of decision: March 16, 2020

Reassessment – Escaped turnover – Assessment year 2004-05 – Fast track assessment notice served in view of escaped turnover on 20/11/2019 – Demand raised – Writ filed – Held nothing on record to show material forming opinion to undertake fast track assessment in respect of escaped turnover as required u/s 17D of the KGST Act, 1963- In absence of statutory period given in S.17D, assessment cannot be taken after 14 yrs – S. 19 regarding escaped turnover to be referred in such case – Therefore, assessment to be done within five years from the expiry of the year to which tax relates – As per amendment in S.17, assessment for year 2004-05 to be completed before March 31, 2011 – Writ allowed setting aside demand notice and assessment order

The petitioner filed returns for the year 2004-05 thereby paying tax and migrated to the GST regime in year 2017. A notice dated 20/11/2019 was served for reassessment of proceedings by fast track assessment u/s 17D of KGST Act, 1963 in view of escaped assessment. The assessment order was passed on 14/12/19 demanding interest and penalty. On filing of writ

It Is held that u/s 19 of the Act; the Assessing Authority may at any time within five years from the expiry of the year to which the tax relates, proceed to determine the best of its judgment in respect of escaped turnover.

As per amendment in section 17, the assessment relating to year upto and including 2004-05 running as on 31st march 2010 was to be completed on or before march 31st, 2011.

There is no material on record as per the provision of section 17D to form an opinion to undertake fast track assessment with respect to escaped turnover. In absence of statutory period in section 17D, the assessment for escaped turnover cannot be taken 14 yrs later. The reasonable period can be extended upto the period referred to in other provision regarding escaped assessment u/s 19. Hence the demand notice and assessment order are quashed and writ is allowed.

  1. S. 2(42A) : Short-term capital asset – Shares of unlisted company – Holding shares for more than 12 months and transferring them prior to 31-03-2014 to be treated as long term capital gains – Holding Shares for more than 12 months and transferring them prior to 31-3-2014 – Entitled to benefit of shorter period of holding – Gains to be Treated as long-term. [S. 2(29A), 2(29B), 45]

    The assessee bifurcated income from capital gains on sale of shares into short-term capital gains and the long-term capital gains. The assessee purchased the shares in the financial year 2012-13 and sold them in the assessment year 2014-15, she computed the indexed cost of acquisition of those shares. These shares were sold on March 21, 2014 and thus she claimed long-term capital gains. The AO held that the shares were held for less than 36 months and they were short-term capital assets. According to the provisions of S. 2(42A) of the Act the AO held that shares of an unlisted company, if held for less than 36 months, were not a long-term capital asset but a short-term capital asset. The CIT(A) gave partial relief. On appeal the Tribunal held that the benefit of the shorter period of holding of 12 months to qualify as long-term capital asset in respect of unlisted shares had been removed prospectively from the AY. 2015-16 and not for earlier years. The benefit of the shorter period for holding of unlisted shares would be available when such shares were transferred during the period beginning on April 1, 2014 and ending on July 10, 2014. Post-July 11, 2014 the benefit of the shorter period of unlisted shares could not be applicable. The shares had been transferred by the assessee prior to March 31, 2014. Therefore, the newly amended section would not be applicable and the assessee would get the benefit of the shorter period, i.e., period of less than 36 months as given in S. 2(42A) read with the proviso thereto in terms of the provision as it existed for the assessment year 2014-15. Thus, the authority was not justified in reclassifying the long-term capital gains as short-term capital gains. Accordingly, the gains on transfer of shares of Shares would be taxable as long-term capital gains as the assessee had held those shares for more than 12 months. (AY. 2014-15)

    Neelu Analjit Singh (Mrs.) v. Add. CIT (2020) 77 ITR 220 (Delhi)(Trib)

  2. S. 10(13A): House rent allowance – Qualifying amount – Ten Per Cent. of Salary – Performance bonus – Does not form part of salary for purpose of S. 10(13A) Entitled to allowance at 10% of salary excluding performance bonus [R. 2A]

    Tribunal held that the performance bonus does not form part of salary as defined in Rule 2A for the purposes of S. 10(13A). The total rent paid by the assessee during the year 2011-12 was ₹ 8.20 lakhs. The basic salary for the purpose of computation of house rent disallowance was ₹ 3 lakhs (10 per cent of ₹ 30 lakhs being the basic salary). Therefore, the excess of rent paid over 10 per cent of salary was ₹ 5.20 lakhs  (₹ 8.20 lakhs – ₹ 3 lakhs). Therefore, the assessee was entitled to house rent allowance at ₹ 5.20 lakhs under S. 10(13A) of the Act. The AO was directed to allow the exemption of house rent allowance at ₹ 5.20 lakhs. (AY. 2011-12)

    Sudip Rungta v. Dy. CIT (2020) 77 ITR 63 (SN)(Kol.)(Trib)

  3. S. 10A: Free trade zone – Special economic zones – Conversion of Export processing zone unit into special economic zone unit – Exemption cannot be denied

    Tribunal held that period of ten consecutive AYs shall be reckoned from AY relevant to previous year in which unit begins to manufacture or produce or process such articles or things or service in such free trade zone or export processing zone. Entitled to exemption for period of ten consecutive AY and S. 10A(1) is continuously applicable to unit even after being converted into special economic zone unit keeping in view the second Proviso to S. 10A (1). (AY. 2011-12)

    Classic Linens International P. Ltd. v. Dy. CIT (2020) 77 ITR 1 (Chennai)(Trib.)

  4. S. 11: Property held for charitable purposes – Trust – Beneficiaries a group of individuals – Does not mean association of persons – Assessee to be treated an individual. [S. 2(31)(v), 12A]

    Tribunal held that the trust was treated as an individual. Therefore, the AO was to tax the assessee treating it as an individual instead of an association of persons. The fact that the beneficiaries were a group of individuals did not mean that the liability of the assessee was of the association of persons. The term “individual” does not mean a single living human being. It can include a body of individuals constituting a unit for the purposes of the Act. Even though the assessment of income was in the hands of the Trust, it had to be made in the same manner and to the same extent as it would have been made in the hands of the beneficiaries. (AY. 2012-13)

    Saraswat Hitwardhak v. ITO (2020) 77 ITR 89 (SN)(Mum.)(Trib.)

  5. S. 22 : Income from house property – Deemed owner – Income from house property – Income from business – Sub-letting of property – Leasing of property for a period exceeding 12 years – Lease rental is assessable as income from house property and not as business income.
     [S. 27(iiib), 28 (i), 56, 269UA(f)]

    Tribunal held that, leasing of property for a period exceeding 12 years. Lease rental is assessable as income from house property and not as business income. (AY. 1990-91 to 1992-93, 1994-95, 1998-99, 2000-01 to 2003-04)

    Nahalchand Laloochand P. Ltd. v. Dy. CIT (2020) 77 ITR 664 (Mum.)(Trib.)

  6. S. 22: Income from house property – Business income – Unsold flats –Stock in trade – No rental income to be computed when flats held as stock-in-trade [S. 23(5), 28(i)]

    The assessee is a builder and developer. During the course of assessment proceedings it was found that the assessee had on hand unsold flats and shops. The AO computed the notional rental on such stock-in-trade under the head “Income from house property” at ₹ 5,54,400. The CIT (A) upheld the contention of assessee in taxing the income as income from business. On appeal the Tribunal held that no rental income could be computed when the flats were held as stock-in-trade. The Finance Act, 2017 with effect from April 1, 2018 has inserted sub-section (5) of section 23 which has the effect of providing that from the assessment year 2018-19, stock-in-trade of buildings, etc., shall be liable to be considered for computation of annual value under the head “Income from house property” after two years from the end of the financial year in which the certificate of completion of construction of the property is obtained. As the assessment year was 2015-16, the amended S. 23 would not apply. (AY. 2015-16)

    Rafiahamad Rasul Patel v. ITO (2020) 77 ITR 16 (SN)(Pune) (Trib)

  7. S. 23: Income from house property – Business income – Annual letting value – Non-resident Director – Flat used as residence as well as carrying on business – Notional value from property cannot be assessed as income from house property. [S. 22, 23(1), 23(4), 28(i)]

    Assessee owning flat and giving to Non-resident director for residence as well as carrying on business therein. Tribunal held that flat a business asset used partly for business and partly for residence of both shareholder directors, notional income from property cannot be assessed as income from house property. (AY. 2013-14)

    Record Investments and Leasing Pvt. Ltd. v. ITO (2020) 77 ITR 76 (SMC)(SN)(Mum.)(Trib.)

  8. S. 32 : Depreciation – Survey – Statement on oath – Merely on the basis of statement made in the course of survey – Depreciation cannot be disallowed. [S. 133A]

    Tribunal held that merely on the basis of statement made in the course of survey depreciation cannot be disallowed when the assessee has produced the reconciliation chart of plant and machinery with Dalal Mott Macdonald report were also submitted to the effect that machines were very much there and inspection was duly carried out by the surveyor. And Valuation Report certificate dated 26-5-2003 wherein before granting loan IDBI Bank carried out inspection and Valuation Report was duly prepared wherein details of all the machines were given. (AY. 2002-03, 2005-06)

    Shree Rama Multi-Tech Ltd. v. Dy. CIT (2020) 185 DTR 163 / 203 TTJ 129 (Ahd.)(Trib.)

  9. S. 40(a)(ia): Amounts not deductible – Deduction at source – Labour charges – Failure to deduct tax at source – As per amendment brought to Finance Act, 2014 in S. 40(a)(ia) w.e.f. 1-4-2015, disallowance is restricted to 30% of amount of expenditure claimed – Amendment is applicable to retrospective effect. [S. 194C, 194H]

    The assessee had claimed labour charges, Architect Fees and towards expenses under head commission, which were in nature of payments made towards contract payment u/s. 194C, professional fees payment u/s. 194H and commission payment u/s. 194H. Assessee had also failed to deposit TDS amount so deducted from payments made towards expenses on account of labour charges, professional fees and commission to Central Govt. A/c within specified time limit. AO made disallowance u/s 40(a)(ia) of the Act. CIT(A) confirmed the disallowance. On appeal the Tribunal held that as per amendment brought to Finance Act, 2014 in s. 40(a)(ia) w.e.f. 1-4-2015 if 100% disallowance made u/s 40(a)(ia), that would be restricted to 30% only giving retrospective effect. Intent of legislature to reduce hardship, it was proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in s. 40(a)(ia), disallowance should be restricted to 30% of amount of expenditure claimed. (AY. 2014 -15)

    Om Sri Nilamadhab Builders Pvt. Ltd. v. ITO (2020) 185 DTR 201 / 203 TTJ 229 (CTK.)(Trib.)

  10. S. 40(b)(iii): Amounts not deductible – Working partner – Remuneration – Interest – Rejection of books of account and assessment adopting 8 Per cent. of gross turnover as net profit – Separate deduction towards interest on partner’s capital account and remuneration to partner is to be allowed, when net profit is estimated from gross receipts. [S. 133A]

    Tribunal held, that the partnership deed contained a provision for interest on capital at 12 per cent. per annum and clause 17 provided for remuneration to whole time working partners and the method of computation of remuneration. By a supplementary deed the manner of paying remuneration to the whole time working partners had been revised. In the assessment years 2009-10 to 2011-12, the assessee had claimed interest on capital and remuneration to the partners, which was verifiable from the computation of income. The AO was directed to allow remuneration to the partners and interest on capital as per the provisions of law. Interest on the partners’ capital account and remuneration to partners was allowable as deduction even after estimation of the net profit from the gross receipts. (AY. 2012-13)

    Mayasheel Construction v. Dy. CIT (2020) 77 ITR 8 (SN)(Delhi)(Trib.)

  11. S. 54: Capital gains – Profit on sale of property used for residence – Purchase of residential house – Land purchased admeasuring 4973.125 square Feet – Building constructed of 150 square feet – only 25 per cent. of total plot area to be considered as land appurtenant thereto [S. 45]

    The assessee held a plot of land of 4973.125 square feet. It had building of 220 square feet on the plot of land which was even less than 5 per cent. of the total plot of land. Thus, it could not be said that the rest of the plot of land was appurtenant to the building of 220 square feet existing on the plot of land for enjoyment of the building. The assessee had claimed that there was open space which was used for car park, septic tank, garden, etc. These open spaces may be an integral part but certainly these were not required to enjoy the building of 220 square feet on the plot of land of 4973.125 square feet. Both the authorities had concurred that 25 per cent. of the total plot area to be considered land appurtenant thereto. It could not be said that the estimation done by the authorities was perverse or without any reasonable basis. (AY. 2013-14)

    Maduranthagam Selvaraj Ravi v. Dy. CIT (2020) 77 ITR 6 (SN)(Chennai)(Trib.)

  12. S. 54: Capital gains – Profit on sale of property used for residence – No requirement that construction of house should have been completed within specified time – Matter remanded for verification. [S. 45]

    1. Tribunal held that the requirement of S. 54 of the Act is for the assessee to have either purchased a residential house, being a new asset, within the stipulated period or constructed a residential house within a period of three years from the date of transfer. The section does not prescribe the completion of construction of residential house and the thrust was on the investment of net consideration received on sale of original asset and start of construction of a new residential house. It was incorrect to insist that the assesse should establish that the residential house was complete and then ask for benefit under s. 54. Since no documentary evidence had been furnished and only a claim had been made, the issue was restored to the file of the AO. (AY. 2013-14)

    2. Rakesh Kumar Kalra v. ITO (2020) 77 ITR 36 (SN)(Delhi)(Trib.)

  13. S. 64 : Clubbing of income – Set-off of business loss of the wife in the assessment of husband – Entire amount of loss resulting from the business started by wife with the gifts received from her husband is liable to be clubbed in the hands of the assessee. [S. 64(1)(iv)]

    The assessee filed return declaring total income of ₹ 4,59,830/- comprising, inter alia, Business income. During the course of assessment proceedings, the AO observed from the computation of total income that the assessee clubbed loss from the business of his spouse amounting to ₹ 31,56,429/- in view of the provisions of S. 64 of the Act. On being called upon to justify such a claim, the assessee submitted that during the year under consideration he gifted a sum of ₹ 94.50 lakh to Mrs. Priti Bhaskarwar, his wife, who started business of Futures and Options (F&O) on 18-9-2013. The assessee claimed that she incurred loss of ₹ 31,56,429/- in such business, which was clubbed in his hands. The AO accepted the primary claim of the assessee of his wife having incurred loss of ₹ 31.56 lakh in the business of F&O, which was set up on 18-9-2013 and further that loss from such business was eligible for set off against the income of the assessee in terms of S. 64(1)(iv) read with Explanation 3 thereto. He, however, did not accept the assessee’s contention that the entire loss of ₹ 31.56 lakh be set off against the assessee’s income. CIT(A) also affirmed the order of the AO. On appeal the Tribunal held that, entire amount of loss resulting from the business started by wife with the gifts received from her husband is liable to be clubbed in the hands of the assessee.
     (AY. 2014-15)

    Uday Gopal Bhaskarwar v. ACIT (2020) 186 DTR 65 / 203 TTJ 776 (SMC)(Pune)(Trib.)

  14. S. 68: Cash credits – Penny stock – Bogus capital gains – Not sufficiently discharged the onus on proving the source of deposits – Addition is restricted to 30% with the a rider that same shall not be treated as a precedent to other assessment years [S. 10(38), 45]

    The assessee has produced documentary evidence in respect of sale of shares to demonstrate that the capital gains on sale of shares is exempt from tax. Tribunal held that as the detailed explanation of the assessee does not sufficiently discharge the onus on proving the source of impugned deposits, the impugned addition should be restricted to 30% only with a rider that same shall not be treated as a precedent in any other assessment year. (ITA No. 1790-1791/Kol/2019 Dt. 14-2-2020) (AY 2014-15 & 2015-16)

    Neha Chowdhary v. ITO (SMC)(Kol.)(Trib.) www.itatonline.org

  15. S. 69: Undisclosed investments – Bogus capital gains – Penny stocks – Explanation is not sufficient to discharge the liability – Addition is restricted to 30% with a rider that same shall not be treated as a precedent in any other assessment year. [S. 10(38), 45, 68, 143(3)]

    The assessee is a salaried person who was sold her stock holding in shares in the relevant two previous years. AO treated as unexplained income since assessee could not prove source thereof during the course of scrutiny as well as in the lower appellate proceedings. Tribunal held that the fact remains that her detailed explanation tendered in the course of assessment does not sufficiently discharge her onus on proving the source of impugned deposits. Accordingly considering peculiar facts and circumstances that the addition(s) of ₹ 17,88,666/- and ₹ 16,53,772/- are restricted to that @ 30% only with a rider that same shall not be treated as a precedent in any other assessment year. The assessee gets part relief accordingly. (ITA No. 1790-1791/Kol/2019, dt. 14-2-2020) (AY. 2014-15, 2015-16)

    Neha Chowdhary v. ITO (SMC)(Kol.)(Trib.) www.itatonline.org

  16. S. 69: Unexplained investments – Books of account not audited – Net profit to be estimated at 8% – Cash gift from relatives – Mother in law – Relative – Agricultural income – No reason to doubt genuineness and creditworthiness of source – Addition is not justified. [S. 56, Explanation, (e), 68]

    Tribunal held that the assessee had not shown the business receipts and income under the head business income but this could not preclude the assessee from claiming incidental expenses incurred for carrying out business. Though assessee had declared 6.28 per cent. net profit rate on the transport business on the gross receipts of ₹ 19,88,592, an estimate of net profit at 8 per cent. of the gross receipts of ₹ 19,88,592, i.e., ₹ 1,59,087 would be justified. As regards the gifts of ₹ 10 lakhs and ₹ 2.50 lakhs were received in cash. During the course of appellate proceeding the assessee placed sufficient documentary evidence to prove the identity, genuineness and creditworthiness of the donors. The gift of ₹ 10 lakhs received from the assessee’s mother-in-law who was said to be the owner of around 50 acres agricultural land receiving regular income from agricultural proceeds for many years. The gift deed was duly notarised and she had declared her accumulated capital, stridhan and income from gift received from her husband who was earning regular agricultural income, was the source of the gift given to her son-in-law. The fact that the mother-in-law had regular source of agricultural income and the authenticity of gift deed had not been disputed. She was also “relative” of the assessee as provided in clause (e) of Explanation to S. 56. There was no reason to doubt the genuineness and creditworthiness of the gift at ₹ 10 lakhs. (AY. 2010-11)

    Vinod Kumar Jain v. ITO (2020) 77 ITR 83 (SN)(Indore)(Trib.)

  17. S. 70 : Set off of loss – Long term capital loss against long term capital gains – Long term capital loss arising out of sale of shares cannot be set off against long-term capital gain from sale of shares subjected to STT and claimed exempt u/s. 10(38) – Directed the AO to allow carry forward of long term capital loss as claimed by the assessee. [S. 2(14), 10(38), 45, 74]

    The assessee had long term capital gain of ₹ 519,21,44,332 on which it has paid Securities Transaction Tax (STT) hence, claimed as exempt u/s. 10(38) of the Act. In the course of assessment proceedings, the AO noticed that the assessee had claimed carry forward of long term capital loss from sale of shares, though STT paid, at ₹ 31,00,52,918. However, the assessee has not set off long term capital loss against long term capital gain. Therefore, he called upon the assessee to explain why such long term capital loss should not be set off against long term capital gain and carry forward of loss to such extent should not be disallowed. In response, it was submitted by the assessee that as per S. 10(38) of the Act, only income arising from long term capital gain on sale of shares subjected to STT is exempt u/s. 10(38) of the Act. Thus, it does not include loss arising out of sale of shares. The AO however, did not find merit in the submissions of the assessee. He observed, the term income as used in S. 10(38) refers to the entire receipts arising from transfer of long term capital asset and also includes loss. Accordingly, he set off the long term capital loss against the exempt long term capital gain, which resulted in part disallowance of carry forward of long term capital loss. The aforesaid decision of the AO was also upheld by the CIT(A). The Tribunal held that the long term capital loss arising out of sale of shares cannot be set off against long term capital gain from shares subjected to STT and claimed exempt u/s. 10(38) of the Act. Accordingly directed the AO to allow carry forward of long term capital loss as claimed by the assessee. (AY. 2007-08)

    Nomura India Investment Fund Mother Fund v. ADIT (IT) (2020) 186 DTR 212 / 203 TTJ 212 (Mum.)(Trib.)

  18. S. 143(3): Assessment – Survey – Difference in stock – Statement recorded during survey not under oath – Retraction of statement with explanation – Addition is held to be not justified. [S. 133A]

    Allowing the appeal of the assessee the Tribunal held that, merely on the basis of statement, addition cannot be when the statement was retracted and detailed explanation with supporting evidence was fled in the course of assessment proceedings. The Tribunal held that the AO had simply ignored the evidence and had made the addition merely on the basis of the letter submitted by the assessee which stood retracted later. Moreover, the surrender was not under oath. The Assessing Officer had not brought any material to rebut the explanation of the assessee. S. 133A does not empower any Income-tax authority to examine any person on oath and therefore any admission made in a statement recorded during survey cannot by itself be made the basis of addition. Thus the addition was not tenable in the eyes of law and was deleted. (AY. 2012-13)

    MNP Turnmatics v. ITO (2020) 77 ITR 31 (SN)(Delhi)(Trib.)

  19. S. 148: Reassessment – Notice – Reply stating that original return filed should be treated as return filed in repose to notice u/s. 148 – Postal receipt is filed – Neither notice u/s. 143(2) is issued nor assessment completed u/s. 144 of the Act nor interest charged u/s. 234A – Reassessment is held to be not valid [S. 139, 143(2), 144, 147, 234A]

    Tribunal held that the notice under S. 148 was issued on the same date, the objection of the assessee for such reopening was disposed of by the AO passing a speaking order on the same date, the reassessment orders for both the years were passed on the same date and the CIT (A) also had passed the appellate orders for both the years separately on the same date. Therefore, it could not be said that the assessee had filed the reply for treating the earlier return as the return in response to the notice under S. 148 only for the AY. 2010-11 and not for the AY. 2011-12, especially when the postal receipts for both the speed posts were also on the same date. Since, the assessee filed the letter stating that the return filed originally may be treated as return filed in response to the notice under S. 148 and since the notice under S. 143(2) was not issued within the statutory period and since the assessment was not completed under S. 144 nor any interest under S. 234A charged which indirectly proved that the assessee, in fact, had filed the letter stating that the return filed originally may be treated as return filed in response to the notice under S. 148. Therefore, the assessment order passed by the AO was not in accordance with law and had to be quashed. (AY. 2011-12)

    Flovel Energy Pvt. Ltd. v. ACIT (2020) 77 ITR 441 (Delhi)(Trib.)

  20. S. 151 : Reassessment – Sanction for issue of notice – Approval granted in mechanical manner and without application of mind – Reopening is not valid. [S. 147, 148]

    Tribunal held that the approval for initiating reassessment proceedings had been granted by the Additional Commissioner mechanically and without application of mind and was not valid because the remarks did not show which material, information, documents and which other aspects he had been gone through and examined for reaching the satisfaction for granting approval. Thereafter, the AO had mechanically issued notice under S. 148 of the Act. The reopening is held to be bad in law. (AY. 2008-09)

    APC Air Systems P. Ltd. v. ITO (2020) 77 ITR 21 (SN)(Delhi)(Trib.)

  21. S. 195: Deduction at source – Non-resident – The payment by an Indian company to a foreign celebrity (Nicholas Cage) for an appearance by him in Dubai, UAE, in a product launch event for promoting the business of the assessee in India, is taxable as arising from a “business connection” and also under Article 23(1) of India-USA tax treaty – Liable to deduct tax at source – DTAA- India-USA [S. 5(2)(b), 9(1), 115BBA, 201, Art. 23(1)]

    Dismissing the appeal of the assessee the Tribunal held that, the payment by an Indian company to a foreign celebrity (Nicholas Cage) for an appearance by him in Dubai, UAE, in a product launch event for promoting the business of the assessee in India, is taxable as arising from a “business connection” and also under Article 23(1) of India-USA tax treaty. Accordingly, the assessee had the liability to withhold taxes from payment made for appearance made by the celebrity at Dubai A8L launch event, and the CIT(A) was justified in upholding impugned demands raised under section 201 r.w.s. 195 of the Income Tax Act, 1961. (ITA No. 2195/Mum/2017, Dt. 19/3/2020) (AY. 2015-16)

    Volkswagen Finance Pvt. Ltd. v. ITO (2020) 115 taxmann.com 386 (Mum.)(Trib.) www.itatonline.org

  22. S. 199: Deduction at source – Credit for tax deducted – Deducutor has deducted the tax at source though failed to deposit the tax with the Govt. deductee cannot be made to suffer – Credit for the tax deducted at source has to be allowed in the hands of the deductee irrespective of whether the same has been deposited by the deductor to the credit of the Central Government or not [S. 205]

    Tribunal held that, in a case where the deductor has deducted tax at source but has not deposited the tax with the Govt., the assessee cannot be made to suffer. U/s. 205, the assesse / deductee cannot be called upon to pay the tax. Credit for the tax deducted at source has to be allowed in the hands of the deductee irrespective of whether the same has been deposited by the deductor to the credit of the Central Government or not. Followed Yashpal Sahani v. Rekha Hajarnavis, [2007] 165 taxman 144 (Bom.)(HC) Sumit Devendra Rajani v. ACIT [2014] 49 taxmann.com 31 (Guj.)(HC) Pushkar Prabhat Chandra Jain v. Union of India [2019] 103 taxmann.com 106 (Bom.)(HC) (ITA No. 5708/Del/2019, Dt. 23/12/2019) (AY. 2015-16)

    Aricent Technologies Holdings Ltd. v. ACIT (Delhi)(Trib.) www.itatonline.org

  23. S. 250: Appeal – Commissioner (Appeals) – Duties – CIT (A) to state point in dispute – Record reasons – Pass speaking order – Matter remanded to decide on merits. [S. 250(6)]

    Tribunal held that sub – S. (6) of S. 250 mandates the CIT (A) to state the point in dispute and thereafter record reasons in support of his conclusion. The finding given by him indicated that the order was not in consonance with the mandate given in the Act. He had not made any analysis of the submissions filed by the assessee or the point raised by him during the assessment proceedings. Therefore, the order was not sustainable. The issue was remitted to adjudicate on the merits. Once the quantum proceedings were set aside, then the very basis to compute penalty was extinguished. The CIT (A) shall adjudicate the issue with regard to the levy of penalty after adjudication of the quantum appeal. (AY. 2011-12)

    Jitendra Narsinhbhai Talpada v. ITO (2020) 77 ITR 47 (SN)(Ahd.)(Trib.)

  24. S. 254(1): Appellate Tribunal – Duties Order – Limitation – Pronouncement – The period of 90 days should be computed by excluding at least the period during which the lockdown due to Covid-19 was in force. [ITAT R. 34(5)]

    On the facts of the case the matter was heard on 7-1-2020 and order was pronounced on 14-5-2020. Tribunal held that Rule 34(5) of the ITAT Rules provides that “ordinarily” the order on an appeal should be pronounced within no more than 90 days from the date of concluding the hearing. A pedantic view of the rule cannot be taken. The period of 90 days should be computed by excluding at least the period during which the lockdown due to Covid-19 was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. (ITA No. 6264/M/18 dt. 14-05-2020) (AY. 2013-14)

    Dy. CIT v. JSW Ltd. (2020) 116 taxmann.com 565 (Mum.)(Trib.) www.itatonline.org

  25. S. 254(2A): Appellate Tribunal – Stay – Video conferencing –Attachment of bank account lifted and stay against coercive recovery granted. [S. 226(3)]

    Tribunal held that as the physical office of the ITAT is not functioning due to the lockdown, the stay petition was heard through video conferencing, from home offices of the respective Members. Attachment of bank account lifted and stay against coercive recovery granted as all of us are traversing through one of the toughest patch of time, facing the Covid 19 pandemic, and the poorer sections of society are hardest hit. It is necessary for every employer company to take care of its employees. The assessee not in a position to perform these obligations in view of the attachment of its bank accounts and debtors. (SA No. 184/Mum/2020 Arising out of ITA No. 189/Mum/2020, dt. 24-4-2020) (AY. 2010-11)

    Pandhes Infracon Pvt. Ltd. v. ACIT (2020) 116 taxmann.com 376 (Mum.)(Trib.) www.itatonline.org

    Editorial: ITAT Mumbai created history by hearing a stay petition, on humane ground during period of complete lockdown, through video conferencing from home offices of Coram Members.

  26. S. 254(2A): Appellate Tribunal – Stay – Garnishee notices – Department should wait till disposal of stay petition – Interim stay is granted and garnishee proceedings placed under suspension till disposal of stay petition [S. 226(3), 254(1)]

    The assessee prayed that the recovery proceedings be stayed till the disposal of the appeal by the Tribunal and to restrain the AO from taking any coercive action as regards recovery of tax, interest and penalty levied or leviable for the assessment year 2013-14 and to forthwith release the attachment of bank accounts. Tribunal held that the hearing of the stay petition was concluded but the order thereon had not been passed. In the meantime, the Department had already issued garnishee notices under S. 226(3) of the Act to the bankers of the assesses. Such undue haste in recovery of the disputed demands, in respect of which the hearing of appeal as also the stay petition had already concluded, was inappropriate. The Department should have at least waited for the disposal of the stay petition. In these circumstances, the garnishee proceedings initiated by the Department should be placed under suspension till the stay petition was disposed of. In the meantime, operation of all the garnishee notices issued by the Department on the bankers of the assessee shall remain suspended. The Department was further directed not to resort to, or continue with, any other coercive measures also, in the meantime, to recover the disputed outstanding demands. (AY. 2013-14)

    Cleared Secured Services Pvt. Ltd. v. Dy. CIT (2020) 77 ITR 93 / 186 DTR 105 / 203 TTJ 657 (SN)(Mum.)(Trib.)

  27. S. 263: Commissioner – Revision of orders prejudicial to revenue – Limitation – Doctrine of merger – Revision on issues not subject matter of reassessment but pertaining to original assessment -Limitation would run from date of order of original assessment and not from date of order of reassessment – Revision barred by limitation [S. 143(3), 147, 263(2)]

    Tribunal held that the three issues raised by the PCIT did not pertain to the reassessment. Thus, the error, if any, committed by the AO related to the original assessment order. Where that part of the order of assessment was found to be prejudicial to interests of the Revenue which had nothing to do with the reassessment proceedings and was never a subject matter of the reassessment proceedings, the doctrine of merger would not apply and the period of limitation provided for in S. 263(2) of the Act would begin to run from the date of order of the original assessment and not from the order of reassessment. Thus, the revisional jurisdiction being beyond the period of limitation was wholly without jurisdiction rendering the entire proceeding a nullity. (AY. 2008-09)

    Shyam Steel Manufacturing Ltd. v. Dy. CIT (2020) 77 ITR 37 (SN)(Kol.)(Trib.)

  28. S. 263: Commissioner – Revision of orders prejudicial to revenue – Interest received by head office is chargeable to tax or not is a debatable issue – Revision cannot be initiated on the basis of retrospective amendment as the AO has to proceed on the basis of law prevailing as on the date of assessments – Revision is held to be not valid – DTAA – India-USA. [S. 9(1)(v)(c), Art. 14(6)]

    Allowing the appeal the Tribunal held that, revision cannot be initiated on the basis of retrospective amendment as the AO has to proceed on the basis of law prevailing as on the date of assessments. Revision is held to be not valid. Whether or not interest received by the Head Office / overseas Branches from the Indian Branch is taxable in India is a highly debatable issue and the position of law prevailing at the time of completion of assessments as per the available judicial precedents on the issue, clearly held that the interest income was not taxable as it is governed by the principle of mutuality. Therefore, it cannot be said that it is not a possible view. (AY. 2011-12, 2012-13)

    JP Morgan Chase Bank N.A. v. Dy. CIT (2020) 185 DTR 305 / 203 TTJ 443 (Mum.)(Trib.)

  29. S. 263: Commissioner – Revision of orders prejudicial to revenue – Closing stock – Limited scrutiny – What cannot be done directly cannot be done indirectly – PCIT in the garb of his revisional jurisdiction u/s. 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the AO while framing the assessment [S. 115JB, 142(1), 143(3)]

    Tribunal held that when the case of the assessee was selected for limited scrutiny for the reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison High Loans / advance / Investment in shares, therefore, no infirmity could be attributed to the assessment framed by the AO on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. PCIT in the garb of his revisional jurisdiction u/s. 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the AO while framing the assessment. Revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the AO while framing the assessment. As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the issues for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for the reason, that he had failed to dwell upon certain other issues which did not form part of the reasons for which the case was selected for limited scrutiny under CASS. Revision order was quashed. (AY. 2014-15)

    Suraj Diamond Dealers Pvt. Ltd. v. PCIT (2020) 185 DTR 1 / 203 TTJ 127 (Mum.)(Trib.)

  30. S. 271(1)(c): Penalty – Concealment – Inapplicable words in notice not struck off – Penalty order not specifying exactly under which limb penalty is levied – Penalty is held to be unjustified. [S. 274]

    The AO levied penalty which was confirmed by the CIT (A) on appeal the Tribunal held that notices under S. 274 read with S. 271(1)(c) issued to the assessee showed the inapplicable words in the notice had not been struck out. Even the last line of the notice only spoke of S. 271 and did not mention of S. 271(1)(c). The penalty order was based on furnishing of inaccurate particulars but the notice did not specify exactly under which limb the penalty under S. 271(1)(c) had been initiated. The AO was not sure under which limb of provisions of S. 271 the assessee was liable for penalty. The penalty levied under S. 271(1)(c) was not sustainable. (AY. 2011-12).

    Dibyajyoti Chemicals P. Ltd. v. Dy. CIT (2020) 77 ITR 40 (SN)(Cuttack)(Trib.)

  31. S. 271(1)(c): Penalty – Concealment – Vague allegation – Not specifying specific charge – Levy of penalty is not valid [S. 274]

    Tribunal held that notice under S. 274 should specifically state the grounds mentioned in S. 271(1)(c), i.e., whether it is for concealment of income or for furnishing of inaccurate particulars of income and sending a printed form where all the grounds mentioned in S. 271 are mentioned would not satisfy requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Accordingly, that in each of the notices issued by the AO under S. 274, the AO alleged that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income. The allegation was vague and no penalty could be levied. (AY. 2009-10 to 2014-15)

    Harshvardhan v. Dy. CIT (2020) 77 ITR 81 (SN)(Bang.)(Trib.)

  32. S. 271B : Penalty – Failure to get accounts audited – Civil contractor – Failure to keep and maintain books of account – No prescribed format for maintenance of books of account – Levy of penalty is not justified either u/s. 271A or u/s. 271B of the Act. [S. 44AB, 271A]

    Tribunal held, that since no format of books of account were prescribed under the Rules for civil contracts, penalty under S. 271A was not justified. When no penalty under S. 271A was leviable, penalty under S. 271B also could not be levied for non-audit as prescribed under S. 44AB of the Act. (AY. 2009-10 to 2014-15)

    Harshvardhan v. Dy. CIT (2020) 77 ITR 81 (SN)(Bang.)(Trib.)

  33. S. 271D: Penalty – Takes or accepts any loan or deposit – Money returned to father – Receipt of money from family members for medical emergency – Receipt of money from member of association for building school – Neither loan or advances – Levy of penalty is held to be not justified. [S. 269SS, 273B]

    Tribunal held that, money returned to father, receipt of money from family members for medical emergency and receipt of money from member of association for building school is neither loan or advances hence levy of penalty is held to be not justified. (AY. 2013-14)

    Gourang Chandra Nayak v. Jt. CIT (2020) 77 ITR 192 (Cuttack)(Trib.)

  34. S. 2(42A) : Short-term capital asset – Shares of unlisted company – Holding shares for more than 12 months and transferring them prior to 31-3-2014 to be treated as long term capital gains – Holding Shares for more than 12 months and transferring them prior to 31-3-2014 – Entitled to benefit of shorter period of holding – Gains to be Treated as long-term. [S. 2(29A), 2(29B), 45]

    The assessee bifurcated income from capital gains on sale of shares into short-term capital gains and the long-term capital gains. The assessee purchased the shares in the financial year 2012-13 and sold them in the assessment year 2014-15, she computed the indexed cost of acquisition of those shares. These shares were sold on March 21, 2014 and thus she claimed long-term capital gains. The AO held that the shares were held for less than 36 months and they were short-term capital assets. According to the provisions of S. 2(42A) of the Act the AO held that shares of an unlisted company, if held for less than 36 months, were not a long-term capital asset but a short-term capital asset. The CIT(A) gave partial relief. On appeal the Tribunal held that the benefit of the shorter period of holding of 12 months to qualify as long-term capital asset in respect of unlisted shares had been removed prospectively from the AY. 2015-16 and not for earlier years. The benefit of the shorter period for holding of unlisted shares would be available when such shares were transferred during the period beginning on April 1, 2014 and ending on July 10, 2014. Post-July 11, 2014 the benefit of the shorter period of unlisted shares could not be applicable. The shares had been transferred by the assessee prior to March 31, 2014. Therefore, the newly amended section would not be applicable and the assessee would get the benefit of the shorter period, i.e., period of less than 36 months as given in S. 2(42A) read with the proviso thereto in terms of the provision as it existed for the assessment year 2014-15. Thus, the authority was not justified in reclassifying the long-term capital gains as short-term capital gains. Accordingly, the gains on transfer of shares of Shares would be taxable as long-term capital gains as the assessee had held those shares for more than 12 months. (AY. 2014-15)

    Neelu Analjit Singh (Mrs.) v. Add. CIT (2020) 77 ITR 220 (Delhi)(Trib)

  35. S. 10(13A): House rent allowance – Qualifying amount – Ten Per Cent of Salary – Performance bonus – Does not form part of salary for purpose of S. 10(13A) Entitled to allowance at 10% of salary excluding performance bonus [R. 2A]

    Tribunal held that the performance bonus does not form part of salary as defined in Rule 2A for the purposes of S. 10(13A). The total rent paid by the assessee during the year 2011-12 was ₹ 8.20 lakhs. The basic salary for the purpose of computation of house rent disallowance was ₹ 3 lakhs (10 per cent of ₹ 30 lakhs being the basic salary). Therefore, the excess of rent paid over 10 per cent of salary was ₹ 5.20 lakhs (₹ 8.20 lakhs – ₹ 3 lakhs). Therefore, the assessee was entitled to house rent allowance at ₹ 5.20 lakhs under S. 10(13A) of the Act. The AO was directed to allow the exemption of house rent allowance at ₹ 5.20 lakhs. (AY. 2011-12)

    Sudip Rungta v. Dy. CIT (2020) 77 ITR 63 (SN)(Kol.)(Trib)

  36. S. 10A: Free trade zone – Special economic zones – Conversion of Export processing zone unit into special economic zone unit – Exemption cannot be denied

    Tribunal held that period of ten consecutive AYs shall be reckoned from AY relevant to previous year in which unit begins to manufacture or produce or process such articles or things or service in such free trade zone or export processing zone. Entitled to exemption for period of ten consecutive AY and S. 10A(1) is continuously applicable to unit even after being converted into special economic zone unit keeping in view the second Proviso to S. 10A (1). (AY. 2011-12)

    Classic Linens International P. Ltd. v. Dy. CIT (2020) 77 ITR 1 (Chennai)(Trib.)

  37. S. 11: Property held for charitable purposes – Trust – Beneficiaries a group of individuals – Does not mean association of persons – Assessee to be treated an individual. [S. 2(31)(v), 12A]

    Tribunal held that the trust was treated as an individual. Therefore, the AO was to tax the assessee treating it as an individual instead of an association of persons. The fact that the beneficiaries were a group of individuals did not mean that the liability of the assessee was of the association of persons. The term “individual” does not mean a single living human being. It can include a body of individuals constituting a unit for the purposes of the Act. Even though the assessment of income was in the hands of the Trust, it had to be made in the same manner and to the same extent as it would have been made in the hands of the beneficiaries. (AY. 2012-13)

    Saraswat Hitwardhak v. ITO (2020) 77 ITR 89 (SN)(Mum.)(Trib.)

  38. S. 22 : Income from house property – Deemed owner – Income from house property – Income from business – Sub-letting of property – Leasing of property for a period exceeding 12 years – Lease rental is assessable as income from house property and not as business income. [S. 27(iiib), 28 (i), 56, 269UA(f)]

    Tribunal held that, leasing of property for a period exceeding 12 years. Lease rental is assessable as income from house property and not as business income. (AY. 1990-91 to 1992-93, 1994-95, 1998-99, 2000-01 to 2003-04)

    Nahalchand Laloochand P. Ltd. v. Dy. CIT (2020) 77 ITR 664 (Mum.)(Trib.)

  39. S. 22: Income from house property – Business income – Unsold flats – Stock in trade – No rental income to be computed when flats held as stock-in-trade [S. 23(5), 28(i)]

    The assessee is a builder and developer. During the course of assessment proceedings it was found that the assessee had on hand unsold flats and shops. The AO computed the notional rental on such stock-in-trade under the head “Income from house property” at ₹ 5,54,400. The CIT (A) upheld the contention of assessee in taxing the income as income from business. On appeal the Tribunal held that no rental income could be computed when the flats were held as stock-in-trade. The Finance Act, 2017 with effect from April 1, 2018 has inserted sub-section (5) of section 23 which has the effect of providing that from the assessment year 2018-19, stock-in-trade of buildings, etc., shall be liable to be considered for computation of annual value under the head “Income from house property” after two years from the end of the financial year in which the certificate of completion of construction of the property is obtained. As the assessment year was 2015-16, the amended S. 23 would not apply. (AY. 2015-16)

    Rafiahamad Rasul Patel v. ITO (2020) 77 ITR 16 (SN)(Pune) (Trib)

  40. S. 23: Income from house property – Business income – Annual letting value – Non-resident Director – Flat used as residence as well as carrying on business – Notional value from property cannot be assessed as income from house property. [S. 22, 23(1), 23(4), 28(i)]

    Assessee owning flat and giving to Non-resident director for residence as well as carrying on business therein. Tribunal held that flat a business asset used partly for business and partly for residence of both shareholder directors, notional income from property cannot be assessed as income from house property.
     (AY. 2013-14)

    Record Investments and Leasing Pvt. Ltd. v. ITO (2020) 77 ITR 76 (SMC)(SN)(Mum.)(Trib.)

  41. S. 32 : Depreciation – Survey – Statement on oath – Merely on the basis of statement made in the course of survey – Depreciation cannot be disallowed. [S. 133A]

    Tribunal held that merely on the basis of statement made in the course of survey depreciation cannot be disallowed when the assessee has produced the reconciliation chart of plant and machinery with Dalal Mott Macdonald report were also submitted to the effect that machines were very much there and inspection was duly carried out by the surveyor. And Valuation Report certificate dated 26-5-2003 wherein before granting loan IDBI Bank carried out inspection and Valuation Report was duly prepared wherein details of all the machines were given. (AY. 2002-03, 2005-06)

    Shree Rama Multi-Tech Ltd. v. Dy. CIT (2020) 185 DTR 163 / 203 TTJ 129 (Ahd.)(Trib.)

  42. S. 40(a)(ia): Amounts not deductible – Deduction at source – Labour charges – Failure to deduct tax at source – As per amendment brought to Finance Act, 2014 in S. 40(a)(ia) w.e.f.
     1-4-2015, disallowance is restricted to 30% of amount of expenditure claimed – Amendment is applicable to retrospective effect. [S. 194C, 194H]

    The assessee had claimed labour charges, Architect Fees and towards expenses under head commission, which were in nature of payments made towards contract payment u/s. 194C, professional fees payment u/s. 194H and commission payment u/s. 194H. Assessee had also failed to deposit TDS amount so deducted from payments made towards expenses on account of labour charges, professional fees and commission to Central Govt. A/c within specified time limit. AO made disallowance u/s 40(a)(ia) of the Act. CIT(A) confirmed the disallowance. On appeal the Tribunal held that as per amendment brought to Finance Act, 2014 in s. 40(a)(ia) w.e.f. 1-4-2015 if 100% disallowance made u/s 40(a)(ia), that would be restricted to 30% only giving retrospective effect. Intent of legislature to reduce hardship, it was proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in s. 40(a)(ia), disallowance should be restricted to 30% of amount of expenditure claimed. (AY. 2014-15)

    Om Sri Nilamadhab Builders Pvt. Ltd. v. ITO (2020) 185 DTR 201 / 203 TTJ 229 (CTK.)(Trib.)

  43. S. 40(b)(iii): Amounts not deductible – Working partner – Remuneration – Interest – Rejection of books of account and assessment adopting 8 Per cent. of gross turnover as net profit – Separate deduction towards interest on partner’s capital account and remuneration to partner is to be allowed, when net profit is estimated from gross receipts. [S. 133A]

    Tribunal held, that the partnership deed contained a provision for interest on capital at 12 per cent per annum and clause 17 provided for remuneration to whole time working partners and the method of computation of remuneration. By a supplementary deed the manner of paying remuneration to the whole time working partners had been revised. In the assessment years 2009-10 to 2011-12, the assessee had claimed interest on capital and remuneration to the partners, which was verifiable from the computation of income. The AO was directed to allow remuneration to the partners and interest on capital as per the provisions of law. Interest on the partners’ capital account and remuneration to partners was allowable as deduction even after estimation of the net profit from the gross receipts. (AY. 2012-13)

    Mayasheel Construction v. Dy. CIT (2020) 77 ITR 8 (SN)(Delhi)(Trib.)

  44. S. 54: Capital gains – Profit on sale of property used for residence – Purchase of residential house – Land purchased admeasuring 4973.125 square Feet – Building constructed of 150 square feet – only 25 per cent. of total plot area to be considered as land appurtenant thereto [S. 45]

    The assessee held a plot of land of 4973.125 square feet. It had building of 220 square feet on the plot of land which was even less than 5 per cent of the total plot of land. Thus, it could not be said that the rest of the plot of land was appurtenant to the building of 220 square feet existing on the plot of land for enjoyment of the building. The assessee had claimed that there was open space which was used for car park, septic tank, garden, etc. These open spaces may be an integral part but certainly these were not required to enjoy the building of 220 square feet on the plot of land of 4973.125 square feet. Both the authorities had concurred that 25 per cent. of the total plot area to be considered land appurtenant thereto. It could not be said that the estimation done by the authorities was perverse or without any reasonable basis. (AY. 2013-14)

    Maduranthagam Selvaraj Ravi v. Dy. CIT (2020) 77 ITR 6 (SN)(Chennai)(Trib.)

  45. S. 54: Capital gains – Profit on sale of property used for residence – No requirement that construction of house should have been completed within specified time – Matter remanded for verification. [S. 45]

    Tribunal held that the requirement of S. 54 of the Act is for the assessee to have either purchased a residential house, being a new asset, within the stipulated period or constructed a residential house within a period of three years from the date of transfer. The section does not prescribe the completion of construction of residential house and the thrust was on the investment of net consideration received on sale of original asset and start of construction of a new residential house. It was incorrect to insist that the assesse should establish that the residential house was complete and then ask for benefit under s. 54. Since no documentary evidence had been furnished and only a claim had been made, the issue was restored to the file of the AO. (AY. 2013-14)

    Rakesh Kumar Kalra v. ITO (2020) 77 ITR 36 (SN)(Delhi)(Trib.)

  46. S. 64 : Clubbing of income – Set-off of business loss of the wife in the assessment of husband – Entire amount of loss resulting from the business started by wife with the gifts received from her husband is liable to be clubbed in the hands of the assessee.
     [S. 64(1)(iv)]

    The assessee filed return declaring total income of ₹ 4,59,830/- comprising, inter alia, Business income. During the course of assessment proceedings, the AO observed from the computation of total income that the assessee clubbed loss from the business of his spouse amounting to ₹ 31,56,429/- in view of the provisions of S. 64 of the Act. On being called upon to justify such a claim, the assessee submitted that during the year under consideration he gifted a sum of ₹ 94.50 lakh to Mrs. Priti Bhaskarwar, his wife, who started business of Futures and Options (F&O) on 18-9-2013. The assessee claimed that she incurred loss of ₹ 31,56,429/- in such business, which was clubbed in his hands. The AO accepted the primary claim of the assessee of his wife having incurred loss of ₹ 31.56 lakh in the business of F&O, which was set up on 18-9-2013 and further that loss from such business was eligible for set off against the income of the assessee in terms of S. 64(1)(iv) read with Explanation 3 thereto. He, however, did not accept the assessee’s contention that the entire loss of ₹ 31.56 lakh be set off against the assessee’s income. CIT(A) also affirmed the order of the AO. On appeal the Tribunal held that, entire amount of loss resulting from the business started by wife with the gifts received from her husband is liable to be clubbed in the hands of the assessee. (AY. 2014-15)

    Uday Gopal Bhaskarwar v. ACIT (2020) 186 DTR 65 / 203 TTJ 776 (SMC)(Pune)(Trib.)

  47. S. 68: Cash credits – Penny stock – Bogus capital gains – Not sufficiently discharged the onus on proving the source of deposits – Addition is restricted to 30% with the a rider that same shall not be treated as a precedent to other assessment years [S. 10(38), 45]

    The assessee has produced documentary evidence in respect of sale of shares to demonstrate that the capital gains on sale of shares is exempt from tax. Tribunal held that as the detailed explanation of the assessee does not sufficiently discharge the onus on proving the source of impugned deposits, the impugned addition should be restricted to 30% only with a rider that same shall not be treated as a precedent in any other assessment year. (ITA No. 1790-1791/Kol/2019 Dt. 14-2-2020)
     (AY 2014-15 & 2015-16)

    Neha Chowdhary v. ITO (SMC)(Kol.)(Trib.) www.itatonline.org

  48. S. 69: Undisclosed investments – Bogus capital gains – Penny stocks – Explanation is not sufficient to discharge the liability – Addition is restricted to 30% with a rider that same shall not be treated as a precedent in any other assessment year. [S. 10(38), 45, 68, 143(3)]

    The assessee is a salaried person who was sold her stock holding in shares in the relevant two previous years. AO treated as unexplained income since assessee could not prove source thereof during the course of scrutiny as well as in the lower appellate proceedings. Tribunal held that the fact remains that her detailed explanation tendered in the course of assessment does not sufficiently discharge her onus on proving the source of impugned deposits. Accordingly considering peculiar facts and circumstances that the addition(s) of ₹ 17,88,666/- and ₹ 16,53,772/- are restricted to that @ 30% only with a rider that same shall not be treated as a precedent in any other assessment year. The assessee gets part relief accordingly. (ITA No. 1790-1791/Kol/2019, dt. 14-2-2020) (AY. 2014-15, 2015-16)

    Neha Chowdhary v. ITO (SMC)(Kol.)(Trib.) www.itatonline.org

  49. S. 69: Unexplained investments – Books of account not audited – Net profit to be estimated at 8% – Cash gift from relatives – Mother in law – Relative – Agricultural income – No reason to doubt genuineness and creditworthiness of source – Addition is not justified. [S. 56, Explanation, (e), 68]

    Tribunal held that the assessee had not shown the business receipts and income under the head business income but this could not preclude the assessee from claiming incidental expenses incurred for carrying out business. Though assessee had declared 6.28 per cent. net profit rate on the transport business on the gross receipts of ₹ 19,88,592, an estimate of net profit at 8 per cent. of the gross receipts of ₹ 19,88,592, i.e., ₹ 1,59,087 would be justified. As regards the gifts of ₹ 10 lakhs and ₹ 2.50 lakhs were received in cash. During the course of appellate proceeding the assessee placed sufficient documentary evidence to prove the identity, genuineness and creditworthiness of the donors. The gift of ₹ 10 lakhs received from the assessee’s mother-in-law who was said to be the owner of around 50 acres agricultural land receiving regular income from agricultural proceeds for many years. The gift deed was duly notarised and she had declared her accumulated capital, stridhan and income from gift received from her husband who was earning regular agricultural income, was the source of the gift given to her son-in-law. The fact that the mother-in-law had regular source of agricultural income and the authenticity of gift deed had not been disputed. She was also “relative” of the assessee as provided in clause (e) of Explanation to S. 56. There was no reason to doubt the genuineness and creditworthiness of the gift at ₹ 10 lakhs. (AY. 2010-11)

    Vinod Kumar Jain v. ITO (2020) 77 ITR 83 (SN)(Indore)(Trib.)

  50. S. 70 : Set off of loss – Long term capital loss against long term capital gains – Long term capital loss arising out of sale of shares cannot be set off against long-term capital gain from sale of shares subjected to STT and claimed exempt u/s. 10(38) – Directed the AO to allow carry forward of long term capital loss as claimed by the assessee.
     [S. 2(14), 10(38), 45, 74]

    The assessee had long term capital gain of ₹ 519,21,44,332 on which it has paid Securities Transaction Tax (STT) hence, claimed as exempt u/s. 10(38) of the Act. In the course of assessment proceedings, the AO noticed that the assessee had claimed carry forward of long term capital loss from sale of shares, though STT paid, at ₹ 31,00,52,918. However, the assessee has not set off long term capital loss against long term capital gain. Therefore, he called upon the assessee to explain why such long term capital loss should not be set off against long term capital gain and carry forward of loss to such extent should not be disallowed. In response, it was submitted by the assessee that as per S. 10(38) of the Act, only income arising from long term capital gain on sale of shares subjected to STT is exempt u/s. 10(38) of the Act. Thus, it does not include loss arising out of sale of shares. The AO however, did not find merit in the submissions of the assessee. He observed, the term income as used in S. 10(38) refers to the entire receipts arising from transfer of long term capital asset and also includes loss. Accordingly, he set off the long term capital loss against the exempt long term capital gain, which resulted in part disallowance of carry forward of long term capital loss. The aforesaid decision of the AO was also upheld by the CIT(A). The Tribunal held that the long term capital loss arising out of sale of shares cannot be set off against long term capital gain from shares subjected to STT and claimed exempt u/s. 10(38) of the Act. Accordingly directed the AO to allow carry forward of long term capital loss as claimed by the assessee. (AY. 2007-08)

    Nomura India Investment Fund Mother Fund v. ADIT (IT) (2020) 186 DTR 212 / 203 TTJ 212 (Mum.)(Trib.)

  51. S. 143(3): Assessment – Survey – Difference in stock – Statement recorded during survey not under oath – Retraction of statement with explanation – Addition is held to be not justified. [S. 133A]

    Allowing the appeal of the assessee the Tribunal held that, merely on the basis of statement, addition cannot be when the statement was retracted and detailed explanation with supporting evidence was fled in the course of assessment proceedings. The Tribunal held that the AO had simply ignored the evidence and had made the addition merely on the basis of the letter submitted by the assessee which stood retracted later. Moreover, the surrender was not under oath. The Assessing Officer had not brought any material to rebut the explanation of the assessee. S. 133A does not empower any Income-tax authority to examine any person on oath and therefore any admission made in a statement recorded during survey cannot by itself be made the basis of addition. Thus the addition was not tenable in the eyes of law and was deleted. (AY. 2012-13)

    MNP Turnmatics v. ITO (2020) 77 ITR 31 (SN)(Delhi)(Trib.)

  52. S. 148: Reassessment – Notice – Reply stating that original return filed should be treated as return filed in repose to notice u/s. 148 – Postal receipt is filed – Neither notice u/s. 143(2) is issued nor assessment completed u/s. 144 of the Act nor interest charged u/s. 234A – Reassessment is held to be not valid [S. 139, 143(2), 144, 147, 234A]

    Tribunal held that the notice under S. 148 was issued on the same date, the objection of the assessee for such reopening was disposed of by the AO passing a speaking order on the same date, the reassessment orders for both the years were passed on the same date and the CIT (A) also had passed the appellate orders for both the years separately on the same date. Therefore, it could not be said that the assessee had filed the reply for treating the earlier return as the return in response to the notice under S. 148 only for the AY. 2010-11 and not for the AY. 2011-12, especially when the postal receipts for both the speed posts were also on the same date. Since, the assessee filed the letter stating that the return filed originally may be treated as return filed in response to the notice under S. 148 and since the notice under S. 143(2) was not issued within the statutory period and since the assessment was not completed under S. 144 nor any interest under S. 234A charged which indirectly proved that the assessee, in fact, had filed the letter stating that the return filed originally may be treated as return filed in response to the notice under S. 148. Therefore, the assessment order passed by the AO was not in accordance with law and had to be quashed. (AY. 2011-12)

    Flovel Energy Pvt. Ltd. v. ACIT (2020) 77 ITR 441 (Delhi)(Trib.)

  53. S. 151 : Reassessment – Sanction for issue of notice – Approval granted in mechanical manner and without application of mind – Reopening is not valid. [S. 147, 148]

    Tribunal held that the approval for initiating reassessment proceedings had been granted by the Additional Commissioner mechanically and without application of mind and was not valid because the remarks did not show which material, information, documents and which other aspects he had been gone through and examined for reaching the satisfaction for granting approval. Thereafter, the AO had mechanically issued notice under S. 148 of the Act. The reopening is held to be bad in law.
     (AY. 2008-09)

    APC Air Systems P. Ltd. v. ITO (2020) 77 ITR 21 (SN)(Delhi)(Trib.)

  54. S. 195: Deduction at source – Non-resident – The payment by an Indian company to a foreign celebrity (Nicholas Cage) for an appearance by him in Dubai, UAE, in a product launch event for promoting the business of the assessee in India, is taxable as arising from a “business connection” and also under Article 23(1) of India-USA tax treaty – Liable to deduct tax at source – DTAA-India-USA [S. 5(2)(b), 9(1), 115BBA, 201, Art. 23(1)]

    Dismissing the appeal of the assessee the Tribunal held that, the payment by an Indian company to a foreign celebrity (Nicholas Cage) for an appearance by him in Dubai, UAE, in a product launch event for promoting the business of the assessee in India, is taxable as arising from a “business connection” and also under Article 23(1) of India-USA tax treaty. Accordingly, the assessee had the liability to withhold taxes from payment made for appearance made by the celebrity at Dubai A8L launch event, and the CIT(A) was justified in upholding impugned demands raised under section 201 r.w.s. 195 of the Income Tax Act, 1961. (ITA No. 2195/Mum/2017, Dt. 19-3-2020) (AY. 2015-16)

    Volkswagen Finance Pvt. Ltd. v. ITO (2020) 115 taxmann.com 386 (Mum.)(Trib.) www.itatonline.org

  55. S. 199: Deduction at source – Credit for tax deducted – Deducutor has deducted the tax at source though failed to deposit the tax with the Govt. deductee cannot be made to suffer – Credit for the tax deducted at source has to be allowed in the hands of the deductee irrespective of whether the same has been deposited by the deductor to the credit of the Central Government or not
     [S. 205]

    Tribunal held that, in a case where the deductor has deducted tax at source but has not deposited the tax with the Govt., the assessee cannot be made to suffer. U/s. 205, the assesse / deductee cannot be called upon to pay the tax. Credit for the tax deducted at source has to be allowed in the hands of the deductee irrespective of whether the same has been deposited by the deductor to the credit of the Central Government or not. Followed Yashpal Sahani v. Rekha Hajarnavis, [2007] 165 taxman 144 (Bom.)(HC), Sumit Devendra Rajani v. ACIT [2014] 49 taxmann.com 31 (Guj.)(HC), Pushkar Prabhat Chandra Jain v. Union of India [2019] 103 taxmann.com 106 (Bom.)(HC), (ITA No. 5708/Del/2019, Dt. 23-12-2019) (AY. 2015-16)

    Aricent Technologies Holdings Ltd. v. ACIT (Delhi)(Trib.) www.itatonline.org

  56. S. 250: Appeal – Commissioner (Appeals) – Duties – CIT (A) to state point in dispute – Record reasons – Pass speaking order – Matter remanded to decide on merits. [S. 250(6)]

    Tribunal held that sub-S. (6) of S. 250 mandates the CIT (A) to state the point in dispute and thereafter record reasons in support of his conclusion. The finding given by him indicated that the order was not in consonance with the mandate given in the Act. He had not made any analysis of the submissions filed by the assessee or the point raised by him during the assessment proceedings. Therefore, the order was not sustainable. The issue was remitted to adjudicate on the merits. Once the quantum proceedings were set aside, then the very basis to compute penalty was extinguished. The CIT (A) shall adjudicate the issue with regard to the levy of penalty after adjudication of the quantum appeal. (AY. 2011-12)

    Jitendra Narsinhbhai Talpada v. ITO (2020) 77 ITR 47 (SN)(Ahd.)(Trib.)

  57. S. 254(1): Appellate Tribunal – Duties Order – Limitation – Pronouncement – The period of 90 days should be computed by excluding at least the period during which the lockdown due to Covid-19 was in force. [ITAT R. 34(5)]

    On the facts of the case the matter was heard on 7-1-2020 and order was pronounced on 14-5-2020. Tribunal held that Rule 34(5) of the ITAT Rules provides that “ordinarily” the order on an appeal should be pronounced within no more than 90 days from the date of concluding the hearing. A pedantic view of the rule cannot be taken. The period of 90 days should be computed by excluding at least the period during which the lockdown due to Covid-19 was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. (ITA No. 6264/M/18
     dt. 14-5-2020) (AY. 2013-14)

    Dy. CIT v. JSW Ltd. (2020) 116 taxmann.com 565 (Mum.)(Trib.) www.itatonline.org

  58. S. 254(2A): Appellate Tribunal – Stay – Video conferencing – Attachment of bank account lifted and stay against coercive recovery granted. [S. 226(3)]

    Tribunal held that as the physical office of the ITAT is not functioning due to the lockdown, the stay petition was heard through video conferencing, from home offices of the respective Members. Attachment of bank account lifted and stay against coercive recovery granted as all of us are traversing through one of the toughest patch of time, facing the Covid 19 pandemic, and the poorer sections of society are hardest hit. It is necessary for every employer company to take care of its employees. The assessee not in a position to perform these obligations in view of the attachment of its bank accounts and debtors. (SA No. 184/Mum/2020 Arising out of ITA No. 189/Mum/2020, dt. 24-4-2020)
     (AY. 2010-11)

    Pandhes Infracon Pvt. Ltd. v. ACIT (2020) 116 taxmann.com 376 (Mum.)(Trib.) www.itatonline.org

    Editorial: ITAT Mumbai created history by hearing a stay petition, on humane ground during period of complete lockdown, through video conferencing from home offices of Coram Members.

  59. S. 254(2A): Appellate Tribunal – Stay – Garnishee notices – Department should wait till disposal of stay petition – Interim stay is granted and garnishee proceedings placed under suspension till disposal of stay petition [S. 226(3), 254(1)]

    The assessee prayed that the recovery proceedings be stayed till the disposal of the appeal by the Tribunal and to restrain the AO from taking any coercive action as regards recovery of tax, interest and penalty levied or leviable for the assessment year 2013-14 and to forthwith release the attachment of bank accounts. Tribunal held that the hearing of the stay petition was concluded but the order thereon had not been passed. In the meantime, the Department had already issued garnishee notices under S. 226(3) of the Act to the bankers of the assesses. Such undue haste in recovery of the disputed demands, in respect of which the hearing of appeal as also the stay petition had already concluded, was inappropriate. The Department should have at least waited for the disposal of the stay petition. In these circumstances, the garnishee proceedings initiated by the Department should be placed under suspension till the stay petition was disposed of. In the meantime, operation of all the garnishee notices issued by the Department on the bankers of the assessee shall remain suspended. The Department was further directed not to resort to, or continue with, any other coercive measures also, in the meantime, to recover the disputed outstanding demands. (AY. 2013-14)

    Cleared Secured Services Pvt. Ltd. v. Dy. CIT (2020) 77 ITR 93 / 186 DTR 105 / 203 TTJ 657 (SN)(Mum.)(Trib.)

  60. S. 263: Commissioner – Revision of orders prejudicial to revenue – Limitation – Doctrine of merger – Revision on issues not subject matter of reassessment but pertaining to original assessment – Limitation would run from date of order of original assessment and not from date of order of reassessment – Revision barred by limitation [S. 143(3), 147, 263(2)]

    Tribunal held that the three issues raised by the PCIT did not pertain to the reassessment. Thus, the error, if any, committed by the AO related to the original assessment order. Where that part of the order of assessment was found to be prejudicial to interests of the Revenue which had nothing to do with the reassessment proceedings and was never a subject matter of the reassessment proceedings, the doctrine of merger would not apply and the period of limitation provided for in S. 263(2) of the Act would begin to run from the date of order of the original assessment and not from the order of reassessment. Thus, the revisional jurisdiction being beyond the period of limitation was wholly without jurisdiction rendering the entire proceeding a nullity. (AY. 2008-09)

    Shyam Steel Manufacturing Ltd. v. Dy. CIT (2020) 77 ITR 37 (SN)(Kol.)(Trib.)

  61. S. 263: Commissioner – Revision of orders prejudicial to revenue – Interest received by head office is chargeable to tax or not is a debatable issue – Revision cannot be initiated on the basis of retrospective amendment as the AO has to proceed on the basis of law prevailing as on the date of assessments – Revision is held to be not valid – DTAA – India-USA. [S. 9(1)(v)(c), Art. 14(6)]

    Allowing the appeal the Tribunal held that, revision cannot be initiated on the basis of retrospective amendment as the AO has to proceed on the basis of law prevailing as on the date of assessments. Revision is held to be not valid. Whether or not interest received by the Head Office / overseas Branches from the Indian Branch is taxable in India is a highly debatable issue and the position of law prevailing at the time of completion of assessments as per the available judicial precedents on the issue, clearly held that the interest income was not taxable as it is governed by the principle of mutuality. Therefore, it cannot be said that it is not a possible view.
     (AY. 2011-12, 2012-13)

    JP Morgan Chase Bank N.A. v. Dy. CIT (2020) 185 DTR 305 / 203 TTJ 443 (Mum.)(Trib.)

  62. S. 263: Commissioner – Revision of orders prejudicial to revenue – Closing stock – Limited scrutiny – What cannot be done directly cannot be done indirectly – PCIT in the garb of his revisional jurisdiction u/s. 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the AO while framing the assessment [S. 115JB, 142(1), 143(3)]

    Tribunal held that when the case of the assessee was selected for limited scrutiny for the reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison High Loans / advance / Investment in shares, therefore, no infirmity could be attributed to the assessment framed by the AO on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. PCIT in the garb of his revisional jurisdiction u/s. 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the AO while framing the assessment. Revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the AO while framing the assessment. As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the issues for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for the reason, that he had failed to dwell upon certain other issues which did not form part of the reasons for which the case was selected for limited scrutiny under CASS. Revision order was quashed. (AY. 2014-15)

    Suraj Diamond Dealers Pvt. Ltd. v. PCIT (2020) 185 DTR 1 / 203 TTJ 127 (Mum.)(Trib.)

  63. S. 271(1)(c): Penalty – Concealment – Inapplicable words in notice not struck off – Penalty order not specifying exactly under which limb penalty is levied – Penalty is held to be unjustified. [S. 274]

    The AO levied penalty which was confirmed by the CIT (A) on appeal the Tribunal held that notices under S. 274 read with S. 271(1)(c) issued to the assessee showed the inapplicable words in the notice had not been struck out. Even the last line of the notice only spoke of S. 271 and did not mention of S. 271(1)(c). The penalty order was based on furnishing of inaccurate particulars but the notice did not specify exactly under which limb the penalty under S. 271(1)(c) had been initiated. The AO was not sure under which limb of provisions of S. 271 the assessee was liable for penalty. The penalty levied under S. 271(1)(c) was not sustainable. (AY. 2011-12)

    Dibyajyoti Chemicals P. Ltd. v. Dy. CIT (2020) 77 ITR 40 (SN)(Cuttack)(Trib.)

  64. S. 271(1)(c): Penalty – Concealment – Vague allegation – Not specifying specific charge – Levy of penalty is not valid [S. 274]

    Tribunal held that notice under S. 274 should specifically state the grounds mentioned in S. 271(1)(c), i.e., whether it is for concealment of income or for furnishing of inaccurate particulars of income and sending a printed form where all the grounds mentioned in S. 271 are mentioned would not satisfy requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Accordingly, that in each of the notices issued by the AO under S. 274, the AO alleged that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income. The allegation was vague and no penalty could be levied. (AY. 2009-10 to 2014-15)

    Harshvardhan v. Dy. CIT (2020) 77 ITR 81 (SN)(Bang.)(Trib.)

  65. S. 271B : Penalty – Failure to get accounts audited – Civil contractor – Failure to keep and maintain books of account – No prescribed format for maintenance of books of account – Levy of penalty is not justified either u/s. 271A or u/s. 271B of the Act. [S. 44AB, 271A]

    Tribunal held, that since no format of books of account were prescribed under the Rules for civil contracts, penalty under S. 271A was not justified. When no penalty under S. 271A was leviable, penalty under S. 271B also could not be levied for non-audit as prescribed under S. 44AB of the Act. (AY. 2009-10 to 2014-15)

    Harshvardhan v. Dy. CIT (2020) 77 ITR 81 (SN)(Bang.)(Trib.)

  66. S. 271D: Penalty – Takes or accepts any loan or deposit – Money returned to father – Receipt of money from family members for medical emergency – Receipt of money from member of association for building school – Neither loan or advances – Levy of penalty is held to be not justified. [S. 269SS, 273B]

    Tribunal held that, money returned to father, receipt of money from family members for medical emergency and receipt of money from member of association for building school is neither loan or advances hence levy of penalty is held to be not justified. (AY. 2013-14)

    Gourang Chandra Nayak v. Jt. CIT (2020) 77 ITR 192 (Cuttack)(Trib.)

  1. S. 4: Charge of income-tax – Subsidy – Capital or revenue –Technology Upgradation Fund –Focus Market Scheme – Electricity Duty Subsidy – Held to be capital receipts. [S. 28(i)]

    Dismissing the appeal of the revenue the Court held that the subsidy received by the respondent under the head Technology Upgradation Fund, Focus Market Scheme, Electricity Duty Subsidy is held to be a capital receipts. Order of Tribunal is affirmed. (AY. 2013-14)

    PCIT v. Nitin Spinners Ltd (2020) 185 DTR 110 / 312 CTR 540 (Raj.)(HC)

  2. S. 11: Property held for charitable purposes – Accumulation of income – Order of rejection by CIT (E) was set aside. [S. 11(2), 12AA, 119(2)(b), 139(4A), 143(1), Form No. 10, Art. 226]

    The Petitioner carries on various charitable activities including services of spiritual nature. The Petitioner filed the return of income on 19 September 2015 under S. 139(4A) disclosing ‘NIL’ income after claiming exemption under S. 11 of the Act. It is the Petitioner’s case that the Petitioner had claimed accumulation of income to the tune of ₹ 58,00,000/- under S. 11(2) of the Act. The Petitioner received an intimation under section 143(1) of the Act on 21 October 2016. By this intimation, the benefit of accumulation under S. 11(2) was refused, according to the Petitioner, because the Form 10 required to be filed under the Income-tax Rules, 1962, was filed beyond the period specified in S. 11(2). Application made for condonation of application was refused. On writ the petitioner contended that it has been made under a wrong head the error is procedural and the substantive claim of accumulation should not have been defeated in such a manner. High Court directed the CIT (E) to consider the claim on merits order of rejection by CIT (E) was set aside.

    St. Thomos Orthodox Syrain Church v. CIT (E) (2020) 185 DTR 326 / 312 CTR 430 (Bom.)(HC)

  3. S. 12A: Registration – Trust or institution – Registration cannot be refused on the ground that the Trust deed is not having any provision in relation to disbursement of balance funds in the eventuality of the dissolution of Trust. [S. 2(15), 11, 115TD(c), Code of Civil Procedure S. 91, 92]

    Dismissing the appeal of the revenue the Court held that, the certificate of registration is only an enabling provision to claim exemption. Even if the registration is granted, the exemptions from the provisions of the IT Act in particular S. 11 and 12 is not automatic. It is only when the assessee satisfies the requirement of S. 13, he would be eligible for exemption. Accordingly the registration cannot be refused on the ground that the Trust deed is not having any provision in relation to disbursement of balance funds in the eventuality of the dissolution of Trust.

    CIT (E) v. Shri Narsinghji Ka Mandir (2020) 185 DTR 30 / 312 CTR 307(Raj.)(HC)

    CIT (E) v. SHRI Agarwal Panchayat (2020) 185 DTR 30 / 312 CTR 307 (Raj.)(HC)

  4. S. 28(i): Business income – Client code modification – (CCM) – Shifting of profits – Addition as income on the basis of alleged doubtful transaction is held to be not valid – Deletion of addition b the Tribunal is affirmed. [S. 69, 143(3)]

    The assessee is a member of Multi Commodity Exchange of India Ltd (MCX) and National Commodity and Derivatives Exchange of India. The assessee is carrying on trading activities both on derivatives and delivery based transactions on its own account as well as on behalf of various clients. AO has added the entire amount of doubtful transactions by way of assessee’s additional income on the basis of client code modification. CIT (A) deleted the addition on the ground that all the clients are having PAN and regularly filing their returns and profits were taxed in their hands. Clients are not related parties. Modification was around 3% of the total transactions. All of them were complied with KYC norms. Tribunal affirmed the order of CIT (A). On appeal by the revenue , dismissing the appeal the Court held that, even if the Revenue’s theory of the assessee having enabled the clients to claim contrived losses is correct, the Revenue had to bring on record some evidence of the income earned by the assessee in the process, be it in the nature of commission or otherwise. Adding the entire amount of doubtful transactions by way of assessee’s additional income is wholly impermissible. The fate of the individual investors in whose cases the Revenue could have questioned the artificial losses is not known. Accordingly the appeal of the revenue is dismissed. (ITA No. 1257 of 2016, dt. 15-1-2019)(AY. 2006-07)

    (Editorial: Order of Mumbai Tribunal in ITO v. Pat Commodity Services P. Ltd (ITA No. 3498/3499/Mum/2012 dt.07/08/2015)(AY. 2006 07, 2007-08) is affirmed.

    PCIT v. Pat Commodity Service Pvt. Ltd. (Bom.)(HC), www.itatonline.org

  5. S. 28(i): Income from business – Income from house property – Exploitation of property commercially by way of complex commercial activities – Rental income is to be taxable as income from business – Not as Income from House Property. [S. 22]

    Assessee declared its income under the head Income from Business. The AO however, treated the same as Income from House Property which was affirmed by the CIT (A). Tribunal decided the issue in favour of the assessee. On appeal before the High Court, question raised is “Whether, on the facts and in the circumstance of the case and in law, the Hon’ble Tribunal was justified in holding that the assessee had exploited its property commercially by way of complex commercial activities and hence, the rental income received by the assessee to be taxable as income from business and not under the head “Income from House Property’?” The Honourable Court considered the object clause of the company and various services provided such as marketing and promotional activities and also organising various events and programs. Court also noted in the context of the revenue sharing agreement copies of which have been placed on record on which the revenue receives not only license fee of the amounts specified therein and percentage of net revenue. In some of the agreements the compensation is either license fee or percentage of net revenue, whichever is higher. The Intention of the Assessee is also a material circumstance and the objects of Association, the kind of services rendered clearly point out that the Income is from Business. All the factors cumulatively taken demonstrate that the assessee had intended to enter into a Business of renting out commercial space to interested parties. The other income is only an income which is a dividend income from the deposits received from the Business income. Therefore, considering all these factors which have been enumerated above and referred to by the Tribunal, the findings rendered by the Tribunal on assessment of the factual position before it that the income in question has to be treated as business Income. Referred Chennai Properties and Investments Ltd. v. CIT [2015] 373 ITR 673 (SC) Raj Dadarkar, Associates v. ACIT [2017] 394 ITR 592 / 81 taxmann.com 193 (SC) PCIT v. Krome Planet Interiors (P.) Ltd [2019] 107 taxmann.com 443 / 265 Taxman 308 (Bom.)(HC). (ITA No. 1783/Mum/2015 dt. 23-9-2016 (ITA No. 1583 of 2017 dt. 13/01/2020) (AY. 2010-11)

    PCIT v. City Centre Mall Nashik Pvt. Ltd. (Bom.)(HC)(UR)

  6. S. 28(i): Business loss – Business expenditure – Obsolescence allowance – Write of off obsolete stock – Allowable as business loss [S. 37(1), 145A]

    Dismissing the appeal of the revenue the Court held that the obsolete stock which was not disposed of or sold was allowable as expenditure. Order of Tribunal is affirmed.

    CIT v. Gigabyte Technology (India) Ltd. (2020) 421 ITR 21 (Bom.)(HC)

  7. S. 32: Depreciation – Special foundation of windmill – 80% depreciation allowed on Civil Construction, electrical and other non-integral part of installations as against 15% restricted by the AO.

    Revenue contended that the depreciation is allowable at 15% and not 80% claimed by the assessee. Dismissing the appeal of the revenue the Court held that windmill was erected in the desert area of Rajasthan which required special foundation of reinforced cement concrete and that said reinforced cement concreate formed integral part of wind mill. Referred CIT v. Herdilla Chemicals Ltd. (1995) 216 ITR 742 (Bom)(HC). Court followed ITA No. 1326 of 2010 dt. 14-6-2017. (ITA No. 1769 of 2016 dt.30/01/2019)

    PCIT v. Mahalaxmi Infra Projects Ltd. (Bom.)(HC) www.itatonline.org

  8. S. 44DA: Non-residents – Royalties – Computation – Prevails over S. 44BB after the amendment w.e.f. 01.04.2011 DTAA – India-Australia [S. 9(1)(vii), 44BB, Art. 12(3), Art. 226]

    Allowing the petition the Court held that, income from provision of services through high end customized software does not constitute “Fees For Technical Services” u/s. 9(1)(vii) as the definition excludes income from “mining or like project”. The Q whether income from composite software and maintenance services constitutes “royalty” for purposes of s. 44DA would have to be decided from the nature of services. The assessee is eligible to take benefit of the definition of ‘royalty’ as per the DTAA for the purpose of applicability of S. 44DA of the Act. S. 44DA prevails over S. 44BB after the amendment w.e.f. 1-4-2011. [W.P.(C) 1370/2019, dt. 13-3-2020]

    Paradigm Geophysical Pvt. Ltd. V. CIT (IT) (2020) 115 taxmann.com 254 (Delhi)(HC) www.itatonline.org

  9. S. 45: Capital gains – Land – Survey – Statement – There was no building on the land which was subject to depreciation – Rent was received only in respect of land – Provision of S. 50 cannot be applied merely on the basis of statement in the course of survey [S. 50, 133A, 194I]

    During the period relevant to the assessment year 2010-11, the assessee sold a piece of land and offered the consideration to long term capital gain. During the survey operation, the AO recorded a statement of the representative of the assessee company indicating that there was a factory building situated on the land. The revenue therefore contended that such building would be subject to depreciation and for the purpose of charging capital gain the depreciated value of the super structure should be taken in to consideration. The statement was promptly retracted. On appeal the Tribunal held that there was no super structure on the land which could be subjected to depreciation. Considering the records the Tribunal held that the provision of S. 50 cannot be applicable to the facts of the appellant. On appeal by the revenue, dismissing the appeal of the revenue the Court held that the Tribunal is justified in holding that there did not exist any building on the sold property especially in view of the fact the specification in agreement of sale and incriminating material found in survey confirmed existence of super structure on sold property. (Arising out of ITA. No. 6224/Mum/2012 dt. 22-1-2016) (ITA NO. 124 of 2017, dt. 12-3-2019) (AY. 2010-11)

    PCIT v. Firoz Tin Factory (Bom.)(HC)(UR)

    Editorial: SLP of revenue is dismissed (SLP No.21694 of 2019 dt.06/09/2019)(2019) 417 ITR 56 (St.)(SC)

  10. S. 56: Income from other sources – Relative – Gift from brother in law is relative – Cash credits – No addition can be made as cash credits – Genuineness is established [S. 56(2)(vii), 68, 132]

    Dismissing the appeal of the revenue the Court held that the Tribunal took into consideration the details of the donor, more particularly, the PAN number, capital gain statement, bank statements and the other relevant documents. Upon perusal of the same, the Tribunal concurred with the findings recorded by the CIT (A) as regards the genuineness of the transaction. The tribunal, thereafter, looked into the S. 56 of the Act. Court also held that plain reading of S. 56(2)(vi), more particularly, the explanation (e) of the provision would indicate that the assessee, would fall within the definition of the term “relative” as explained under S. 56 of the Act. (AY. 2008-09)

    PCIT v. Arvind N. Nopany (2020) 185 DTR 369 / 313 CTR 87 (Guj.)(HC)

  11. S. 80IA: Industrial undertakings – Separate and independent unit – Common excise registration – Common electricity – Common water connection – Not an extension of existing units – Different products manufactured – Written down value of machinery transferred was less than 20% of the value. [S. 80IB]

    The assessee is a private limited company and is engaged in manufacturing pharmaceutical products. The respondent had a manufacturing unit at Aurangabad. Later on, the assessee established another unit at Daman. Yet another unit referred to as Unit-2 at Daman was set up at the same site. The assessee claimed exemption of an income arising out of its manufacturing activities carried out at the Daman units in terms of S. 80IA of the Act. The Revenue rejected the claim on two grounds. Firstly, on the ground that the assessee had utilised old machinery, valuation of which was in excess of 20% of the total installed machinery. Secondly, that the Unit-2 was a mere extension of the existing Unit-1 and was not an independent manufacturing unit. The Tribunal had taken into account the valuation of the existing machinery used at Daman and the valuation of the written down value of the machinery transferred from Aurangabad to come to the conclusion that the same did not exceed 20% of the total value of the machinery. On appeal the Tribunal held that in Unit-1, the assessee was manufacturing oral liquids only, whereas at the Unit-2, the assessee had started manufacturing tablets, capsules as well as certain orally administered liquids. The assessee had also commenced for the first time manufacturing activity of certain antibiotics. The Tribunal, therefore, came to the conclusion that the formation of Unit-2 at Daman cannot be seen as a mere extension of the assessee’s existing unit-1. The Tribunal has discarded the Revenue’s contention that both the Units shared common amenities and common central excise registration and, therefore, cannot be seen as a separate industry, was rejected by the Tribunal. The assessee had presented full details of purchase of new plot, efforts made for obtaining separate excise registration for the new industry as well as for obtaining of a separate electric connection. No question of law. (AY. 1999-2000)

    PCIT v. Medley Pharmaceuticals Ltd. (2020) 185 DTR 213 (Bom.)(HC)

  12. S. 143(3): Assessment – Direction of Appellate Tribunal – Decide the issue a fresh – AO cannot go beyond the direction – Writ of the assessee is allowed. [S. 44AD, 254(1), Art. 226]

    Allowing the petition the Court held that, the Tribunal directed the assessee to attend the assessment proceedings and justify its case on lower rate of profit in accordance with its books of account. The AO directed to verify the same and decide the issue a fresh (the Tribunal says that “decide the issue a fresh” means the issue with regard to the claim of lower rate of profit. Writ application succeeds and is hereby allowed. The impugned order passed by the Assessing Officer is hereby quashed and set aside. The matter is remitted to the Assessing Officer for fresh consideration of the issue as specifically directed by the Appellate Tribunal. Court also observed that the Assessing Officer now needs to reconsider the issue with regard to claim of the writ applicant for lower rate of profit and not at the rate of 8%. Rule is made absolute to the aforesaid extent. (AY. 2004-05)

    Engineering professional Co. Pvt. Ltd. v. Dy. CIT (2020) 186 DTR 33 (Guj.)(HC)

  13. S. 147: Reassessment – After expiry of four years – A mere bald assertion by the AO that the assessee has not disclosed fully and truly all the material facts is not sufficient. The AO has to give details as to which fact or the material was not disclosed by the assessee, leading to its income escaping assessment. Otherwise, the reopening is not valid. [S. 80IB(10)(f), 148, Art. 226]

    Allowing the petition the court held that A mere bald assertion by the AO that the assessee has not disclosed fully and truly all the material facts is not sufficient. The AO has to give details as to which fact or the material was not disclosed by the assessee, leading to its income escaping assessment. Otherwise, the reopening is not valid. In order to sustain a notice seeking to reopen assessment beyond normal period of 4 years, it is necessary for revenue to establish, at least, prima facie that there was failure to disclose fully and truly all material facts necessary for assessment for that assessment year. (WP No. 17 of 2020 dt. 18-2-2020) (AY. 2012-13)

    Anand Developers v. ACIT (2020) 116 taxmnn.com 361 (Bom.)(HC) www.itatonline.org

  14. S. 147: Reassessment – With in four years – Commercial production – Every non-disclosure of material facts will not or cannot be a justifiable reason for reopening an assessment – What was required to be considered is that, substance over form – Order of single judge is affirmed. [S. 10B, 148, Art. 226]

    Assessment was completed u/s 143(3), single judge quashed the reassessment notice. On appeal by the revenue, Division Bench of High Court, affirmed the order of single judge. Court held that the learned Single Bench every non-disclosure of material facts will not or cannot be a justifiable reason for reopening an assessment. Court held that what was required to be considered is that, substance over form. Court held that he learned Single Bench was perfectly right in allowing the writ petition which had been done after thorough examination of the facts and the legal position. In our considered view the revenue has not made out any grounds to interfere with the order passed by the learned Single Bench. (AY. 2010-11) (WP. 2019 dt. 24-6-2019)

    ITO v. MBI KITS International Rep. by its Partner Sri. D. Chandrasekar (2020) 186 DTR 29 (Mad.)(HC)

  15. S. 220: Collection and recovery – Assessee deemed in default – Strictures – Tax recovery – Stay – Gross suppression and misstatement, which led to a false projection of the outstanding liability due from the petitioner – Sought adjournment before CIT(A) without seeking modification of earlier order – Cost of  5 lakh imposed – Petition is dismissed. [S. 220(6), Art. 226]

    Dismissing the petition the Court held that, petitioner invoking the discretionary extraordinary writ jurisdiction of the Court is expected to approach with clean hands. Instead, there is gross suppression and misstatement, which led to a false projection of the outstanding liability due from the petitioner. Also, the Petitioner ought not to have sought adjournment before the CIT(A) on the ground that the earlier year is pending without seeking modification of the Court’s order. Writ Petition dismissed with costs of  ₹ 5 lakh. (WP No 10289/2019 dt. 4-3-2020)
     (AY. 2011-12)

    Indus Tower Ltd. v. ACIT (Delhi)(HC) www.itatonline.org

    Editorial: The Supreme Court has stayed recovery of the demand, Indus Tower Ltd. v. ACIT (SLP No. 9011/2020 dt. 6-03-2020)(SC)

  16. S. 263: Commissioner – Revision of orders prejudicial to revenue – Business income or other sources – Income should be taxed as business income or as arising from the other source is a debatable issue – Revision is held to be not justified. [S. 28(i), 56]

    Dismissing the appeal of the revenue the Court held that whether the income should be taxed as business income or as arising from the other source was a debatable issue, the AO took a plausible view. Revision proceeding is unjustified. (Arising out of ITA No. 2637/Mum/2013 dt. 28-10-2015) (ITA No. 1761 of 2016, dt. 11-2-2019)(AY. 2008-09)

    PCIT v. Canara Bank Securities Ltd. (Bom.)(HC)(UR)

    Editorial: SLP of revenue is dismissed (SLP No.24546 of 2019 dt.14/10/2019) (2019) 418 ITR 17 (St.)(SC)

  17. S. 271(1)(c): Penalty – Concealment – Capital gains – Merely because claim is not accepted levy of penalty is held to be not justified. [S. 45, 54EC]

    Dismissing the appeal of the revenue that, merely because claim is not accepted levy of penalty is held to be not justified. Distinguished, Mak Data P. Ltd. v. CIT (2013) 358 ITR 593 (SC) UOI v. Dharmendra Textiles Processors and others (2008) 306 ITR 277 (SC) (AY. 2010 -11)

    CIT v. Bharatkumar Maneklal Parikh (2020) 185 DTR 77 (Bom.)(HC)

    Constitution of India, 1949

  18. Art. 362: Corona Virus Lockdown Crisis – Extension of interim orders – All interim orders operating till today and are not already continued by some other courts / authority including this court shall remain in force till 30-4-2020 subject to liberty to parties to move for vacation of interim orders only in extreme urgent cases. [Art. 226, 227]

    Full court of four judges of the Bombay High Court held that, all interim orders operating till today and are not already continued by some other courts / authority including this court shall remain in force till 30.04.2020 subject to liberty to parties to move for vacation of interim orders only in extreme urgent cases. Thus, all interim orders passed by this High Court at Mumbai, Aurangabad, Nagpur and Panaji as also all courts / Tribunal and authorities subordinate over which it has power of superintendence expiring before 30.04.2020, shall continue to operate till then. It is clarified that such interim orders which are not granted for limited duration and therefore, are to operate till further orders, shall remain unaffected by this order (WP 2 OF 2020 Dt. 26/3/2020)

    Court on its own Motion (FB)(Bom.)(HC ) www.itatonline.org

  1. S. 4: Charge of income-tax – Mutuality – Contributions both from members and non-members and one member was vested with powers to control functioning and interests of other members, such an assimilation could not be termed as a social intercourse devoid of commerciality –Assessee, being not a mutual concern, could not be entitled to tax exemption- Exemptions are to be put to strict interpretation – Principle of mutuality is held to be not applicable – Order of AO is affirmed. [S. 2(24)]

    Assessee-company was incorporated by YRIPL as its fully owned subsidiary after having obtained approval from the Secretariat for Industrial Assistance for purpose of economisation of the cost of advertising and promotion of YRIPL franchisees as per their needs. Approval was granted subject to certain conditions as regards functioning of assessee, whereby it was obligated to operate on a non-profit basis on principles of mutuality. However, assessee-company undertook a commercial venture wherein contributions were accepted both from members as well as non-members. The assesse filed its returns stating the income to be “Nil” under the pretext of the mutual character of the company. The same was not accepted by the AO Order of AO is up held by the CIT (A) Tribunal and also High Court. On appeal the Supreme Court held that the doctrine of mutuality bestows a special status to qualify for exemption from tax liability. It is a settled proposition of law that exemptions are to be put to strict interpretation. If the assessee fails to fulfil the stipulations and to prove the existence of mutuality, the question of extending exemption from tax liability to the assessee, that too at the cost of public exchequer, does not arise. Taking any other view would entail in stretching the limits of construction. (CA No. 2847 of 2010, Dt. 24-4-2020) (AY. 2001-02)

    Yum! Restaurants (Marketing) Pvt. Ltd. v. CIT (2020) 116 taxmann.com 374 (SC) www.itatonline.org

  2. S. 5: Scope of total income – liaison office of the non-resident – A liaison office which is only carrying on such activity of a “preparatory or auxiliary” character is not a PE in terms of Article 5 of the DTAA. The deeming provisions in Sections 5 and 9 of the 1961 Act can have no bearing whatsoever – DTAA – India-UAE [S. 2(24), 4, 9(1)(i) Art. 5, 7]

    Dismissing the appeal of the revenue the Court held that, the activities carried on by the liaison office of the non-resident in India as permitted by the RBI, demonstrate that the liaison office must steer away from engaging in any primary business activity and in establishing business connection as such. It can carry on activities of preparatory or auxiliary nature only. A liaison office which is only carrying on such activity of a “preparatory or auxiliary” character is not a PE in terms of Article 5 of the DTAA. The deeming provisions in Sections 5 and 9 of the 1961 Act can have no bearing whatsoever. (CA No. 9775 of 2011 dt. 24-4-2020)

    UOI v. U.A.E. Exchange Centre (2020) 116 taxmann.com 379 (SC) www.itatonline.org

  3. S. 43B: Deductions on actual payment – Leave encashment – Method of accounting – Section does not place any embargo upon the autonomy of the assessee in adopting a particular method of accounting, nor deprives the assessee of any lawful deduction. It merely imposes an additional condition of actual payment for the availment of deduction qua the specified head – Provision is not unconstitutional [S. 37(1), 43B(f), 145, Art . 14]

    Court held that, argument (inter alia) that s. 43B(f) is unconstitutional because it supersedes the judgement of the Supreme Court in Bharat Earth Movers v. CIT (2000) 245 ITR 428 (SC) is wrong. S. 43B does not place any embargo upon the autonomy of the assessee in adopting a particular method of accounting, nor deprives the assessee of any lawful deduction. It merely imposes an additional condition of actual payment for the availment of deduction qua the specified head. (CA No. 3545/2009 dt. 24-4-2020)

    UOI v. Exide Industries Ltd (2020) 116 taxmann.com 378 (SC) www.itatonline.org

  4. S. 68: Cash credits – Bogus purchases – Unregistered dealers – Addition is held to be not justified. [S. 143(3)]

    The AO treated the purchases as “Cash credits” under S. 68 of the Act. Aggrieved, the appellant/assessee preferred an appeal before the CIT (A) who allowed the appeal of the assessee partially. Tribunal confirmed the order of the AO. On appeal to High Court, The High Court dismissed the appeal vide impugned judgment and order dated 21-8-2008, as being devoid of merits. The High Court opined that the amount shown as credits was nothing but bogus entries and was justly added to the income of the appellant/assessee. The Court also noted other reasons to dismiss the appeal. On appeal the Supreme Court held that though the assessee failed to prove the genuineness of the purchases during the assessment proceedings, he filed affidavits and statements of the dealers in penalty proceedings. That evidence fully supports the claim of the assessee. The CIT (A) accepted the explanation of the assessee and recorded a clear finding of fact that there was no concealment of income or furnishing of any inaccurate particulars of income by the assessee. Consequently, the quantum addition will also have to be deleted. The addition of ₹ 2,26,000/- by the Officer under S. 68 of the 1961 Act, towards cash credit amount shown against the names of concerned unregistered dealers for the assessment year 1998-1999, is hereby set aside. The rest of the assessment order dated 30-11-2000 as modified by the CIT(A) vide order dated 9-1-2003, shall remain undisturbed. (CA No. 6110 of 2009 dt.  24-4-2020 (AY. 1998-99)

    Basir Ahmed Sisodiya v. ITO (2020) 116 taxmann.com 375 (SC) www.itatonline.org

  5. S. 80-O: Royalties – Foreign enterprises – Services rendered in India and not the ‘services rendered from India – Merely having a contract with a foreign enterprise and mere earning foreign exchange does not ipso facto lead to the application of S. 80-O of the Act – Without any claim for expertise capable of being used abroad rather than in India, would not be entitled to deduction – The burden is on the assessee to prove eligibility to an incentive or exemption provision and it is subject to strict interpretation – Interpretation of taxing statutes – When there is ambiguity in exemption which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.

    The assessee who had been engaged in providing services to certain foreign buyers of frozen seafood and/or marine products and had received service charges from such foreign buyers/enterprises in foreign exchange, claimed deduction under S. 80-O of the Act as applicable for the relevant assessment year/s. The AO denied the deduction essentially with the finding that the services rendered by respective assessees were the ‘services rendered in India’ and not the ‘services rendered from India’ and, therefore, the service charges received by the assessees from the foreign enterprises did not qualify for deduction in view of clause (iii) of the Explanation to S. 80-O of the Act. Tribunal allowed the claim of the assessee. On appeal High Court affirmed the order of the AO. On appeal the Supreme Court affirmed the order of the High Court. The Supreme Court observed that the sweeping proposition in some Supreme Court decisions that when two views are possible, the one favourable to assessee has to be preferred & that a tax incentive provision must receive liberal interpretation, is disapproved by the Constitution Bench in Commissioner of Customs v. Dilip Kumar (2018) 9 SCC 1 (FB). when applied to incentive provisions like those for deduction, would also be that the burden lies on the assessee to prove its applicability to his case; and if there be any ambiguity in the deduction clause, the same is subject to strict interpretation with the result that the benefit of such ambiguity cannot be claimed by the assessee, rather it would be interpreted in favour of the revenue. In view of the Constitution Bench decision in Dilip Kumar & Co. (supra), the generalised observations in CIT v. Baby Marine Exports (2007) 290 ITR 323 (SC) with reference to a few other decisions, that a tax incentive provision must receive liberal interpretation, cannot be considered to be a sound statement of law; rather the applicable principles would be those enunciated in UOI v. Wood Papers Ltd. (1990) 4 SCC 256, which have been precisely approved by the Constitution Bench The burden is on the assessee to prove eligibility to an incentive or exemption provision and it is subject to strict interpretation. If there is ambiguity, the benefit of the ambiguity has to go to the Revenue. However, if the assessee proves eligibility, a wide and liberal construction of the provision has to be done. Merely having a contract with a foreign enterprise and mere earning foreign exchange does not ipso facto lead to the application of s. 80-O of the Act. (CA Nos. 2506-2509 of 2020 dt. 5-6-2020) (AY. 1993-94 to 1997-98)

    Ramnath & Co. v CIT (SC) www.itatonline.org

    Editorial : CIT v. Ramnath & Co. (2016) 388 ITR 307 / 289 CTR 355 / (2017) 79 taxmann.com 416 (Ker.)(HC) is affirmed.

  6. S. 143(1A): Additional tax – The object of S. 143(1A) is the prevention of evasion of tax –The burden of proving that the assessee has so attempted to evade tax is on the Revenue which may be discharged by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has, in fact, attempted to evade tax lawfully payable by it- Levy of additional tax was quashed. [S. 32, 143(1) 154, 264 Art. 226]

    An intimation under S. 143(1)(a) of the Income Tax Act, 1961 dated 12-2-1992 was issued by the Assessing Officer disallowing 25% of the depreciation, restricting the depreciation to 75%. Additional tax under Section 143(1A) of the Income Tax Act, 1961 amounting to  ₹ 8,63,64,827/- was demanded. The assessee filed an application under Section 154 of the Income Tax Act, 1961 dated 18-2-1992 praying for rectification of the demand. The assessee also filed a petition under Section 264 of the Income Tax Act, 1961 against the demand of additional tax. In the petition it was stated that even after allowing only 75% of depreciation the income of the assessee remained to be in loss to ₹ 3,43,94,90,393/-. The assessee prayed for quashing the demand of additional tax. The application filed under Section 154 of the Income Tax Act, 1961 was rejected by the Assessing Officer on 28-2-1992. The revision petition under Section 264 of the Income Tax Act, 1961 came to be dismissed by the Commissioner of Income Tax by order dated 31.03.1992. Aggrieved by the order of the Commissioner of Income Tax challenging the demand of additional tax which was reduced to amount of ₹ 7,67,68,717/- Writ Petition No. 2267 of 1992 was filed by the assessee in the High Court of Judicature for Rajasthan, Bench at Jaipur. Learned Single Judge vide judgment dated 19-1-1993 allowed the writ petition quashing the levy of additional tax under Section 143(1-A). The Revenue aggrieved by the judgment of the learned Single Judge filed a Special Appeal which has been allowed by the Division Bench of the High Court vide its judgment dated 13-11-2007 upholding the demand of additional tax. The assessee aggrieved by the judgment of the Division Bench has come up in this appeal. On appeal to Supreme Court held that the object of s. 143(1A) is the prevention of evasion of tax. As it has the deterrent effect of preventing tax evasion, it should be made to apply only to tax evaders. It can only be invoked where it is found on facts that the lesser amount stated in the return filed by the assessee is a result of an attempt to evade tax lawfully payable by the assessee. The burden of proving that the assessee has so attempted to evade tax is on the Revenue which may be discharged by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has, in fact, attempted to evade tax lawfully payable by it. Order of division bench is set aside and levy of addition tax was quashed. (CA No. 8590 of 2010, Dt. 19-3-2020) (AY. 1991-92)

    Rajasthan State Electricity Board v Dy. CIT (2020) 115 taxmann.com 330 (SC) www.itatonline.org

    Editorial: Order in Dy. CIT v. Rajasthan State Electricity Board (2008) 171 Taxman 331 / 299 ITR 253 / 217 CTR (Raj.)(HC) is set aside .

  7. S.147: Reassessment – After the expiry of four years – Full & true disclosure of material facts, the assessee has the duty to disclose the primary facts, It is not required to disclose the secondary facts – If the AO intends to rely upon the second Proviso to s. 148 for the extended period of 16 years limitation, the same should be stated either in the notice or in the reasons in support of the notice – It cannot be done in the order rejecting the objections or at a later stage – Reassessment was quashed. [S. 69A, 148, 149 Art. 226]

    Court held that, (i) Merely because the original assessment is a detailed one, the powers of the AO to reopen u/s. 147 is not affected, (ii) Information which comes to the notice of the AO during proceedings for subsequent AYs can definitely form tangible material to reopen the assessment, (iii) As regards “full & true disclosure of material facts”, the assessee has the duty to disclose the “primary facts”. It is not required to disclose the “secondary facts”. The assessee is also not required to give any assistance to the AO by disclosure of other facts. It is for the AO to decide what inference should be drawn from the facts, (iv) If the AO intends to rely upon the second Proviso to s. 148 for the extended period of 16 years limitation, the same should be stated either in the notice or in the reasons in support of the notice. It cannot be done in the order rejecting the objections or at a later stage. (AY. 2007-08, 2008-09) [CA No. 1008 of 2020 dt. 3-4-2020]

    New Delhi Television Ltd v. Dy. CIT (2020) 116 taxmann.com 151 (SC) www.itatonline.org

    Editorial: Order in New Delhi Television Ltd v. Dy. CIT (2017) 84 taxmann.com 136 / 288 CTR 430 / (2018) 405 ITR 132 (Delhi) (HC) is set aside.

  8. S. 194E: Deduction at source – Non-resident – Sport person – Sports association – Liable to deduct tax at source – The obligation to deduct tax is not affected by the DTAA. [S. 9(1), 115BBA]

    As the payments to the Non-Resident Sports Associations represented their income which accrued or arose in India u/s 115BBA, the assessee was liable to deduct Tax at Source
     u/s 194E. The obligation to deduct Tax at Source u/s 194E is not affected by the DTAA. In case the exigibility to tax is disputed by the recipient, the benefit of DTAA can be pleaded and the amount in question will be refunded with interest. But, that by itself, cannot absolve the liability to deduct TDS u/s 194E of the Act. (CA No. 5749 of 2012. Dt. 29-4-2020)

    PILCOM v. CIT (2020) 116 taxmann.com 394 (SC) www.itatonline.org

    Editorial : PILCOM v. CIT (2011) 198 Taxman 555 / 355 ITR 147 / 238 CTR 387 (Cal.)(HC) is affirmed.

  9. S. 223: Collection and recovery – Tax Recovery Officer – Charge over property – Attachment of property under Schedule II – Unless there is preference given to the Crown debt by a statute, the dues of a secured creditor have preference over Crown debts – As a charge over the property was created much prior to the notice issued by the TRO under Rule 2 of Schedule II to the Act and the sale of the property was pursuant to the order passed by the DRT, the sale is valid. [S. 222]

    The Appellant filed the Writ Petition in the High Court of Judicature at Bombay seeking a restraint order against the Tax Recovery Officer for enforcing the attachment made under the Income Tax Act, 1961 for recovery of the dues. The Writ Petition was dismissed by the High court, aggrieved by which the Appeal has been filed. A recovery certificate in terms of the order passed by the DRT was issued and recovery proceedings were initiated against BPIL. The Recovery Officer, DRT III attached the property on 29-11-2002. A public auction was held on 28-9-2004. The DRT was informed that there were no bidders except the Appellant. The offer made by the Appellant to purchase the property for an amount of ₹ 23,00,000/- was accepted. On 14-1-2005, a certificate of sale was issued in favour of the Appellant. The possession of the disputed property was handed over to the Appellant on 25-1-2005. The Maharashtra Industrial Development Corporation informed that it received a letter dated 23-3-2006 from the Tax Recovery Officer stating that the property in dispute was attached by Respondent No. 4 on 17-6-2003. The Appellant requested the Regional Officer, MIDC by a letter dated 10-4-2006 to transfer the property in dispute in its favour in light of the Sale Certificate issued by DRT on  25-1-2005. As the MIDC [failed to transfer the plot in the name of the Appellant, the Appellant filed a Writ Petition before the High Court seeking a direction for issuance of ‘No Objection’ in respect of the plot and to restrain Respondent from enforcing the attachment of the said plot, which was performed on 11-2-2003. The question posed before the High Court is whether the Appellant who bona fide purchased the property in auction sale as per the order of the DRT is entitled to have the property transferred in its name in spite of the attachment of the said property by the Income Tax Department. Relying upon Rule 16 of Schedule II to the Act, the High Court came to the conclusion that there can be no transfer of a property which is the subject matter of a notice. The High Court was also of the view that after an order of attachment is made under Rule 16(2), no transfer or delivery of the property or any interest in the property can be made, contrary to such attachment. The High Court held that notice under Rule 2 of Schedule II to the Act was issued on 11-2-2003, and the property in dispute was attached under Rule 48 on 17-6-2003, whereas the sale in favour of the Appellant took place on 912.2004 and the sale certificate was issued on 14.01.2005. Therefore, the transfer of the property made subsequent to the issuance of the notice under Rule 2 and the attachment under Rule 48, is void. The submission made on behalf of the Appellant that the sale in favour of the Appellant was at the behest of the DRT and not the defaulter i.e., BPIL was not accepted by the High Court. In view of the above findings, the High Court dismissed the Writ Petition. Apex Court held that the High Court failed to take into account the fact that the sale of the property was pursuant to the order passed by the DRT with regard to the property over which a charge was already created prior to the issuance of notice on 11-2-2003. As the charge over the property was created much prior to the issuance of notice under Rule 2 of Schedule II to the Act by Respondent the judgment of the High Court is set aside and the Appeal is allowed. The MIDC is directed to issue a ‘No Objection” certificate to the Appellant and the tax recovery officer is restrained from enforcing the attachment order dated 17-6-2003. [CA No. 1919 of 2010, dt. 6-3-2020]

    Connectwell Industries Pvt. Ltd. v. UOI (2020) 115 taxmann.com (SC), www.itatonline.org

  10. S. 241A: Refund – Withholding of refund in certain cases – Satisfaction to be recorded by the AO – The withholding of refund requires the previous approval of the PCIT with reasons to be recorded in writing – When assessment pursuant to notice under section 143(2) was pending and likelihood of substantial demands upon assessee after completion of scrutiny could not be ruled out, refund claim could not be allowed – When no action is initiated the Court directed the revenue to grant the refunds with in four weeks. [S. 143(1), 143(2), 245]

    Till AY 2016-17, if a scrutiny notice u/s. 143(2) is issued, the return is not required to be processed u/s 143(1) for grant of refund to the assessee. From AY 2017-18 & onwards, a different regime is prescribed by Parliament. S. 241A requires separate recording of satisfaction on part of the AO that having regard to the issue of notice u/s 143(2), the grant of refund is likely to adversely affect the revenue. The withholding of refund requires the previous approval of the PCIT with reasons to be recorded in writing. When assessment pursuant to notice under section 143(2) was pending and likelihood of substantial demands upon assessee after completion of scrutiny could not be ruled out, refund claim could not be allowed. Court observed that since the requisite action is not even initiated court directed that the amount of ₹ 733 crores shall be refunded to the appellant within four weeks from today subject to any proceedings that the Revenue may deem appropriate to initiate in accordance with law. Court also directed the respondents to conclude the proceedings initiated pursuant to notice under sub-section (2) of Section 143 of the Act in respect of AY 2016-17 and 2017-18 as early as possible. (AY. 2014-15 to 2017-18) [CA No. 2377 of 2020 Arising out of SLP (Civil) No. 1169 of 2019, Dt. 29/4/2020]

    Vodafone Idea Ltd (Earlier Known as Vodafone Mobile Services Ltd) v. ACIT (2020) 116 taxmann.com 393 (SC) www.itatonline.org

    Editorial: Vodafone Mobile Services Ltd v ACIT (2018) 100 taxmann.com 310 / (2019) 260 Taxman 417 (Delhi) (HC) is affirmed.

    Andhra Pradesh Value Added Tax Act, 2005

  11. S. 21: Assessment – Alternative remedy – Limitation – Power of Supreme Court & High Court under Articles 142 and 226 to entertain a challenge to the assessment order on the sole ground that the statutory remedy of appeal against that order stands foreclosed by the law of limitation. [S. 31, Constitution of India 1949, Art. 142, 226]

    Allowing the petition of the revenue the Court held that, Power of Supreme Court & High Court under Articles 142 and 226 to entertain a challenge to the assessment order on the sole ground that the statutory remedy of appeal against that order stands foreclosed by the law of limitation. The statutory period prescribed for redressal of the grievance cannot be disregarded and a writ petition entertained. Doing so would be in the teeth of the principle that the Court cannot issue a writ which is inconsistent with the legislative intent. That would render the legislative scheme and intention behind the statutory provision otiose. [CA No. 2413/2020 (Arising out of SLP(C) No. 12892/2019) dt. 6-5-2020]

    ACCT v. Glaxo Smith Consumer Health Care Ltd (SC) www.itatonline.org

    Constitution of India 1949

  12. Art. 141: Extension of limitation period – Corona Virus – Period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws, whether condonable or not, shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings. (Art. 142)

    Court held that to obviate difficulties caused by Corona Virus in filing petitions / applications / suits / appeals / all other proceedings within the period of limitation prescribed under the general law of limitation or under Special Laws (both Central and/or State), it is ordered that the period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws, whether condonable or not, shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings. Suo Motu WP No. 3/2020 dt. 23-3-2020

    Suo Motu Cognizance For Extension of Limitation (SC) www.itatonline.org

    Constitution of India, 1949

  13. Art. 141: Corona Virus (COVID 19) – Extension of limitation period – All periods of limitation prescribed under the Arbitration and Conciliation Act, 1996 and under section 138 of the Negotiable Instruments Act 1881 shall be extended with effect from 15-3-2020 till further orders to be passed by this Court in the present proceedings. [Art. 142]

    Taking into consideration the effect of the Corona Virus (COVID 19) and resultant difficulties being faced by lawyers and litigants and with a view to obviate such difficulties and to ensure that lawyers / litigants do not have to come physically to file such proceedings in respective Courts / Tribunal across the country including this Court, it is hereby ordered that all periods of limitation prescribed under the Arbitration and Conciliation Act, 1996 and under section 138 of the Negotiable Instruments Act 1881 shall be extended with effect from 15-3-2020 till further orders to be passed by this Court in the present proceedings. (Suo Moto Writ (CIVIL) No. 3 of 2020 dt. 6-5-2020) (Cogniznance for extension of limitation SUO MOTO WRIT (C) No. 3 of 2020 dt. 6-5-2020)

    Suo Moto Writ (SC) www.itatonline.org   

    Constitution of India 1949

  14. Art. 142: Guidelines for Court functioning through video conferencing during covid-19 pandemic [Art. 141]

    Court held that, all measures shall be taken to reduce the need for physical presence of all stakeholders within the court premises and to secure the functioning of courts in consonance with social distancing guidelines. The Supreme Court and all High Courts are authorized to adopt measures required to ensure the robust functioning of the judicial system through the use of video conferencing technologies. Every High Court is authorised to determine the modalities which are suitable to the temporary transition to the use of video conferencing technologies [WC. No. 5 /2020 dt. 6-4-2020]

    Suo Motu (SC) www.itatonline.org   

    Contempt Court Act, 1971.

  15. S. 5: Fair criticism of judicial act not contempt – No party has the right to attribute motives to a Judge or to question the bona fides of the Judge or to raise questions with regard to the competence of the Judge – Judges are part and parcel of the justice delivery system – When there is a concerted attack by members of the Bar, the Court cannot shut its eyes to the slanderous and scandalous allegations made. If such allegations are permitted to remain unchallenged then the public will lose faith not only in those particular Judges but also in the entire justice delivery system and this definitely affects the majesty of law. [Advocate Act, 1961, S. 7(b), Constitution of India, 1949 Art. 129, 142]

    There can be no manner of doubt that any citizen of the country can criticise the judgments delivered by any Court including this Court. However, no party has the right to attribute motives to a Judge or to question the bona fides of the Judge or to raise questions with regard to the competence of the Judge. Judges are part and parcel of the justice delivery system. When there is a concerted attack by members of the Bar, the Court cannot shut its eyes to the slanderous and scandalous allegations made. If such allegations are permitted to remain unchallenged then the public will lose faith not only in those particular Judges but also in the entire justice delivery system and this definitely affects the majesty of law. (Suo Motu Contempt Petition (Criminal) No. 2 of 2019 dt. 27-4-2020) [CA No. 2413/2020 (Arising out of SLP(C) No. 12892/2019) dt. 6-5-2020]

    Vijay Kurle & Ors. (SC) www.itatonline.org

    Contempt Court Act, 1971.

  16. S. 5: Fair criticism of judicial act not contempt – Contempt of Court by Advocates – It is obvious that this is a concerted effort to virtually hold the Judiciary to ransom – All three contemnors are sentenced to undergo simple imprisonment for a period of 3 months each with a fine of ₹ 2000. [Advocate Act, 1961 S. 7(b) Constitution of India, 1949 Art., 129, 142]

    The main Contempt Petition was heard at length and disposed of on 27-4-2020. After the judgment was pronounced, the case was fixed on 1-5-2020 for hearing the contemnors on sentence. The contemnors filed applications for recall of the judgment and, therefore, the matter was listed today. One of us (Deepak Gupta, J.) is to demit office on 6-5-2020 and, therefore, the matter had to be heard and we see no ground for one of us to recuse. The application is accordingly rejected. Court held that there is not an iota of remorse or any semblance of apology on behalf of the contemnors. In view of the scurrilous and scandalous allegations levelled against the judges of this Court and no remorse being shown by any of the contemnors we are of the considered view that they cannot be let off leniently. It is obvious that this is a concerted effort to virtually hold the Judiciary to ransom. All three contemnors are sentenced to undergo simple imprisonment for a period of 3 months each with a fine of ₹ 2000. Court also held that Keeping in view the COVID-19 pandemic and the lockdown conditions we direct that this sentence shall come into force after 16 weeks from today when the contemnors should surrender before the Secretary General of this Court to undergo the imprisonment. Otherwise, warrants for their arrest shall be issued. (Interim Application No. 48502 of 2000 dt 4-5-2020 [CA No. 2413/2020 (Arising out of SLP(C) No. 12892/2019) dt. 6-5-2020]

    Vijay Kurle & Ors. (SC) www.itatonline.org

    Andhra Pradesh Value Added Tax Act, 2005

  17. S. 21: Assessment – Alternative remedy – Limitation – Power of Supreme Court & High Court under Articles 142 and 226 to entertain a challenge to the assessment order on the sole ground that the statutory remedy of appeal against that order stands foreclosed by the law of limitation. [S. 31, Constitution of India 1949, Art. 142, 226]

    Allowing the petition of the revenue the Court held that, Power of Supreme Court & High Court under Articles 142 and 226 to entertain a challenge to the assessment order on the sole ground that the statutory remedy of appeal against that order stands foreclosed by the law of limitation. The statutory period prescribed for redressal of the grievance cannot be disregarded and a writ petition entertained. Doing so would be in the teeth of the principle that the Court cannot issue a writ which is inconsistent with the legislative intent. That would render the legislative scheme and intention behind the statutory provision otiose. [CA No. 2413/2020 (Arising out of SLP(C) No. 12892/2019) dt. 6-5-2020]

    ACCT v. Glaxo Smith Consumer Health Care Ltd (SC) www.itatonline.org

Though the Hon’ble Apex Court of the country as well as the English Courts and Privy Council settled the issue long back, still very often a question arises frequently on account of certain misconceptions on the proposition of law arising out of certain judgements of the higher courts in the context of a particular issue that crops up for explanation and interpretation. The foundation for this interesting topic to pen by me is the cause and judicial impact assessment throughout the country on account of a recent decision of Two Judge Bench of the Hon’ble Apex Court, in which certain decisions were referred to, not apposite to the issue involved therein.

A writ court inclusive definition which inter-alia includes the Hon’ble Supreme Court also. Under the Scheme of Indian Constitution that came into force from 01-06-1950, writ jurisdiction has been conferred on the Hon’ble Supreme Court under article 32 and special leave jurisdiction was conferred in terms of article 136 as well article 142 conferring plenary power on the supreme court to do complete justice to the parties to the proceedings, whereas the writ jurisdiction on the High Courts in the country, is conferred under article 226, while power of superintendence over the subordinate judicial courts within the territorial jurisdiction of the concerned High Courts, is conferred in terms of article 227 of the Constitution of India. It is in this connection necessary to state that before the commencement of the Constitution in the country during the regime of law in British Rule, Prerogative writs were used to be issued by three Chartered High Courts in our country namely Madras High Court, Bombay High Court and Kolkata High Courts and other High Courts were not empowered with the jurisdiction to issue writs. There is a kind of difference in the administration of justice between England and India, for, in England there is a kings court but a Court of that stature is not seen in our country. After the commencement of the Constitution in our country, the writ jurisdiction it is conferred and extended on all the High Courts in the country. Since there is the Supreme Court in our country as the Apex Court, which, in terms of article 141 of the Constitution of India commanded that the law laid down by the Supreme Court is the law of the country which shall indisputably bind on all the lower courts, Tribunals, appellate authorities and authorities in the country when a particular proposition of law is stated in explanation and interpretation of a provision of any law.

As is known to everyone that the prerogative writs that would be issued by the Hon’ble Apex Court or High Courts are Habeas Corpus, Mandamus, Certiorari, Prohibition and Quo- Warranto. Of course at this point of time, the details or the circumstances under which a particular writ is to be issued is not being dealt with by me as it is hardly relevant.

It is a matter of no dispute and a well accepted concept that the constitution is the supreme for the country if any compliance with or in furtherance of the certain golden principles and precepts concerning fundamental rights in Part-III and interstate relations, establishment of supreme court and High Courts and other courts, legislative functions and limitation on the powers of the executive, interstate trade and commerce and the Constitutional embargo on levy and collection of taxes and the schedules to the constitution especially VII Schedule providing for the legislative fields, demarcated for legislation by the parliament as well as the State legislatures with limitation and restrictions imposed thereunder and it is a well settled principle that every law enacted either by the parliament or the State legislature shall be within the contours of the directions and guidelines envisaged in the constitution and every law shall yield to the constitution thereby indicating that the law made by the competent legislature is inferior to the dictum of the constitution.

In a recent decision rendered by a Two Judge Bench of the Hon’ble Supreme Court on 06-05-2020 in Civil Appeal No. 2413/2020 in a case arising out of the order of the erstwhile High Court for the States of Telangana and Andhra Pradesh in a writ petition No. 39418/2018 filed by an assessee namely M/s. Glaxo smith Kline Consumer Healthcare Ltd., seeking cancellation of the assessment order with a consequential relief of remittal of the matter to the assessing authority for the purpose of an opportunity whereafter the assessment is to be made afresh and the cause for filing writ petition was that the period of limitation set out in the State legislative Act namely A.P. Value Added Tax 2005 was over and the reason given for belated filing of the appeal by the Company is that the concerned officer looking after the financial and taxation matters failed to bring the order of assessment to the knowledge of the company even after receipt of the assessment order, without the knowledge of the company even after receipt of the assessment order a required predeposit @ 12.5% of tax was paid that too after limitation prescribed for the appeal, whereafter in order to cover up the irregularities and deficiencies, an application under Rule 14A(10) of the CST Rules r/w Rule 60 of the State law of course within the time limit was filed before the same assessing authority which came to be rejected, against which an appeal was filed and in ultimate analysis, the said appeal also came to be rejected. Challenging these factual aspects not within the information and knowledge of the management of the company finally writ petition was advised to be filed in the High Court.

As is discernible, the writ petition was filed after efflux of time prescribed under the statute for filing appeals. The appeal filed against the assessment order long after expiry of limitation was dismissed as to admission. The writ court issued notice and directed payment of one more set of 12.5% of the disputed tax which direction was of course complied with, whereafter the writ petition was allowed setting aside the assessment order under challenge and matter was remitted to the assessing authority to consider the submissions of the assessee Petitioner and also to give an opportunity of hearing ultimately culminating in framing of fresh assessment. The writ petition No. 39418/2018 was ultimately disposed of on 19-11-2018.

The order of the High Court mentioned supra was assailed in Special Leave Petition by the State Government questioning the jurisdiction of the High Court to entertain the writ petition, obviously after expiry of the period of imitation prescribed for filing of appeals and that too to set aside the assessment order dated 21-06-2017 for the tax period 2013-14 under CST Act 1956 being contrary to law , without jurisdiction and in violation of the principles of natural justice to the extent of levy on the branch turnover. The Hon’ble Apex Court admitted the case and finally allowed the appeal filed by the Government dismissing the writ petition ordered by the High Court by placing reliance on few case laws. On consideration of the facts by the High Court, the Apex Court had completely difered and taken a different and variant view. The judgement of the Full Court of the High Court in ECIL Vs. Union of India & Ors reported in 2018(361) ELT 22(AP) was also commented upon as a faulty decision.

In this connection nothing is being stated against the view of the Hon’ble Supreme Court in relation to the disputed facts that were stated to have been considered by the High Court. The whole endeavour of this article is to demonstrate whether the provisions of the statute law would override or supercede the constitutional provisions or for that matter an appellate or revisional jurisdiction under a statute is to be regarded on par with or equal to the constitutional power invested in the courts. In the process of decision making, reliance was placed by the Hon’ble Supreme Court to a handful of judgements reported in AIR 1969 SC 556 in the case of Babu Ram Prakash Chandramaheswari, (2011) 14 SCC 337 in the case of Nivedita Sharma and AIR 1964 SC 1419 in the case of Thansing Nathmal for the proposition for which there was no quarrel as to the exercise of the discretionary power by a High Court under article 226 which is not automatic or routine but the writ jurisdiction is to be exercised very sparingly only in exceptional cases where there is patent error inhering lack of jurisdiction, authority, exercise of excessive jurisdiction or exercise of jurisdiction not conferred and violation of the principles of natural justice. Therefore a century ago, the courts in the world have categorically laid down the Golden principle that the courts shall impose a self restraint and discipline in entertaining the writ petitions and exercise of the discretionary power especially in cases where remedy is provided under the concerned or relevant statute law. Nevertheless, the consistent view of the judiciary throughout is that remedy of appeal under a statute is not a bar on exercise of the writ jurisdiction by the High Court. To this extent, there is no quarrel. However a reference was also made to the judgements of Hon’ble Supreme Court in ONGC Vs. Gujarat Energy Transmission Corporation reported in (2017) 5 SCC 42 Singh Enterprises Vs. Commissioner of Central Excise in (2008) 3 SCC 70, Chattisgarh State Electricity Board reported in (2010) 5 SCC 23 and Suryachakra Power Transmission Corporation Limited in (2016) 16 SCC 152, Union Carbide Corporation reported in (1991) 4 SCC 584 in which the whole discussion revolved around was on the plenary powers of the Supreme Court under article 142 and the Full Bench judgement of the A.P. High Court in ECIL case that was rendered adopting the Full Bench judgement of the Gujarat High Court in AIR 2015 Guj. 197 as also a judgement of the Karnataka High Court in 2013 (298) ELT 481 (Kar) for holding that the judgements of the Three High Courts as faulty.

Before giving my view as to the logic and rationale to hold that the full Bench judgement of A.P. High Court and Gujarat High Court and the judgement of the Division Bench of Karnataka High Court to be branded as faulty, it is to be respectfully stated that there the concerned courts concentrated on a sole aspect that is when there is no remedy under any law, where the order under challenge suffers from the lack of jurisdiction or authority or was in violation of the principles of natural justice, the writ jurisdiction by the writ court can be exercised.

To reach such a conclusion, the judgements show that the order in original under Central Excise or Customs or Service Tax Law ultimately came to be challenged in a writ petition was never examined or adjudicated on merits in any appeal provisions under the statute as the statutory remedy of appeal whether it is first or second or revision or for that matter the appeal to the High Court or the Supreme Court as the case may be, was throughout at threshold due to the statutory limitation in relation to condonation of the delay in presenting the remedy under the statute even for whatever best, sufficient satisfactory and acceptable reasons for excusing the delay negated. The consistent view of the Hon’ble Apex Court in various decisions including Singh Enterprises, ONGC, Suryachakra Power Transmission Corporation and other cases, the core issue was whether the High Court or Supreme Court as an appellate authority under the statute can take upon itself the act of power of enlargement of the limitation period which was specifically prescribed under that law and the consistent view definitely rightly was in negative as a creature under the statute, the Courts were acting or functioning as an appellate or revisional authorities, to focus that no constitutional provision namely article 226 or 32 of the Constitution of India is invoked by the courts while dealing with the remedial provisions under the Statute.

Now what remains to see is whether the statute law placing a limitation on the power of the appellate authorities for condoning the delay would whittle down the conferment of a special power on the constitutional courts in terms of article 32 on the supreme court and 226 on the High Courts ?. The consistent view taken by the Hon’ble Apex Court in various decisions in Suryadev Rai reported in AIR 2003 SC 3044 and another judgement of Hon’ble Apex Court in Radheshyam and another in (2015) 5 SCC 423, Salem Advocates Bar Association, Tamil Nadu in AIR 2005 SC 3353 and the decision in Mahendra Saree Emporium in AIR 2004 SC 4294 and these decisions in other words followed the earlier judgements of the Constitutional Benches of the Supreme Court in AIR 1954 SC 440 in T.C. Basappa, AIR 1954 SC 520 in Durga Shankar Mehta and AIR 1987 SC 386 in the case of S.P. Sampath Kumar. It is for the purpose of this article to reiterate that the statutory limitation does not infringe or whittle down or supersede the constitutional provisions. A short narration is required on the judgement of the Supreme Court in Surya Dev Rai reported in AIR 2003 SC 3044. In the said report in para 34 where the effect of amendment made to CPC in 1999 in section 115 of the CPC which provided inter-alia for revision to the High Court against orders of the lower courts on interlocutory applications pending the suits was examined and following a catena of decisions, the Hon’ble Supreme Court clearly held that curtailment of revisonal jurisdiction under CPC of the High Court does not take away and could not have taken away the constitutional jurisdiction of the High Court to issue a writ of certiorari to a civil court nor power of the superintendence conferred on the High Court under article 227 of Constitution of India is taken away or whittled down. The power exists untrammeled by the amendment in section 115 and is available to be exercised subject to rules of self discipline. Thus the Division Bench of the Supreme Court summarized the discussions and concluded in para 38 interdicting that amendment by Act 46 of 1999 w.e.f. 01-07-2002 in section 115 of the CPC cannot and does not effect in any manner the jurisdiction of the High Court under articles 226 and 227 of the Constitution of India. However the only conclusion reached by the Division Bench in the said judgement is that writ of certiorari can be issued to civil courts was considered by the judiciary as not agreeable as no writ would lie to a civil court and any relief if so warranted, could be issued by the High Court in exercise of its power of superintendence under article 227 of the Constitution. Accordingly on that aspect only the decision in Surya Dev Rai case was referred to a larger bench and the Supreme Court in the case of Radheshyam and another in (2015) 5 SCC 423 while reiterating the proposition as to non curtailment or whittling down of the constitutional power on the High Court or Supreme Court would not require any interference but the observation of the Division Bench in Surya Dev Rai case that a writ of Certiorari would lie to the civil court was disapproved and it was held that none of the writs including writ of certiorari could be issued to the civil courts. Therefore the Apex Court in subsequent decisions also in the case of Mahendra Saree Emporium in AIR 2004 SC 4289 at page 4294 referring to the earlier judgemetns held that article 136 of constitution confers on the supreme court special or residuary powers which are exercisable outside the purview of the ordinary law. It was also by a reference to the decision in Durga Sankar Mehta case observed that section 105 of R.P. Act 1951 gives finality to the decision of the election tribunal which would have effect of giving finality so far as that Act is concerned and the fact that it does not provide for any further appeal, cannot cut down or override the powers of the constitutional courts. It was also held that the constitutional jurisdiction conferred cannot be limited or taken away by any legislation subordinate to the constitution.

In (2010) 8 SCC 329, a Division Bench of the Supreme Court in para 49 on analysis of various divisions held that a petition under article 226 of the constitution is different from petition under article 227. It may be true that a statutory amendment of a rather cognate provision like section 115 of C.P.C by CPC amendment Act 1999 does not and cannot cut down the ambit of High Courts power. Right of remedy in the name of appeal or revision is provided in a general or a special law and the authority under the statute including the High Court or the Supreme Court as the case may be while exercising the powers under the statute law have to follow the limitations placed therein while discharging the functions as appellate or revisional authorities because while acting as an appellate authority or revisional authority, the court concerned would not look at either article 32 or 226 of the constitution or for that matter under article 227. Therefore the Apex Court in ONGC and Chattisgardh Electricity Board or for that matter Surya Chankra Power Transmis Corporation rightly held that the limitations placed on the appellate or revisional authorities on a particular statute namely electricity Act or Consumer Protection Act or Service Tax law or Central Excise and Customs Acts. Thus the catena of decisions in line clearly distinguished drawing a line in between appellate or revisional jurisdiction under statute law and constitutional jurisdiction and power under article 226 or 32 of the constitution of India cannot be looked at as complementary to one another and one cannot go hand in glove with other. On account of the limitation placed on appellate or revisional authority under a statute law deprived a citizen from having a decision on merits cannot once for all be thrown out or deprived of the remedy under the provisions of the constitution of India. Therefore appellate tribunal , authority or court as the case may be is different and distinct from a constitutional court so far as it exercises the jurisdiction and power conferred by the constitution. Appeal provisions under statute are not superior to the constitution. The finality on account of rejection of appeal or revision by efflux of period of limitation is only relatable to remedial provisions under that Act is concerned and it cannot be gain said that the merits of the case have been settled or adjudicated with the rejection of admission of the appeal to say that there is a finality as to the merits. Rejection of appeal for admission cannot and shall not amount to resulting in finality to an order in the eye of the constitution. Therefore in application of the various judgements of the constitutional benches and larger benches of the supreme Court as stated above, the full benches of Gujarat High Court in Panoli case, A.P. High Court in ECIL and Division Bench of Karnataka High Court have correctly taken a right view so as to see that the citizen is left with no remedy when such citizen is thrown out at the threshold under a statue law of course in terms of the rigors laiddown by the Hon’ble Supreme Court it was held that the exercise of writ jurisdiction is only in exceptional circumstances. Therefore it may not be proper on the part of the supreme court to say that simply because appeal was dismissed on admission, writ petition cannot be resorted to, because of the expiry of time limit for filing an appeal under the statute. As already enunciated by the Supreme Court , a writ court is independent and in a writ petition, court would be competent to deal with the aspect of the legality or otherwise of the decision making process by an authority, Tribunal, or forum which would effect the civil rights of the concerned aggrieved person and it was also held that in a writ jurisdiction , the High Court would not act as an appellate authority to examine the disputed factual aspects like an appellate authority or for that matter it would not sit in appeal against the order under challenge and finally court would not revisit or reappreicate or appraise the evidence. Therefore what follows from the principles laid down since times immemorial is that writ court is not an appellate authority and such provisions under statute as applicable to the appellate authority or revisional authority will not overstep or overturn on the conferment of the constitutional power. Therefore it is one thing to say that High Court cannot entertain any writ petition under article 226 against an order or decision of a subordinate authority after efflux of time prescribed by the remedy of appeal under the statute or to say in other words that the writ petition shall also be filed within the time set out in the statue for availment of the remedy of appeal under the Statue and such a view on the part of any court would only amount to supply of cassus omissus into article 226 of the Constitution and as such, the view emerging from the decisions of the court cannot be allowed to tinker with the language employed in the constitutional provisions. Therefore if a legitimate , genuine and satisfactory case is made out in a given case , it is no doubt obvious that the constitutional High Court would be competent within its powers to entertain the writ petition and decide on merits without having any relation to or connectivity to the limitation period prescribed under the statute for availment of the remedy of appeal. Of course, I am not for a moment suggesting for an unreasonable enlarged time for invoking the court jurisdiction after passing of a long time. Therefore within a reasonable time, the High Court in a writ petition can step in and do justice. What would be reasonable time again would always depend upon the context and the facts and surrounding circumstances and it may not be possible to formulate a straight jacket formula as a citizen would not gain anything by belated filing except under certain forbidden circumstances.

Thus as held by the Apex Court in a plethora of decisions , it is well settled that statute law for any purpose is always subordinate to the constitution of India which is supreme and a cut above and there shall be no doubt that statute law is not superior to the constitution.

Therefore the High Court in the country having been conferred with the jurisdiction and power under article 226 for issuing prerogative writs and its powers as rightly held cannot be taken away or whittled down by any statute law. Of course this considered view now spelt on the basis of the catena of decisions of the Supreme Court may not come to the rescue of the ill-fated Petitioner / appellant in a given case but I can only state that despite efflux of time for filing appeal and despite rejection of the appeal at admission without adjudication on merits , there would not be any finality attached to the order under challenge though there may be finality attached to the availment of the remedy under the Act and the citizen / tax payer or a person would be at liberty to invoke jurisdiction of the High Court in a writ petition to canvas its case of course on limited grounds without any effort for discussion or decision on factual aspects or appreciation or appraisal of the evidence. One must appreciate that the whole object of the Part –III provisions of the constitution is to see that no citizen or no person is left without any remedy and one should not be left with in complete despair and dismay as to its future especially in fiscal matters as tax is extracted without the will of the tax payer and it is also a known fact that either remedy of appeal or writ jurisdiction would only centre around disputed levies or high pitched demands without any nexus, ratioinale , logic and ultimately on surmises and wild guess.

The decision under consideration in my article is of two judges bench whereas the line of judgements of the Apex Court were rendered by Larger Benches of 3-Learend Judges, 5-Learend Judges, 7-Learend Judges and so on and so forth. Therefore as the judicial propriety demands in view of the fact a intriguing question of law involved, the matter ought to have been referred to a larger bench. Of course, it would consume a lot of time for revisit of this decision of 06-05-2020 in an appropriate case in future. I also humbly feel that a glance to the provisions of the concerned fiscal law that is APVAT Act 2005 which inter-alia prohibited recourse to institution of a civil suit against an order of assessment or order of appellate authority vide section 65. Thus had been the said section of the Act placed before the Hon’ble Court hopefully in all probability, the Hon’ble Court should have remitted the matter to the High Court for the purpose of examining the grounds taken in the writ petition as to want of authority or jurisdiction and also to what extent there was violation of the principles of natural justice.

I shall not be understood to have entered into any conflict or controversy with the decision considered in this article, for, it is for academic interest and debate and my attempt is only to analyze the true and correct position of law with my rich experience at the bar in constitutional branch of law with specialization to place only the right and correct information to the knowledge and benefit of one and all in legal fraternity.

ANALYSIS OF ABOVE EVENTS:

1) Analysis of Judgement of Reliance Electric Works (Delhi HC-Writ Pronounced on 5-5-2020)

(5 applicants seek the identical relief for identical controversy)

1.1 Relief:–

  • To permit the petitioners to avail ITC of accumulated CENVAT credit by filling Trans 1 beyond time prescribed in Rules.

  • Rule 117 is arbitrary, unconstitutional & violative of Article 14 (Equality before Law) to the extent it proposes time limit for c/f of CENVAT Credit to GST regime.

1.2 Facts:– There has been delay in filling of Form Trans 1 and factual situation in each one of present case is different and is substantially distinguishable from cases where relief already granted on the ground that the delay was not on account of Technical glitch on the portal, but due to technical difficulties at the end of assessee.

The case relates only to the Transitional Credit u/s 140(1) i.e. Credit as per
 Return immediately filed before appointed date.

1.3 Arguments forwarded by Assessee:–

  • CENVAT Credit accumulated in erstwhile regime represents the property of petitioner which is vested Right and cannot be taken away on failure to fulfill conditions procedural in nature. It is a constitutionally protected right.

  • Time limit in Rule 117 is procedural in nature and not mandatory, as it is without substantive provision.

1.4 Arguments of the Department:–

  • Delay is due to casual approach & negligence, not attributable to any technical glitch.

  • Defended Rule 117 by referring to section 164 of CGST Act.

  • “in such manner as may be prescribed” in section 140(1) empowers Govt. to fix time frame.

  • ITC is a benefit/ concession extended as per scheme of the statute subject to certain conditions and is not a vested right.

1.5 Held:- (It can be classified under 3 broad heads)

  1. TIME PERIOD UNDER RULE 117

    • Time period for furnishing Trans 1 has been extended from time to time by Govt. Acknowledging the technical difficulties faced by the taxpayers owing to several judgments and committee reports and finally 117A was inserted vide Notification 48/2018 inserted to empower commissioner , on recommendation of council, to extend TRAN-1 submission date maximum up to 31-3-2020 on account of Technical Difficulties

    • This also substantiates that the period for filing the TRAN-1 is not considered – either by the legislature, or the executive as sacrosanct or mandatory and is extended from time to time, largely on account of its inefficient network.

    • The Act does not completely restrict the transition of CENVAT credit in the GST regime by a particular date, and there is no rationale for curtailing the said period, except under the law of limitations.

    • Taxpayers cannot be robbed of their valuable rights on an unreasonable and unfounded basis of them not having filed TRAN-1 Form within 90 days, when civil rights can be enforced within a period of three years from the date of commencement of limitation under the Limitation Act, 1963.

    • Section 140 (1) is categorical. It states only the manner i.e. the procedure of carrying forward was left to be provided by use of the words “in such manner as may be prescribed”.

    • In absence of any consequence being provided under Section 140, to the delayed filing of TRAN-1 Form, Rule 117 has to be read and understood as directory and not mandatory. The procedure could not run contrary to the substantive right vested Section 140(1).

    • However, it does not mean that the availing of CENVAT credit can be in perpetuity. In absence of any specific provisions under the Act, we would have to hold that in terms of the residuary provisions of the Limitation Act, the period of three years should be the guiding principle and thus a period of three years from the appointed date would be the maximum period for availing of such credit. (Used Residuary Provision of the Limitation Act)

  2. CENVAT CREDIT IS A VESTED RIGHT

    • The credit of taxes already paid in every sense stood accumulated, acquired and vested on the appointed date as it was reflected in the said CENVAT credit register in the previous regime.

    • The CENVAT credit which stood accrued and vested is the property of the assessee, and is a constitutional right under Article 300A of the Constitution. The same cannot be taken away merely by way of delegated legislation by framing rules, without there being any overarching provision in the GST Act.

    • This credit, under the Section 140(1), has to be carried forward and in that sense, the vested right of the property of the petitioner stood accrued and the same cannot be taken away by the respondents by way of Rules.

  3. TECHNICAL DIFFICULTY (A broad definition)

    • “Technical difficulty on the common portal” imply? There is no definition to this concept and the respondent seems to contend that it should be restricted only to “technical glitches on the common portal”. However, “Technical difficulty” is too broad a term and cannot have a narrow interpretation, or application. Further, technical difficulties cannot be restricted only to a difficulty faced by or on the part of the respondent. It would include within its purview any such technical difficulties faced by the taxpayers as well, which could also be a result of the respondent’s follies. Thus, the phrase “technical difficulty” is being given a restrictive meaning which is supplied by the GST system logs.

    • There could be various different types of technical difficulties occurring on the common portal which may not be solely on account of the failure to upload the form. The access to the GST portal could be hindered for myriad reasons, sometimes not resulting in the creation of a GST log-in record. Further, the difficulties may also be offline, as a result of several other restrictive factors. It would be an erroneous approach to attach undue importance to the concept of “technical glitch” only to that which occurs on the GST Common portal, as a pre- condition, for an assessee/taxpayer to be granted the benefit of Sub- Rule (1A) of Rule 117.It cannot be arbitrary or discriminatory, if it has to pass the muster of Article 14 of the Constitution.

1.6 IMPACT

Permitted to file relevant TRAN-1 Form on or before 30.06.2020. Respondents are directed to either open the online portal so as to enable the Petitioners to file declaration TRAN-1 electronically, or to accept the same manually. Respondents shall thereafter process the claims in accordance with law. We are also of the opinion that other taxpayers who are similarly situated should also be entitled to avail the benefit of this judgment.

Note: Supreme Court has stayed Delhi High Court decision in case of Brand Equity Treaties Ltd. v. Union of India [2020] 116 taxmann.com 415 (Delhi); issues notice

The other decisions as referred above for allowing transitional credits are discussed as follows:

  • A. B. Pal Electricals Pvt. Ltd. v. Union of India & Ors. (17.12.2019) (2019 (12) TMI 1002– Delhi HC): In this case it was held that the CENVAT credit accumulated in erstwhile regime represents the property of petitioner and a constitutionally protected right under Article 300A of the Constitution of India. There is no law which extinguishes the said right to property of the assessee of the credit standing in their favor.

  • M/S. Blue Bird Pure Pvt. Ltd. v. Union of India & Ors.(22.07.2019) (2019 (7) TMI 1102 – Delhi High Court)

  • Sare Realty Pvt. Ltd. vs Union of India 2018 (9) TMI 373 (Del) (01.08.2018)

  • Bhargava Motors v. Union of India & Ors. (2019 (5) TMI 899– Delhi High Court) (13-05-2019): It was observed by the Hon’ble High Court that the GST system is still in a ‘trial and error phase’ as far as its implementation is concerned. Further, the Petitioner’s difficulty in filling up a correct credit amount in the TRAN-1 form is a genuine one which should not preclude him from having his claim examined by the authorities in accordance with the law. A direction is accordingly issued to the Respondents to either open the portal so as to enable the Petitioner to again file TRAN-1 electronically or to accept a manually filed TRAN-1.

  • Kusum enterprises v. Union of India 2019 (7) TMI 945 (Del) (12.07.2019)

  • Adfert Technologies Pvt. Ltd. v. Union of India and Ors. (04.11.2019) (2019) (11) TMI 282– Punjab and Haryana

  • High Court). In this case, a detailed order accepting the claims of the petitioners has been passed. It is pertinent to mention here that the SLP filed by the Government against this order was dismissed by the Hon’ble Supreme Court. [2020] 115 taxmann.com 29 (SC)

  • Aadinath Industries & Anr vs. UOI (20.09.2019)

  • Lease Plan India Pvt. Ltd v. Govt. of National Capital Territory of Delhi & Ors.(15.10.2019)

  • Tara Exports v. The Union of India. 2019 (20) G.S.T.L. 321 (Mad.)

  • Siddharth Enterprises v. The Nodal Officer 2019 (9) TMI 319.

The other side of the coin as referred above, the judgements Against allowing belated transitional credits are discussed as follows:

  • Willowood Chemicals Pvt. Ltd. v. Union of India 2018 (19) G.S.T.L. 228 (Guj.), it has been held that the plenary prescription of time limit for declarations was neither without authority nor unreasonable. It was within rule making power available under Sections 164(1) and 164(2) of CGST Act, 2017. (Contrary views taken in subsequent Judgements by same HC and other HC)

  • Nelco Limited v. Union of India & Ors 2020 (3) TMI 1087have taken a different stand and have considered Rule 117 not ultravires the act by referring to Sec. 164 of CGST Act, 2017.

2 Amendment in Section 140 by Finance Act, 2020

Section
Amended
Old Provision Amendment New Provision Reason Effect

Section 140 (1),

Section 140 (2),

Section 140 (3),

Section 140 (5),

Section 140 (6),

Section 140 (7),

Section 140 (8),

Section 140 (9)

(Transitional Credit Provisions)

140. (1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed:

………………… …

(1), after the words “existing law”, the words “within such time and” shall be inserted and shall be deemed to have been inserted;

(1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law within such time and in such manner as may be prescribed:

………………… …………… ………….

Section 140 of the CGST Act is being amended w.e.f. 01.07.17, to prescribe the manner and time limit for taking transitional credit

Retrospective Amendment w.e.f 01.07.2017 to overcome the effect of Judgements like Siddhartha Enterprises etc. allowing Transitional Credit based upon the ground that Rules cannot provide the Time Limit when in Act, there is No Time Frame Provided.

Procedural amendment in Act in Sections 140(1), (2), (3), (5), (6), (7), (8), (9) to include provision for Time Frame for Transitional Credit to be provided by Rules.

This may imply that the ground raised by the petitioner before various courts challenging vires of Rule 117 of the CGST Act, 2017 stands exhausted.

 

NOTE: Amendment only with respect to 140(1) discussed above being relevant to the context.

3 “A Retrospective Googly” Notification No. 43/2020 – Central Tax dated 16-5-2020 has enforced the retrospective amendment made in section 140 of the CGST Act vide section 128 of the Finance Act, 2020 as per section 1(2) of Finance Act, 2020. The opening lines of section 128 states that the same is effective from 1st July, 2017. However, the same has been notified vide Notification No. 43/2020-Central Tax dated 16th May, 2020, which stipulates that the said provision shall come into force on 18th May, 2020. In the author’s opinion it is applicable retrospectively from 1-7-2017.

4 Can Government bring retrospective Amendments

The power of the government to make retrospective law cannot be denied but however is a limited power. The legislature cannot set at naught the judgements pronounced and overturn these by amending laws not for purpose of making corrections or removing anomalies but to bring in new provisions which did not exist earlier. The mute question is whether Statutes dealing with Substantive/Vested Rights can be retrospectively amended.

Citation Case Law

[2018] 91 taxmann.com 228 (SC)

SUPREME COURT OF INDIA

State of Karnataka

v.

Karnataka Pawn Brokers Assn.

Legislative, power of (Retrospective amendment) – Whether Legislature has power to enact validating laws even with retrospective effect, however, this can be done to remove causes of invalidity – Held, yes – Whether thus, Legislature cannot set at naught judgments which have been pronounced by amending law not for purpose of making corrections or removing anomalies but to bring in new provisions which did not exist earlier – Held, yes – Whether a judicial pronouncement is always binding unless, very fundamentals on which it is based are altered and decision could not have been given in altered circumstances – Held, yes – Whether Legislature cannot, by way of introducing an amendment, overturn a judicial pronouncement and declare it to be wrong or a nullity – Held, yes – Whether what Legislature can do is to amend provisions of statute to remove basis of judgment – Held, yes [Paras 22 and 23]

Hitendra Vishnu Thakur vs. State of Maharashtra 1994(4) SCC 602

A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.

Cheviti Venkanna Yadav vs. State of Telangana And Ors. [2016 (10) Tmi 1229 – Supreme Court]

Whether the base of earlier judgment has been removed to erase the effect of the judgment? – Held that: – The legislature cannot, by way of an enactment, declare a decision of the court as erroneous or a nullity, but can amend the statute or the provision so as to make it applicable to the past. The legislature has the power to rectify, through an amendment, a defect in law noticed in the enactment and even highlighted in the decision of the court. This plenary power to bring the statute in conformity with the legislative intent and correct the flaw pointed out by the court, can have a curative and neutralizing effect. When such a correction is made, the purpose behind the same is not to overrule the decision of the court or encroach upon the judicial turf, but simply enact a fresh law with retrospective effect to alter the foundation and meaning of the legislation and to remove the base on which the judgment is founded. This does not amount to statutory overruling by the legislature. In this manner, the earlier decision of the court becomes non-existent and unenforceable for interpretation of the new legislation. No doubt, the new legislation can be tested and challenged on its own merits and on the question whether the legislature possesses the competence to legislate on the subject matter in question, but not on the ground of over-reach or colorable legislation.

[2011] 335 ITR 541 (Delhi)High Court Of Delhi Commissioner of Income- tax v. Karan Bihari Thapar*

Amendment brought being substantive in nature, cannot be given retrospective effect.

However, there are judgements favoring Retrospective Amendments like R.C. Tobacco Pvt. Ltd. 2005 taxmann.com 1137(SC), ACIT vs. Netley ‘B’ Estate [2015] 56 tamann.com 436(SC). Moreover, Sec 164(3) of CGST Act, gives the power to give Retrospective Effect to any of the rules made from a date not earlier than the date on which provisions of this Act comes into force.

5 JUDGEMENTS IN DUE COURSE:

Where, the judgement of Brand Equity Treaties Ltd., was pronounced before the amendment to Section 140 was made effective , the following two judgements have come in due course after the said amendment made effective.

  1. SKH Sheet Metals Components(Delhi) [2020] 117 taxmann.com 94 Where tax department had miserably failed to address problem faced by petitioner that occurred while filing a Form, seemingly on account of a bona fide or inadvertent mistake, petitioner was to be permitted to revise TRAN-1 Form for transition of ITC. Delhi High Court denied venturing into LEGALITY of Retrospective Amendment viz a viz Brand Equity and considered that said Judgement had several other grounds and reasons enumerated and those continue to apply with full Rigor even today, regardless of the Amendment in Section 140 of CGST Act, 2017.

  2. Amba Industrial Corporation (Punjab & Haryana) [2020] 117 taxmann.com 195 stating where assessee failed to upload TRAN-I for availing benefit of previous un-utilized input tax credit by last date i.e. 27-12-2017, respondent-GST authorities were to be directed to permit assessee to upload TRAN-I on or before 30-6-2020 and in case respondent failed to do so, assessee would be at liberty to avail ITC in question in GSTR-3B of July, 2020.

6 IMPLICATIONS:

  1. At first Instance, the said notification negates the effect of all such orders to the extent of validity of time period provisions, as prescribed in Rule 117.The legal loophole has been plugged by the government and it will surely open up another round of litigation in this regard.

  2. However, the Hon’ble HC in case of Brand Equities has given a wider definition of Technical Difficulties, hence the assessee can take the benefit of Rule 117A in which the time period has been extended to 31.03.2020 and till 30.06.2020 due to covid Blanket exemption vide Not. 35/2020, based upon the reasonable ground of technical difficulties.

  3. Moreover, the sufficiency of time period prescribed of 90 days plus 90 days extension as per Rule 117(1) can also be made a point to ponder, that the same is insufficient or inappropriate for transitional credit involving number of issues, as against the preparedness of the government in implementation of GST procedures involving number of technical glitches.

  4. As per the judgements quoted above the Hon’ble courts have held that the credit as reflecting in earlier regime returns is a VESTED Right in pursuance of Article 300A of constitution and if it is a vested right, it cannot be curtailed. It must be appreciated that the credit being sought, may be belated, but belongs to the credit of taxes already paid by the registered person.

    Even the Hon’ble SC in Eicher Motors Ltd. vs. UOI 1999(106)E.L.T. 3(S.C), Dai Ichi Karkaria Ltd. 1999(112) E.L.T. 353(S.C), Samtel India Ltd. vs CCE, Jaipur [2003 (155)ELT 14 SC), Jayam and Co. vs Assistant Commissioner (2016) 96 VST 1 (SC), New Swadeshi Sugar Mills(2016) 1 SCC 614, Osram Surya (P) Ltd. vs. Commissioner of Central Excise, Indore 2002(142) E.L.T. 5(SC) has held ITC a vested Right.

  5. As ITC is a vested right and curtailing it through Retrospective Amendment, the validity of bringing in Retrospective amendment by Government can be challenged. It is a Procedural Amendment Affecting Vested Substantive Right of a Litigant. How a vested right can be taken away by a retrospective law amendment. The change made is not only a procedural alteration but has effect of adding a new provision. The Retrospective Amendment must be checked on the basis of Morality, Legality, Reasonableness and its Ramifications.

7 RECOMMENDATION:

  • Hence, it shall be open to the registered person to claim its credits on various other grounds as mentioned above. As a matter of abundant caution, all such claims should be filed before 30.06.2020(before expiry of Limitation period), online, if the jurisdictional officer allows or manually or thru E-mail to the jurisdictional officer to keep the claim alive in light of the judgement in due course and must be maintaining the trail keeping in mind the judgement of M/s Shree Motors vs. UOI (2020) 115 Taxmann.com 344 which asked the trail to be produced.

  • The registered person can claim this credit in GSTR-3B as held by the P&H High Court in its latest judgment on TRAN-1 but not to utilize the credit till the final disposal by the Supreme Court in favor of the assessee.

  • The registered person can also seek to Legal Remedy by filling a Writ depending upon the stake involved.

Despite all, the fact is that, still there are a number of questions that are unanswered like jurisdictional restrictions of High Court decision, validity of Retrospective Amendment, preparedness of GSTN, extensions pertaining to arbitrary approach of Government, the burden of Legislative Errors be borne by Financial Costs and adverse implications to assessee and will be settled in due course by the Hon’ble courts.

The scheme of Settlement of cases under the Income Tax Act’1961 is governed by Sections 245A to 245M contained in “Chapter XIX-A: Settlement of Cases”.

In the common parlance, it is believed that the settlement of cases is a one time opportunity in the life time of such applicant (now also includes its related person w.e.f. 01-06-2015).

In the quest of academic learning a question arises so far as what is the intention of legislature and the legal position in this regard -as to whether an applicant is debarred from making subsequent application before the Income Tax Settlement Commission or not. Let us have an academic outlook towards it.

Section 245K imposes a bar on subsequent application of cases. For the sake of brevity and understanding, Section 245K is reproduced hereinunder with the amendment notes:-

61[Bar on subsequent application for settlement.

62245K. (1) Where—

  1. an order of settlement passed under sub-section (4) of section 245D provides for the imposition of a penalty on the person who made the application under section 245C for settlement, on the ground of concealment of particulars of his income; or

  2. after the passing of an order of settlement under the said sub-section (4) in relation to a case, such person is convicted of any offence under Chapter XXII in relation to that case; or

  3. the case of such person was sent back to the Assessing Officer by the Settlement Commission on or before the 1st day of June, 2002,

then, 63[he or any person related to such person (herein referred to as related person) shall not be entitled to apply] for settlement under section 245C in relation to any other matter.

  1. (2) Where a person has made an application under section 245C on or after the 1st day of June, 2007 and if such application has been allowed to be proceeded with under sub-section (1) of section 245D, such person 64[or any related person shall not be subsequently entitled] to make an application under section 245C.]

    65[Explanation.—For the purposes of this section, “related person” with respect to a person means,—

    1. where such person is an individual, any company in which such person holds more than fifty per cent of the shares or voting rights at any time, or any firm or association of persons or body of individuals in which such person is entitled to more than fifty per cent of the profits at any time, or any Hindu undivided family in which such person is a karta;

    2. where such person is a company, any individual who held more than fifty per cent of the shares or voting rights in such company at any time before the date of application before the Settlement Commission by such person;

    3. where such person is a firm or association of persons or body of individuals, any individual who was entitled to more than fifty per cent of the profits in such firm, association of persons or body of individuals, at any time before the date of application before the Settlement Commission by such person;

    4. where such person is a Hindu undivided family, the karta of that Hindu undivided family.]

Amendment Notes

61. Substituted by the Finance Act, 2007, w.e.f. 1-6-2007. Prior to its substitution, section 245K, as amended by the Finance Act, 1987, w.e.f. 1-6-1987 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

62. For relevant case laws, see Taxmann’s Master Guide to Income-tax Act.

63. Substituted for “he shall not be entitled to apply” by the Finance Act, 2015, w.e.f. 1-6-2015.

64. Substituted for “shall not be subsequently entitled” by the Finance Act, 2015, w.e.f. 1-6-2015.

65. Inserted by the Finance Act, 2015, w.e.f. 1-6-2015.

Thus by perusal of Amendment Note 61 above, it can be seen that Section 245K has been substituted in place of erstwhile Section 245K by the Finance Act, 2007, w.e.f. 1-6-2007. Prior to its substitution, section 245K, as amended by the Finance Act, 1987, w.e.f. 1-6-1987 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

Let us also go through the erstwhile Section 245K as was in the Income Tax Act prior to 01-06-2007, the same is reproduced herein under:-

“Bar on subsequent application for settlement in certain cases.

245K. Where,—

  1. an order of settlement passed under sub-section (4) of section 245D provides for the imposition of a penalty on the person who made the application under section 245C for settlement, on the ground of concealment of particulars of his income; or

  2. after the passing of an order of settlement under the said sub-section (4) in relation to a case, such person is convicted of any offence under Chapter XXII in relation to that case; or

  3. the case of such person is sent back to the Assessing Officer by the Settlement Commission under section 245HA,

then, he shall not be entitled to apply for settlement under section 245C in relation to any other matter.”

At the outset, it is pertinent to note that on comparison of pre substituted Section 245K with the newly substituted Section 245K, the very first striking difference emerges is that the pre substituted Section 245K open up with heading “Bar on subsequent application for settlement in certain cases”. However, the substituted Section 245K w.e.f. 1-6-2007, open up with a heading “Bar on subsequent application for settlement”.

Therefore, the word “in certain cases” have been omitted in the heading of Section 245K w.e.f. 1-6-2007.

Further Section 245K(2) was introduced for the first time w.e.f. 1-6-2007, which mandates that where a person who has made an application under section 245C on or after the 1st day of June, 2007 and if such application has been allowed to be proceeded with under sub-section (1) of section 245D, such person (now also any related person, inserted w.e.f. 1-6-2015) shall not be subsequently entitled to make an application under section 245C.

At this juncture, it is pertinent to go through the Memorandum explaining the provisions of Finance Bill by virtue of which Section 245K was substituted w.e.f. 1-6-2007. The relevant extract of the memorandum is reproduced hereinunder:-

REVISED SETTLEMENT SCHEME

Chapter XIX-A of the Income-tax Act contains provisions relating to settlement of cases by the Settlement Commission. With a view to avoid delay in determining the tax liability of an assessee which is caused because of factors like duplication of proceedings, absence of statutory time frame for settling the case, and also with a view to streamline the proceedings before the Settlement Commission, it is proposed to amend the provisions of said Chapter XIX-A of the Income-tax Act. The important changes proposed to be made are—

…………………..

(xii) It is also proposed to provide that after 1.6.2007, an assessee can apply for settlement only once during his lifetime. For this purpose, an application which was not admitted shall not be deemed to be an application;

…………………………………

Therefore, the legislative intent is clear that w.e.f. 1-6-2007 so far as an assessee can apply for settlement only once during his lifetime.

Reliance can also be placed on the FAQ No.1 placed in Chapter 5 of the Handbook on Effective Handling of cases before the Income Tax Settlement Commission released by the Central Board of Direct Taxes. The FAQ No. 1 is reproduced herein under:-

  1. How many times can a person file settlement application?

A person can file application only once in his lifetime. The Finance Act, 2007 has introduced sub-section (2) in section 245K of the Act w.e.f. 1.6.2007, which is reproduced as under:-

“(2) Where a person has made an application under section 245C on or after the 1st day of June, 2007 and if such application has been allowed to be proceeded with under sub-section (1) of section 245D, such person shall not be subsequently entitled to make an application under section 245C.”

The meaning of this section has been elaborated in Para – (xii) under the heading “Revised Settlement Scheme” of Memorandum to Finance Bill, 2007, which reads as under:-

“(xii) It is also proposed to provide that after 1.6.2007, an assessee can apply for settlement only once during his lifetime. For this purpose, an application which was not admitted shall not be deemed to be an application;”

(emphasis supplied)

This implies that for applications made on or after the 1st day of June, 2007 and which have been allowed to be proceeded with under Section 245D(1), the person is debarred from making any further settlement application u/s 245C(1).

However in a recent judgement of the Hon’ble Madras High Court in case of Abdul Rahim v. Income Tax Settlement Commission, Chennai [2018] 96 taxmann.com 571 (Madras), the Hon’ble Madras High Court have interpreted Section 245K(2) in a different manner altogether contrary to the legislative intent as discussed above. The Hon’ble Court held that the bar provided under section 245K(2) for making subsequent application under section 245C is to be construed as a bar in respect of such assessment year, which is already subject matter in earlier application, and not in respect of any future application in respect of any other assessment year/years which was not a subject matter of application already filed under section 245C which was allowed to be proceeded with under sub-section (1) of section 245D. In other words, the court impliedly held that the an assessee can file subsequent settlement applications for other assessment years which were not a subject matter in earlier settlement applications which were allowed to be proceeded u/s 245D(1) of the act, thereby allowing the opportunity of settlement more than once in a lifetime of an assessee.

In view of the Hon’ble Court, Substituted Section 245K of the act w.e.f. 1-6-2007, contains two categories therein for imposing bar on subsequent application for settlement. Sub-section (1) of Section 245K(1) deals with first category consisting of three types of cases i.e., where an order of settlement passed under Section 245D(4) provides for imposition of penalty on the ground of concealment of particulars of income or if a person who made such application is convicted of any offence under Chapter XXII in relation to that case, after passing of order of settlement under Section 245D(4) or if the case of such person is sent back to the Assessing Officer by the Commission on or before the 1st day of June, 2002. In respect of those three cases which form first category under Section 245K(1), neither the applicant nor any person relating to such person shall be entitled to apply further for settlement under section 245C in relation to “any other matter”.

Therefore, on falling under any of the clauses of Section 245K(1), it is evident that a total bar or prohibition is imposed against the said person or any person related to such person in making any application in future for settlement under section 245C not only in relation to the subject matter case but also in respect of any other matter.

Further, the Hon’ble Court held that the bar imposed under sub-Section (2) of Section 245K stands on a different footing. Under this category, a person or related person is barred from making an application under Section 245C, if his earlier application filed under the said provision has been allowed to be proceeded with under section 245D(1). Here, the phrase “any other matter” as contemplated under section 245K(1) is conspicuously absent or omitted {Emphasis Supllied}. The court held that the bar stipulated under section 245K(2) is to be read along with Section 245C in order to find out whether such bar is against another application under section 245C in respect of that particular assessment year, which is the subject matter in the application filed already, by such person under section 245C or in respect of any application in relation to any other matter, as specifically provided under section 245K(1). Section 245C deals with an application for settlement of cases. Sub-section (1) of Section 245C permits an assessee to make an application before the Settlement Commission containing a full and true disclosure of his income etc., “at any stage of a case relating to him”. In view of the court, the phrase “at any stage of a case relating to him” used under section 245C is significant, which would only indicate that the case relating to the assessee in respect of a particular assessment year, in which, a full and true disclosure of income has not been disclosed before the Assessing Officer etc.

The court interpreted that the bar provided under section 245K(2) for making subsequent application under section 245C is to be construed as a bar in respect of such assessment year, which is already the subject matter in the earlier application, and not in respect of any future application in respect of any other assessment year/years, being not the subject matter of the application already filed under section 245C, which was allowed to be proceeded with under sub-section (1) of Section 245D.

The Hon’ble Madras High Court, also relied upon the observation made by the Apex Court in CIT v. Express Newspaper Ltd. [1994] 206 ITR 443/72 Taxman 438 as follows:

Once the application is allowed to be proceeded by the Commission, the proceedings pending before any authority under the Act relating to that assessment year have to be transferred to the Commission and the entire case for that assessment year will be dealt with by the Commission itself. The words “at any stage of a case relating to him” only make it clear that the pendency of proceedings relating to that assessment year, whether before the Assessing Officer or before the appellate or revisional authority, is no bar to the filing of an application under section 245C so long as the application complies with the requirement of section 245C. (emphasis supplied)

Based on the above observations, the Hon’ble High Court held that Section 245K(2) is not imposing total bar on subsequent application, such total bar is applicable only in respect of cases falling under Section 245K(1). The bar under Section 245K(2) is against an application in respect of the same assessment year and not on other assessment years so long as the applicant has not suffered any such disqualifications as stated under section 245K(1).

Thus a clear conflict has arisen for times to come due to a divergent interpretation of Section 245K by the Hon’ble Madras Court as compared to the intention of the legislature. The necessary corollary of the judgement of the Hon’ble Madras court at future times to come shall be that an assessee will be permissible to opt for settlement of his cases pertaining to other assessment years which were never subjected to Settlement proceedings wherein an order u/s 245D(1) of the act has been passed. Therefore in view of the judgment of court as discussed above, an assessee can approach settlement commission for any number of times though for different assessment years as against only once in his life time as intended by the legislature.

In my considered opinion though with due respect to the judgment of the Hon’ble Madras Court, the view taken by the court does not coincide with the intent of very scheme of Settlement which was framed under Chapter XIX-A of the Income Tax Act’1961 on the recommendation of Direct Tax Enquiry Committee headed by former Chief Justice of India, Shri K. N. Wanchoo. The recommendation of the enquiry committee was to give settlement mechanism to a onetime tax evader and not to a habitual offender so that he can come up with a full and true disclosure of Income not disclosed earlier so that he can have a clean slate of all past affairs. This obviously doesn’t mean such an assessee can again take the route of dishonestly for future tax disclosures while filing his tax returns. Owing to this very reason, the judgment of the Hon’ble High Court is in clash with the very intention of the Settlement Scheme as envisaged by the legislature. Therefore, it is strongly advisable that before the judgement is relied upon by such habitual tax offenders and the matter is litigated widely, the legislature should plug this loophole by suitably amending Section 245K(2) of the Income Tax Act’1961.