1. Contract of Agency – Agent cannot perform an act in his own right and for himself : Contract Act 1872 section 182

Agent cannot perform act in his own right and for himself as contract of agency is created when authority is given to agent to represent principal in dealing with third person or to do something for principal. In other words, it is the principal who, in law, is answerable to the third person for the acts done by his agent as long as the acts so performed fall within the scope of employment or authority of the agent.

Mumbai Agricultural Produce Market Committee, Mumbai v. Hon. Minister for Marketing Maharashtra State, Mantralaya & Ors. AIR 2015 Bombay 234

2. Right to vote – District Central Co-operative Bank – Non inclusion of defaulters names in voters list for not clearing outstanding dues, proper : Maharashtra Co-operative Societies Act, 1961

Denial of voting rights to petitioners and primary co-operative societies by not including their names in voters list for not clearing outstanding dues was held to be proper. It was also held that it does not amount to discrimination.

Prakash Bhanudas Kavade and Ors. v. Nashik District Central Co-operative Bank Ltd. Nashik AIR 2015 (NOC) 1116 (Bom.).

3. Winding up Petition – Unpaid salary, wages etc. is a debt – Ex employee has locus standi to file company petition as creditor of company: Companies Act, 1956

The outstanding or unpaid wages / salary of the workman/employee is a debt to be paid by the company. The expression creditor is intrinsically linked to the expression debt/ debts. Therefore the employee of the company has locus to file Company petition in respect of his unpaid wages/salary and emoluments, as having been filed by a creditor of the Company.

Jonathan Allen v. Zoom Developers Pvt Ltd. AIR 2015 Madhya Pradesh 152 (FB).

4. Release deed – Not registered – Would not confer any right on beneficiary : Registration Act, 1908 section 17

If Release Deed is not registered and property, subject matter of release deed, not belonging to executors, release deed cannot be termed as valid document it would not confer any right on beneficiary.

S. A. Ramalingam v. Elumalai. AIR 2015 Madras 235

5. Delegated Legislation – Delegatee cannot frame regulation that would not be in accord with statutory provisions

If on reading of the statute in entirety, such a power does not flow, a delegated authority cannot frame a regulation as that would not be in accord with the statutory provisions nor would it be for the purpose of carrying on the provision of the Act. The power to make subordinate legislation is derived from the enabling Act and it is fundamental that the delegate on whom such power is conferred has to act within the limits of authority conferred by the Act. Rules cannot be made to supplant the provisions or the enabling Act but to supplement it. What is permitted is the delegation of ancillary or subordinate legislative functions, or what is fictionally called a power to fill up details.

Petroleum And Natural Gas Regulatory Board v. Indraprastha Gas limited and others . AIR 2015 SC 2978.

6. Gift deed – Devolution of interest – Lis pendens – Transfer of property Act, section 122

When gift deed executed by deceased defendant during pendency of suit for partition in favour of donee defendant who was his brother but same could not be acted upon as another brother who was plaintiff’s husband was in possession of portion of property along with plaintiff and defendant died during pendency of proceedings, plaintiff will be entitled to share as section 8 of Hindu Succession Act would come into play and property will devolve on plaintiff, and other brothers and children of defendant being his class I heirs.

Kirpal Kaur v. Jitender Pal Singh and Ors. AIR 2015 SC 2967

7. Doctrines – Doctrine of stare decisis

Doctrine of stare decisis is based on legal maxim “stare decisis et non quota movere”. It means to stand by decisions rather to disturb what is settled.

Pradipta Padha & Ors. v. Laxmi Kanta Maity & Ors. AIR 2015 (NOC) 1176 (Cal.)

8. Limitation – Suit in wrong forum- Not barred by limitation

Prosecution of suit in wrong forum. Testamentary proceedings pursued in belief that rights of parties to estate of deceased would be decided therein. Filing of fresh suit laying claims to benefit of estates, not barred by limitation.

Vasantha Kumari and Anr. v. Rani Shantha alias Philomena and Ors. AIR 2015 Karnataka 167

9. Courts, Tribunal and Judiciary – Judicial Accountability – Ensured under the law via provisions of appeal, revision and review

No person, however high, is above the law. No institution is exempt from accountability, including the judiciary. Accountability of the judiciary in respect of its judicial functions and orders is vouchsafed by provisions for appeal, revision and review of orders.

State of Uttar Pradesh and Ors. v. Anil Kumar Sharma and anr (2015) 6 SSC 716.

10. Interpretation of Statutes – Taxing Statutes

In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. It is trite that in case of reasonable doubt, the construction most beneficial to the subject is to be adopted.

Voltas Ltd. v. State of Gujarat (2015) 12 STD 658 (SC)

Ajay R. Singh

A. Classification of Service

Banking & Other Financial Service

1. The Tribunal held that where the assessee, a manufacturer of industrial gases, had supplied / loaned out insulated storage tanks to its customers for use, for a period of 3 years and for a fixed sum payable per month, it could not classified as financial leasing services since the assessee was not a banking company or financial institution or a commercial concern engaged in providing banking or other financial services.

Inox Air Products Ltd. v. CCE – (2015) 37 STR 1024 (Tri. Mum.)

2. The Tribunal held that the assessee a stock broker registered with SEBI, dealing in shares, bonds and securities on behalf of the client could not be considered as a financial institution liable to pay service tax on the said activities under the category of ‘banking and other financial services.

Parag Parikh Financial Advisory Services Ltd. v. C.S.T. Mumbai (2015) 38 STR 490 (Tri.-Mum.)

3. The Tribunal held that commitment charges levied by the banks on the customers who fail to draw their sanctioned loan is to compensate itself for the loss of interest that could have been earned by it if the customer had drawn money from the loan account and therefore is integrally connected with the lending services and hence liable for service tax

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

Business Auxiliary Services

4. The Tribunal held that the process of grinding wheat into wheat products is in the nature of manufacture, not liable to service tax under the category Business Auxiliary Services.

Jayakrishna Flour Mills (P) Ltd v. CCE – (2015) 37 STR 1079

5. The Tribunal held that additional handling charges and facilitation charges charged to the buyer for sale of naphtha and furnace oil imported by the assessee was a transaction of sale of goods on principal to principal basis and hence demand of service tax on the said charges received under the category of business auxiliary services was unsustainable

Indian Oil Corporation Ltd. v. CCE (2015) 38 STR 501 (Tri.-Mum.)

6. The Tribunal held that the repair and maintenance services provided by the assessee to Modi Xerox pursuant to the service agreement with M/s. Modi Xerox in respect of the Modi Xerox machines located at the customer’s premises were services on behalf of client (i.e. Modi Xerox) and hence the same would be taxable only w.e.f. 10-9-2004 under the category of business auxiliary services (provision of service on behalf of the client) and not under Repairs and Maintenance Service

Kunjal Enterprises v. CST (2015) 38 STR 518(Tri.-Mum.)

Cargo Handling Service

7. The Tribunal held that the activity of loading and unloading of coal into tippers by deploying pay-loaders at the mining site was liable to service tax under the category of Cargo Handling Services.

Shreem Coal Carriers Pvt Ltd v. CCE – (2015) 37 STR 1067 (Tri.-Mum.)

8. The Tribunal held that shipping charges collected for transportation of imported goods from a mother vessel to a jetty was part of the transaction value of imported goods for Customs Duty purposes and therefore could not be classified as Cargo Handling services liable to service tax. It further held that transportation of goods along the cost would be chargeable to service tax under the category of cargo handling services but since the goods were fertilizers the said service would be exempt from service tax under Notification No. 30 / 2009 – ST.

United Shippers Ltd v. CCE – (2015) 37 STR 1043 (Tri. – Mumbai)

Club or Association Service

9. The Tribunal held that the promotion of cricket was not a public service and could not be considered as an activity of charitable nature, therefore requiring the assessee to pay service tax on the subscription charges received from its members, under the category of Club or Association Services.

Vidharbha Cricket Association v. CCE – (2015) 38 STR 99 (Tri. Mum.)

10. The High Court held that no service tax was leviable on the assessee, a co-operative society engaged in maintaining common effluent treatment plants (‘CETP’), for providing the facility of CETP under the category of Club or Association service as the relevant provisions i.e. Section 65(105)(zzze) had been held to be unconstitutional in Sports Club of Gujarat v. UOI (2013) 37 STR 961 (Guj.).

Green Environment Services Co-op Society Ltd v. UOI – (2015) 37 STR 961 (Guj.)

11. The Tribunal held that services rendered by member’s club to its members or by co-operative societies to its members would not be liable for service tax under the category of club or association services on the principle of mutuality

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

12. The Tribunal held that considering the nature of activities carried out, the assessee organisations (FICCI & ECSEPC) were held to be having public service objectives, charitable in nature and hence were to be excluded from the definition of Club or Association Service. Further, on application of the principle of mutuality, services provided by the assessee to their respective members would not fall within the ambit of “Club or Association” service nor would the consideration whether by way of subscription/fee or otherwise received be exigible to service tax. The Tribunal held that one of the assessees (ECSEPC) was an organisation formed to effectuate the policy under the Foreign Trade (Development and Regulation) Act, 1992, and also being an Export Promotion Council falling within the ambit of the Foreign Trade Policy, and therefore was outside the purview of “Club or Association” as defined in 65(25a) as it excludes any body established or constituted by or under any law.

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

Construction Services

13. The Tribunal held that the activity of fabrication of structure at site for clients, amounts to manufacture and therefore is not liable to service tax.

Plus Tech Engineering (P) Ltd. v. CCE, Surat 2015 (39) STR 454 (Tri.-Ahmd.)

Commercial Coaching & Training Services

14. The Tribunal held that providing training for speaking English could not be considered as vocational training and therefore would not be exempt from service tax under Notification No. 9 / 2003 or Notification No. 24 / 2004.

Ulhas Vasant Bapat v. CCE – (2015) 37 STR 1034 (Tri.-Mum.)

15. The Tribunal held that coaching in English language enables trainee to seek employment or undertake self-employment and therefore is entitled for benefit of Notification No. 9/2003-ST and that there was no mention of any foreign or Indian language in the said notification. It also held that, fees collected and services rendered up to 1-7-2003 do not attract service tax.

Darshan English Classes v. CCE&ST, Rajkot 2015 (39) STR 167 (Tri.-Ahmd.)

Intellectual Property Service

16. The Tribunal held that for a transfer of IPR only rights which are registered with trademark/patent authorities to be considered. It also held that since the issue of charging service tax as reverse charge under section 66A of FA, 1994 was under litigation before various Courts, the extended period of limitation cannot be invoked.

Rochem Separation Systems (India) P. Ltd. v. CST, Mumbai-I 2015 (39) STR 112 (Tri.-Mumbai)

Management Consultancy Service

17. The Tribunal held that the assessee rendering general support services (of infrastructural/utility facilities, staff, fire – fighting equipments etc.); operational services (assistance for waste disposal & use of sewerage system); and secretarial services was not liable for service tax under the category of “management consultancy” services.

Konkan Synthetic Fibres v. CCE (2015) 38 STR 403 (Tri.-Mum.)

Manpower recruitment and supply services

18. The Tribunal held that the assessee who had entered into contracts with sugar factories for providing services such as harvesting cane from the fields, loading them in the vehicles and delivering them at the factory site etc. cannot be said to be engaged in manpower recruitment and supply services

CCE v. Godavari Khore Cane Transport Co. Ltd. (2015) 38 STR 468 (Bom.)

Mandap Keeper Services

19. The Tribunal held that services rendered in relation to use of mandap for conducting marriages would be liable for service tax under the category of Mandap Keeper Services since marriage is a social function and not a religious function.

CCE v. Central Panchayat – (2015) 37 STR 1038 (Tri – Mum)

20. The Tribunal held that stalls allotted to different persons for selling toys, garlands, flowers, foods etc. is not covered under the scope of manda-keeper’s service.

Shri Chatushringi Seva Samittee v. CCE, Pune-III 2015 (39) STR 169 (Tri.-Mumbai)

Manpower Supply and Recruitment Services

21. The Tribunal held that charges levied on the basis of activities and material involved and not on the basis of number / nature or scope of manpower cannot fall under the category of Manpower Supply and Recruitment Services.

CCE v. M/s Shri K.M. Sharma – (2015-TIOL-1602-CESTAT-MUM)

Mining Services

22. The Tribunal held that the activity of mining of sand from river beds was liable for service tax under the category of Mining Services.

Shreem Coal Carriers P Ltd. v. CCE – (2015) 37 STR 1067 (Tri. – Mum.)

Online Information and Data Base Access or Retrieval Service

23. The Tribunal held that the large collection of photographs stored by the assessee may be copyrightable but providing access to said photographs and retrieval thereof by the client for a consideration is liable to service tax under Online Information and Data Base Access or Retrieval Service.

Photo-library India P. Ltd. v. CST, Mumbai 2015 (39) STR 637 (Tri.-Mumbai)

Outdoor Caterer Services

24. The Tribunal held that the meals prepared by the assessee were prepared at its own premises and simply supplied at pre-determined rates without it serving the meals in any manner and therefore would not get covered under the definition of outdoor catering services. The Tribunal held that the service covered under the ambit of service tax was outdoor caterer and not mere caterer.

M/s. Ambedkar Institute of Hotel Management v. CST – 2015-TIOL-1593-CESTAT-DEL

Port Services

25. The Tribunal held that only services rendered by a port in relation to vessel / goods would be liable for service tax under the category of Port Services and since the compensation received by the assessee was for granting permission to lay and use submarine pipelines within the port area it would be in the form of lease rental and not port services as it did not have control over the goods nor was it required to maintain or repair the pipeline.

CST v. Traffic Manager, Mumbai Post Trust (2015) 37 STR 993 (Tri. – Mum.)

26. The Supreme Court held that the assessee, a statutory body, who had granted licence for the construction and use of jetty was not liable to service tax under the category of Port Services as it had not rendered any services to the licensee, since the licensee had to keep the jetty in good condition capable of enabling vessels to berth alongside it to load and unload goods. It further held that the rebate granted to licensee was neither lease rent nor license fees as separate license fees was payable under agreement.

CCE, Bhavnagar v.. Gujarat Maritime Board (GMB), Jafrabad 2015 (39) STR 529 (SC)

Renting of Immovable Property

27. The Tribunal held that a contract between parties can prescribe as to who would ultimately bear the burden of service tax imposed and since as per lease deed in the present case, lessee is liable for payment of all taxes and service tax being an indirect tax the service tax liability shall be on the lessee.

Satya Developers Pvt.Ltd. v. Pearey Lal Bhawan Association 2015 (39) STR 429 (Del.)

28. The Tribunal held that as per section 65(105)(zzzz) of FA, 1994 service provided in relation to renting of immovable property for use in the course of or in furtherance of business or commerce is a taxable service and that the ambit of taxable service is neither restricted to short term lease nor are leases identified or classified in terms of their duration and therefore long term leases cannot be said to be outside the purview of taxable service of renting of immovable property.

New Okhla Industrial Development Authorities v. CCEC&ST. Noida 2015 (39) STR 443 (Tri.-Del.)

Sale of space for advertisement service

29. The Tribunal held that the product published by the assessee consisting of sheets of printed materials with table/charts therein, could be brought within the meaning of the term ‘book’ under inclusive definition of section 1(1) of Press and Registration of Books Act, 1867 and hence covered by the term “Print Media” and therefore the definition of “Sale of space for advertisement” would not cover the said product.

CCE, Nagpur v. Media World Enterprise 2015 (39) STR 258 (Tri.-Mumbai)

Scientific and Technical Consultancy Service

30. The Tribunal held that the activity of locating of mineral deposits and preparing detailed reports are in the nature of survey and exploration of mineral services liable for service tax only w.e.f. 10-9-2004 and not prior to that date under the category of scientific or technical consultancy services and that the grant in aid received from the Government would not be liable for service tax since it was only a reimbursement of actual expenses incurred and not in the nature of fees for services and considering the fact that the exploration reports were kept by the assessee with itself and not given to the Government.

Mineral Exploration Corporation Ltd. v. CCE (2015) 38 STR 421 (Tri.-Mum.)

Sponsorship Service

31. The Tribunal held that where the assessee had entered into a contract for sponsoring a cricket team it would not be liable to pay service tax under reverse charge mechanism on the sponsorship services since the sponsored team had paid service tax on the transaction under the category of business auxiliary services as a service provider and hence service tax cannot be demanded on the same transaction under the category of sponsorship services from the service recipient and that sponsoring the cricket team would not be covered within the sponsorship services.

Coca Cola India Pvt. Ltd. v. CST (2015) 38 STR 497 (Tri.-Del.)

32. The Tribunal held that sponsorship of IPL cricket tournament is in the nature of sponsorship of a sporting event and therefore would not be liable for service tax under the category of Sponsorship Services (at the relevant time)

Citibank NA. v. CST (2015) 38 STR 520 (Tri.-Mumbai)

Supply of Tangible goods Service

33. The Tribunal held that the mere activity of renting of bullock-cart without bullocks, wherein the possession and control over the cart did not lie with the service provider does not come within the purview of supply of tangible goods.

Bhima SSL Ltd. v. CCE&ST. Pune-III 2015 (39) STR 440 (Tri.-Mumbai)

Technical Inspection and Certification service

34. The Tribunal held that assessee’s activities of carrying out standard check of the vehicle for any manufacturing defects therein and carrying out rectification thereof on the basis of the vehicle data sheet provided by the manufacturer of vehicles would not be liable for service tax under the category of ‘technical inspection and certification’ services since the definition of ‘technical inspection and certification’ would not mean any check on functionality but would refer to checking the same as per any standards laid down in a statute or guidelines

Antony Garages Pvt. Ltd. v. CCE (2015) 38 STR 49 (Tri.–Mum.)

Tour Operator’s Service

35. The Tribunal held that the assessee, engaged in the business of providing buses to various companies for transporting their employees from designated spots to the company and back on contract basis, the pickup and drop schedule being determined by the company, could not be liable for service tax under the category of ‘tour operator services’ up to period ending 10-9-2004 since the buses used for transportation were not tourist vehicle but only contract carriage buses and the assessee was also not holding any tourist permit; and for the period post 10-9-2004 due to the aforesaid reason as well as the fact that the assessee was not engaged in planning, scheduling organising of tours.

Capricorn Transways Pvt. Ltd. v. CCE (2015) 37 STR 1027 (Tri–Mumbai)

Transport of Goods Service / Transmission of Power

36. The Tribunal held that the assessee who had had undertaken the activity transportation of hazardous waste through pipeline for disposal was not liable to service tax under the category of transportation of goods as the term ‘goods’ under the service tax law means goods as per Sale of Goods Act, 1930 (every movable property which can fetch a price would be considered as goods) and the waste effluent transported by the assessee through pipelines was not to be purchased by anyone and therefore could not be considered as goods.

Gujarat State Fertilizers and Chemicals Ltd. v. CCE (2015) 37 STR 1076 (Tri.–Ahmd.)

37. The Tribunal in this case held that, all services relating to transmission and distribution of power were exempt under Notification No. 45/2010-ST for the period prior to 26-2-2010, hence demand raised was unsustainable.

J. C. Electricals v. CCE, Mangalore 2015 (39) STR 131(Tri.-Bang.)

Works contract Services

38. The Tribunal held that where the goods involved as a part of the service contracts are subjected to the levy of VAT / Sales Tax, the classification of service under the category of works contract services was proper and accordingly the assessee was entitled to payment of service tax under the works contract composition scheme

U. B. Engineering Ltd. v. CCE (2015) 37 STR 999 (Tri.–Mumbai)

39. The Tribunal held that where the construction services rendered by the assessee were more specifically classifiable under the category of “works contract services”, though the assessee had paid service tax under the category of “construction of complex services” or “commercial or industrial construction services”, the reclassification of the services under the new category of service was permissible but the assessee would not be eligible to the benefit of payment of service tax under the composition scheme in view of the Supreme Court decision in Nagarjuna Construction Company Ltd. vs. Government of India (2012) 28 STR561 (S.C.), however the benefit of Rule 2A of Valuation Rules would be available. Ahluwalia Contracts (India) Ltd. v. CST (2015) 38 STR 38 (Tri.–Del.)

B. Valuation

40. The Tribunal held that the value of electricity supplied by the assessee’s customer for operation of the air separation plant was not includible in the value of services received by the assessee who provided its customers operation and maintenance services as the assessee had not benefited from the supply of electricity since it was consumed in the manufacture of oxygen by the assessee’s client and not by it.

Inox Air Products v. CCE (2015) 38 STR 90 (Tri.–Mum.)

41. The Tribunal held that the value of free material supplied by the customer for commercial or industrial construction service is not includible in the value of taxable service following Larger Bench decision in Bhayana Builders (P) Ltd (2013) 32 STR 49 (LB)

Hindustan Steel Works Construction Co. Ltd. v. CCE (2015) 37 STR 1022 (Tri.–Del.)

42. The Court held that since the assessee had shown the value of consumables like transformer oils, components and parts separately in its invoices and paid VAT on that, the same was excludible from the value of taxable service under Notification No. 12/2003-ST dated 20-6-2003.

CCE v. Mahendra Engineering Ltd. (2015)38 STR 233 (All)

43. The Tribunal held that since the assessee for the repairs of transformers invoices disclosed value of goods [consumables like transformers oil, component parts like HV/LV coils] and service separately and on which VAT/sales tax was paid by it the repair contract would have to be treated as split contract for sale of goods and provision of service and service tax could be charged only on service portion, more so since the Rule 5(1) had been struck down as unconstitutional

Samtech Industries v. CCE (2015) 38 STR 240 (Tri.-Del.)

44. The Tribunal held that the inclusion of Reimbursements in the value of taxable services rendered by Customs House Agents on the grounds that the conditions prescribed for the exclusion from the value of taxable services under Rule 5(2) of the Valuation Rules had not been satisfied is incorrect since Rule 5(1) of the said Valuation Rules had been struck down as unconstitutional

Aashita International Ltd. v. CST (2015) 38 STR 246 (Tri.-Ahmd.)

45. The Tribunal held that incentive is a receipt for appreciation of performance of service provided and since it is not known as to whether such incentive would be received or not while providing the taxable service, the same would not be liable to service tax

Oswal Cable Products v. CST (2015) 38 STR 437 (Tri.-Del.)

46. The Tribunal held that in absence of any documentary evidence to show that amount received by the assessee from the service recipient was inclusive of service tax, cum tax benefit cannot be granted

CCE v. Rudra Galaxy Channel Ltd. (2015)38 STR 445 (Tri.-Mum.)

47. The Tribunal held that the service tax demand of Rs. 4.62 crores under Share Transfer Agency service levied by including the value of reimbursable expenses (on actual basis) viz. postage and other expenses incurred by the appellant in the taxable value was not sustainable since ‘Postage’ is in the nature of a duty/tax charged under the Indian Post Office Act, 1898 and service tax cannot be levied on an amount charged as duty/tax since the same is not consideration for rendering any service and that the reimbursement of postage and cost incurred towards stationery was recovered from the service receiver on actual basis by the appellant in the capacity as a pure agent and hence not includible in the taxable value u/s. 67 and that Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 has been declared as ultra vires

Link Intime India Pvt. Ltd. v. CCE (2015) 38 STR 705 (Tri.-Mumbai)

48. The Tribunal in this case held that as per explanation 1(viii) to Section 67 of FA, 1994 read with CBEC Circular No. 80/10/2004-ST, interest amount is not includible in gross value of services provided during period involved. Further, in view of Tribunal decision in ART Leasing Ltd. 2007 (8) STR 162 (Tri.-Bang.) rate of service tax prevailing on date on which contract entered was applicable.

Jaylaxmi Credit Company Ltd. v. CCE&ST, Daman 2015 (39) STR 164 (Tri.-Ahmd.)

49. The Tribunal held that only gross value of taxable services are taxable under FA, 1994 and margin of profit is a subject matter for Income Tax department thereby dismissing the contention of the department to raise demand of service tax on margin of profit of Bank arising out of foreign currency deals

SBI Commercial Branch v. CCE, Jaipur 2015 (39) STR 307 (Tri.-Del.)

C. CENVAT Credit

50. The High Court held that utilisation of CENVAT credit for payment of service tax as recipient of Goods Transport Agency services is permissible.

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

51. The Supreme Court held that since the transit Insurance of induction furnace and transformer was used indirectly in relation to the manufacture of the final products CENVAT credit thereon would be admissible.

UOI v. Raipur Rototcast Ltd. (2015) 37 STR 978

52. The Tribunal held that credit of service tax paid on Rent-a-Cab services used for providing transportation facility to customers, air travel service availed for business travel of partners and employees and rent of office premises was admissible since it is connected to business of manufacture.

Nash Industries v. CST (2015) 37 STR 1060 (Tri.–Bang.)

53. The Tribunal held that CENVAT credit of service tax paid on manpower recruitment or supply agency services availed in respect of personnel employed for maintaining the occupational health centre at the factory which was required to be maintained mandatorily under the Factories Act and on personnel recruited for project office and corporate office was admissible as was related to manufacture of final product / business of the assessee.

Binani Cement Ltd. v. CCE (2015) 37 STR 1071 (Tri.–Del.)

54. The Tribunal held that credit of service tax paid on consulting engineering services availed for construction of railway sidings which were used for transportation of coal for the captive power plant in the factory is admissible since the said services were covered under the expression ‘services in relation to procurement of inputs’ and was related to the manufacturing business of assessee.

RSWM Ltd. v. CCE (2015) 37 STR 1074 (Tri.–Del.)

55. The Tribunal held that the assessee, a manufacturer and a provider of port services, was permitted to utilize the CENVAT credit availed on port services for the purpose of discharging its excise duty liability Rule 3 of the Service Tax Credit Rules permitted taking of CENVAT credit on input services falling within the same category of output services and Rule 11 of the CENVAT Credit Rules, 2004 permitted utilization of unutilised balance of service tax credit availed under the Service Tax Credit Rules, 2002 for payment of duty liability under the CENVAT Credit Rules, 2004.

Welspun Maxsteel Ltd. v. CCE (2015) 37 STR 1081 (Tri.–Mumbai)

56. The Tribunal held that the credit of service tax paid on marine insurance services received in the course of exports of goods was admissible where all the particulars required to be mentioned u/r. 9(2) of CENVAT Credit Rules, 2004 were available on the insurance policy.

Gobind Sugar Mills Ltd. v. CCE&ST (2015) 39 STR 68 (Tri.–Del.)

57. The Tribunal held that the credit of service tax paid on setting up of factory premises would be admissible.

Liugong India Pvt. Ltd. v. CCE (2015) 38 STR 96 (Tri.–Del.)

58. The Tribunal held that where the assessee was engaged in providing the output service of commercial training and coaching, credit of service tax paid on brokerage for finding accommodation for faculties was admissible since provision of training services was not possible without availability of faculty

Tata Management Training Centre (2015) 38 STR 157 (Tri.–Mumbai)

59. The Tribunal held that CENVAT Credit of any input services used for providing output services which are exported is eligible for refund under Notification No. 5/2006-C.E. (N.T.). Further there was no restriction in the CENVAT credit rules for availing credit before registration is granted.

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

60. The Tribunal held that Manpower supply services used for cleaning the yard within the sugar factory so as to keep the factory premises clean in compliance with the mandatory requirement under Section 11 of the Factories Act, weighment of sugarcane and its unloading at the factory being an activity in relation to manufacture of sugar and cane area survey and sugarcane development by educating the farmers to ensure supply of good quality sugar cane was admissible as input credit.

Mawana Sugars Ltd. v. CCE&ST (2015) 38 STR 424(Tri.-Del.)

61. The Tribunal held that where CENVAT credit was taken but reversed without utilisation it did not attract interest liability

Oswal Cable Products v. CST (2015) 38 STR 437 (Tri.-Del.)

62. The Tribunal held that the assessee had by paying service tax on exempted services foregone the exemption under Notification No. 4/2004 and hence no credit was required to be reversed by it. Further there was subsequent retrospective amendment in credit rules by inserting Rule 6(6A) which clearly stated that there was no need to reverse credit in respect of services provided to SEZ.

Link Intime India Pvt. Ltd. v. CST (2015) 38 STR 506 (Tri.-Mum.)

63. The Tribunal held that Financial advisory services availed for making available finances to meet working capital requirement is in the nature of financing is covered within the definition of input services.

CCE v. GMR Industries Ltd. (2015) 38 STR 509 (Tri.-Bang.)

64. The Tribunal held that where the assessee had not charged service tax on two of its invoices it could be presumed that the assessee had rendered exempted services and hence was not required to reverse CENVAT credit.

Globe Ground India Pvt. Ltd. v. CCE&ST (2015) 38 STR 510 (Tri.-Del.)]

65. The Tribunal held that CENVAT credit on security and maintenance services availed at the residence of the Managing Director did not have any nexus with the output service provided by the assessee and hence credit thereon is not admissible.

Globe Ground India Pvt. Ltd. v. CCE&ST (2015) 38 STR 510 (Tri.-Del)]

66. The Tribunal held that CENVAT credit on chassis of motor vehicle which were converted by assessee into water carts and toilet carts to be used in providing airport services could be denied on the ground that the carts were not registered under Motor Vehicles Act and therefore would not be considered as capital goods.

Globe Ground India Pvt. Ltd. v. CCE&ST (2015) 38 STR 510 (Tri.-Del)

67. The Tribunal held that credit of service tax paid on travel agents services availed for travelling of company officials for procurement of raw materials and marketing of goods was admissible

Indswift Laboratories Ltd. v. CCE (2015) 38 STR 522 (Tri.-Del.)

68. The Tribunal held that credit of service tax paid on technical knowhow services acquired by the assessee for producing new products was admissible after the payment has been made for the value of input service. The same could be denied on the ground that the credit should be availed only when the commercial production of the product has commenced.

Indswift Laboratories Ltd. v. CCE (2015) 38 STR 522 (Tri.-Del.)

69. The Tribunal held that where there is no dispute regarding consumption of input services and payment of service tax thereon, credit would be admissible even if the invoices are not in the name of assessee’s unit but in the name of its head office.

CCE & ST v. Dayalal Meghji and Company (2015) 38 STR 557 (Tri.-Del.)

70. The Tribunal held that CENVAT credit of service tax paid on input services availed by the job worker in respect of goods cleared for the principal manufacturer without payment of duty is admissible in view of the Larger Bench decision in Aurangabad Auto Engg. Pvt. Ltd. v. CCE 2011 – TIOL – 1010 – CESTAT Mum

Prerna Fine Chem Pvt. Ltd. v. CCE (2015) 38 STR 693 (Tri.-Mum.)

71. Where the appellant, a manufacturer of ‘concentrates’ used in manufacture of ‘aerated water’, had procured services of advertising and marketing for promotion of ‘aerated water’ that was not manufactured by them, the Tribunal following the propositions laid by the High Court in the appellant’s own case in Coca Cola India Pvt. Ltd. v. Commissioner (2009) 15 STR 657 (Bom.) for an earlier period, held that denial of CENVAT credit on advertisement and marketing services was incorrect on the ground that these services would fall within the ambit of ‘input service’ given under Rule 2(l) of the CENVAT Credit Rules, 2004 since the advertisement services for ‘aerated water’ impact the sale and manufacture of ‘concentrates’

Coca Cola India Pvt. Ltd. v. CCE (2015) 38 STR 695 (Tri.-Mum.)

72. The Tribunal held that credit of ‘Rent-a-Cab service’ is admissible prior to 1-4-2011 in view of CBEC Circular No. 943/4/2011-CX dated 29-4-2011 and credit of services of outdoor catering, insurance, pandal & shamiana, and testing and analysis is admissible as these services are related to promotion of assessee’s business which view has also been held by the Bombay High Court in CCE vs. UltraTech Cement Ltd.(2010) STR 577 (Bom.); and that credit of Sodexo coupons issued to employees was not admissible under ‘Business Auxiliary Service’ since it has no nexus in relation to any business activities of the Respondent.

CST v. Ford Business Service Centre Pvt. Ltd. (2015) 38 STR 700 (Tri.-Chennai)

73. The Tribunal allowed CENVAT credit of service tax paid on GTA service for outward transportation of freight paid for delivery up to buyers premises as the ownership and property of goods was transferred at the customer’s doorstep.

CCE, Rohtak v. Haryana Sheet Glass Ltd. 2015 (39) STR 392 (P&H)

74. The Tribunal allowed CENVAT credit of service tax paid on canteen services to employees as the same was statutory obligation imposed under factories Act, 1948.

CCE, Bangalore-II v. Tata Steel Ltd. 2015 (39) STR 402 (Kar.)

75. The Tribunal held that during the warranty period the assessee was duty bound to provide free repair & maintenance services to buyers of alternators and it was condition of sale and therefore the same is covered under definition of Input Service as activity relating to business.

Leroy Somer India Pvt Ltd. v. CCE, Noida 2015 (39) STR 466 (Tri.-Del.)

76. The Tribunal held that who had paid service tax was immaterial and any payment towards duty or service tax was entitled for input credit/ input service credit thereby allowing CENVAT credit of service tax paid by Goods Transporter Agency to the assessee.

Rucha Engineers P. Ltd. v. CCE, Aurangabad 2015 (39) STR 518 (Tri.-Mumbai)

77. The Tribunal held that, there is no provision in CCR, 2004 restricting availment only for services received after date of registration and that the essential criteria in Rule 9(2) of CCR, 2004 is that services ought to have been received, accounted and used in providing taxable service. There is no reason to take different view from judgment in Portal Wireless Solution Pvt. Ltd 2012 (27) STR 134 (Kar.). It further held that, there was no reason to deny CENVAT credit of service tax paid on renting of cafeteria, maintenance of air-conditioner, service of gym instructor as same were used for providing taxable output service.

CST, Chennai v. Verizon Data Services India P. Ltd. 2015 (39) STR 522 (Tri.-Chennai)

78. The High Court held that the process of issuance of an insurance policy by insurer and subsequent procurement of reinsurance policy from another company was an integral part of the total process. If entire service tax collected by insurer while selling insurance policies had to be deposited without being given credit of tax which is paid by it while procuring a policy of reinsurance, same would be against ethos of CENVAT Credit policy as same would amount to double taxation, which is not permissible in law.

CCE, Bangalore v. PNB Metlife India Insurance Co. Ltd. 2015 (39) STR 561 (Kar.)

79. The High Court allowed CENVAT credit of service tax paid on Rent-a-Cab service for transportation of employees from home to factory and back to home and on outdoor catering service for providing food to their employees.

CCE, Bangalore-I v. Interplex Electronics India Pvt. Ltd. 2015 (39) STR 578 (Kar.)

80. The Tribunal held that there is no provision in Trade Marks Act, 1999 or any rules mentioned under which it is obligatory on part of assessee to compulsory use trade mark himself. Packaging services are not availed directly for protecting trade mark/ brand name but to be considered to have been utilised for making of tea bags and therefore credit was not admissible to the assessee who provided IPR services and claimed credit on packaging of tea on its own account.

Gujarat Tea Depot Co. v. CST, Ahmedabad 2015 (39) STR 629 (Tri.-Ahmd.)

81. The Tribunal held that service recipient is not responsible for examining the correctness of service tax paid by service provider and they were entitled to claim the credit service tax charged by the Service provider.

India Vision Satellite Communications Ltd. v. CCEC&ST, Cochin 2015 (39) STR 684 (Tri.-Bang.)

82. The High Court held that service tax paid on housekeeping and gardening services availed by the employer to maintain their factory premises in an eco-friendly manner, would form part of the cost of final products and fall within the ambit of input services as a result of which the assessee was entitled to claim the benefit.

CCE&ST, LTU, Chennai v. Rane TRW Steering Systems Ltd. 2015 (39) STR 13 (Mad.)

83. The Tribunal held that car parking area charges and maintenance charges paid for utilisation of premises are for rendering output service hence credit thereon was admissible. Further it held that non-inclusion of the ground floor address in centralised registration certificate is a curable defect which was cured subsequently and could not be a ground for disallowance of Cenvat credit.

Nuware Systems Pvt. Ltd. v. CST, Bangalore 2015 (39) STR 134 (Tri.-Bang.)

84. The Tribunal allowed CENVAT credit of service tax paid on maintenance and repair of Xerox machine as the same was in relation to business of the appellant.

Nirma Limited v. CCE&ST, Vadodara 2015 (39) STR 145 (Tri.-Ahmd.)

85. The Tribunal allowed CENVAT credit of service tax paid on construction services used for expansion of factory building and insurance premium for factory building as the said services were covered by definition of input service.

Pranav Vikas (India) Ltd. v. CCE, Delhi-IV 2015 (39) STR 153 (Tri.-Del.)

86. The Tribunal held that CENVAT credit was not to be denied to unregistered branches as service tax is paid on the basis of centralised registration therefore credit could be taken in centrally registered office.

Nuance Transcription Services India Pvt. Ltd. v. CST, Bengaluru 2015 (39) STR 241 (Tri.-Bang.)

87. The Tribunal allowed CENVAT credit of service tax paid on collection and remittance services provided by foreign banks and commission paid to agents for export order and promotional activities outsourced as the department had not brought any evidence that services were not in relation to goods manufactured and exported.

Lupin Ltd. v. CCE&ST (LTU) 2015 (39) STR 249 (Tri.-Mumbai)

88. The Tribunal held that service tax paid on services provided by an overseas service provider (RCM) to for removal of rust developed during transit, deburring of certain machined area of axles and cross checking of dimensions at buyers premises was in relation to business and therefore rightly covered in inclusive definition of Input Service.

CCE&ST, LTU, Chennai v. Axles India Ltd. 2015 (39) STR 281 (Tri.-Chennai)

89. The Tribunal allowed Cenvat credit of service tax paid on catering service as the same was mandatory and having nexus manufacture of final product. However, proportionate service tax credit in respect of service tax borne by employees was to be reversed along with interest. It is further held that, guest house services not being connected to manufacturing activities in any way was not an eligible input service.

CCE, Nashik v. Mahindra & Mahindra Ltd. 2015 (39) STR 298 (Tri.-Mumbai)

90. The Tribunal allowed Cenvat credit of service tax paid on pandal & shamiana services utilised to safeguard machines lying in open for installation.

Dalmia Chini Mills v. CCE, LTU, New Delhi 2015 (39) STR 310 (Tri.-Del.)

91. The Tribunal held that CENVAT credit could not be denied to the recipient of input services on the ground that the service provider had not paid service tax since the recipient was unaware of the non-payment and claimed credit based on the CENVATABLE document.

Memories Photography Studio v. CST 2015 (39) STR (331) (Tri-Ahmd)

92. The Tribunal held that the assessee was entitled to CENVAT credit on inputs despite the fact that the conversion of black rods into bright bars, undertaken by it, did not amount to manufacture, since it had erroneously paid duty on the final product which was exempt.

RB Steel Services v. CCE & ST – (2015) 59 taxmann.com 13 (New Delhi – CESTAT)

93. The Tribunal held that 100 percent EOUs are entitled to avail and utilize CENVAT credit in respect of duty paid on inputs even if other inputs are procured duty free as it could exercise both options simultaneously.

Uniworth Ltd v. CCEST – 2015 59 taxmann.com 128 (New Delhi – CESTAT)

94. The Tribunal held that reimbursement of certain expenses to overseas branches for activities viz. registration, staff related expenses employed by distributor abroad, cost of promotional expense incurred by distributor abroad, VAT/GST paid by distributor/branches are towards services deemed to have been received and consumed by appellant in India and therefore liable for service tax and the assessee would be eligible for CENVAT credit on the same.

Torrent Pharmaceuticals Ltd. v. CST, Ahmedabad 2015 (39) STR 97 (Tri-Ahmd.)

95. The Tribunal held that garden maintenance services which was a requirement cast by the Maharashtra State Pollution Central Board upon the Port, event management services incurred at ceremonial occasions, brokerage services, being essential for ensuring the availability of staff, telephone and outdoor catering services being essential services to run the business were allowable as input services.

M/s.Gateway Terminals (I) Pvt. Ltd. v. CCE – 2015-TIOL-1471-CESTAT-MUM

96. The Tribunal held that since the assessee, in terms of Rule 65T of the Rajasthan Factories Rules, was required to maintain an occupational health centre as its employees were more than 500 and they carried out hazardous operations to be able to carry on the manufacturing activity, the service of receiving trained medical personnel through manpower supply agency for maintaining the occupational health centre had to be treated as in relation to manufacture of final product and would be eligible for CENVAT credit as input service.

Binani Cement Ltd. v. Commissioner of Central Excise & Service Tax, Jaipur-II – [2015] 58 taxmann.com 8 (New Delhi – CESTAT).

97. The Tribunal held that the Factories Act only to avoid the hardship for an essential need provided that factories having more than 250 employees should provide a canteen service. However it did not mean that the service was not required for any industrial service or organisation having less than 250 workers. Accordingly CENVAT credit on outdoor catering services was allowed.

CST, Mumbai v. Reliance Capital Asset Management Ltd – [2015] 58 taxmann.com 189 (Mumbai – CESTAT)

98. The Tribunal held that once proportionate service tax was borne by the ultimate consumer of the service, namely the worker/ beneficiary, the manufacturer could not take credit of that part of the service tax and hence, proportionate credit, to the extent it is embedded in the cost of food recovered from the employee/beneficiary, was not admissible to the assessee and that the onus to establish with documentary evidence that the element of service tax paid by the assessee was not recovered from the beneficiary/employees was on the assessee.

Cema Electric Lighting Products India (P.) Ltd. v. CCE, Ahmedabad-III – [2015] 58 taxmann.com 94 (Ahmedabad –CESTAT)

99. The Tribunal held that merely because the assessee’s parent company reimbursed part cost of the advertising expenses, it did not mean that the assessee would become disentitled to the service tax actually paid by it as the financial arrangement between the subsidiary company and the parent company had no connection for the purpose of availability of credit of service tax paid by the assessee. Accordingly CENVAT credit was allowed.

Suzuki Motorcycle (I) (P) Ltd. v. CCE – [2015] 58 taxmann.com 343 (New Delhi –CESTAT)

D. Others

Abatement

100. The Tribunal held that since the assessee, who had rendered erection, commissioning and installation services, had subsequently reversed the Cenvat Credit earlier claimed, was entitled to the benefit of the abatement under Notification No 1 / 2006.

UB Engineering Ltd v. CCE – (2015) 37 STR 999 (Tri.–Mumbai)

Appeal

101. The High Court held that where the issue arising out of the Tribunal’s order was whether the acitivities carried on by the assessee would be considered as a service and if so whether taxable and under which category, the appeal against the Tribunal order would lie before Supreme Court and not High Court since the issue has a direct and proximate relation to rate of service tax and value of service.

CST v. Saumya Construction Pvt. Ltd. (2015) 38 STR 17 (Guj.)

102. The High Court held that, when plea was not raised before adjudicating authority, then it could not be raised for the first time in appeal before the Appellate Tribunal.

Bharat Sanchar Nigam Ltd. v. CCE 2015 (39) STR 5 (All.)

103. The High Court held that it could not condone delay in filing appeal to Commissioner (Appeal) beyond condonable period of limitation under writ jurisdiction.

Sturdy Industries Limited v. UOI 2015 (39) STR 422 (P&H)

104. The High Court held that since the assessee had filed an appeal along with stay application, neither of which were disposed of, the recovery proceedings could not be initiated as the appeal would become infructuous.

Atharva Associates v. Union of India 2015 (39) STR (22) (Kar.)

105. The High Court held that the action of the Tribunal in deciding the stay application ex parte on second adjournment without considering the assessee’s request for adjournment, terming non-appearance as an abuse to the process of law was too harsh and therefore remanded the matter to the Tribunal.

CCE v. Federal Mogul TPR India Ltd. (2015) 59 taxmann.com 196 (Karnataka)

Demand / Extended Period

106. The Tribunal held that where there was of confusion about the scope of levy, the extended period of limitation was not invocable. Further where the issue involved was one relating to classification, imposition of penalties was not warranted

Shreem Coal Carriers (P) Ltd. v. CCE (2015) 37 STR 1067 (Tri.–Mumbai)

107. The Tribunal held that extended period of limitation was not invokable where the assessee had not paid service tax by relying upon a Tribunal decision in similar case as the plea of bona fide belief of the assessee was acceptable and there was no suppression.

CCE v. Central Panchayat (2015) 37 STR 1038 (Tri.–Mumbai)]

108. The Tribunal held that where the appellant’s records had been audited by the department on four occasions and where the DGCEI had itself after examining the documents concluded that there was no service tax liability payable by the assessee, the issuance of show cause notice by invoking the extended period of limitation was not permissible.

C. J. Shah & Co. (2015) 38 STR 152 (Tri.–Ahmd.)

109. The Tribunal set aside the demand holding that there is no ‘service’ rendered when commission received by the appellant is returned by him due to the fact that service could not be fully completed.

Agarwal Motors v. CCE (2015) 38 STR 775 (Tri.-Del.)

110. The Tribunal held that different classification of the same activity of the assessee for different periods based on the mode of payment made by the service receiver shows total confusion on the part of the Revenue as to the ‘nature of tax’ and the ‘measure of tax’ and hence the demand was held liable to be set aside.

Royal Western India Turf Club Ltd. v. CST (2015) 38 STR 811 (Tri.-Mum.)

111. The Larger Bench of Tribunal held that the relevant date for determining limitation period for refund of Cenvat credit on export of service is date of receipt of foreign exchange and therefore limitation period should start from that date.

CST, Goa v. Ratio Pharma India Pvt. Ltd. 2015 (39) STR 31 (Tri.-LB.)

112. The Tribunal held that the date of filing refund before wrong authority to be taken as date of filing for determining period of limitation.

CCE&ST, Tirupati v. Gimpex Ltd. 2015 (39) STR 143 (Tri.-Bang.)

113. The High Court held that notices of recovery initiated u/s. 87 of the Finance Act, 1994 before the show cause notices were adjudicated is illegal and required to be quashed.

Mrs. Prashanthi v. The Union of India – 2015-TIOL-1596-HC-KAR-ST

Penalty

114. The Tribunal held that the option of payment of 25% of penalty amount should be given to the assessee if the same is paid within 30 days from the date of communication of the O-I-O and thus, where the assessee had paid service tax along with interest before the issuance of show cause notice but no such option was given to the assessee in O-I-O, it granted the same to the assessee

Nasscom v. CST (2015) 37 STR 1041 (Tri.–Del.)

115. The Tribunal held that where the assessee had not paid the tax on renting of immovable property services in view of the Delhi High Court decision in case of Home Solutions Retail India Ltd., it was on account of a bona fide belief and hence no penalty was imposable

LMJ Service Ltd. v. CCE (2015) 38 STR 64 (Tri.–Del.)].

116. The Tribunal held that imposition of penalty under section 78 was not warranted where the appellant entertained a bona fide belief that its activities were not liable for service tax but had discharged the entire tax liability on commencement of the investigation proceedings.

Maosaji Caterers v. CCE (2015) 38 STR 69 (Tri.–Del.)

117. The Tribunal held that minimum penalty imposable u/s. 76 is equivalent to amount of tax and maximum penalty imposable is twice the amount of tax. The authorities having no discretion to reduce the penalty below the minimum prescribed limit

CCE v. Rudra Galaxy Channel Ltd. (2015) 38 STR 445 (Tri.-Mum.)

118. The Tribunal held that there was a reasonable cause for waiver of penalty u/s. 78 since the non-payment of service tax was detected from the books of account of the assessee hence there appeared to be no intention to evade payment of service tax and that the assessee had paid the entire tax before issuance of the SCN and that the adjudicating authority had dropped the penalty u/s. 76 on the grounds of reasonable cause and also due to the fact that the assessee was declared as a sick unit.

Garodia Special Steels Ltd v. CCE (2015) 38 STR 527 (Tri.-Mum.)

Refund and Rebate

119. The Tribunal held that the substantial benefit of rebate under Notification No. 12/2005-S.T. dated 19-4-2005 cannot be denied for procedural failure of not filing the declaration prior to exports since the contents of the declaration were such that it could easily verified from records maintained by the assessee.

Crest Premedia Solutions Pvt. Ltd. v. CCE (2015) 38 STR 46 (Tri.–Mum.)].

120. The Tribunal held that service tax payable on advance received by the assessee where no services were subsequently rendered was to be considered as a deposit and not duty and therefore the provisions of section 11B of the Central Excise Act, 1944 would not be applied for seeking refund of such amount and hence the refund was admissible and not time barred.

CCE&ST v. Madhvi Procon Pvt. Ltd. (2015) 38 STR 74 (Tri.–Ahmd.)

121. The Tribunal held that where the assessee had paid certain amounts during the course of investigation and contested the issue on merits, the payment would be considered as deposit and ‘deemed protest’ payment and accordingly refund of the same, on determination of the issue by the Tribunal in its favour, cannot be denied on the ground of time bar.

CC&ST v. H. K. Dave Ltd. (2015) 38 STR 77 (Tri.–Ahmd.)].

122. The Tribunal held that the refund of CENVAT credit availed on input services used for exports cannot be denied under notification No. 5/2006-C.E (NT) on the ground that the assessee had not obtained service tax registration at the time of exports and the services were used for providing output services before obtaining registration.

CST v. Sure Prep (India) Pvt. Ltd. (2015) 38 STR 44 (Tri.–Mum.)

123. The Tribunal held that refund of service tax paid on input services which were wholly consumed in SEZ would be allowable under Notification No. 9/2009-ST even though service tax was not leviable in the first place.

Barclays Technology Centre India (Pvt.) Ltd. v. CCE (2015) 38 STR 35 (Tri.–Mumbai)

124. The Tribunal held that when an appeal is decided in favour of the assessee then all amounts deposited by it, whether by way of tax or interest, assume the character of ‘deposit’ and are liable to be fully refunded.

Roshan R. Jaiswal v. CCE (2015) 38 STR 772 (Tri.-Mum.)

125. The Tribunal held that the jurisdiction for filing of the refund claim in respect of export of goods lies with the Commissionerate having jurisdiction over the factory from where goods are exported and not the Commissionerate having jurisdiction over the registered office of the assessee

CCE v. Noble Grains Ltd. (2015) 38 STR 525 (Tri.-Mumbai)

126. The Tribunal set aside the order of the lower authorities rejecting the refund of service tax for the period July 2006 to July 2008 paid by the appellants, on the ground of time bar and unjust enrichment as letter written by the assessee to the department stating that payment was being made under pressure from department would be sufficient proof that such payments were ‘under protest’ and hence the provisions of time bar under section 11B of the Central Excise Act, 1944 would not apply and the burden of unjust enrichment was discharged by the assessee evident from the letters written by it to the intended buyers that the price agreed was not inclusive of service tax and such tax had been paid by the assessee out of its own pocket which had been certified by a Chartered Accountant.

Ind Swift Lands Ltd. v. CCE&ST (2015) 38 STR 819 (Tri.-Del.)

127. The Tribunal held that while considering rebate claim for output service, the issue of nexus between input services and exported output services cannot be raised as there was no clear proposition or proposal for denial of CENVAT credit used for payment of service tax on output service in SCN.

Textron India Pvt. Ltd v. CST, Bangalore 2015 (39) STR 468 (Tri.-Bang.)

128. The Tribunal held that, there is no prohibition in law for making export from unregistered premises and once admissible CENVAT credit accumulates and rule provides for refund, such refund cannot be rejected.

Embitel Technologies (India) Pvt. Ltd. v. CST, Bangalore 2015 (39) STR 612 (Tri.-Bang.)

129. The department in this case rejected refund claimed by SEZ Developer under Notification No.9/2009-ST of service tax paid on services used prior to commercial production in SEZ. The Tribunal held that, Notification No.9/2009-ST cannot disentitle immunity enjoyed under sections 7 and 25 of SEZ Act, 2005. Hence assessee is entitled to refund for services wholly consumed within SEZ in authorised operations.

Zydus Technologies Ltd. v. CST, Ahmedabad 2015 (39) STR 657 (Tri.-Ahmd.)

130. The Tribunal rejected the contention of the department, rejecting refund claim on the ground that address mentioned in invoice is not registered office and that unutilised, accumulated CENVAT credit refund amount exceeded the amount of CENVAT credit in ST-3 returns. It held that the address in the invoice was the address of a group company, which was subsequently recognised as registered office by Revenue and that business is a continuous activity and therefore CENVAT credit cannot be restricted to amount of CENVAT credit availed during the period as per service tax return.

Cararo Technologies India P. Ltd. v. CCE, Pune-III 2015 (39) STR 673 (Tri.-Mumbai)

131. The Tribunal allowed the rebate of service tax paid on commission received under BAS, which was rejected by the Revenue on the ground that the output service was not exported and held that the services provided were procurement of order and forwarding same to principal situated abroad, who was free to accept or reject the order and therefore was rendered to person situated abroad and was export of service.

Enervision Services P. Ltd. v. CCEC&ST, Hyderabad-II 2015 (39) STR 681 (Tri.-Bang.)

132. The Tribunal held that refund claim for a particular quarter need not be in respect of input service consumed in that quarter and since the assessee did not have any domestic sales it was entitled to refund claimed.

Ionnor Solutions Pvt. Ltd. v. CCE&ST, Chandigarh-I 2015 (39) STR 698 (Tri.-Del.)

133. The Tribunal held that, the refund of excess amount paid during investigation is not hit by limitation under section 11B of CEA, 1944 as there is no issue of unjust enrichment.

Metro Motors v. CCE, Daman 2015 (39) STR 77 (Tri.-Ahmd.)

134. The High Court held that any amount deposited during the pendency of adjudication proceeding or investigation is in the nature of deposit made under protest and therefore the principles of unjust enrichment do not apply in such cases.

CCE, Coimbatore v. Pricol Ltd. 2015 (39) STR 190 (Mad.)

135. The Tribunal held that an EOU can file quarterly refunds under Notification No. 5/2006-CE(NT) and since the said Notification is issued under Rule 5 of CCR, 2004 and not linked to refund procedure under section 11B of CEA, 1944, hence no time limit was applicable.

Quality BPO Services Pvt. Ltd v. CST, Ahmedabad 2015 (39) STR 230 (Tri.-Ahmd.)

136. The Tribunal held that procuring purchase orders from Indian Customers on behalf of foreign companies would be considered as an export of services since the effective use and enjoyment of the service was by the foreign company and therefore refund was allowable as the services were exported.

CST v Ishida India Pvt Ltd – 2015-TIOL-1719-CESTAT-DEL

137. The Tribunal held that since the recipient of services was located outside India and the payment was received in convertible foreign exchange the services provided qualified as export of services and merely because the services were used for investing in India, the department was incorrect in denying refund to the assessee.

CST v. NV Advisory Pvt LTd – 2015 (39) STR 210 (Tri-Mumbai)

138. The Tribunal held that time limit for filing refund claim extended to one year by Notification No. 17/2009-ST was applicable only to refund claims filed after 7-7-2009 and all for refund claims filed prior to that date the old time limit of six month would be applicable.

Associated Aluminium Industries Pvt. Ltd. v. CST, Mumbai-I 2015 (39) STR 234 (Tri.-Mumbai)

139. The High Court held that the provisions of section 11B of the Central Excise Act, 1944 are not applicable for refund of service tax paid erroneously and therefore the assessee could not be denied refund of wrongly paid service tax on services qualified as export of services. It held that once there was no compulsion or duty cast to pay service tax, there was no authority for the department to retain such amount and the refund was not relatable to section 11B of the Central Excise Act, 1944 also considering the fact that the mistake in the present case was on account of fact and not on account of law.

M/s. Geojit BNP Paribas Financial Services Ltd. v. CST – 2015-TIOL-1602-HC-KERALA-ST

Service of Order

140. The Tribunal held that an appeal against orders dated 15-2-2008 & 31-3-2009 filed on 13-3-2013 were filed on time considering that the orders were received by it through speed post only on 2-3-2013. The Tribunal held that under section 37C the permitted mode of communication of order was through Regd. Post (A.D.) and not through Speed Post and since there was not sufficient compliance of the provisions of section 35C(1)(a) and the service of order would be deemed to be on 2-3-2013.

Marketing Times Automobiles Pvt. Ltd. v. CCE (2015) 38 STR 414 (Tri.-Del.)

Show Cause Notice

141. The High Court held that, when there is a finding of fact that no show cause notice has been issued to the assessee then proceedings in connection therewith and the adjudication thereon was a nullity.

CCCE&ST, Guntur v. Narayana Coaching Centre 2015 (39) STR 433 (AP)

142. The Tribunal held that since the total amount of service tax mentioned is more than Rs. 5 lakhs the AC/DC could not have adjudicated SCN in view of provisions of section 83A of FA, 1994 read with Notification No. 30/2005-ST. It was also held that even the penalty proposed in annexure to SCN was more than impugned amount, therefore entire proceedings become invalid.

Raasi Refractories Ltd. v. CCEC&ST, Hyderabad-III 2015 (39) STR 472 (Tri.-Bang.)

143. The High Court held that mandatory pre-deposit under amended section 35F of CEA, 1944 is applicable only to appeal filed on or after 6-8-2014 even if SCN was issued prior to 6-8-2014. The second proviso to this section clearly indicates that the requirement of mandatory pre-deposit shall not apply to stay application and appeals which were pending prior 6-8-2014. It is further held that, High Court can dispense with the requirement of pre-deposit under the new section 35F, since powers of the High Courts under Article 226 of Constitution of India are not ousted.

Ganesh Yadav v. UOI 2015 (39) STR 177 (All.)

Miscellaneous

144. The High Court held that if the main contractor had paid service tax, the sub-contractor need not pay service tax but he had to prove that the payment was made by the main contractor.

Sew Infrastructure Ltd. v. CCE (2015) 37 STR 984 (Chhattisgarh)

145. The Tribunal held that the assessee, a service provider, can by way of a contract transfer the service tax burden on a third party but cannot ask the Revenue to recover the tax dues from such third party or wait for discharge of the liability till he has recovered the tax amount from such third party

Delhi Transport Corporation v. CST (2015) 38 STR 673 (Del.)]

146. The Court held that the service receiver in India was not liable to pay service tax in respect of the services received from a service provider located outside India prior to the introduction of section 66A i.e. before 18-4-2006.

CCC&E v. Moser Baer India Ltd. (2015) 38 STR 687 (All.)

147. The Court condoned a delay of 6 months in filing of appeal before the Tribunal as the order was not communicated to the assessee’s authorised person.

G.M.T.D. Bharat Sanchar Nigam Ltd. v. CC &CE (2015) 38 STR 691(Uttarakhand)

148. The Court held that pre-deposit of tax can be ordered where there is tax demand and penalty and that pre-deposit of penalty can be ordered where there is an appeal against the penalty.

Share Microfin Ltd. v. CCCEx&ST (2015) 38 STR 457 (A.P.)

149. The High Court held that the liability to pay service tax is upon service provider and he has right to collect said tax from service recipient and that there is no provision for recovery or reimbursement of any service tax by service provider from service recipient.

Multi Engg. & Scientific Corp. v. Bihar State Electricity Board 2015 (39) STR 414 (Pat.)

150. The Tribunal held that, the transaction undertaken by the assessee of procuring orders on behalf of overseas manufacturers and rendering of services if any, could not be considered as services provided in India and therefore set aside the impugned order denying export of services as it was unsustainable.

ATE Enterprises Pvt. Ltd. v. CST, Mumbai 2015 (39) STR 81 (Tri.-Mumbai)

151. The Tribunal held that the language used in section 85(4) of FA, 1994 has wider connotation and not restrictive as used in section 35A(3) of CEA, 1944 and therefore Commissioner (A) has powers to pass such orders as he thinks fit which includes the power of remand.

CCE, Panchkula v. Goel International Pvt. Ltd. 2015 (39) STR 330 (Tri.-Del.)

Sunil Moti Lala

1. ASSESSMENT

Hypothetical determination of turnover and procedural lapses in assessment – such assessments cannot be sustained and needed to be considered afresh for the entire year. Accordingly, the matters remitted back.

Kahan Chand & Sons Agencies Pvt. Ltd. v. AO, Shimla (2015) 52 PHT 201 (HPTT)

2. CONDONATION OF DELAY

There was a delay of 907 days in filing the appeal to the Tribunal because of wrong communication of the order of dismissal by Appellate Authority. Instead of communicating at the address given in memo of appeal, communication was sent to the branch of the appellant. Even on personally writing the letters, status of appeal was not communicated. On hearing the appellant, High Court condoned the delay, holding that it was well settled that a party should not be condemned unheard and the case should not be rejected on technical grounds, rather should be decided on merit unless delay is attributable to gross negligence of a party.

B.K. Steels v. State of Punjab And Anr. (2015) 52 PHT 210 (P&H)

3. CRIMINAL PROSECUTION

Prosecution story, in brief, was that on 16-12-2009 vehicle bearing No. PB-10-EC-1520 owned by petitioner was apprehended. It was found that the said vehicle was loaded with ‘Seera’ (mollases) without any bill or payment of tax. Counsel for the petitioner submitted that the petitioner has already deposited the penalty as imposed u/s. 56(c) of the PVAT Act, 2005. Thereafter, the vehicle of the petitioner was released along with goods. Hence, he pleaded that petitioners could not be criminally prosecuted qua the same offense. The HC after hearing allowed the petition and FIR No. 309 filed u/s. 420 of IPC was quashed.

Manish Kumar and Anr. v. State of Punjab (2015) 52 PHT 257 (P&H)

4. EX PARTE ASSESSMENT ORDER

Filing application before the West Bengal Taxation Tribunal against the ex parte assessment order. Plea that mandatory provision as contained in section 42 of the WBVAT Act, 2003 not followed while passing ex parte assessment order. Whether ex parte assessment order could be quashed? The Tribunal held in the negative because revisional application could not be entertained in view of the provision contained in Section 8(3) of the West Bengal Taxation Tribunal Act, 1987 r/w sections 32, 33, 42, 46 of the WBVAT Act, 2003. The Appellate Tribunal held that remedial measures available under the provisions of the Act were quite adequate and it shall not caused any undue hardship to the applicant. No substantial question of law relating to the interpretation of the Constitution of India or the specified State Act or Rules were involved either. Thus, the petitioner not having availed of remedial measures provided in the Act, the revisional application could not be entertained.

MMU Metaliks Udyog (P) Ltd. v. STO, Strand Road Charge (2015) 66 STA (Part-4) P-197 (WBTT)

5. FORGED RECEIPT REGARDING PAYMENT OF VAT

Petitioner dealing in electrical goods forged a receipt in Form 38, along with forged rubber stamp of the Authority to show that the transaction is genuine and thus usurped taxation amount of Rs. 16,230. FIR lodged against the petitioner. Petitioner applied for anticipatory bail, which was dismissed, keeping in view the seriousness of the allegations and to reach in the depth of the entire offence. The petitioner through their advocates contended that he had paid the VAT amount and it is only a nominal amount of Rs. 8,096/-. This was opposed by the State. In the circumstances, the application for anticipatory bail was rejected by the High Court.

Manoj Kumar Kansal v. State of Haryana (2015) 52 PHT 256 (P&H)

6. INTERPRETATION OF ENTRIES

A. Processed vegetables and fruits including fruit jams, pickle, fruits squash, paste, fruit drink and fruit juice covered by Entry-3 of the 3rd Schedule to the Karnataka VAT Act was under the consideration of the HC. In this context, a question arose whether it will include (a) Vegit – Aloo Harabara Kebab, (b) Vegit – Aloo Veg. Cutlet, (c) Vegit – Aloo Yummy Cheese Balls, (d) Vegit – Aloo Mazedar Bonda and (e) Vegit – Aloo Jatpat Tikki, which were generally known as vegit – snack mix. The Karnataka HC after going through exhaustive case laws held that no ordinary person treated these snack mixes as ‘processed vegetables’, though they contain 60% to 85% dehydrated vegetables. While construing the provisions relating to commodity classification, the understanding of the commodity in its popular and commercial sense was to be applied. Accordingly, the Division Bench has set-aside the order passed by the single Judge and confirmed the order passed by the Commissioner confirming the commodities as listed in (a) to (e) above would fall under residuary entry and not under Entry-3 of the 3rd Schedule of the said Act. Accordingly, the appeal of the State was allowed.

State of Karnataka And Anr. v. Merino Industries Ltd. (2015) 27 STJ 573 (Kar)

B. Computer and its parts and accessories – Computer servers, Storage and tape library, Network equipments (Routers, Switches), Workstation (Desktop), Printers, DCU and Connectors, Modems, Spot billing machines, Kiosk machines and Software were covered in computer and its parts and accessories, and, therefore, were exempt from Entry tax in Entry 8 of NTF No. 24 dt. 2-4-2007. But, UPS and battery, IP PBX and Phones, Workstation PC (UPS Table and Chairs) and Computer racks, Cables and Connectors were not covered in computer parts and accessories and therefore were liable for entry tax at 1%.

Reliance Infrastructure Ltd., Korba v. C.C.T. (2015) 27 STJ 611 (CG)

C. Pentasol S-10 (Monolithic & Ramming Mass) – it is a Refractory material / item – it was not covered in Entry 27(b) of Schedule-II of CG Entry Tax Act, which was relating to Bricks excluding fly ash bricks, but including fire bricks and fire clay. There being no any entry for Pentasol S-10 (Monolithic & Ramming Mass) in Schedule-II of the Entry Tax Act, it was exempt from Entry tax. This decision was arrived at after referring to Tata Steel Ltd. v. State of Odisha (2013) 57 VST 484 (Ori)

However, the Journal’s Editor note stated that before Pentasol S-10 (Monolithic & Ramming Mass) was treated as exempt from entry tax, it was necessary to examine whether it could be covered under Residuary Entry of Schedule-II, or whether it could be covered in Schedule-III of the Entry Tax Act.

RHI India Pvt. Ltd., Raigarh v. C.C.T., CG (2015) 27 STJ 615 (CG)

7. INTER-STATE SALE

Cereals and Pulses were exempted from tax under the M.P.C.T. Act, vide Notification dt. 10-7-1999 subject to the condition that the goods manufactured from the States were sold in the State or in the course of inter-State trade or in the course of export. The assessee in the present case transferred the ‘Dalhan’ (pulses) to agent outside the State who sold the same in that State. The only question raised for determination before the HC was whether the exemption was available to the assessee for the period in question on Dalhan sold outside the State through agents. The MP High Court allowed writ petition of the assessee on the ground that the assessee sold Dalhan outside the State through the agents and therefore, it was covered in inter-State sale and the assessee is entitled for benefit of notification dt. 10-7-1999. However, on appeal by the State before the Apex Court, the Apex Court set-aside the judgment of the MP High Court by holding that the assessee never raised the plea that he made inter-State sale to the agents. Though, the assessee referred certain documents to suggest that the inter-State sale was made to the agents, who in turn sold the Dalhan in the said State. But, in absence of any plea taken before the lower authorities and the High Court, the Supreme Court was not inclined to decide the said question in the appeal. Therefore, in this appeal the only question before the Supreme Court was whether sale of goods outside the State through agents could be treated as inter-State sale. Considering the scheme of Section 3 of the CST Act, the Supreme Court set-aside all the impugned judgments and lower orders and allowed the appeal of the State.

State of MP And Ors. v. S.K. Industries (2015) 13 STD 190 (SC)

8. NATURAL JUSTICE

Denial of proper chance of being heard by all the authorities below including Trial Judge was the question required to be dealt with in the appeal as well as writ petition by the Calcutta High Court. In the circumstances, the HC held that appeal could be disposed of merely on the ground of violation of natural justice and the order of the trial judge is set-aside. It was further held that the matter shall be resolved by the revising authority within 1 month from the date of communication of the Order. If no steps are taken in terms of the Order on receipt of those original documents, this order passed by us would stand recalled.

Lux Hosiery Industries Ltd. v. ACCT and Ors. 2015 66 STA (Part-4) Page 183 (Cal.)

9. PRE-DEPOSIT OF TAX U/S. 62(5) OF THE PVAT ACT, 2005

Claim of the appellant was that demand was created against him only for the reasons that the input credit of tax (ITC) claimed by him was rejected on the ground that his selling dealers had not deposited the tax so collected in the Govt. Treasury. Appeals of the selling dealers before the First Appellate Authority relate to cancellation of their registration, therefore, present appeals could not be clubbed with the cases pending before the Authority. However, the cases could be send back to the Assessing Authority (deciding the assessments to the selling dealers) in order to make out these were the bogus sales, there was connivance or collusion between the appellant and the purchasing dealers in order to avoid tax liability and also to recover the tax from the persons actually liable to pay the same. Thereupon, the HC held the appeal is accepted and impugned orders was set-aside and the case was remitted back to the assessing authority to frame the assessment along with the cases of assessment of the selling dealers. However, if the selling dealers did not deposit the tax, then, the purchasing dealer would pay the tax.

Friends High Tech Industries, Amritsar and Ors. v. State of Punjab (2015) 52 PHT 271 (PVT)

10. RECTIFICATION ORDER

Rectification order was passed under wrong section whether void, was the matter for the consideration of Punjab VAT Tribunal. The Tribunal after going through the original assessment record held that mere mentioning of the wrong section did not negate the Order so passed. The legality of it could be seen later as it was the subject-matter of merit. The condition of pre-deposit was to be complied with at this stage. Accordingly, Rectification Appln. was rejected.

Malwa Industries Ltd. v. State of Punjab (2015) 52 PHT 194 (PVT)

D. H. Joshi

1. S.245R : Advance ruling – Ruling sought on questions relating to fees for technical services – Not a device to avoid tax – Income from royalty and interest declared in return and taxability conceded – DTAA – India-Belgium-Portugal – Application admitted

The applicant raised questions about the taxability of the income generated by fees for technical services relying on the Double Taxation Avoidance Agreements between India and Belgium and between India and Portugal. The Department objected to admission of the application on the ground that after filing the application, the applicant had filed a return declaring,
inter alia, income on account of royalty and interest on which tax had been charged and, therefore, in not seeking a ruling on any question pertaining to royalty or interest, the applicant had tried to avoid payment of income-tax. The Authority ruled :

That the three questions on which rulings were sought did not pertain to income on royalty or the income generated on account of earned interest. There was no statement in the application that the applicant did not have an income from royalty or from interest and the applicant conceded the taxability of the royalty and interest income. Therefore, this could not be seen as a device to avoid tax. The application was to be admitted.

Magotteaux International S.A. Belgium, in re (2015) 373 ITR 658(AAR)

2. S.245R : Advance ruling – Non-resident – Assessing Officer not informed of application before Authority – Application admitted

Where the Department objected that after filing the application when the matter proceeded before the Assessing Officer on the basis of the return filed by the applicant the Assessing Officer was not informed about the applicant having filed the application before the Authority, the Authority ruled, that admittedly, the applicant was a non-resident Indian. Considering that the applicant was not an Indian taxpayer the application was admitted.

Soregam S. A., Belgium, In re (2015) 373 ITR 660 (AAR)

RESEARCH TEAM
 

S.4 : Charge of income tax – Subsidy – Industrial Policy 1996 of Punjab Government – Capital receipt

Subsidy received by assessee-company on export oriented unit from Director of Industries, Punjab under Industrial Policy 1996 of Punjab Government for installation of plant and machinery would be capital receipt.

Safari Bikes Ltd. v. JCIT (2014) 33 ITR 665 / 166 TTJ 216 / (2015) 67 SOT 257 (Chd.)(Trib.)

S.10(10D) : Life insurance policy – Keyman insurance policy – United Linked Endowment Assurance Plan – Eligible exemption

The assessee claimed a deduction of Rs. 1,49,99,222 towards Keyman insurance policy on its partner Shri Sanjeev Suri. The Assessing Officer disallowed the claim. This was confirmed by the CIT(A). On appeal by the assessee to the Tribunal HELD allowing the appeal:

Even a “United Linked Endowment Assurance Plan” with the main object of guaranteed returns rather than life insurance is a “Keyman insurance” as defined in s. 10(10D). The fact that policy was not termed as a “Keyman insurance” and the fact that the IRDA Guidelines disapproved the issue of such policies is irrelevant. Eligible exemption. (AY. 2006-07)

Suri Sons v. ACIT (Asr.)(Trib.); www.itatonline.org

S.10B : Export oriented undertaking – Exemption allowed in earlier years cannot be withdrawn on the ground that undertaking is not approved under S. 14 of Industrial Development and Regulation Act

Where exemption under section 10B was allowed in earlier years, same could not be withdrawn in subsequent year on ground that undertaking is not approved by Board under section 14 of Industrial Development and Regulation Act. (AY. 2003-04, 2005-06)

Aditya Birla Nuvo Ltd. v. ACIT (2015) 68 SOT 403 (Mum.)(Trib.)

S.12A : Registration – Trust or institution – Charitable institution carrying activities outside India-Denial of Registration was held to be not valid

If activities of a trust are found to be charitable and property is held wholly and exclusively under trust for charitable and religious purposes, then such a trust cannot be denied registration merely because its activities are extended outside India.

Critical Art and Media Practices v. DIT(E) (2015) 153 ITD 664 / 170 TTJ 401 (Mum.)(Trib.)

S.12AA : Procedure for registration – Trust or institution – Denial of exemption – Provision of section 13 can be invoked by A. O. while framing assessment and not by Commissioner while considering application for registration

Assessee-society was formed with object of establishing schools, colleges, hospitals etc. for benefit of Christian Community. The assessee filed an application seeking registration under section 12AA of the Act. The Commissioner rejected the application on the basis that the society was formed for the benefit of a particular community and there was violation of section 13(1)(b) of the Act. On appeal allowing the claim of assessee the Tribunal held that; Commissioner could not reject its application for registration under section 12AA on ground that there was a violation of provisions of section of section 13(1)(b). Provisions of s. 13 can be invoked by A.O. while framing assessment and not by Commissioner while considering application for registration u/s. 12AA.

St. Joseph Academy v. DIT(E) (2015) 153 ITD 669 (Hyd.)(Trib.)

S.12AA : Procedure for registration – Trust or institution – Registration cannot be refused on the ground that the assessee is not carrying out any activities of charitable objects

When the object of assessee is covered by charitable purposes, registration cannot be refused on ground that assessee is not carrying out any charitable activities. Whether the assessee is not carrying out any charitable activities remains to be seen at time of assessment proceedings. As regards registration under section 80G the matter is remanded to Commissioner to decide it according to law.

Life Shines Educational and Charitable Trust v. ACIT (2015) 39 ITR 291(Chennai)(Trib.)

S.14A : Disallowance of expenditure – Exempt income – Stock-in-trade – Rule 8D does not apply to shares held as stock-in-trade. AO cannot apply Rule 8D to make a disallowance without showing how the assessee’s disallowance is wrong

(i) The AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at ½% of the total value. Even otherwise, on merits also the assessee had made disallowance itself for an amount of Rs. 37,28,966/- and filed computation of disallowance as per rule 8D of the Rules. The AO could not find any fault in the computation of disallowance made by assessee

(ii) The assessee does not have any investment and all the shares are held as stock-in -trade. Once, the assessee has kept the shares as stock-in-trade, the rule 8D of the Rules will not apply. (ITA No. 805/Kol/2012, dt. 14-10-2014) (AY 2008-09)

DCIT v. G.K.K. Capital Markets (P) Ltd. (Kol.)(Trib.); www.itatonline.org

S.14A : Disallowance of expenditure – Exempt income – Stock-in-Trade – Investment in Tax free securities – disallowance justified

Tribunal held that (i) Presumption laid down in HDFC Bank 366 ITR 505 (Bom.) and Reliance Utilities 313 ITR 340 (Bom.) that investments in tax-free securities must be deemed to have come out of own funds and (ii) Law laid down in India Advantage (Bom.) that s. 14A and Rule 8D does not apply to securities held as stock-in-trade cannot be applied as both propositions are contrary to Godrej & Boyce 328 ITR 81 (Bom.) (AY 2008-09)

HDFC Bank Ltd. v. DCIT (Mum.)(Trib.); www.itatonline.org

S.28(i) : Business income – Income from other sources – Interest income from business of leasing and financing – Assessable as business income

Interest income earned by the assessee engaged in the business of leasing, financing, etc., is taxable as busimess income and not as income from other sources, not withstanding the fact that the RBI has refused to register the assessee as an NBFC; all the expenses related to the said activity are allowable as deduction. (AY 2006-07)

Preimus Investment and finance Ltd. v. DCIT (2015) 171 TTJ 794 (Mum.)(Trib.)

S.28(1) : Business loss – Loss on account of forward contract entered into by the assessee to hedge against the loss arising on account of fluctuations in foreign exchange is an allowable deduction. Contrary view in Vinod Kumar Diamonds is not good law

The assessee was exposed to the risk arising in fluctuation out of exchange rate and as a prudent business man it would like to hedge its risk. Accordingly, the assessee had booked the forward contracts and utilised the same during the year or in the succeeding years. The pattern of the assessee reflected that it entered into forward contracts during the normal course of business and utilised the same for business allowing them to run upto the date of contract. The assessee was engaged in the export of diamonds and the forwards contract was entered into in respect of foreign exchange to be received as a result of export and the same was done to avoid the risk of loss due to foreign exchange fluctuations. The claim has to be allowed after taking note of the claim of forward contracts and the accounting policies, i.e., AS-11 (revised) and applying the ratio laid down by the Apex Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. 294 ITR 451 (SC). The issue i.e. loss on account of forward contract entered into by the assessee to hedge against the loss arising on account of fluctuations in foreign exchange arose before the Tribunal in a series of cases and the claim has been allowed. The learned D.R. for the Revenue had placed reliance on M/s. Vinod Kumar Diamonds Pvt. Ltd ITA No. 506/Mum/2013 dated 3-5-2013. The said decision is contrary to the view taken in Badridas Gauridu P. Ltd. 261 ITR 256 (Bom). We find no merit in the said reliance. (AY 2009-10, 2010-11)

ACIT v. Venus Jewel (Mum.)(Trib.); www.itatonline.org

S.32 : Depreciation – Commercial rights – Network support – Entitled to depreciation

Payments to transferor who owned commercial rights towards the network and facilities constitute payment for business or commercial right hence entitled to depreciation. (AY 2006-07)

ACIT v. Bharti Teletech Ltd. (2015) 150 ITD 185 / 163 TTJ 36 / 119 DTR 139 (Delhi)(Trib)

S.40(a)(ia) : Amounts not deductible – Deduction at source – The amendment is clarificatory and retrospective w.e.f. 1-4-2005-Tax deducted was deposited before due date of filing of return – Disallowance was deleted

It is not in dispute, in the light of a series of judgments of Hon’ble jurisdictional High Court, that the amendment brought to Section 40(a)(ia), which provides that as long as the taxes deducted at source have been deposited before the due date of filing return under section 139(1), disallowance under section 40(a)(ia) cannot be invoked for delay in depositing the tax deducted at source, is only clarificatory in nature and it will also apply to the assessment years prior to the assessment years 2010-11 as well. In the case of CIT v. Omprakash R Chaudhury & Others (TA No. 412 of 2013; judgment dated 22nd November 2013), it was held that the amendment made in section 40(a)(ia) of the Income-tax Act, 1961, as retrospective in operation having effect from 1st April 2005, i.e., from the date of insertion of Section 40(a)(ia) of the Act. (ITA No. 211/Ahd/2010, dt. 7-7-2015.) (AY 2006-07)

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

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

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

(ii) The settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. In the similar circumstances, the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by the Hon’ble Calcutta High Court in ITAT No. 302 of 2011, GA 3200/2011, CIT v. Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. (ITA No. 1905/kol/2014, dt. 4-3-2015) (AY 2007-08)

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

S.41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Cash credits – Old unclaimed liabilities which are not written back by the assessee can neither be assessed as “cash credits” u/s. 68 nor assessed u/s.41(1) as “remission or cessation of liability”.

The assessee claimed that addition u/s. 68 of the Act could not be made because the credits in question did not relate to the previous year relevant to AY 2009-10 and therefore the provisions of section 68 will not be attracted. On the question of cessation of liability, it was assessee submitted that there is no evidence brought on record to show that liability of the assessee vis-à-vis creditors has ceased to exist. HELD by the Tribunal:

(i) In Shri Vardhaman Overseas Ltd. 343 ITR 408 (Del.) it has clearly laid down that neither section 41(1) nor section 68 of the Act can be applied. On the applicability of section 68, we are of the view that those provisions will not apply as the balances shown in the creditors account do not arise out of any transaction during the previous year relevant to AY 2009-10. The provisions of sec. 68 are clear in-as-much as they refer to “sum found credited in the books of account of an assessee maintained for any previous year”. Since the credit entries in question do not relate to previous year relevant to AY 2009-10, the same cannot be brought to tax u/s. 68 of the Act. The proper course in such cases for the Revenue would be to find out the year in which the credits in question were credited in the books of account and thereafter make an enquiry in that year and make an addition in that year, if other conditions for applicability of section 68 are satisfied.

(ii) As far as applicability of section 41(1) of the Act is concerned, Explanation 1 which was inserted w.e.f. 1-4-1997 is not attracted to the present case since there was no writing off of the liability to pay the sundry creditors in the assessee’s accounts. The question has to be considered de hors Explanation 1 to section 41(1). In order to invoke clause (a) of section 41(1) of the Act, it must be first established that the assessee had obtained some benefit in respect of the trading liability which was earlier allowed as a deduction. There is no dispute in the present case that the amounts due to the sundry creditors had been allowed in the earlier assessment years as purchase price in computing the business income of the assessee. The second question is whether by not paying them for a period of four years and above the assessee had obtained some benefit in respect of the trading liability allowed in the earlier years. The words “remission” and “cessation” are legal terms and have to be interpreted accordingly. In the present case, there is nothing on record to show that there was either remission or cessation of liability of the assessee. In fact, there is no reference either in the order of the AO or CIT(A) to the expression “remission or cessation of liability”. In such circumstances, we are of the view that the provisions of section 41(1) of the Act could not be invoked by the Revenue. In fact the decision of the Hon’ble Delhi High Court in the case of Vardhaman Overseas Ltd. (supra) clearly supports the plea of the assessee in this regard. (ITA No.1078/Bang/2014, dt. 7-8-2015) (AY. 2009-10)

Glen Williams v. ACIT (Bag.)(Trib.); www.itatonline.org

S.43(3) : Speculation loss – Loss on sale of shares, even a speculation loss, can be set-off against the gains on sale of shares

Even if the loss claimed by the assessee relating to share transactions as well as loss resulting on valuation of closing stock is treated as speculation loss, the same is entitled to be set-off against the profit on sale of shares in view of DLF Commercial Developers Ltd. 261 CTR (Del.) 127.(ITA No. 2138/Mum/2010, dt. 7-8-2015) (2006-07)

DCIT v. Envision Investment & Finance Pvt. Ltd. (Mum.)(Trib.); www.itatonline.org

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

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

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

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

(iii) However, we make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly. (AYs 2009-10 & 2010-2011)

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

S.45(4) : Capital Gains –Distribution of capital asset – Dissolution of firm – Transfer – Firm-Partner – Transfer of legal title in name of firm is not essential – Firm is liable to capital gain tax [S. 2(14)]

Transfer of legal title in name of assessee-firm is not essential to hold that assessee-firm is owner of those assets if such assets are transferred by a partner of firm as capital and Firm had been showing said landed building in balance sheet and claiming depreciation on same. On dissolution of firm, said property was taken over by said partner. transaction was liable for capital gains. (AY 2007-08)

M. Ahammedkutty v. ITO (2015) 67 SOT 353 (Cochin)(Trib.)

S.48 : Capital gains – Computation – In computing “capital gains” the AO is not entitled to substitute the “market value” for the actual “consideration” received by the assessee. He also cannot disregard the valuation report without cogent material

(i) It is settled position of law that in the case of sale, the Assessing Officer has no power to replace the value of the consideration agreed between the parties. In this regard, we find strength from the above cited decision of Hon’ble Delhi High Court in the case of Nilofer Singh holding that the expression “full value of consideration” used in section 48 of the Act does not have any reference to market value (Nilofer Singh 309 ITR 233 (Delhi); George Handorson 66 ITR 622 (S.C); Gillanders Arbuthonot 87 ITR 407 (S.C) referred)

(ii) A report of a valuer is an important piece of evidence and the same cannot be discarded without there being any cogent material on record showing that the report of the valuer is not correct (S. K. Construction & Co. 167 Taxman 171 (Delhi) followed)

(iii) As the expression “full value of consideration” in section 48 of the Income-tax Act, 1961 does not have any reference to market value, the Assessing Officer was having no power to replace the value of the consideration agreed between the parties with any fair market value or estimation. Only because the Pioneer Ltd. had shown the book value of shares at the rate of Rs. 3.50 per share, the Assessing Officer was not justified to ignore the price agreed between the parties and to doubt the genuineness of the claimed loss, even ignoring the valuation report. (ITA No. 5335/Del/2012, dt. 28-9-2015)(AY 2009-10)

Venus Financial Services Ltd. v. ACIT (Delhi) (Trib.); www.itatonline.org

S.54 : Capital gains – Profit on sale of property used for residence – Giving advance to builder constitutes “purchase” of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period

The assessee declared sale of a residential property vide sale agreement dated 8-12-2009 for a total consideration of Rs. 1,02,55,000/-. After considering the indexed cost of acquisition of Rs. 14,17,904/-, the long term capital gain was computed at Rs. 88,37,096/-. The relevant capital gain was claimed as exempt under section 54 of the Act on the strength of having acquired a new residential house. The investment in acquisition of the new residential house was claimed by the assessee based on an advance of Rs. 1.00 crore given to the builder as booking advance through a cheque dated 6-2-2010. The AO denied the claim for exemption on the ground that the provisions of section 54 of the Act require the assessee to purchase a new residential house either within a period of one year before the date on which the transfer of original asset took place or two years after date on which such transfer take place. He held that as even after two years of the date of transfer of old house the construction of the new property was not completed and that assessee had not gained possession of the new premises also. He, therefore, held that assessee did not comply with the requirements of section 54 of the Act in as much as it could not be said that assessee had purchased a new residential house within the period prescribed therein. This was confirmed by the CIT(A). On appeal by the assessee to the Tribunal HELD allowing the appeal:

(i) It is not disputed by the Revenue that the sum of Rs. 1.00 crore has been invested by the assessee towards acquiring new property. Of course, the legal title in the said property has not passed or transferred to the assessee within the specified period and it is also quite apparent that the new property was still under construction. So however, the allotment letter by the builder mentions the flat number and gives specific details of the property. The word ‘purchase’ used in Section 54 of the Act should be interpreted pragmatically. The intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to sub-serve the object and more particularly when one was concerned with exemption from payment of tax.

(ii) The plea of the Revenue is that no purchase deed was executed by the builder and that there was only an allotment letter issued. As per the Revenue the advance could be returned at any time and, therefore, the assessee may lose the exemption under section 54 of the Act. In our considered opinion, the aforesaid does not militate against assessee’s claim for exemption in the instant assessment year, as there is no evidence that the advance has been returned. In case, if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee’s claim under section 54 of the Act. In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires. The aforesaid provision also does not justify the action of the Assessing Officer in denying the claim of exemption under section 54 in the instant assessment year.(AY 2010-11)

Hasmukh N. Gala v. ITO( 2015) 125 DTR 299 (Mum.)(Trib.)

S.54 : Capital gains – Profit on sale of property used for residence –Purchase – Construction of new house – Booking of a flat which is going to be constructed by a builder, has to be considered as a case of “construction of flat” and not purchase – Not entitled deduction

The assessee sold a residential flat in October, 2005 for certain amount and claimed deduction under section 54 in respect of cost of new flat.

The Assessing Officer noticed that the assessee had booked a flat in a project in December, 2002 in the joint name of assessee and her relative and she obtained possession of the new flat in December, 2004.

The Assessing Officer did not accept the assessee’s contention that the date of possession of new house should be taken as the date of purchase and rejected claim for deduction under section 54. On appeal, the Commissioner (Appeals) confirmed the decision of the Assessing Officer.

On second appeal it was held that :

In the instant case, the assessee along with her relative has entered into an agreement on 4-12-2002 with a builder. As per the registered sale agreement, the builder shall construct residential apartments on a piece of land and allot a specified flat to the assessee. As per the agreement, the builder constructed the residential apartments and finally handed over the possession on 4-12-2004.The ratio laid down in the several cases clearly show that the booking of a flat which is going to be constructed by a builder has to be considered as a case of “construction of flat”. The deduction under section 54 is available only if the assessee constructs a new house within three years after the date of transfer. In the instant case, the assessee has constructed a house prior to the date of transfer of original house, in which case, the assessee is not entitled to claim deduction under section 54 in respect of the cost of new flat. In view of the foregoing discussion, the assessee has not fulfilled the conditions prescribed under section 54. Accordingly, the decision taken by the Commissioner (Appeals) was upheld. (AY. 2006-07)

Farida A. Dungerpurwala v. ITO (2014) 35 ITR 205 / (2015) 67 SOT 208 (Mum.)(Trib.)

S.54F : Capital gains – Investment in a residential house – Transferable tenancy rights –Owner – Substantial rights giving assessee dominion, possession and control over said property with transferable rights, which were almost identical to that of an owner of property, assessee was entitled for exemption

Assessee earned long-term capital gains on sale of shares. She claimed exemption under section 54F on plea that she had purchased a residential flat. Assessing Officer noted from transfer deed that assessee had “transferable tenancy rights” and “not ownership” of flat, therefore disallowed claim under said section. Where rights of assessee in flat were not mere tenancy rights but were substantial rights giving assessee dominion, possession and control over said property with transferable rights, which were almost identical to that of an owner of property, assessee was entitled for exemption. (AY. 2005-06)

Archana Parasrampuria v. ITO (2015) 68 SOT 550 (Mum.)(Trib.)

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

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

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

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

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

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

(vi) Thus, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against Long term capital gain on sale of land in accordance with section 70(3). (ITA No. 3317/Mum/2009 & 1692/Mum/2010, dt. 10-6-2015) (AY 2007-08)

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

S.92C : Transfer pricing – Arm’s Length Price – Transactional net margin method – Only companies having related party transactions of less than 15 per cent can be considered – Companies with turnover more than Rs. 200 crores to be excluded – Functionally dissimilar companies to be excluded

Assessee is in the business of Software development services. Tribunal held that; while selecting comparables, only companies having related party transactions of less than 15 per cent. can be considered. Companies with turnover more than Rs. 200 crores to be excluded. Functionally dissimilar companies to be excluded. (AY 2006-2007)

Tektronix Engineering Devt. India P. Ltd. v. Dy.CIT (2015) 39 ITR 212 (Bang.)(Trib.)

S.92C : Transfer pricing – Arm’s Length Price – Software development services – Selection of comparables – Functionally dissimilar companies to be excluded

Tribunal held that Companies having related party transactions less than 15 per cent alone can be considered. Companies with turnover more than Rs. 200 crores to be excluded. Functionally dissimilar companies to be excluded. Small company cannot be compared to giant company engaged in development of niche products. Difference between operating profit margin determined by Transfer Pricing Officer and by assessee within range of plus or minus five per cent adjustment not warranted. (AY 2006-07)

Cypress Semiconductor Technology India P. Ltd. v. Dy. CIT (2015) 39 ITR 468 (Bang.)(Trib.)

S.92C : Transfer Pricing – Arm’s Length Price – Company reflecting high margins in some year and low margin in some year cannot be taken as comparable

It was held that where a company reflected high margins in certain years and very low in other years, being functionally not comparable, margins of said companies could not be applied as comparables while benchmarking international transactions of assessee in IT segments. (AY 2009-10)

PTC Software (India) (P.) Ltd. v. Dy.DIT (2014) 36 ITR 578 / (2015) 67 SOT 138(URO) (Pune)(Trib.)

S.92C : Transfer pricing – Arm’s Length Price – TP adjustment is to be made only in respect of purchases made from AE and not from unrelated parties

Assessee company was engaged in business of manufacture and sale of textile machinery, related parts, automotive parts and trading material and handling equipments. Assessee had shown its margin at 6.15 per cent. TPO did not accept results shown by assessee. He determined mean margin of comparables at 13.32 per cent and made TP adjustment. Assessee claimed that while computing mean margin of comparables, TPO had included purchases made from unrelated parties and claimed that arithmetic mean of comparables fell within (+-) 5 per cent range provided in proviso to Section 92C and, thus, no adjustment was called for. It was held by ITAT that TP adjustment is to be made only in respect of purchases made from AE and not from unrelated parties and hence matter needed reconsideration.(AY 2006-07)

Kirloskar Toyoda Textile Machinery (P.) Ltd. v. ACIT (2015) 170 TTJ 30 (UO) / 67 SOT 222(URO) (Bang.)(Trib.)

S.115JB : Book Profits – Transfer of development rights to subsidiary – (i) Even if an amount is credited to the P&L Account, the assessee can seek exclusion of that amount for purposes of “book profits” if a note to that effect is inserted in the Accounts. (ii) The exemption conferred by S. 115JB to sums exempt u/s. 10 should be extended to all sums which are not chargeable to tax.

The assessee held a parcel of land admeasuring about 61,506 sq. mtr as its capital asset. The said land was attached with development rights/FSI. The assessee transferred development rights/FSI of 55,464.04 sq. mtr which was available on a portion of above said land to its wholly owned Indian subsidiary company. The said transfer generated Long Term Capital Gain (LTCG) of 300.68 crores. The assessee disclosed the same as “Extra Ordinary Income” in the profit and loss account. The said LTCG was not chargeable to tax u/s. 47(iv) of the Act as it arose from the transfer of a capital asset by a company to its wholly owned Indian subsidiary. For purposes of computation of book profits u/s 115JB, the assessee inserted a note in the accounts stating that the said amount credited to the P&L A/c did not have the character of “income” and was not chargeable as “book profits”. The AO & CIT(A) relied on the judgment of the Special Bench in Rain Commodities Ltd v. DCIT (2010) (40 SOT 265; 131 TTJ 514) where it was held that if an amount, though not chargeable as capital gains u/s. 47(iv), is credited to the P&L A/c. the same cannot be excluded from the book profits u/s. 115JB. On appeal by the assessee to the Tribunal HELD allowing the appeal:

(i) The decision rendered by the Special Bench of Tribunal in Rain Commodities Ltd. (40 SOT 265; 131 TTJ 514) is not applicable because in that case the capital gains had been included in the profit and loss account and it was accepted that the accounts have been prepared in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act. In the present case, it is clearly stated in the Notes forming part of accounts that the said profit is not includible for computing book profit u/s. 115JB of the Act, even though it is credited to Profit and Loss account. The profit and loss account prepared in accordance with the provisions of Part II to Schedule VI of the Companies Act should be read along with the ‘Notes forming part of accounts’. Hence the net profit shown in the Profit and loss account shall be first adjusted to take care of the qualifications given in the Notes.

(ii) As regards the contention that since the profit arising on transfer of a capital asset by a company to its wholly owned subsidiary company is not treated as income” u/s. 2(24) of the Act and since it does not enter into computation provision at all under the normal provisions of the Act, the same should not be considered for the purpose of computing book profit u/s. 115JB of the Act, it is pertinent to note that the provisions of section 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term “income” as defined in section 2(24) of the Act, but they are not included in total income in view of the provisions of section 10 of the Act. Since they are considered as “incomes not included in total income” for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s .115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 to section 115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of “income”, are excluded for the purpose of computing “Book Profit”, since the said receipts are exempted u/s. 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of “total income” and “book profit”, in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of “income” at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in “book profit” u/s. 115JB of the Act.

(iii) A careful perusal of the decision rendered by the Special bench in the case of Rain Commodities Ltd. would show that the above said legal contentions were not considered by the Special Bench. The Special Bench considered cases where the Courts were dealing with the issue of inclusion of capital gains in the computation of “Book Profits”, but such capital gains were otherwise chargeable to capital gain tax u/s. 45 of the Act under the normal provisions of the Act. However, here is the case that the profits and gains arising on transfer of capital is not falling under the definition of “transfer” and hence under the definition of “capital gains chargeable u/s. 45” and consequently, the same does not fall within the purview of the definition of “income” given u/s 2(24) of the Act. Further, the Special Bench did not have occasion to consider the argument urged that the profits and gains arising on transfer of a capital asset by a holding company to its wholly owned Indian Company does not fall under the definition of “income” at all u/s. 2(24) of the Act and hence the same does not enter into the computation provisions of the Act at all. (AY. 2009-10)

Shivalik Venture Pvt. Ltd. v. DCIT (Mum.)(Trib.); www.itatonline.org

S.115JB : Book Profits – Amount towards waiver of loan under OTSS, credited to “General Reserves” and not to the P&L Account cannot be added to “book profits”

The sole dispute raised is, whether the Assessing Officer could have made adjustment to the book profits for an amount of Rs. 3,52,78,000/-, which was on account of waiver of principal amount of loan, which has been credited by the assessee directly in the Balance Sheet in ‘General Reserve’ account, which according to the Assessing Officer should have been routed through profit and loss account and thus, would have been part of the book profit. The provisions relating to book profit u/s. 115JB are absolutely clear that same is to be computed on the basis of profit and loss account prepared in accordance with the provision of Part-II and Part-III of Schedule-VI of the Companies Act and to such profit only certain adjustments as provided in Explanation 1 can be made. The Assessing Officer does not have the power to tinker with such accounts prepared as per Schedule VI and certified by the Auditors. Assessing Officer has also not specified categorically that as to how the Parts II & III of Schedule VI has not been followed or is against the prescribed accounting standard there is a requirement of law that waiver of loan taken for utilising capital expansion is to be routed only through profit and loss account and cannot be credited to the ‘General Reserve’, i.e. directly in the Balance sheet. Thus, the finding of the CIT(A) is purely in accordance with the provisions of the law and the principle laid down by the Hon’ble Supreme Court in the case of Apollo Tyres (supra). The Hon’ble Bombay High Court in the case of CIT v. Akshay Textiles Trading And Agencies (P) Ltd., reported in 304 ITR 401 and later on in the case of CIT v. Adbhut Trading Co. Pvt. Ltd., reported in 338 ITR 94, following the aforesaid decision of the Hon’ble Supreme Court held that accounts prepared under the Companies Act and certified by the authorities under the said “Act” have to be accepted. (AY. 2007-08)

DCIT v. Garware Polyester Ltd. (Mum.)(Trib.); www.itatonline.org

S.115JB : Book profits – Capital gains – In computing the “book profits” the entire capital gains have to be included without computing the benefits of indexation. [Ss. 10(38), 45]

During the year ending on 31-3-2009, the assessee company sold shares and thereby earned a surplus of Rs. 1,90,78,63,394 which was net of STT paid. This amount was credited to the Profit & Loss account as on 31-3-2009. In the computation of book profit u/s. 115JB, the assessee had made a note stating that the long term capital gain should be taken at Rs. 1,72,55,70,760, which is after indexation. The Tribunal had to consider whether while computing the book profit u/s. 115JB the income on account of long term capital gain should include Rs. 1,90,39,06,630 i.e. net amount credited or the sum of Rs. 1,72,55,70,760 computed after indexation. HELD by the Tribunal:

For computing the profit and the taxability u/s. 115JB, it is mandatory for the assessee to compute profit as per Profit & loss account prepared under the relevant provisions of the Companies Act. The relevant Schedule under the Companies Act for the preparation of statement of Profit & loss account provides that in case of sale of investments, net gain/loss should be disclosed. The net gain/loss means sale minus purchase and other cost. The Companies Act does not speak about long term/short term capital gain. From the harmonious reading of the relevant provision as discussed above, it is evident that firstly, the book profit shall be reduced by the amount of income to which provision of section 10 applies. However, income under the provisions contained in section 10(38) will not be reduced. Thus, the income arising from transfer of long term capital asset is to be included in the book profit. The book profits as contemplated in section 115JB means the net profit, which has been shown/credited in the profit & loss account as prepared under the relevant provisions of the Companies Act. The concept of indexation while computing the Long term capital gain cannot be imported to the computation of book profit u/s. 115JB as per the expressed provisions of the said section itself which is a complete code in itself. Thus, in our opinion, the net amount on account of sale of shares of Rs. 1,90,39,06,630 will alone be taken into account in computation of book profit and not the amount of Long term capital gain of Rs. 1,72,55,70,760 after indexation. (AY. 2009-10)

Dharmayug investment Ltd. v. ACIT (Mum.)(Trib.); www.itatonline.org

S.143(3) : Assessment – Admission of undisclosed income – Fact that assessee admitted undisclosed income for one year does not mean that AO can assume that similar undisclosed income is earned in earlier years as well- Deletion of addition was held to be justified

The Assessing Officer estimated the professional income of the assessee for assessment years 2002-03 to 2007-08. The reasoning given by the AO is explained in brief. The excess cash found at the time of search was declared by the assessee as his income for the AY 2008-09. Accordingly, the assessee included the same in the professional receipts. Accordingly the professional receipts for AY 2008-09 was shown at Rs. 328.70 lakhs. The AO took the total number of working days for that year as 300 and accordingly worked out the average collection per day as Rs. 1,09,000/-. Then the AO presumed that the assessee would have earned professional collections in the same pattern in the earlier years also. Accordingly, he estimated the average daily collection at Rs. 1,00,000/-, Rs. 90,000/-, Rs. 80,000/-, Rs. 70,000/-, Rs. 60,000/- and Rs. 50,000/- respectively for assessment years 2007-08, 2006-07, 2005-06, 2004-05, 2003-04 and 2002-03. Accordingly the Assessing Officer worked out the gross receipts. Then the AO worked out the difference between the gross receipts declared by the assessee and that was worked out by him. Thereafter he applied the net profit rate declared by the assessee on the difference and accordingly worked out the additions. On appeal by the assessee the CIT(A) deleted the addition. On appeal by the department to the Tribunal HELD dismissing the appeal:

There is no dispute with regard to the fact that the revenue did not unearth any incriminating material, which could suggest that there was under billing or evasion of professional receipts. The revenue only stumbled with excess cash balance and the same was surrendered as income of the year in which the search took place. The assessee offered the same as his professional income. As observed by CIT(A), the unexplained cash is required to be assessed in the year in which it was found as per the deeming fiction of provisions of sec. 69A of the Act, which does not mean that the assessee would have earned the entire excess cash balance in one year. Hence, in our view also, the Assessing Officer misguided himself by presuming that the entire undisclosed cash balance represents his professional fee collected during the financial year relevant to the assessment year 2008-09. Hence, in our view, the CIT(A) has rightly concluded that the Assessing Officer did not bring any material on record to support his case of estimation of professional receipts of earlier years. We also notice that the Assessing Officer has assessed the net profit on the alleged suppressed professional receipts, meaning thereby, the assessing officer has presumed that the assessee would have suppressed corresponding expenses also. Again it is only a guess work only, unsupported by any material. Similarly, the average daily collection estimated by the AO was also mere guess work. In effect, there is no material available with the AO to show that the assessee has suppressed professional receipts as well as expenses in order to substantiate the estimation made by him. During the course of hearing, the learned D.R placed reliance on the decision rendered by Hon’ble Punjab & Haryana High Court in the case of Ved Prakash v. CIT (265 ITR 642) to support the estimation made by the Assessing Officer. However, we notice that the Hon’ble Punjab & Haryana High Court has considered a case, wherein materials were found during the course of search. However, in the instant case, no material relating to suppression of professional fee receipts was found. (ITA Nos. 711 to 715/Mum/2011, dt. 11-9-2015) (A Ys. 2004-05 to 2008-09)

Uday C. Tamhankar .v. DCIT (Mum.)(Trib.); www.itatonline.org

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

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

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

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

S.144 : Best judgment assessment – If books are rejected and Gross Profit rate is estimated, separate disallowance of expenses cannot be made

The pattern of assessment under the IT Act is given by sections 29/144 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in section 30 to 43D. Section 40 provides for certain disallowance in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the ITO may reject those books and estimate the income to the best of his judgement. When such an estimate is made it is in substitution of the income that is to be computed under section 29. In other words, all the deductions which are referred to under section 29 are deemed to have been taken into account while making such an estimate. This will also include the embargo placed in section 40 (Indwell Constructions v. Commissioner of Income Tax (1998) 232 ITR 776 (AP) followed). (ITA No. 418/Chd/2015, dt. 12-8-2015) (AY. 2010-11)

CIT v. Hind Agro Industries (Chd.)(Trib.); www.itatonline.org

S.145 : Method of accounting –Valuation of stock – Survey –Stock found less than the stock shown in trading account –Addition as unaccounted sale was not justified

Closing stock found during survey was less than closing stock shown in trading account. This, according to Assessing Officer, proved shortage of stock and unaccounted sales. On facts addition made by Assessing Officer was totally uncalled for.

Safari Bikes Ltd. v. JCIT (2014) 33 ITR 665 / 166 TTJ 216 / (2015) 67 SOT 257 (Chd.)(Trib.)

S.147 : Reassessment – Within four years – Tangible material – In the absence of “fresh tangible material” reassessment is not valid.

(a) Thus, taking help from these judgments, relevant provisions of law, fixing obligations upon the AO for making mandatory compliances, in a step-wise manner, for valid assumption of jurisdiction for reopening and reframing of reassessment order, can be summarized as under:

(i) Availability of the new tangible material indicating escaped income of the assessee, which should have come into possession of the AO, after the passing of original assessment order, whether u/s 143(3) or 143(1),

(ii) Recording of the ‘Reasons’ by the AO: ‘Reasons’ recorded should not be based upon the change of opinion of the Assessing Officer. ‘Reasons’ should be such that any person of ordinary prudence should be in a position to make a belief about escapement of income on the basis of facts narrated and material referred to, in the ‘Reasons’ recorded. The ‘Reasons’ should show that, there is rational nexus and cause & effect relationship between the material sought be relied upon in the Reasons and belief sought to be formed by the AO about escapement of income.

(iii) In case reopening is sought to be done by the AO after expiry of four years from the end of the relevant assessment year and the original assessment was framed u/s. 143(3) then reasons can be recorded only if there was failure on the part of the assessee in disclosure of material of facts, as has been envisaged in first proviso to section 147.

(iv) Before issuing notice u/s. 148, the AO has to obtain, on the reasons recorded by him, sanction for reopening of the case, from the competent authority as envisaged u/s. 151 viz. Additional Commissioner or the Commissioner of Income Tax, as the case may be. Before granting its sanction, the sanctioning authority is required to record its satisfaction based upon its independent application of mind, making out a case that as per the facts narrated and material referred to in the ‘Reasons’ recorded by the AO, a belief can be formed about escapement of income and case sought to be reopened is a fit case for reopening u/s. 147.

(v) After obtaining the sanction, the AO is required to issue and serve notice u/s. 148 upon the assessee, within the time limit as prescribed u/s. 149, to enable him to assume jurisdiction to reopen the assessment.

(vi) The assessee is required to file a return of income, in response to notice u/s 148 and may request for the copy of reasons.

(vii) The AO is bound, as per law, to provide a certified and verbatim copy of reasons to the assessee.

(viii) The assessee may file its objections before the AO, to the Reasons recorded, if any.

(ix) In pursuance to judgment of Hon’ble Supreme Court in the case of GKN Driveshafts 259 ITR 19 (SC), the AO is obliged to dispose of these objections and intimate the same to the assessee, before proceeding further with the reassessment proceedings.

(x) Thereafter, the AO is obliged under the law to issue and serve notice u/s.143(2) to enable him to make assessment of the return filed by the assessee in response to notice issued under section 148.

(xi) Framing of the re-assessment order by the AO u/s. 147/143(3) after providing adequate opportunity of hearing to the assessee and considering replies and evidences of the assessee, and all other applicable provisions of the Act.

(b) Under these facts and circumstances, let us now examine settled position of law on this issue. It has been held in various judgments coming from various courts that availability of fresh tangible material in the possession of AO at the time of recording of impugned reasons is a sine qua none, before the AO can record reasons for reopening of the case, as per the judgment of Hon’ble Supreme Court in the case of CIT v. Kelvinator India Ltd. 320 ITR 561 (SC). The term ‘tangible material’ has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment.

(c) In the present case, it has already been discussed that admitted facts are that there was no fresh material coming into the possession of the AO, at the time of recording of the ‘Reasons’. These facts have not been rebutted by learned DR also. The case law relied upon by learned DR in the case of Dr. Amin’s Pathology, supra is not applicable on the issue being decided here. The issue that in absence of any fresh material, whether AO can proceed to record Reasons, was not before Hon’ble High Court, therefore Hon’ble High Court had decided the issue of change of opinion in that case. In the case before us, as discussed above, we are not going into that issue. In our considered opinion, at this stage, we need not go into the other aspect i.e. whether there was change of opinion or not. This issue has been aptly clarified by Hon’ble High Court in the case of Madhukar Khosla, (supra), wherein it has been held by their Lordships that external facts or material constitute the driver, or the key which enables the AO to legitimately reopen the completed assessment and in absence of this objective “trigger”, the AO does not possess jurisdiction to reopen the assessment. Further, most importantly, it was held by the Hon’ble High Court that it is at the next stage when the question, whether the reopening of assessment amounts to “review” or “change of opinion” arises. In other words, if there are no “new tangible materials”, then there would be no “reasons to believe”, and consequently reopening would be an impermissible review. Under these circumstances there would not arise any need to go the next stage to examine the next question, i.e., whether there was “review” or “change of opinion”. The condition with respect to availability of “new tangible material” is step anterior to the condition of no “change of opinion” or “review”. (ITA No. 2910/Mum/2013, dt. 22-9-2015) (AY 2006-07)

Motilal R. Todi v. ACIT (Mum)(Trib); www.itatonline.org

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

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

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

(ii) It is also to be noted that section 153A provides for the procedure for assessment in case of search or requisition. Sub-section (1) starts with non-obstante clause stating that it was “notwithstanding” anything contained in sections 147, 148 and 149, etc. Clause (a) thereof provides for issuance of notice to the person searched under Section 132 or where documents etc. are requisitioned under section 132(A), to furnish a return of income. This clause nowhere prescribes for issuance of notice under Section 143(2). Learned counsel for the assessee/appellant sought to contend that the words, “so far as may be applicable” made it mandatory for issuance of notice under-Section 143(2) since the return filed in response to notice under section 153A was to be treated as one under section 139. The words “so far as may be” in clause (a) of sub-section (1) of section 153A could not be interpreted that the issue of notice under section 143(2) was mandatory in case of assessment under section 153A. The use of the words “so far as may be” cannot be stretched to the extent of mandatory issue of notice under section 143(2). As is noted, a specific notice was required to be issued under Clause (a) of sub-section (1) of Section 153A calling upon the persons searched or requisitioned to file return. That being so, no further notice under Section 143(2) could be contemplated for assessment under Section 153A. Followed Ashok Chadha v. ITO (2011) 337 ITR 399 (Delhi)(HC). (AY 1999 to 2000 to 2005-06)

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

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

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

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

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

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

S. 194J : Deduction of tax at source – Fees for professional or technical services – Data Link Charges –Transmission of data via gadgets without any human intervention will not amount to technical services – Not liable to deduct tax at source.

Assessee-software company paid data link charges for utilizing standard facilities which were provided by telecom service providers by way of technical gadgets and there was no human intervention for transmitting data through such data links, same did not involve technical services. It was held that assessee was not liable for tax deduction at source under section 194J. (AYs. 2007-08 to 2010-11)

iGATE Computer Systems Ltd. v. DCIT (2015) 67 SOT 296 (Pune)(Trib.)

S.195 : Deduction at Source – Non-resident – Income deemed to accrue or arise in India – Interest –Payment to head office tax was not required to be deducted at source on principles of mutuality [S.9(1)(v), 40(a)(i)]

Interest paid by Indian branch to Head Office/overseas branches was not taxable in India on principles of mutuality and, therefore, tax was not required to be deducted at source while making said payments. (AY 2004-05)

Credit Agricole Corporate & Investment Bank v. ACIT, (IT) (2015) 67 SOT 208(URO) (Mum.)(Trib.)

S.195 : Deduction at Source – Non-resident – Income from immovable property – Capital gain was invested in another property – Not liable to deduction of tax at source

Assessee purchased a property from a non-resident, since assessee was aware of fact that capital gain arising from sale of said property was not taxable in hands of vendor as he had already invested amount in purchase of another residential property within time period prescribed under section 54, assessee was not required to deduct tax at source while making payment of sales consideration to non-resident vendor. (AY 2012-13)

A. Mohiuddin v. ADIT (2015 ) 171 TTJ 138 / 67 SOT 251 (Bang.)(Trib.)

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

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

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

Sibia Healthcare Pvt. Ltd. v. DCIT (Asr.)(Trib.); www.itatonline.org

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

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

(i) The findings of the CIT(Appeals) clearly show that instead of deciding the appeal on merits and in compliance with the order of the Tribunal dated 23.11.2011, he preferred to follow the view and order passed by his predecessor. The CIT(A) has even gone to the extent of noting in the impugned order that the view taken by his predecessor was correct. Thus it is clear that the CIT(A) has shown disobedience to the order of the Tribunal by which the earlier order of the predecessor of the CIT(A) was set aside by the Tribunal in toto. The earlier order of the predecessor of the CIT(A) would not stand in the eyes of law.

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

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

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

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

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

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

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

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

S.253 : Appellate Tribunal –Department representative can only support the AO’s order and cannot set up an altogether new case before the ITAT

The Departmental Representative has no jurisdiction to go beyond the order passed by the Assessing Officer. He cannot raise any point different from that considered by the Assessing Officer or the Commissioner of Income-tax (Appeals). His scope of arguments is confined to supporting or defending the impugned order. He cannot set up an altogether different case. Followed ACIT v. Aishwarya K. Rai (2010) 127 ITD 204 (Mum)(Trib)/ ITO v. Anant Y. Chavan (2009) 126 TTJ 984 (Pune)(Trib.)/ Mahindra and Mahindra (2009) 313 ITR 263 (SB) (Mum.)(Trib.) (ITA No. 2138/Mum/2010, dt. 7-8-2015) (2006-07)

DCIT v. Envision Investment & Finance Pvt. Ltd. (Mum.)(Trib.); www.itatonline.org

S.253 : Appellate Tribunal – New issue not basis of disallowance by Assessing Officer cannot be adjudicated – Departmental representative cannot enlarge the scope of the revenue’s appeal. [Ss.80IA, 254(1)]

The assessee claimed deduction under section 80IA of the Income-tax Act.

Held, that the contention raised by the Department was not the basis of disallowance by the Assessing Officer, subject matter before the Commissioner (Appeals) and the Tribunal. Therefore, the issue raised by the Department was a new one and could not to be adjudicated by the Tribunal. Tribunal relied on the ratio of judgment in Kamal Kishore and Co v.CIT (1998) 232 ITR 668 (MP)(HC). The bus shelters and foot overbridges should be considered as part of the infrastructure facility and therefore, the assessee was entitled to deduction under section 80IA of the Act. (AY 2004-05 to 2009-10)

Dy.CIT v. Vantage Advertising P. Ltd. (2015) 39 ITR 240 (Kol.) (Trib.)

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

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

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

S.254(2) : Appellate Tribunal – Rectification of mistake – Order of Tribunal pronounced beyond 60/90 days as prescribed in rule 34(5)(c) cannot validly be challenged in rectification petition [IATA R. 34(5)(c)]

Powers of rectification Tribunal has no jurisdiction to recall or review its order passed on merits while dealing with an application u/s. 254(2) Appellant filed instant petition seeking recall of impugned order contending that impugned order suffered from certain mistakes which were apparent on record. Order of Tribunal pronounced beyond 60/90 days as prescribed in Rule 34(5)(c) cannot validly be challenged in a petition. (AY 1993-94)

Times Guaranty Ltd. v. ACIT (2015) 153 ITD 655 / 171 TTJ 387 (Mum.)(Trib.)

S.271(1)(c) : Penalty – Concealment – If the notice does not clearly specify whether the penalty is initiated for “concealment” or for “filing inaccurate particulars”, it is invalid. Mere fact that assessee has surrendered income does not justify penalty if his explanation is not found to be false / not bona fide

(i) The notice issued by the AO u/s. 274 read with section 271 of the Act at the time of initiation of penalty proceedings states that it is issued for “concealment of particulars of income or furnishing of inaccurate particulars of income”. The Assessing Officer has not specified that as to which limb the notice was issued, i.e., whether it is issued for concealment of particulars of income or furnishing of inaccurate particulars of income. The Assessing Officer should be clear about the charge at the time of issuing the notice and the assessee should be made aware of the charge. The penalty order is liable to be quashed as the AO has not correctly specified the charge (decision dated 11-10-2013 in Shri Samson Perinchery in ITA No.4625 to 4630/M/2013 and CIT v. Manjunatha Cotton & Ginning Factory (2013)(35 taxmann.com 250) (Kar.) dated 13-12-2012) followed)

(ii) Surrender of commission expenditure would not automatically lead to the mala fides of the assessee as presumed by the Assessing Officer, since the assessing officer has not afforded an opportunity to the assessee to contradict the documents that were relied upon by the AO. If we examine the explanations furnished by the assessee in terms of Explanation 1 to section 271 of the Act, we notice that the assessee has offered an explanation and the same has not been found to be false. It is pertinent to note that the revenue was having only suspicion about the genuineness of the payments at the time of search proceedings on the basis of enquiries conducted by them. However, the assessee has all through maintained that the payments were genuine. In support of the same, the assessee has stated that the payments were made by way of cheque, TDS were deducted and the service tax was also paid. Hence, in our view, it cannot be said that the explanation of the assessee was found to be false. Though the AO has expressed the view that the admission of the assessee proves malafides, we are of the view that the explanation of the assessee was not proved to be not bona fide one. It is not the case of the Assessing Officer that the assessee has failed to furnish all facts and material relating to computation of income. Accordingly, we are of the view the deeming provisions of Explanation-1 shall also not apply to the assessee. (ITA No. 6222/6223/Mum/2013, dt. 2-9-2015)(AYs 2007-08, 2008-09)

Hafeez S. Contractor v. ACIT (Mum.)(Trib.); www.itatonline.org

S.271(1)(c) : Penalty – Concealment – The deeming provision of Explanation 1 to s. 271(1)(c) applies only to a case of “concealment of income” and not to a case of “furnishing inaccurate particulars of income”

(i) In the assessment order passed u/s. 143(3), the AO initiated penalty for concealing the particulars of income. However, at the time of passing penalty order the AO levied penalty for filing of inaccurate particulars of income under the virtue of Explanation 1 to Section 271(1)(c) of the Act. From a reading of Explanation 1 to Section 271(1)(c) of the Act, it is apparent that, if the AO in the course of assessment proceedings is satisfied that, any person has concealed the particulars of income or furnished inaccurate particulars of such income, then he may levy penalty on the assessee. Thus, there are two different charges i.e. concealment of particulars of income or furnishing of inaccurate particulars of income. The penalty can be imposed only for a specific charge. Furnishing inaccurate particulars of income means, when the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are found to be incorrect whereas, concealment of particulars of income means, when the assessee has concealed the income and has not shown the income in its return or in its books of accounts. Explanation 1 is a deeming provision and is applicable when an amount is added or disallowed in computation of total income which is deemed to represent the income in respect of which particulars have been concealed. Explanation 1 cannot be applied in a case where the assessee furnishes inaccurate particulars of income.

(ii) In the present case, the AO initiated penalty proceeding u/s. 271(1)(c) on the basis that the assessee has concealed the particulars of income and the penalty ultimately levied on the assessee has been for furnishing inaccurate particulars by observing that the case of the assessee is covered by the Explanation 1 to Section 271(1)(c).

(iii) It is also observed that mistake of the assessee was bona fide which has been corrected by filing revised return before completion of assessment. Merely because there were some discrepancies, it cannot be held that the assessee intended to evade tax. The assessee had rectified the same and had accepted the mistake before the AO. The assessee also chose not to prefer appeal before the first appellate authority, itself shows that the mistakes were not wilful (ITA No. 1457/Del/2010, dt. 7-9-2015) (AY 2006-07)

Tristar Intech (P) Ltd. v. ACIT (Delhi)(Trib.); www.itatonline.org

S.271(1)(c) : Penalty – Concealment – Revised return beyond time – Assessment was done just to validate in valid revised return –Levy of penalty was not justified

Tribunal held that no escapement of income was detected during the original assessment proceedings and no proceedings were initiated against the assessee, though it was found that the chartered accountant was operating bogus firms, pursuant to search action. The assessee had suo motu offered the additional income. The assessment proceedings under section 147 of the Act were carried out just to validate the invalid revised return and not on account of detection of escapement of income. Therefore, it was not a fit case for levy of penalty under section 271(1)(c) of the Act. (AY. 1998-99 to 2000-01)

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

S.271(1)(c) : Penalty – Concealment – Validity of assessment can be objected in penalty proceedings- Satisfaction was recorded of person searched – Donation was not disclosed in the original return – Belated return was filed – Revised return was held to be not valid – Levy of penalty was held to be justified

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

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

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

S. 271AAA : Penalty – Search initiated on or after 1st June, 2007 – Amount disclosed in the statement – Manner of undisclosed income was derived – Levy of penalty was held to be not justified

The assessee has disclosed the income in the statement u/s 132(4) of the Act and also paid the tax together with interest of the undisclosed income. AO and CIT(A) held that the assesssee has not disclosed /substantiated the manner in which the undisclosed income was derived hence confirmed the levy of penalty. On appeal following the Cuttack Bench in Ashok Kumar Sharma v. DCIT (2012) 149 TTJ 33 (URO)(CTK) and Nagpur Bench Tribunal in Concrete Developers v. ACIT in ITA No .381 /Nag/2012 dt. 20-3-2013, deleted the levy of penalty.( ITA No. 711 to 715/Mum/2011, dt. 11-9-2015) (AYs 2004-05 to 2008-09)

Uday C. Tamhankar v. DCIT (Mum.)(Trib.); www.itatonline.org

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

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

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

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

SPS Steel & Power Ltd. v. ACIT (2015) 171 TTJ 749 (Kol.)(Trib.)

S.271C : Penalty – Failure to deduct tax at source – Publicity of a brand or logo – Reasonable cause – Deletion of penalty was held to be justified

The assessee made payment for such publicity to SAL without deduction of tax at source.

The Assessing Officer contended that the act of publicising assessee’s business would come under the preview of advertisement and, therefore, payment made for the same was to be subjected to TDS under section 194C. Consequently, the Assessing Officer treated assessee as an assessee-in-default under section 201(1) and levied penalty on it under section 271C.

On appeal, the Commissioner (Appeals) deleted the penalty levied under section 271C for the reason that assessee was not liable to deduct TDS under section 194C.

On appeal to Tribunal

It was held that the assessee/appellant has not deducted TDS on the impugned payments under the bona fide belief that the payments made by it is in the nature of publicity and not for advertisement for which he was required to deduct tax under section 194C. It is also an undisputed fact that the payments were made to the group concern of the assessee i.e. SAL, whose financial position might be known to the assessee. It was emphatically argued that recipient/deductee suffered huge losses, therefore, they had filed all its returns for these years declaring loss in all the impugned assessment years and no tax liability has ever fastened on them on account of these payments and there was no revenue loss on non-deduction of TDS. If all these facts are clubbed together, it can safely be held that the assessee had a bona fide belief or reasonable cause for non-deduction of TDS for which penalty under section 271C cannot be levied. Though in foregoing appeals the matter has been restored to the file of the Assessing Officer for verification of the facts whether the recipients/deductee had filed all its returns for these years declaring loss in all the impugned assessment years and there was no loss to the revenue, but this direction is not required in this case as the existence of the reasonable cause for non deduction of TDS is there. Therefore, under these circumstances, it can be held that the assessee had a reasonable cause for non-deduction of TDS and thus the penalty levied under section 271C is not leviable in the eyes of law. Accordingly the order of the Commissioner (Appeals) deleting the penalty is confirmed. (AY 2007-08 )

DCIT v. Sahara India Commercial Corporation Ltd. (2015) 67 SOT 318 / 169 TTJ 292 / 117 DTR 59 (Luck.)(Trib.)

S.271G : Penalty – Documents –International transaction – Transfer pricing – Failure by Transfer Pricing Officer to indicate specific allegation – Penalty not leviable

Held, that during the transfer pricing proceedings no intimation was given to the assessee alleging any delayed filing of the transfer pricing report. There was no allegation of any specific non-compliance. The assessee on receipt of the show cause notice, got back to the Transfer Pricing Officer asking for details of its alleged non-compliance. In reply, the Transfer Pricing Officer, instead of detailing the nature of the allegations, again made a vague assertion that the assesseeRs.s case was liable for penalty under section 271G of the Act. From the record, the exact nature of the assessee’s non-compliance was not apparent. It is trite law that in penalty proceedings, the assessee needs to be made aware of the exact nature of the charge which is levelled against him. This is so because the assessee has to give a reply on the specific and not assumed allegation. In the absence of specific allegations, the penalty proceedings were not sustainable. (AY. 2006-07)

Gillette India Ltd. v. CIT (2015) 39 ITR 62 / 168 TTJ 392 (Jaipur)(Trib.)

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

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

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

S. 282 : Service of notice – The postal authorities are the agent of the recipient. There is a presumption that handing over notice to the postal department means that it has been served on the assessee

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

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

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

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

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

RESEARCH TEAM

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

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

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

S.2(14)(iii)(b) : Capital asset – Agricultural land – Land situated within prescribed distance from municipal limit – Measurement of distance for purpose of agricultural land – Amendment in 2014 providing that distance should be measured aerially-Prospective and not to apply to earlier years

Held, dismissing the appeals, (1) that the amendments in the taxing statute, unless a different legislative intention is clearly expressed, shall operate prospectively. If the assessee has earned business income and not the agricultural income, section 11 of the General Clauses Act, 1897, will prevail unless a different intention appears to the contrary. The relevant amendment prescribing that the distance to be counted must be aerial came into force with effect from April 1, 2014. The need for the amendment itself showed that in order to avoid any confusion, the exercise became necessary. This exercise to clear the confusion, therefore, showed that the benefit thereof must be given to the assessee. In such matters, when there is any doubt or confusion, the view in favour of the assessee needs to be adopted. Circular No. 3 of 2014, dated January 24, 2014, (2014) 361 ITR 1 (St.) dealing with applicability expressly stipulates that it takes effect from April 1, 2014, and, therefore, prospectively applies in relation to the assessment year 2014-15 and subsequent assessment years. Hence, the question whether prior to the assessment year 2014-15 the authorities erred in computing the distance by road did not arise at all.

(ii) That the capital gains arising from the transaction in respect of agricultural land could not be considered as business income. (AY. 2009-10)

CIT v. Nitish Rameshchandra Chordia (2015) 374 ITR 531 (Bom.) (HC)

S.2(22)(e) : Deemed dividend –Advance in the course of business – Business expediency – Not assessable as deemed dividend

Assessee was a substantial shareholder in a company. Company received certain export orders but was not in a position to execute these orders as its manufacturing facility was situated in a remote area and was beset with labour problems and erratic supply of electricity. Company, therefore, entered into an agreement with assessee to install plant and machinery at premises of assessee to enable assessee to do job work for company. Assessee also received certain sum as advance from said company to do job work at interest rate below prevailing market rate. Tribunal found that advances were received by assessee in normal course of business as a matter of business expediency and, hence, said advance was not covered by section 2(22)(e). On appeal by revenue the Court held that finding of facts recorded by Tribunal could not be interfered with.

CIT v. Amrik Singh (2015) 231 Taxman 731 (P&H)(HC)

S.2(22)(e) : Deemed dividend –Trade advance – Cannot be assessed as deemed dividend

Where an advance is given to a shareholder holding 10% or more voting power or to a concern in which such shareholder has substantial interest which is in the nature of a trade advance to give effect to commercial transactions, such an advance would not fall within the ambit of provisions of S. 2(22)(e). (AY 2002-03 to 2007-08)

Bagmane Constructions (P.) Ltd. v. CIT (2015) 119 DTR 49 / 231 Taxman 260 / 277 CTR 338 (Karn.)(HC)

S.2(24) : Income – Editor of magazine – Award received from third person for excellence in journalism – Not assessable as income

Held, the amount of Rs. 1 lakh received by the assessee as an award from B. D. Goenka Trust for excellence in journalism being purely in the nature of a testimonial would be a capital receipt. The causa causans in the present case was not directly relatable to the carrying on of vocation as a journalist or as a publisher. It was directly connected and linked with the personal achievements and personality of the person, i.e. the assessee. Further, the payment in this case was not of a periodical or repetitive nature. The payment was also not made by an employer; or by a person associated with the “vocation” being carried on by the assessee; or by a client of his. The prize money had been paid by a third person, who was not concerned with the activities or associated with the “vocation” of the assessee. It being a payment of a personal nature, it should be treated as capital payment, being akin to or like a gift, which did not have any element of quid pro quo. The prize money was paid to the assessee on a voluntary basis and was purely gratis. The amount would be a capital receipt and, hence, not income taxable. (AY. 1991-92)

Aroon Purie v. CIT (2015) 375 ITR 188 / 231 Taxman 349 / 277 CTR 1 / 118 DTR 105 (Delhi)(HC)

S.4 : Charge of income-tax – Non-resident – Indian permanent establishment of foreign bank – Interest received from head office and other overseas branches – Not chargeable to tax – DTAA – India -Netherland

Tribunal restored the matter the issue of rate at which interest to be charged to tax on income –tax refund received in the light of the Indo –France DTAA and the decision of the Special Bench in Asst. CIT v. Clough Engineering Ltd. (2011) 9 Trib 618/ 130 ITD 137 (SB) (Delhi) (Trib.) The grievance of the revenue is with the impugned order following the decision of the Special Bench in Clough Engineering Ltd. (supra). The Court observed that the decision of special Bench had been followed in ITA No. 183/Mum/2010, DHL Operations B.V. Netherlands v. Dy. CIT. The issue before the Tribunal was the rate of tax on which income tax refund is to be taxed i.e. on the basis of article of the DTAA in the above case concluded that interest on income tax refund is not effectively connected with the permanent establishment either on asset test or activity test. Therefore taxable under Article 11(2) of the Indo–Netherlands tax treaty . The revenue carried the afore said decision of DHL Operations (supra) in appeal to this court, being Income-tax Appeal No. 431 of 2002. This Court by order dated July 17, 2014, refused to entertain the appeal. In the circumstances no fault can be found with the impugned order of the Tribunal in restoring the issue to the Assessing Officer to determine/adopt the rate of tax on refund in the light of the relevant clauses of the Indo-France DTAA and the decision of the Special Bench in Clough Engineering (supra). Accordingly Question No. 4 does not raise any substantial question of law so as to be entertained. (AY. 1997-98)

DIT v. Credit Agricole Indosuez (No. 1) (2015) 377 ITR 102 (Bom.)(HC)

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

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

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

S.5 : Scope of total income –Membership fee was for 10 years – Non-refundable deposits – Fee was to be spread over a period of 10 years and whole amount could not be taxed in year of receipt

Assessee-club collected non-refundable deposits from its members which was operational for a period of 10 years with a rider that liability attached to pay membership fee was for 10 years. Fee was to be spread over a period of 10 years and whole amount could not be taxed in year of receipt. (AY. 2003-04)

CIT v. Sportsfield Amusement (2015) 231 Taxman 252 (Bom.)(HC)

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

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

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

S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Telecasting of TV channels such as B4U Music, MCM etc. – Advertisement –Amount received from advertisers was not liable to tax in India- DTAA – India-Mauritius

Assessee, a Mauritius based company, was engaged in business of telecasting of TV channels such as B4U Music, MCM etc. Assessee’s income from India consisted of collections from time slots given to advertisers through its affiliates. Assessing Officer held that affiliated entities of assessee constituted permanent establishment of assessee within meaning of Article 5 of India-Mauritius DTAA. Accordingly, amount received from advertisers was brought to tax in India. Tribunal held that the assessee carried out entire activities from Mauritius and all contracts were concluded in Mauritius. It was also undisputed that activity carried out in India was incidental or auxiliary/preparatory in nature which was carried out in a routine manner. On facts, affiliates/agents of assessee in India did not constitute its PE in India in terms of paragraph 5 of Article 5 of India-Mauritius DTAA and, thus, amount in question received from advertisers was not liable to tax in India. Appeal of revenue was dismissed by High Court.

DIT v. B4U International Holdings Ltd. (2015) 231 Taxman 858 (Bom.)(HC)

S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Non-resident – Income from purchase of goods for export – Liaison office in India – Income of liaison office not deemed to accrue or arise in India

Income from purchase of goods for export. Income of liaison office not deemed to accrue or arise in India. Appeal of revenue was dismissed. (AYs. 2003-04 to 2007-08 )

DIT(IT) v. Tesco International Sourcing Ltd. (2015) 373 ITR 421 (Karn.)(HC)

S.10(15) : Exemption – Interest on foreign currency loans – Allowable on gross basis and not on net basis.

Interest on foreign currency loans is allowable on gross basis and not on net basis. (AY 1997-98)

DIT v. Credit Agricole Indosuez (2015) 377 ITR 102 (Bom.)(HC)

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

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

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

Aroon Purie v. CIT (2015) 375 ITR 188/ 231 Taxman 349 / 277 CTR 1 / 118 DTR 105 (Delhi)(HC)

S.10(26) : Member of scheduled tribe should reside in specified area – Residence refers to stay in area for a long time for purposes of livelihood – Member of scheduled tribe in one area residing in another specified area – Entitled to exemption – Certificate of exemption to be obtained under section 197 –Certificate valid for one year

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

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

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

S.10A : Free Trade Zone – Export Oriented Undertakings – Appellate Tribunal – Alternative claim must be allowed though not raised before lower authorities [S. 254(1)]

If Tribunal upholds Revenue’s plea that assessee is not entitled to S. 10B, it must consider the assessee’s alternate plea for S. 10A deduction even if such alternate plea has not been raised before the lower authorities

Fast Booking (I) Pvt. Ltd. v. DCIT (Delhi)(HC); www.itatonline.org

S.10A : Free Trade Zone – Claiming deduction u/s 80HHE for one year does not debar the assessee from claiming deduction u/s. 10A for another year – Fact that claim is not made via a revised return is no bar on the right of the appellate authority to consider it [S. 80HHE, 139(5)]

(i) While an AO may not be entitled to grant a deduction or an exemption on the basis of a revised computation of income, there was no such fetter on the appellate authorities. This was recently reiterated by this Court in a decision dated 25th August, 2015 in ITA No. 644/2015 (Pr. Commissioner of Income Tax-09 v. Western India Shipyard Limited). In Commissioner of Income Tax v. Sam Global Securities Ltd. (2014) 360 ITR 682 (Del.), this Court pointed out that the power of the Tribunal in dealing with appeals was expressed in the widest possible terms and the purpose of assessment proceedings was to assess the correct tax liability. The Court noted that “Courts have taken a pragmatic view and not a technical view as what is required to be determined is the taxable income of the Assessee in accordance with law.” In M/s. Influence v. Commissioner of Income Tax 2014-TIOL-1741-HC-DEL-IT a similar approach was adopted when the AO in that case refused to accept the revised computation submitted beyond the time limit for filing the revised return under Section 139(5) of the Act. This Court noted that the decision in Goetze (India) Ltd. v. Commissioner of Income-tax [2006] 284 ITR 323 (SC) “would not apply if the Assessee had not made a new claim but had asked for re-computation of the deduction.”

(ii) Making of a claim under Section 80HHE of the Act in one assessment year will not preclude an Assessee from claiming the benefit under Section 10A of the Act in respect of the same unit in a succeeding assessment year. The purpose of the Section 80HHE(5) of the Act was to avoid double benefit but that would not mean that if for a particular assessment year the Assessee wants to claim a benefit only under Section 10A of the Act and not Section 80HHE, that would be denied to the Assessee. (ITA No. 607/2015, dt. 6-10-2015) (AY.2002-03)

CIT v. E-Funds international India Pvt. Ltd. (Delhi)(HC); www.itatonline.org

S.11 : Property held for charitable purposes – A charity is not entitled to exemption if it carries out activities not as per the objects. The fact that such ultra vires objects are also charitable is not relevant. Fact that CIT has granted registration u/s 12A does not preclude AO from examining compliance with S. 11. Incidental objects to attain the main object, even if significant in value, are permissible. Under principles of consistency, AO is not permitted to change view in the absence of a change in facts. [S. 2(15), 12A]

The Assessee contended that it was a charitable institution engaged in running a hospital (both Allopathic and Ayurvedic) and the same constituted a charitable purpose within the meaning of Section 2(15) of the Act. It was urged that as the Assessee had applied its income for charitable purposes, the same was exempt under Sections 11 and 12 of the Act. The Assessee further contended that it had been granted registration under Section 12A of the Act after considering the nature of its activities and, therefore, it was not open for the AO to deny the exemption under Section 11 of the Act. The CIT(A) accepted the contentions. However, the Tribunal held that the Assessee’s activities relating to Allopathic system of medicine had more or less supplanted the activities relating to Ayurvedic system of medicine and concluded that pre-dominant part of the Assessee’s activities exceeded the powers conferred on the trustees and the objects of the Assessee Trust were not being followed. The Tribunal held that whilst the activities of the Assessee relating to providing medical relief by the Ayurvedic system of medicine were intra vires its objects, the activities of providing medical reliefs through Allopathic system of medicine was ultra vires its objects. Consequently, the Assessee was not entitled to exemption under Section 11 of the Act in respect of income from the hospital run by the Assessee, which offered medical relief through Allopathic system of medicine. Accordingly, the Tribunal directed that the income and expenditure of the Assessee from the activities relating to the two disciplines of medicine, namely Ayurveda and Allopathy, be segregated. On appeal by the Assessee to the High Court HELD: that charity is not entitled to exemption if it carries out activities not as per the objects. The fact that such ultra vires objects are also charitable is not relevant. Fact that CIT has granted registration u/s. 12A does not preclude AO from examining compliance with S. 11. Incidental objects to attain the main object, even if significant in value, are permissible. In the circumstances, it would not be apposite to permit the Revenue to challenge a position that has been sustained over several decades without there being any material change. Order of Tribunal is set aside. (AY 2006-07)

Mool Chand Khairati Ram Trust v. DIT(E)(2015) 377 ITR 650/ 280 CTR 121 (Delhi)(HC)

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

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

DIT v. Women’s India Trust (2015) 233 Taxman 196 / 277 CTR 180 / 118 DTR 173 (Bom.)(HC)

S.13 : Denial of exemption – Services of trustees – Payment to trustees – Denial of exemption was held to be not justified

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

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

S.14A : Disallowance of expenditure – Exempt income – Satisfaction – Rule 8D cannot be automatically invoked. It cannot be invoked if the AO does not record satisfaction as to why the assessee’s voluntary disallowance is not proper

The Assessee had dividend income of Rs. 2,38,13,275. The Assessee was asked to furnish an explanation as to why the expenses relevant to the earning of dividend should not be disallowed under Section 14A of the Act. The Assessee’s representative submitted that as no expenses have been incurred for earning of dividend income, this was not a case for making any disallowance. The AO, inter alia, observed that “the invocation of Section 14A is automatic and comes into operation, without any exception, as soon as the dividend income is claimed as an exemption. The AO proceeded to disallow the amount of Rs. 33,35,986/- under Section 14A read with Rule 8D of Income Tax Rules, 1962 and added the said amount to the total income of the Assessee. The CIT(A) allowed the appeal filed by the Assessee after recording a finding that the AO had failed to examine the contention of the Assessee that it had sufficient funds of Rs. 83.13 crores and “no borrowing, for whatever purposes, was resorted to (no interest expenditure was incurred) and investments generating tax exempt income were done by using administrative machinery of PMS, who did not charge any fees.” It was further found by the CIT(A) that the AO had failed to record the AO’s satisfaction after examining the accounts which was requirement for invoking Section 14A of the Act. The ITAT dismissed the Revenue’s appeal. On appeal by the department to the High Court HELD dismissing the appeal:

(i) The AO has proceeded on the erroneous premise that the invocation of Section 14A is automatic and comes into operation as soon as the dividend income is claimed exempt. The Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure .

(ii) Also, the Court disapproves of the AO invoking Section 14A read with Rule 8D (2) of the Rules without recording his satisfaction. The recording of satisfaction as to why “the voluntary disallowance made by the assessee was unreasonable and unsatisfactory” is a mandatory requirement of the law. (ITA no. 283/2014, dt. 24-9-2015) (AY.2009-10 )

CIT v. I. P. Support Service India (P) Ltd. (Delhi)(HC) ; www.itatonline.org

S.14A : Disallowance of expenditure – Exempt income –Recording of satisfaction – Interest bearing funds – Since there was no tangible material that could have enabled Assessing Officer to record satisfaction, disallowance made was unjustified [R.8D]

Assessing Officer disallowed an amount by holding that interest bearing funds had been used to earn tax free dividend, etc. Dismissing the appeal of revenue the Court held that; Section 14A requires Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax free income based upon credible and relevant evidence. Since there was no tangible material that could have enabled Assessing Officer to record satisfaction in terms of section 14A, disallowance made was unjustified.

CIT v. Abhishek Industries Ltd. (2015) 231 Taxman 85 (P&H)(HC)

S.14A : Disallowance of expenditure – Exempt income – No disallowance can be made in a year in which no exempt income has been earned or received by the assessee – Provision also does not apply to shares bought for strategic purposes

The High Court had to consider the following substantial question of law:

“Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?” HELD by the High Court:

(i) The expression “does not form part of the total income” in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. The decision of the Supreme Court in CIT v. Rajendra Prasad Moody (1978) 115 ITR 519(SC) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is “for the purpose of making or earning such income”. Section 14A of the Act on the other hand contains the expression “in relation to income which does not form part of the total income”. The decision in Rajendra Prasad Moody cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act.

(ii) The investment by the Assessee in the shares of Max India Ltd. is in the form of a strategic investment. Since the business of the Assessee is of holding investments, the interest expenditure must be held to have been incurred for holding and maintaining such investment. The interest expenditure incurred by the Assessee is in relation to such investments which gives rise to income which does not form part of total income. (AY.2004-05)

Cheminvest Ltd. v. CIT( 2015) 378 ITR 33 (Delhi)(HC)

S.14A : Disallowance of expenditure – Exempt income – In the absence of any tax free income earned by assessee, disallowance could not be made

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

CIT v. Shivam Motors (P) Ltd. (2015) 230 Taxman 63 / 272 CTR 277 (All.) (HC)

S.22 : Income from house property – Business income – Construction business – Earning money by selling property and letting it out – Enjoying property by giving use of it to another on rent rather than enjoying it by itself – To be treated as income from house property

Allowing the appeal of assessee the court held that; Income in the case of the assessee could not be treated otherwise than as arising out of house property because the assessee was enjoying the property by giving the use of it to another on rent rather than enjoying it by itself.

The contention that the main object of the assessee was dealing in property, that the object was business and, therefore, the rental income should be treated as business income, was not tenable because the object was both to earn money by selling the property as also by letting it out. It could not be said that the assessee was not authorised by the memorandum to earn profit by letting the property out.

Azimganj Estates P. Ltd. v. CIT (2015) 372 ITR 243 / 232 Taxman 625 (Cal.)(HC)

S.22 : Income from house property – Letting out of commercial complex – Assessable as income from house property not as business income

Assessee company constructed a hotel on land taken on lease from Airport Authority. It also constructed some offices and shops in said commercial complex. During relevant year, assessee let out those shops and offices and derived rental income which was offered to tax as ‘income from house property’. Assessing Officer found no difference between letting out of hotel rooms and renting out of shops in hotel premises especially when hotel premises, inter alia, includes commercial complex also, therefore, Assessing Officer brought to tax income from renting commercial premises under head “Profit and gains of business and profession”. Commissioner (Appeals) upheld Assessing Officer’s order. On appeal Tribunal held that since letting out of commercial space, i.e., offices and shops, was not accompanied by incidental services, in such case mere physical proximity of hotel and commercial complex did not really matter as long as character of arrangement had distinct nature therefore, income derived from property in question, was to be assessed as ‘Income from House Property’. (AYs. 2009-10, 2010-11)

A.B. Hotels Ltd. v. ACIT (2015) 68 SOT 255 (URO) (Delhi)(Trib.)

A.B. Hotels Ltd. v. ACIT (2015) 68 SOT 334 (URO) (Delhi)(Trib.)

S.28(iv) : Business income – Value of any benefit or perquisites – Converted into money or not – Loan for capital asset – One time settlement – Waiver of loan was held to be not assessable as business income

The assessee was engaged in business of manufacturing cloth and textile. It was declared a sick company by BIFR. In course of assessment, the Assessing Officer found that ICICI bank had waived principal amount of loan recoverable from assessee in one time settlement. The Assessing Officer took a view that loan waived off constituted assessee’s taxable income under section 28(iv). The Tribunal, however, held that the cessation of liability to repay bank loan taken to purchase a capital asset did not result in a revenue receipt and it was not taxable under section 28(iv). On revenue’s appeal Court dismissed the appeal following the ratio in Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501 (Bom)(HC) and Solid Containers Ltd. v. Dy. CIT [2009] 308 ITR 417 (Bom.)(HC). The Court also observed that issue specifically came up for consideration in the matter of Mahindra and Mahindra and it was held that the said provision would apply only when a benefit or perquisite is received in kind and has no application where benefit is received in cash or money. Following this decision in the case of CIT v. Xylon Holdings (P.) Ltd. [2012] 211 Taxman 108/26 taxmann.com 333 this Court held that the waiver would not come within the purview of section 28(iv). Accordingly the Court held that the view taken by the Tribunal is rational and judicious. (AY. 2007-08)

CIT v. Santogen Silk Mills Ltd. (2015) 231 Taxman 525 (Bom.)(HC)

S.32 : Depreciation – Customs duty paid in a later year can be capitalised in the year the obligation to pay the duty arose – Question whether it can be capitalised in year of import of the goods left open

The assessee imported hospital equipment valued at Rs. 2,75,11,988 during the years 1988-89 and 1992-93, without payment of custom duty, on the basis of a customs duty exemption certificate (‘CDEC’) issued by the Director General of Health Services (‘DGHS’). The equipment thus imported was capitalised by the Assessee on the actual value of the equipment paid by it. Depreciation was being claimed on the said equipment from year to year at the prescribed rate as per the Act. Subsequently, the DGHS noted that the assessee had failed to fulfil the essential condition stipulated in the relevant notification of the Customs Department dated 1st March, 1968 for retaining CDECs for import of hospital equipments. Accordingly, the CDEC granted to the Assessee stood withdrawn. In AY 2005-06, upon such withdrawal, the Customs authorities raised a demand of Rs. 1,10,04,795 (reduced from Rs. 3,78,66,864) as custom duty on the Assessee for the import of equipment in the aforementioned years. In AY 2009-10, the assessee treated the said payment as ‘new’ plant and machinery and claimed 100% depreciation on it. The Tribunal allowed the claim. On appeal by the department to the High Court HELD dismissing the appeal:

The central question is whether the obligation to pay customs duty related back to the actual date of payment of customs duty or the date of import of the equipment and whether the said customs duty paid in the previous year relevant to the AY in question can be capitalised with reference to an earlier year. In Funskool (India) Limited (2007) 294 ITR 642 (Mad.) the question was whether depreciation could be claimed on the additional customs duty paid in the previous year relevant to the AY in question although such customs duty was in respect of machinery that was imported and installed in an earlier year. That question was answered in the affirmative by the Madras High Court by following the judgment of the Gujarat High Court in Atlas Radio and Electronics P. Limited v. Commissioner of Income Tax (1994) 207 ITR 329 (Guj.) in which it was held that even though the sales tax was paid in a subsequent year, the liability to pay sales tax arose in the accounting period relevant to the assessment year in which the machinery was purchased. It was held on the facts of that case that the development rebate had to be claimed in the AY in which the machinery was purchased. Following the above decision of the Madras High Court in Funskool (India) Limited (supra), we are of the view that in the instant case, the AO erred in disallowing the capitalisation of the additional customs duty in the manner claimed by the Assessee and adding the entire customs duty paid in the relevant AY to the income of the Assessee. The impugned order of the ITAT affirming the decision of the CIT(A) that the enhanced cost of equipment should be taken into consideration from AY 2005-06 onwards and that the WDV should be reworked for the AY in question does not call for interference. However, as the assessee has not preferred an appeal against the rejection of its cross-objection by the ITAT, the question whether the assessee would be entitled to claim deprecation on the customs duty paid from the year of actual import of equipment is not considered but left open for decision in an appropriate case. (ITA No. 529/2014, dt. 4-8-2015)(AY. 2009-10)

CIT v. Noida Medicare Centre Ltd. (Delhi)(HC); www.itatonline.org

S.36(1)(iii) : Interest on borrowed capital – Actual cost – Interest expenditure incurred after the asset is put to use was allowable as revenue expenditure

Assessee borrowed money to purchase assets and paid interest thereon – Whether while interest attributable till asset was put to use for first time was required to be included in actual cost as per section 43(1) while interest expenditure incurred thereafter was allowable as revenue expenditure. (AY 1995-96, 2002-03, 2003-04)

Jt. CIT v. Bell Ceramics Ltd. (2015) 231 Taxman 82 (Guj.)(HC)

S.37(1) : Business expenditure – Hospital – Daughter of managing director working in hospital as doctor – Expenditure on higher studies of doctor – Doctor coming back to work in hospital – Expenditure had nexus with business of assessee

Held, before the expenditure was incurred, the daughter had acquired a degree in medicine. She was employed. Apart from the fact that she was the daughter of the managing director and the chief executive, she was an employee of the assessee. She was sent outside the country for acquiring higher educational qualification, which would improve the services, which the assessee was giving to its patients. It was in this context, that the sum of Rs. 5 lakhs was spent. That was not in dispute. After acquiring the degree, she had come back and she was working with the assessee. Therefore, there was a direct nexus between the expenses incurred towards her education, with the business, which the assessee was carrying on. In that view of the matter, the expenditure was deductible. (AY 2005-06)

Mallige Medical Centre P. Ltd. v. JCIT (2015) 375 ITR 522 (Karn.)(HC)

S.37(1) : Business expenditure – Matching concept –Ascertained liability was allowable expenditure when the corresponding income was already offered to tax

Assessee made a provision for supplies at the rate of 6.5% of the supplies for possible loss due to deduction by the Government for not keeping the supplies to the satisfaction of the Department. The AO disallowed the same stating that it was contingent in nature. It was held that the provision was an allowable expenditure since the liability was ascertained and the Government had in fact deducted at the rate of 10%. Once the entire receipt was shown as income, the corresponding expenditure ought to be allowed. (AY. 1977-78)

CIT v. Om Metals & Mineral (P) Ltd. (2015) 373 ITR 406 / 116 DTR 407 (Raj.)(HC)

S.40(b)(v) : Amounts not deductible – Working partner – Remuneration – Provision in partnership deed for payment of salary at percentage share of profits multiplied by “allocable profits” is valid and entitles claim for deduction

The Assessee firm was initially constituted with Smt. Manju Vaish, Smt. Kali Vohra and Mr. Vinay Vaish and was carrying on the profession of law in New Delhi and Mumbai. With effect from 1st April, 2006, Smt. Manju Vaish and Smt. Kali Vohra retired from the partnership and Mr. Ajay Vohra and Mr. Bomi F. Daruwala joined the partnership. A fresh retirement-cum-partnership deed was executed on 22nd June, 2008 and made effective from 1st April, 2006. 4. Clause 6(a) of the said deed provided that each Partner shall be entitled to an annual salary equivalent to his percentage share of profits multiplied by “Allocable Profits”. It was stated that “Allocable Profits shall be calculated as per the provisions of Section 40(b)(v)(1) of the Income-tax Act, 1961. The monthly salary of a Partner shall be equivalent to annual salary divided by 12. Such salary shall be deemed to accrue from day-to-day and may be drawn out in arrears and the salary so paid shall be treated as working expenses of the partnership before the profits thereof are ascertained.” Subsequently on 1st August, 2009 a supplementary deed of partnership was executed between Mr. Ajay Vohra, Mr. Vinay Vaish and Mr. Bomi F. Daruwala whereby Clause 6 was substituted as follows: “Mr. Ajay Vohra, Mr. Vinay Vaish and Mr. Bomi F. Daruwala shall be paid with effect from 1st April, 2009 a monthly salary of Rs. 26,50,000, Rs. 10,00,000 and Rs. 13,50,000 respectively. Such salary shall be deemed to accrue from day-to-day and may be drawn out in arrears and the salary so paid shall be treated as working expenses of the partnership before the profits thereof are ascertained.” The AO held that since the partnership deed “neither specified the amount of salary to be paid to each of the working partners nor has laid down a specific method of computation thereof” and has only mentioned “allocable profit” which has not been defined in the partnership deed, Section 40(b)(v) of the Act would not apply and the remuneration to the partners, not being in terms of Section 40(b)(v) of the Act, was disallowed. This was upheld by the CIT(A) but reversed by the ITAT. The ITAT came to the conclusion that the term “allocable profit” should be understood by applying the common meaning which would be “profits available for allocation”. Explanation 3 to Section 40(b)(v) of the Act defines the term “book profit” as the “net profit before remuneration”. The ITAT, therefore, concluded that “a plain reading of Clause 6(a) leads us to a conclusion that the term ‘allocable profits’ was used to mean ‘book profits’ as used in Section 40(b)(v) of the Act or otherwise the reference to the section in the Clause has no meaning. When the partners have understood and meant that the word “allocable profits” to mean surplus/book profits, prior to calculation of partners’ remuneration, and when such an understanding is manifest in its actions, we do not see any reason why the Revenue authorities should not understand this term in the same sense.”

On appeal by the department to the High Court HELD dismissing the appeal:

(1) Clause 6(a) of the partnership deed dated 20th June, 2008 clearly indicates the methodology and the manner of computing the remuneration of partners. The remuneration of the partners has been computed in terms thereof. Under Section 28(v) of the Act, any salary or remuneration by whatever name called received by partners of a firm would be chargeable to tax under the head Profits and gains of business or profession. The proviso to Section 28(v) states that where such salary has been allowed to be deducted under Section 40(b)(v), the income shall be adjusted to the extent of the amount not so allowed to be deducted. Further Section 155 (1A) of the Act states that where in respect of a completed assessment of a partner in a firm, it is found on the assessment or reassessment of the firm that any remuneration to any partner is not deductible under Section 40(b), the AO may amend the order of the assessment of the partner with a view to adjusting the income of the partner to the extent of the amount not so deductible.(AY.2009-10)

CIT v. Vaish Associates ( 2015) 126 DTR 102(Delhi) (HC)

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

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

CIT v. Ovira Logistics (P) Ltd. (2015)232 Taxman 240 / 119 DTR 269 (Bom.)(HC)

S.45 : Capital gains – Leasehold rights is a capital asset – Lease of less than 10 years there is no transfer – Not liable to capital gains tax

Allowing the appeal of assessee the Court held that leasehold right is a capital asset. However, in the present case, where the question arises in the context of the next question whether the lease deed results in a transfer of a ‘capital asset’, the answer will have to be found from a careful reading of the causes of the lease agreement itself. While de hors the context, it might be possible in theory for a leasehold right to be construed as a capital asset since the words used in Section 2(14)(a) are indeed of a wide amplitude, in the context of the present case, where under the lease agreement dated 24th February, 1994 what is given to SGL is a limited right to hold and possess the facilities leased to it for a limited period of ten years, with further restriction on sub-letting it or transferring any right or interest therein to anyone without the permission of the lessor and with the lease agreement making it explicit that at the end of the lease period the facilities leased it SGL would revert to the Assessee, it is difficult to hold that the leasehold rights given to the Assessee under the lease agreement is a ‘capital asset’. Consequently, question is answered by holding that the leasehold right, given to SGL for a period of ten years, of the plant and machinery along with land and building, is not a ‘capital asset’ within the meaning of Section 2(14)(a) of the Act. As the period of lease being less than 12 years there is no transfer. The mere fact that the Assessee may have applied under Section 230A of the Act to seek permission of the Department cannot be held against it as far as the correct legal position is concerned. In other words the fact that certain columns in the concerned form were filled by the Assessee to imply that there was a transfer of leasehold/ownership rights cannot be read to constitute a waiver by the Assessee of the legal defences that flow from a correct interpretation of the clauses of the lease agreement and from a correct reading of Section 2(47) with Section 45 of the Act. The Court is also unable to agree with the contention of the learned counsel for the Revenue that the lease of the plant and machinery can be separated from the lease of the land and buildings and the former transaction held to be valid and the latter a sham transaction. The last question that requires to be addressed whether there could be said to be any capital gains under Section 45 of the Act? In light of the above discussion, the question will have to be answered in favour of the Assessee and against the Revenue. The Court is of the view that the transaction in question was nothing more than a transaction of lease and has been acted upon by the parties as such. This was not a device adopted by the Assessee for tax avoidance. (ITA No. 38/2002, dt. 24-9-2015) (AY.1994-95)

Teletube Electronics v. CIT (Delhi)(HC); www.itatonline.org

S.45 : Capital gains – Business income – Investment in shares – Gains from sale of shares assessable as short-term capital gains and not as business profits explained

Judgment of CIT(A) and Tribunal that assessee is an investor and not a trader on the basis of the following facts cannot be faulted:

(a) Assessee has been an investor in shares and has consistently treated its entire investment in shares as “investment in shares” & not “stock-in-trade”;

(b) The income earned on sale of shares was offered as short term capital gains even when losses were suffered in a particular year;

(c) Dealing in 35 scrips, involving 59 transactions for the entire year could not be considered for high volume so as to be classified as trading income;

(d) The assessee earned 75% of the income as short term capital gains by holding shares for more than nine months;

(e) No transfer in shares was done by the assessee for over 75% of working days during the year;

(f) 56% of the short term capital gains during the year resulted from shares held during the earlier assessment year as a part of the opening investment on 1st April 2007.

(g) The assessee had not resorted to churning of shares or repetitive transactions in shares of the same company.

(h) For the earlier Assessment Years i.e. AY 2005-06 and AY 2006-07, the Assessing Officer had, in the proceedings under Section 143(3) of the Act, accepted the stand of the respondent assessee and taxed the profit earned on purchase and sale of shares as short term capital gains;

(i) Dividend income earned was over Rs. 8.50 lakhs;

(j) The assessee had not borrowed any funds but has used her own funds for the purpose of investment in shares;

(k) All transactions were delivery based transactions; and

(l) The speculation loss to which the Assessing Officer has made reference was in fact not so, but happened as a result of punching error

On consideration of the above facts, the CIT(A) and Tribunal rightly concluded that compliance on the part of the assessee in terms of Instruction No.1827 dated 31st August, 1989 issued by the Central Board of Direct Taxes laying down the tests for distinguishing the shares held in stock-in-trade and shares held as an investment, the shares held by the assessee was investment and held the income to be treated as short term capital gains. (ITA No. 1601 of 2013, dt. 9-9-2015) (AY. 2008-09)

CIT v. Datta Mahendra Shah (Bom.)(HC); www.itatonline.org

S.45 : Capital gains – Business income – Share investment – Principle of consistency – No borrowings – Value and frequency of transactions is not conclusive –Assessable as capital gains

Dismissing the appeal of revenue, the Court held that; Share scrips traded only amounts held by assessee and no borrowings. Dividend amounting to 4 per cent of value of investment earned by assessee. Value and frequency of transactions is not conclusive. Similar income for past and subsequent periods accepted as short-term capital gains. No distinctive material to differentiate assessee’s activities for assessment year in question. Principle of consistency. Investment in shares assessable as short-term capital gains and not business income. AY 2006-07)]

CIT v. Amit Jain (2015) 374 ITR 550 (Delhi) (HC)

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

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

CIT v. Saffire Hotels (P) Ltd. (2015) 276 CTR 219 / 116 DTR 385 (Bom)(HC)

S.49 : Capital gains – Amount paid to sisters as per family arrangement for permitting transfer of property is deductible

In view of the Will of late mother Smt. Moghe and thereafter Will of P.M. Moghe, three sisters had a right in property and without extinguishing it or without providing for its adjustment, the assessee could not have sold property. As such, the amount of Rs. 45 lakh paid to three sisters is correctly found to be an expenditure incurred in connection with transfer of property. The arrangement worked out by three sisters and brothers as also three daughters of the deceased Shri P.M. Moghe, is bona fide one. The assessee and his three daughters were faced in a peculiar position. They resolved the situation and a family settlement was reduced into writing. It was agreed that at the time of sale, each sister shall be given Rs. 15 lakh and each niece shall be given Rs. five lakh. Accordingly, when the property was sold on 7-7-2006, this family settlement has been given effect to. It is, therefore, obvious that in the absence of such family settlement and payment, the sale of property on 7-7-2006 by the assessee could not have materialised. The sisters had a title in property and without their co-operation there could not have been any sale. As such, the amount of Rs. 45 lakh paid to his sisters has been rightly accepted as expenditure in connection with transfer of property. (ITA No. 104 of 2013, dt. 4-9-2015)

ACIT v. Kamlakar Moghe (Bom.)(HC); www.itatonline.org

S.49 : Capital gains – Indexed cost of acquisition – HUF – Partition in the year 1998 – Property acquired by HUF prior to 1-4-1981– Capital gains is to be computed by taking cost inflation index for financial year 1981-82

The bigger HUF of the assessee owned the property before 1-4-1981.The full partition was made on 20-2-1995 which was accepted by the Assessing Officer on 19-2-1998. However, the assessee also got it by way of court decree on 19-5-1988. The Assessing Officer had himself accepted the claim of the assessee under section 49(1)(i) taking the cost of the previous owner as on 1-4-1981. However, the Assessing Officer had applied the Cost of Inflation Index for the year 1998-99 instead of 1981-82 and the assessment was completed. On appeal, the Commissioner (Appeals) deleted the additions made by the Assessing Officer on account of difference in Long Term Capital Gain. On Second Appeal, the Tribunal decided against the revenue. On appeal

Dismissing the appeal; the Court held that; where capital asset was property of HUF prior to 1-4-1981 and assessee acquired absolute ownership on 19-5-1998 after partition of said HUF property, in such circumstances, date of acquisition of property by HUF being prior to 1-4-1981 would entitle assessee to calculate capital gains tax by taking cost inflation index for financial year 1981-82, and not 1998-99. (AY. 2009-10)

Dy. CIT v. Sushil Kumar (2015) 231 Taxman 788 (P&H)(HC)

S.54 : Capital gains – Profit on sale of property used for residence – To constitute purchase of new house, a registered sale deed is not necessary. Suspicion, howsoever strong, cannot partake the character of evidence

In the present case, as pointed out by the CIT (A), the sale deed does show that what was purchased by the Appellant is an agricultural land. Khasra Girdawri also clarifies that while there is a kothi, i.e., house on Khasra No. 76 (purchased by the Assessee’s father), the land in Khasra Nos. 75 and 90 purchased by the Assessee was used only for agricultural purpose. The explanation by the Assessee that only the rental income from letting out the constructed portion property was being shared between him and the father in the ratio of 15%: 85% appears to be a plausible one. Unless there is document to show that the Assessee was a co-owner of the said building to the extent of even 15%, there cannot be an inference in that regard. As explained by Umacharan Shaw & Bros v. CIT (1959) 37 ITR 271 (SC) suspicion howsoever strong cannot partake the character of evidence. The evidence produced by the Assessee showed that the house was purchased by him on 10th April, 2007 within the time allowed under Section 54F of the Act, after making payment and by obtaining the possession thereof. A substantial part of the consideration of Rs. 2 crores was paid on the date of the agreement to sell itself. The balance payment of Rs. 22 lakhs was made on 17th April, 2007 when the possession was handed over. The conclusion that the house was in fact purchased on 10th April, 2007 within the time allowed under Section 54F of the Act stands supported by the documents placed on record by the Assessee. The Court is satisfied that the prior to 10th April, 2007 the Assessee was not the owner of another residential house and therefore the exemption under Section 54 read with Section 54F of the Act could not be denied to him. (ITA No. 609/2014, dt. 11-9-2015)

CIT v. Kapil Nagpal (Delhi)(HC); www.itatonline.org

S.54F : Capital gains – Investment in a residential house – Section does not require that the construction of the new residential house has to be completed, and the house be habitable, within 3 years of the transfer of the old asset – It is sufficient if the funds are invested in the new house property within the time limit – Beneficial provisions must be interpreted liberally

Immediately after sale of the property on 6-10-2008, the assessee purchased another residential plot on 13-10-2008 and on 2-6-2010 she obtained approval of the building plan from the local authority and commenced the construction. However, it was not completed within 3 years i.e., on or before 5-10-2011. The Assessing Officer rejected the claim of the assessee for deduction u/s. 54F towards the benefit of long-term capital gain only on the ground that the construction has not been completed. The assessee produced photographs of the residential building which was under construction to demonstrate and establish that the consideration received on transfer has been invested by her in purchasing the residential plot and it is under construction. The CIT(A) and Tribunal followed the principles enunciated while interpreting Section 54F of the Act in Commissioner of Income Tax v. Sambandam Udaykumar reported in (2012) 81 CCH 0151 whereunder it came to be held that said provision has to be construed liberally for achieving the purpose for which it was incorporated, allowed the appeal of assessee. On appeal by the department to the High Court HELD dismissing the appeal:

Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be discerned from the reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired. A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable. The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his long- term capital asset has invested in constructing a residential house, it would satisfy the ingredients of Section 54F. If the assessee is able to establish that he had invested the entire net consideration within the stipulated period, it would meet the requirement of Section 54F and as such, assessee would be entitled to get the benefit of Section 54F of the Act. Though such construction of building may not be complete in all respects “that by itself would not disentitle the assessee to the benefit flowing from Section 54F”. (ITA No. 165 of 2014, dt. 13-7-2015) (AY. 2009-10)

CIT v. B. S. Shantakumari (Karn.)(HC); www.itatonline.org

S.54F : Capital gains – Investment in a residential house – Entire sale consideration in construction of a residential house within three years from date of transfer, he could not be denied exemption under section 54F on ground that he did not deposit said amount in capital gains account scheme before due date prescribed under section 139(1)

The assessee sold certain converted lands to a trust for a consideration of Rs. 2.87 crore. In the returns filed under section 153A, the assessee computed Long Term Capital Gains of Rs. 2.87 crore before claiming exemption under sections 54B and 54F. During assessment proceedings the assessing authority disallowed assessee’s claim for exemption under section 54F. On appeal, the Commissioner (Appeals) held that the assessee’s investment in construction subsequent to the date of sale and investment in the eligible project even after the project of the house is started beyond one year will be eligible for exemption under section 54F. However, investment made prior to more than one year before the date of transfer was not eligible for exemption. Accordingly, he granted exemption. On revenue’s appeal, the Tribunal affirmed the said order. On appeal by revenue, dismissing the appeal the Court held that; in terms of section 54F(1), all investments made in construction of residential house on said vacant site within a period of one year prior to sale of original asset would be eligible for exemption under section 54F(1). Further, assessee having invested entire sale consideration in construction of a residential house within three years from date of transfer, he could not be denied exemption under section 54F on ground that he did not deposit said amount in capital gains account scheme before due date prescribed under section 139(1).

CIT v. K Ramachandra Rao (2015) 277 CTR 522 / 230 Taxman 334/ 120 DTR 72 (Karn.)(HC)

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

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

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

S.69A : Unexplained money –Addition on the basis of e-mail and seized documents was held to be not justified

A search was carried out at assessee’s premises in course of which Assessing Officer seized certain letters/e-mail. On basis of said documents, Assessing Officer made addition to assessee’s income on account of undisclosed salary.Commissioner (Appeals) as well as Tribunal deleted addition holding that in absence of any corroborative material to link such e-mail letter or its contents with assessee, inference that some additional income was earned by him by way of salary, was incorrectly drawn. Dismissing the appeal of revenue the Court held that; since document seized was both undated and unsigned and even taken at face value did not lead to further enquiry on behalf of Assessing Officer, impugned order of Tribunal deleting addition was to be confirmed. (AYs. 2001-02 to 2007-08)

CIT v. Vivek Aggarwal (2015) 231 Taxman 392 (Delhi)(HC)

S.69A : Unexplained money –Survey – Retraction – After thought – Addition confirmed by the Tribunal was upheld

The assessee was engaged in real estate and constructions activities. During the course of survey, the statement of one of its directors was recorded, wherein he disclosed that a sum of Rs. 15 crores was an additional income outside the regular books of account and furnished details in this regard. Assessee did not disclose this income in his returns but declared it at time of survey. However, before Assessing Officer, assessee alleged that surrendered amounts were not voluntary and bona fide and in absence of any evidence or material in relation to surrender, surrender made during survey was also retracted. However the AO made addition on the basis of survey statement. On appeal, the Commissioner (Appeals) gave partial relief by taking into account the debit entries from the gross receipts, thus, reducing the total taxable income. On cross appeals the assessee’s appeal was rejected. On appeal dismissing the appeal the Court held that:

Instant Court opined that in the circumstances of the case, the approach of the Commissioner as affirmed by the Tribunal cannot be faulted. The discretion vested in the revenue authorities in content and character is not radically different in the case of a survey or in the case of search and seizure operations as is evident from a plain reading of sections 133A(3) and 132(4). Whereas the latter uses the expression ‘may examine on oath’, the former says that the authority ‘may record statement which may be useful for, or relevant to’ in proceedings under the Act. This provision, section 133A(3) had undergone further amendment inasmuch as the revenue is precluded from taking any action under section 133A(3)(ia) or section 133A(3)(ii), i.e., from impounding and taking into custody any books of account, etc. or making an inventory of any cash, stock or other valuable item verified by him while acting under section 133(2A) by the Finance Act 2 of 2014. The obvious inference, therefore, is that in respect of statement which fall in section 133A(3)(iii), the discretion to use it as a relevant material continues.

All that section 133A(3)(iii) enables to the authority concerned to do is to draw an adverse inference by relying upon materials which are seized, or dealt with in the course of the survey.

In the instant case, the admitted facts are that during the survey, a Director of the assessee – who was duly authorised to make a statement about the materials and the undisclosed income, did so on 20-11-2007. The company did not retract it immediately or any time before the show cause was issued to it. For the first time, in reply to the show cause notice it faintly urged that the statement was not voluntary and sought to retract it. The reply, a copy of which has been placed on record, undoubtedly makes reference to some previous letter retracting the statement. The assessee urged that letter was written on 21-12-2007. However, the actual reply to the show cause notice is silent as to the date. This itself casts doubt as to whether the retraction was in fact made or was claimed as an afterthought.

Furthermore, this Court is of the opinion that in the circumstances of the case both the Commissioner (Appeals) and Tribunal were correct in adding back the amount of Rs. 63.33 lakhs after adjusting the expenditure indicated. The explanation given by the assessee, in the course of the appellate proceedings, that the surrender was in respect of a certain portion of the receipt which had remained undisclosed or that some parts of it were supported by the books, is nowhere borne out as a matter of fact, in any of the contentions raised by it before the lower authorities. For these reasons, this Court is of the opinion that no substantial question of law arises.

Raj Hans Towers (P.) Ltd. v. CIT (2015) 373 ITR 9 / 230 Taxman 567 (Delhi)(HC)

S.80-IB(10) : Housing projects – Plot must have minimum area of one acre – Composite housing scheme consisting of six blocks in area exceeding one acre – Separate plan permits obtained for six blocks – Not ground for denial of deduction – Entitled to deduction

The Assessing Officer disallowed the deduction granted earlier to the assessee in pursuance of order passed u/s. 263. The Commissioner (Appeals) upheld the findings of the Assessing Officer. The Tribunal held that the assessee had developed a project in a land measuring 1 acre and 6.5 cents and allotted 1.022 sq. ft. of undivided share of land to each of the 48 allottees and, hence, the assessee was entitled to the benefit of section 80-IB(10) as a composite scheme. On appeal :

Held, dismissing the appeal, that there was no dispute in the approval granted by the CMDA in respect of the composite housing scheme. When the Legislature introduced 100 per cent deduction it was known that the local authorities could approve a housing project to the extent permitted under the Development Control Rules. When the project fulfilled the criteria for being approved as a housing project, the deduction could not be denied under section 80-IB(10) merely because the assessee had obtained a separate plan permits for the six blocks. If the conditions specified under section 80-IB are satisfied, then deduction is allowable on the entire project. Since the project was approved in accordance with the Development Control Rules, the assessee would be entitled to 100 per cent deduction on the entire project approved by the local authority. The assessee constructed six blocks in a land measuring one acre and 6.5 cents which admittedly exceeded the required area specified in clause (a) sub-section (10) of section 80-IB, viz., one acre. Therefore, the assessee was entitled to deduction. (AY. 2007-08)

CIT v. Voora Property Developers P. Ltd. (2015) 373 ITR 317 (Mad.) (HC)

S.92B : Transfer pricing – Issue of shares at premium – Does not give rise to any income from international transaction and, thus, there is no occasion to apply Chapter X in such a case

Where assessee-company had issued shares at a premium to its non-resident holding company, it does not give rise to any income from international transaction and, thus, there is no occasion to apply Chapter X in such a case. (AY. 2009-10)

SKR BPO Services (P.) Ltd. v. ITO (2015) 230 Taxman 192 (Bom.)(HC)

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

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

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

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

CIT v. Everest Kento Cylinders Ltd. (2015) 119 DTR 394/ 232 Taxman 307 (Bom.)(HC)

S.92CA : Transfer pricing – Reference to TPO – Jurisdiction of AO to allow expenses u/s. 37 and TPO u/s 92CA is distinct and, therefore, a referral made by AO to TPO for determining ALP does not take away the power of AO to determine whether payment to AE for services received is an allowable u/s. 37(1) of the Act. Authority of TPO is to conduct a TP analysis to determine ALP and not to determine whether there is a service or not from which the assessee benefits

The assessee, an Indian company, was engaged in the business of rendering services connected to acquisition, sales and lease of real estate. During the relevant year, the assessee entered into international transactions relating to payment of referral fees and reimbursement of certain co-ordination and liaison costs to the AEs. The TPO disallowed the deduction of expenditure with respect to reimbursement of expenses on the ground that no services were provided, however, did not draw an adverse inference with respect to payment of referral fees. The AO, based on the TPO order, made a draft assessment order disallowing the reimbursement. The AO also disallowed the referral fees as deductible expenditure stating that no benefit was derived by the assessee from the referral fees paid to the AEs. The DRP concurred with the AO. On appeal, the Tribunal reversed the order of the AO in respect of both the issues.

On revenue’s appeal with respect to reimbursement of costs, the High Court observed that, in the case of reimbursement made to AE, whether the cost itself is inflated or not (irrespective of the markup charged) is a matter to be tested under transfer pricing analysis. The High Court held that the TPO’s authority is limited to determining the ALP of international transactions referred to him by the AO, rather than determining whether such services exist or benefit has accrued. The TPO can determine the ALP of a transaction at ‘NIL’ based on the consideration that an independent entity in a comparable transaction would not have paid any amount. However, the TPO cannot arrive at a ‘NIL’ ALP on the basis that the assessee did not benefit from such services. Furthermore, in reaching this conclusion neither the Revenue nor the Court must question the commercial wisdomof the assessee.

With respect to payment of referral fees, the Tribunal had reversed the finding on two grounds:

(i) AO, after having referred that matter to the TPO, could not reopen or re-examine the transaction (ii) On merits, the Tribunal held that the assessee had submitted ample evidence to support the expenditure. However, the High Court held that the jurisdiction of the AO u/s. 37 and the TPO u/s. 92CA were distinct; the TPO determines whether the stated transaction value represents the ALP or not (including whether the ALP is Nil), while the AO makes the decision as to the validity of the deduction u/s. 37. This means that the decision as to whether the expenditure was laid down ‘wholly and exclusively for the purpose of business’ is a fact to be determined or verified by the AO. Accordingly, the AO cannot reassess or draw adverse inference as to the quantum of payment; however, the AO may determine whether services were actually rendered.(AY 2006-07)

CIT v. Cushman and Wakefield (India) (P.) Ltd. (2015) 233 Taxman 250 / 277 CTR 368 / 119 DTR 261 (Delhi)(HC)

S.115E : Non-residents – Capital gains – Benefit of concessional rate of tax would not be available on short term capital gains arising from sale of shares

Assessee, a non-resident, earned short-term capital gain on sale of bonus shares. He paid tax at the concessional rate of 20%, claiming benefit of s. 115E, on the basis that the original shares were purchased in convertible foreign exchange. The AO held that concessional rate of tax was not available for short term capital gains. The HC held that if the phrase “investment income” is interpreted to include all kinds of income defined in S. 2(24), then the phrase “income by way of long term capital gain” would become redundant. Income derived from shares would normally include dividend income and not income from sale of shares, since in the case of latter rights over the shares are extinguished. Thus, income arising on sale of assets leading to short term capital gains would not be investment income derived from foreign exchange asset and thus benefit of section 115E would not be available to short term capital gains. (AY. 1992-93)

CIT v. Sham L. Chellaram (2015) 373 ITR 292 / 116 DTR 118 / 275 CTR 245 (Bom.)(HC)

S. 115JB : Book profits – Sale of rights directly taken to balance sheet – Adjustment to book profit cannot be made, if auditors and ROC have not found fault with accounts

The assessee earned gross profit of Rs. 1,68,95,500/- from sale of its rights in immovable property. This amount was not shown in the P&L account but was taken directly to the balance sheet. The AO held that under sub-clause (xi) of clause 3 of Part II of Schedule-VI, the assessee is required to show the amount of income earned from investment in the P&L account, distinguishing between trade investments and other investments. He held that it was mandatory for the company to show profit/loss on sale of assets in the P&L Account and that the P/L account had not been prepared in accordance with Part-II and Part–III of Schedule VI of the Companies Act. Assessing Officer on CIT vs. Veekaylal Investment Co. P. Ltd. (249 ITR 597 ( Bom)(HC)) and made an adjustment to the “book profits” u/s. 115JB. However, the Tribunal deleted the addition. On appeal by the department to the High Court HELD dismissing the appeal:

The observations of the Apex Court in Apollo Tyres Ltd. v. CIT 255 ITR 273 concludes the issue by holding that the Assessing Officer does not have power to embark upon the fresh enquiry with regard to the entries made in the books of account of the company when the accounts of an assessee company is prepared in terms of Part II Schedule VI of the Companies Act scrutinised and certified by the statutory auditors, approved by the company in general meeting and thereafter filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. If the grievance of the revenue is to be accepted, then the conclusiveness of accounts prepared and audited in terms of Section 115JB of the Companies Act would be set at naught. This without successfully impeaching the Auditor’s certificate or without the Registrar of Companies holding that the accounts have not been prepared in accordance with the provisions of the Companies Act. There is no distinction between ss. 115JA and 115JB and the principles laid down in Apollo Tyres applies to s. 115JB as well. (AY. 2004-05)

CIT v. Forver Diamonds Pvt. Ltd. (Bom.)(HC); www.itatonline.org

S.132(4A) : Search and seizure – Presumption – Seized paper did not reflect the name of assessee – Deletion of addition was held to be justified

Tribunal found that though materials were seized in search, said materials did not reflect name of assessee. Most of cheques were stale and some other cheques were either blank or were in name of third parties, therefore, Tribunal held that revenue was not justified in drawing presumption under section 132(4A). Dismissing the appeal of revenue the Court held that since finding recorded by Tribunal could not be found fault with, same was to be upheld. (AYs. 1998-99 and 2000-01 to 2003-04)

CIT v. Blue Lines (2015) 231 Taxman 49 (Karn.)(HC)

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

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

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

S.147 : Reassessment – After the expiry of four years – Reasons not showing any failure on part of assessee to disclose fully and truly all material facts – Notice based on assessment made in subsequent years – Reviewing earlier decision is not permissible – Notices and the orders were quashed

Held, the reasons for reopening the assessments which had already been concluded did not show that there was any failure on the part of the assessee to disclose fully and truly all the material facts and thus, it was merely a change of opinion and in view of the settled position of law, the assessee would be entitled to setting aside of the notices issued. The additional factor regarding the change of opinion by the Assessing Officer, would also be a valid ground for setting aside the notice issued. Further, the reason for reopening was merely a change of opinion on account of the assessment being made for the subsequent years would not give the Assessing Officer the jurisdiction to reopen as he would, thus, be reviewing his earlier decision which has been held not to be permissible. Thus, the notices and the orders were accordingly, quashed. (AYs. 2005-06 to 2007-08 )

State Bank of Patiala v. CIT (2015) 375 ITR 109 (P & H) (HC)

S.147 : Reassessment – After the expiry of four years – Share premium amount – No lack of disclosure or suppression of any material facts – No tangible reasons in notice – Notice not valid

Notices under section 148, were issued to the assessee on the ground that the assessee was in receipt of huge share premium amounting to Rs. 14,10,01,300 during the financial year 2007-08 relevant to the assessment year 2008-09. As scrutiny assessment under section 143(3) had not been done in this case for this year, the share premium received by the assessee had not been examined. The assessee was an unlisted company and the nature of the share application money received was not substantiated by any cogent evidence. Subsequently, an order of reassessment was passed rejecting the objections of the assessee challenging the validity of reassessment. On writ petitions:

Held, allowing the petitions, (i) that the transactions seemed to be entirely arm’s length transactions. The subscribers were limited companies who were reportedly stated to be public limited companies. The assessee was a company in the hospitality sector and it could not be seen how the premium charged from the subscribers could be questioned without the Revenue providing valid reasons. Apart from being public limited companies, the subscribers included other infrastructure hospitality companies. There was no justification for the issuing of notices under section 148 on the facts of the case. There was no lack of disclosure or suppression of any material facts. All queries of the Assessing Officer had been answered by the assessee or the subscribers in question and all questionnaires addressed to subscribers were duly answered by the subscribers. The notice did not contain any tangible reasons for reopening the assessment. In fact, the very same Assessing Officer who had completed the assessment and issued an assessment order on March 22, 2014 had proceeded to issue the notice under section 148 within seven days of the assessment order. Therefore, the notices were not valid.

(ii) That although the assessee had relied upon the decision of the court and the Department had accepted the decision and decided not to challenging it by issuing a circular, all cases of share premium could not be equated as being covered by the judgment and circular. In a given case and the given fact situation, assessees may be required to be probed for valid reasons. (AYs. 2008-09, 2009-10)

Alliance Space P. Ltd. .v. ITO (2015) 375 ITR 473 (Bom.)(HC)

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

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

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

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

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

S.147 : Reassessment – Recorded reasons must be furnished to the assessee – If Department behaves in an irresponsible manner and does not furnish the recorded reasons on the basis that the assessee was already aware of them, the assessment has to be quashed

(i) It is axiomatic that power to reopen a completed assessment under the Act is an exceptional power and whenever revenue seeks to exercise such power, they must strictly comply with the prerequisite conditions viz. reopening of reasons to indicate that the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment which would warrant the reopening of an assessment.

(ii) These recorded reasons as laid down by the Apex Court must be furnished to the assessee when sought for so as to enable the assessee to object to the same before the Assessing Officer. Thus in the absence of reasons being furnished, when sought for would make an order passed on reassessment bad in law. The recording of reasons (which has been done in this case) and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. This requirement is very salutary as it not only ensures reopening notices are not lightly issued. Besides in case the same have been issued on some misunderstanding/misconception, the assessee is given an opportunity to point out that the reasons to believe as recorded in the reasons do not warrant reopening before the reassessment proceedings are commenced. The Assessing Officer disposes of these objections and if satisfied with the objections, then the impugned reopening notice under Section 148 of the Act is dropped/withdrawn otherwise it is proceeded with further. In issues such as this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise. We also do not appreciate the stand of the revenue, that the respondent-assessee had asked for reasons recorded only once and therefore seeking to justify non-furnishing of reasons. We expect the state to act more responsibly. (ITA No. 1867 of 2013, dt. 16-9-2015) (AY. 2008-09 )

CIT v. Trend Electronics (Bom.)(HC); www.itatonline.org

S.147 : Reassessment – Failure by AO to comply with the law in G. K. N. Driveshafts (India) Ltd. v. ITO ( 2003) 259 ITR 19 (SC), and pass order on objections renders assessment order void; Even assessment u/s. 143(1) assessment cannot be reopened in the absence of new/ tangible material

(i) The Court is of the considered view that after having correctly understood the decision of the Supreme Court in G.K.N. Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 (SC) as mandatorily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order, the CIT(A) committed an error in not quashing the reopening order and the consequent assessment;

(ii) Though only an assessment u/s. 143(1) and not 143(3) was made, the reopening order of the AO only refers to the report of Statutory Auditor under Section 44AB of the Act which report was already enclosed with the return filed by the Assessee. Therefore, factually, there was no new material that the AO came across so as to have “reasons to believe that the income had escaped assessment”.

(iii) The department’s contention that the judgment in CIT v. Orient Craft Ltd. (2013) 354 ITR 536 (Del) is contrary to the Full Bench verdict in CIT-VI v. Usha International Ltd. (2012) 348 ITR 485 and the issue should be referred to a larger Bench is not acceptable because the Central issue examined in the decision of the Full Bench in Usha International Ltd. was as to what constituted a “change of opinion”. The Court, therefore, does not consider the decision in Orient Craft Ltd. as being contrary to the decision in Usha International Ltd. In other words, there is no occasion for the Court to refer to a larger bench the question of the correctness of the decision in Orient Craft Ltd. which decision squarely applies to the facts of the present case. (ITA No. 415/2015, dt. 10-8-2015) (AY.2003-04)

Pr. CIT .v. Tupperware India Pvt. Ltd. (Delhi)(HC); www.itatonline.org

S.147 : Reassessment – Survey report and other materials not indicating any income chargeable to tax has escaped assessment – Nothing before Assessing Officer to record belief that escapement has taken place – Reasons recorded prior and subsequent to survey not satisfying requirement of law – Notice is not valid

There was an allegation that there was a group of assessees engaged in wholesale trading of potato on commission basis. The authorities conducted a survey on the basis of the allegation that the group of assessees were resorting to hoarding of potatoes and making huge profits by fluctuating the day-to-day price of potatoes in the market. The authorities physically verified the assessee’s manual books of account, cash balance, stock, etc. and prepared inventory. The authorities impounded the back up of the books of account maintained on computer for further verification. The details of the group’s bank accounts were obtained. Notices under section 148 were issued to the assessee for the assessment years 2009-10 to 2011-12. On writ petitions contending that there were no reasons much less leading to a belief that income chargeable to tax has escaped assessment, that the survey report was made in the basis for reopening the assessment and for the assessment years 2009-10, 2010-11 and 2011-12, that the survey was stated to be of January 7, 2011, that in the circumstances, there was no satisfaction recorded that any income chargeable to tax had escaped assessment and as pointed out in the survey report or from such other relevant material and that, therefore, the notices were ex facie bad in law and the proceedings in pursuance thereof were totally without jurisdiction:

Held, allowing the petitions, that neither the survey report nor any other material indicated that any income chargeable to tax for the relevant assessment years had escaped assessment. The Assessing Officer, therefore, had nothing before him which would enable him to record his belief that any such escapement had taken place. Notice was held not valid. (AYs. 2009-10 to 2011-12)

Hemant Traders v. ITO (2015) 375 ITR 167 (Bom.)(HC)

S.151 : Reassessment – Sanction for issue of notice – Recording of satisfaction in mechanical manner – Reassessment was held to be invalid

Where Joint Commissioner recorded satisfaction in mechanical manner and without application of mind, in order to accord sanction for issuing notice under section 148, assumption of jurisdiction to reopen block assessment was invalid.

CIT v. S. Goyanka Lime & Chemicals Ltd. (2015) 231 Taxman 73 (MP)(HC)

S.151 : Reassessment – Sanction for issue of notice – Order passed without following mandatory of sanction of Chief CIT or CIT under the proviso is inherent lacuna which is not curable hence bad in law

The assessee objected to the reassessment on the ground that required sanction of CIT was not taken. AO rejected the objection of the assesse on the ground that required sanction was not taken due to oversight. On writ allowing the petition the Court held that; order passed without following mandatory of sanction of Chief CIT or CIT under the proviso is inherent lacuna which is not curable hence bad in law. (AY. 2007-08)

Dhadda Exports v. ITO ( 2015) 278 CTR 258 / 232 Taxman 407 (Raj.)(HC)

S.153C : Assessment – Income of any other person – Search and seizure – General satisfaction recorded in the note is not enough – As there was no co-relation document wise – Order of Tribunal quashing the validity of order was held to be justified

The assessee is an education institution. Before the Tribunal the assessee raised an additional ground stating that the satisfaction recorded by the AO was in general nature hence concluded assessment could not be disturbed. Tribunal allowed the appeal of the assessee. On appeal by revenue, dismissing the appeal the Court held that; Tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document–wise with the assessment years in question and in the circumstances, the general satisfaction as recorded in the note is not enough; hence no substantial question of law arises out of Tribunal’s order quashing notice under section 153C. (AYs. 2001-02 to 2003-04)

CIT v. Sinhgad Technical Education Society (2015) 278 CTR 144 (Bom.)(HC)

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

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

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

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

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

CIT (TDS) v. C. J. International Hotels P. Ltd. (2015) 372 ITR 684 / 231 Taxman 818 (Delhi) (HC)

S.220 : Collection and recovery – Assessee deemed in default – Interest – Settlement Commission – Interest for default in payment of tax – Application for settlement of case – Interest payable from date of default till date of admission of application for settlement of case

Interest under section 220(2) of the Act, is legally leviable from the date of default in payment of the demand by the assessee till the date of admission of the application of the assessee by the Settlement Commission under section 245D(1) and not till the final order of the Settlement Commission under section 245D(4).

CIT v. Leonie M. Almeida (Smt.) (2015) 374 ITR 304 (Bom.)(HC)

S.220 : Collection and recovery –Assessee deemed in default – Stay – Prima facie case – Unconditioanl stay must be granted by the CIT(A)

Assessee was statutory authority set up inter alia for purpose of planning, co-ordinating and supervising development of Mumbai Metropolitan Region and it was appointed as a special planning authority in place of CIDCO for notified areas. It claimed exemption under section 11 and alternatively claimed that it was an agent of State Government and, thus, was not chargeable to tax in view of decision of Tribunal in City & Industrial Development Corpn. of Maharashtra Ltd. v. Asstt. CIT [2012] 138 ITD 381 (Mum.m –- Assessing Officer did not accept said claim and charged its income to tax. Pending disposal of appeal before Commissioner (Appeals), assessee sought for stay of demand but same was rejected on ground that above decision was inapplicable as in that case exemption under section 11 was not claimed . Court held that submission of being an agent of State was not based on any claim for exemption under any provision of Act but under Article 289 of Constitution of India, therefore, decision of Tribunal in above case would prima facie apply to facts of assessee’s case and, unconditional stay would be granted pending disposal of appeal before Commissioner (Appeals). (AY. 2011-12)

Mumbai Metropolitan Region Development Authority v. Dy. CIT (2015) 273 CTR 317 / 230 Taxman 178 (Bom.)(HC)

S.220 : Collection and recovery – Stay – Appeal pending before CIT(A) – CIT(A) is directed to dispose of appeals expeditiously

Commissioner rejected the application to stay the demand. Assessees bank accounts including cash credit accounts were attached by the income-tax authorities. Assessee filed the writ petition , allowing the petition the Court directed that the attachment with regard to cash credit account was discharged and the CIT(A) was directed to dispose the appeals within three months. As regards other bank accounts of the assessee were continued to remain attached with a rider that the Department will not be able to appropriate any sum therefrom till the disposal of the appeal before the CIT(A). The continuation of attachment and operation of the bank accounts will abide by the order to be passed by Commissioner (Appeals). (AY 2011-2012)

P.C. Chandra and Sons (India) P. Ltd. v. Dy.CIT (2015) 373 ITR 223 (Cal.)(HC)

S. 234A : Interest – Method of accounting – Project completion method – Parking charges received is liable to tax and no relevance to project completion method – Liable to pay interest

Assessee was engaged in business as builder and developer and was following project completion method for payment of taxes. Assessee received parking charges collected on vacant land belonged to him. However, he did not file return on ground that income earned on parking charges would be taxed when project would be complete. On appeal the Court held that since parking charges had nothing to do with assessee’s project and was assessable to tax, assessee was obliged to pay advance tax, therefore, non-payment of same would levy interest under sections 234A and 234B. (AY. 2000-01)

Sudhir G. Borgaonkar v. ACIT (2015) 375 ITR 322 / 230 Taxman 327/ 121 DTR 333 (Bom.)(HC)

S. 244 : Refund – Return of income – Deduction at source – Credit for refunds – Interest on refund – Department is directed to follow directions of Delhi High Court in Court on its own motion v. CIT(2013) 352 ITR 273 (Delhi)(HC) and to be vigilant and ensure that such mistakes do not occur. Department is also directed to set up a self-auditing vigilance cell to redress taxpayers’ grievances

The Petitioner filed a PIL to bring out the irregularities committed by the Income Tax Department. It was submitted that the Delhi High Court has also passed the strictures against the Income Tax Department in a similar Petition, which was filed in the Delhi High Court and which was disposed of by the order dated 14th March, 2013 (Court on Its Own Motion v. CIT (2013) 352 ITR 273). The Petitioner has invited attention to the said Judgment and Order passed by the Delhi High Court and took the Court through the various alleged mistakes committed by the Income Tax Department in issuing incorrect notices under Sections 244 and 245 of the Income tax Act, thereby seeking recovery from number of income tax assessees. He brought to the Court’s notice the immense hardships caused to all these income tax assessees as a result of the alleged mistakes committed by the Income Tax Department. It is submitted that the initial returns, which were taken by the Income Tax Department, were due to a technical error, which is rectified. It was alleged that there was a bug in the computer system. According to the Petitioner, this has been done deliberately. In reply, the department submitted that the directions given by the Delhi High Court have been followed in letter and spirit. HELD by the High Court:

The Income Tax authorities shall follow the directions given by the Delhi High Court in case of Court On Its Own Motion v. CIT (2013) 352 ITR 273 in other cities, including the city of Mumbai, in Maharashtra State. We hope and trust that the Income Tax Department will be more vigilant and ensure that such mistakes will not occur in future. We also direct the Income Tax Department to form a Vigilance Cell to ensure that there is a monitoring authority, which would monitor various policy decisions which are taken and a self auditing mechanism is required to be formulated to ensure that the income tax assessees are not made to run from pillar to post for the purpose of redressal of their grievances. (PIL No. 27 of 2014, dt. 28-8-2015)

Arun Ganesh Jodgeo v. UOI (Bom.)(HC); www.itatonline.org

S.251 : Appeal – Commissioner (Appeals) – Powers – Stay – Financial hardship is irrelevant – Prima facie case to be considered

While disposing of stay application, authority, before considering financial situation of an applicant, has to first consider prima facie case pleaded by applicant and if same is covered against revenue in view of a decision of a superior forum, then question of considering issue of financial hardship is irrelevant. Stay application cannot be rejected on ground that issues raised in appeal and stay have already been dealt with in assessment order. (AY. 2011-12)

Mumbai Metropolitan Region Development Authority v. Dy. CIT (2015) 273 CTR 317 / 230 Taxman 178 (Bom.)(HC)

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

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

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

S. 254(1) : Appellate Tribunal –Additional ground – Grounds not raised before the CIT(A) can also be raised before the Tribunal

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

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

S.254(2) : Appellate Tribunal –Rectification of mistake – while recalling its order and placing it before a regular bench to adjudicate/decide merits of appeal, Tribunal is not entitled to observe on merits of adjudication

Tribunal by order, dated 29-12-2010 set aside assessment made under section 158BD in case of assessee on ground that no satisfaction under section 158BD was recorded by Assessing Officer of searched person in respect of assessee. While doing so Tribunal did not consider letter of Assessing Officer of searched person recording satisfaction of undisclosed income in case of assessee. On revenue’s rectification application, Tribunal recalled order dated 29-12-2010 and placed matter before regular bench for consideration by making observation that jurisdictional requirement to proceed against assessee was satisfied. The assessee challenged the said order by filing Writ Petition, the Court held that; since there was an error apparent on record in Tribunal’s order, dated 29-12-2010 as it did not consider communication recording satisfaction under section 158BD, Tribunal rightly recalled its order; however, while recalling its order it was impermissible for Tribunal to make observation on issue of jurisdiction and, therefore, such observation could not be upheld. Court also held that once an order is recalled and appeal is to be placed before regular Bench for fresh consideration, it restores status quo ante. therefore, while recalling its order and placing it before a regular bench to adjudicate/decide merits of appeal, Tribunal is not entitled to observe on merits of adjudication.

Gyan Construction Co. v. ITAT (2015) 231 Taxman 68 (Bom.)(HC)

S.254(2) : Appellate Tribunal –Power to rectify mistake – Second application on same grounds not maintainable – Tribunal not justified in considering second application and rectifying its order

Held, when the first Rectification Application was rejected by the Tribunal, the second Rectification Application on the same issue was not maintainable at all. Under the circumstances, the Tribunal had materially erred in entertaining the second Rectification Application and passing the order recalling its earlier order in exercise of powers under section 254(2).

Also, the Tribunal had tried to consider the issue on the merits which had already been considered by the Tribunal earlier while deciding the appeal. Under the circumstances, even on the merits the Tribunal had materially erred in exercise of the powers under section 254(2) by passing the order. Questions referred is answered in favour of revenue. (AY. 1984-85)

CIT v. Vasantben H. Sheth (2014) 226 Taxman 83 (Mag.) / (2015) 372 ITR 536 / 273 CTR 48 (Guj.) (HC)

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

Third proviso cannot be interpreted to mean that extension of stay of demand should be denied beyond 365 days even when the assesseee is not at fault. ITAT should make efforts to decide stay granted appeals expeditiously. (AYs. 2008-09, 2009-10)

DIT v. Vodafone Essar Gujarat Ltd. (2015) 376 ITR 23/ 279 CTR 482 (Guj.)(HC)

S.255 : Appellate Tribunal – Powers of President – Special Bench – CBDT for seeking to constitute Special Bench

Allowing the petition the Court held that; The CBDT for seeking to constitute Special Bench for non-judicial reasons and on grounds of “political sensitivity”. The collection of tax and the adjudication must move unconcerned with political identity. It is also necessary to send a strong signal to all the litigants, including the State, to make no attempts to influence a judicial body by non judicial methods-Constitution of Special Bench on the recommendation of CBDT in other State was strongly condemned by the Court.

Jagati Publication Ltd. v. President, ITAT (2015) 279 CTR 271/377 ITR 31 (Bom.)(HC)

S.260A : Appeal – High Court – Competency of appeal – Rule of consistency

Dismissing the appeal of revenue the Court held that; Decision of Tribunal on identical issues relating to section 92B – No appeal from decisions – Presumption that decisions had been accepted – Appeal on similar issues to High Court – Not maintainable. (AY. 2007-08)

CIT v. Tata Auto Comp Systems Ltd. (2015) 374 ITR 516 / 276 CTR 481 (Bom.)(HC)

S.260A : Appeal – High Court – Rectification of order by Tribunal – Not an order passed in appeal – Not appealable [S. 254(2)]

The Tribunal while passing an order in an appeal did not notice the decision of the Supreme Court. Hence, it corrected a mistake and recorded that the applicability of the decision could not be adjudicated under the provisions of section 254(2) of the Income-tax Act, 1961, as the issue was covered under section 254(1). The assessee agreed that as and when an order was ultimately passed under section 254(1) in accordance with the order under section 254(2), the order would be appealable under section 260A. The Revenue filed an appeal against the order under section 254(2) which was dismissed. On appeal :

Held, dismissing the appeal, that the Revenue was not without a remedy in the event of the order under section 254(1) being adverse to it. An appeal under section 260A was not maintainable against the order passed by the Tribunal under section 254(2).

CIT v. Saroop Tanneries Ltd. (2015) 374 ITR 20 (P & H) (HC)

S. 260A : Appeal – High Court – Lack of proper assistance to Court

Court held that it would be proper that the Revenue brief counsel in their panel across the board so as to ensure that the counsel have time to properly prepare themselves to render proper assistance to the court.

Rallis India Ltd. v. CIT (2015) 374 ITR 462 / 276 CTR 351/ 230 Taxman 483 (Bom.)(HC)

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

Strictures passed regarding the “casual and callous” and “frivolous” manner in which senior officers of the department authorise filing of appeals. Strictures also passed against counsel for acting as a “mouthpiece” of the Department in persisting with unmeritorious appeals. CBDT directed to take appropriate action – Question decided by Tribunal based on concession by Department or on agreed position that questions covered by decision of Court – Appeals not to be filed in such matters. Registry is directed to forward the copy of the judgment to CBDT for necessary action and to provide an in-house committee of senior Officers of the revenue to review decisions taken in respect of appeals already filed and pending. (AY.1997-98)

DIT v. Credit Agricole Indosuez (No. 1) (2015) 377 ITR 102 (Bom.)(HC)

S.263 : Commissioner – Revision of orders prejudicial to the interest of revenue – Merger – CIT(A) – Revision was held to be not valid

CIT(A)’s order merges with AO’s order and thereafter revisional jurisdiction of the CIT u/s. 263 cannot be invoked on the issue decided in appeal by the CIT(A). (AY. 2009-10)

CIT v. K. Sera Sera Productions Ltd. (2015) 374 ITR 503 / 119 DTR 153 (Bom.)(HC)

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

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

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

S.271(1)(c) : Penalty – Concealment – Incorrect claim – Levy of penalty was held to be not justified

Incorrect claim of expenditure would not amount to giving inaccurate particulars of income and merely because initially claim was made under incorrect head, it may not be termed as furnishing inaccurate particulars.

CIT v. Amol Dicalite Ltd. (2015) 231 Taxman 663 (Guj.)(HC)

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

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

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

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

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

CIT v. Dalmia Dyechem Industries Ltd (2015) 377 ITR 133 (Bom.)(HC)

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

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

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

S.271D : Penalty – Accepts any loan or deposit – Making book adjustment of funds will not amount to violation or contravention of section 269SS and 269T – Levy of penalty was not justified. [Ss. 269SS, 269T, 271E]

A notice was issued to assessee-firm proposing to levy penalty on ground that certain receipts/payments exceeding ceiling limit were made in cash to/from sister concern and to one ‘S’ . Assessee submitted that there were only book adjustments of funds with sister concern and no cash was paid . As regard payment to ‘S’, it was stated that same was paid to ‘S’ on death of her husband who was legal advisor of company. Allowing the appeal the Court held that; there was no violation or contravention of section 269SS and section 269T. (AYs. 1992-93, 1993-94)

Gururaj Mini Roller Flour Mills v. Addl. CIT (2015) 231 Taxman 662 (AP & T) (HC)

S.271G : Penalty – Documents – International transaction – Transfer Pricing – No mandate or affirmative direction in the order of TPO that penalty shall be imposed by AO – Levy of penalty was not justified

In the absence of mandate or affirmative direction that penalty shall be imposed by the Assessing Officer for failure of particulars to be furnished within a stipulated period of issuing notice. Penalty is not sustainable. (AY. 2005-06)

CIT v. Bumi Hiway (I) (P) Ltd. (2015) 273 CTR 11 (Delhi)(HC)

S.277A : Offences and prosecutions – Falsification of books – False TDS certificate – Tax practitioner – Refund on the basis of TDS certificates – Respondent had no role in preparing TDS certificates – ITO could not initiate criminal proceedings for commission of offences punishable under IPC

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

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

RESEARCH TEAM

S.32 : Depreciation – Intangible assets – Commercial agreements Even prior to the insertion of “intangible assets” in S. 32, intellectual property rights such as trademarks, copyrights and know-how constitute “plant” for purposes of depreciation. The department is not entitled to rewrite the terms of a commercial agreement

The Supreme Court had to consider whether in AY 1995-96, when s. 32 did not make any distinction between tangible and intangible assets, the Assessee was entitled to any benefit under Section 32 of the Act read with Section 43(3) thereof for the expenditure incurred on the acquisition of trademarks, copyrights and know-how. HELD by the Supreme Court upholding the claim:

(i) The definition of ‘plant’ in Section 43(3) of the Act is inclusive. A similar definition occurring in Section 10(5) of the Income-tax Act, 1922 was considered in Commissioner of Income Tax v. Taj Mahal Hotel (1971) 3 SCC 550 wherein it was held that the word ‘plant’ must be given a wide meaning. The question is, would intellectual property such as trademarks, copyrights and know-how come within the definition of ‘plant’ in the ‘sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it’? In our opinion, this must be answered in the affirmative for the reason that there can be no doubt that for the purposes of a large business, control over intellectual property rights such as brand name, trademark etc. are absolutely necessary. Moreover, the acquisition of such rights and know-how is acquisition of a capital nature, more particularly in the case of the Assessee. Therefore, it cannot be doubted that so far as the Assessee is concerned, the trademarks, copyrights and know-how acquired by it would come within the definition of ‘plant’ being commercially necessary and essential as understood by those dealing with direct taxes.

(ii) Section 32 of the Act as it stood at the relevant time did not make any distinction between tangible and intangible assets for the purposes of depreciation. The distinction came in by way of an amendment after the assessment year that we are concerned with. That being the position, the Assessee is entitled to the benefit of depreciation on plant (that is on trademarks, copyrights and know-how) in terms of Section 32 of the Act as it was at the relevant time. We are, therefore, in agreement with the view taken by the Tribunal in this regard that the Assessee would be entitled to the benefit of Section 32 of the Act read with Section 43(3) thereof;

(iii) The Act does not clothe the taxing authorities with any power or jurisdiction to re-write the terms of the agreement arrived at between the parties with each other at arm’s length and with no allegation of any collusion between them. ‘The commercial expediency of the contract is to be adjudged by the contracting parties as to its terms.

(iv) There is a clear finding of fact by the Tribunal that the legal expenses incurred by the Assessee were for protecting its business and that the expenses were incurred after 18th November, 1994. There is no reason to reverse this finding of fact particularly since nothing has been shown to us to conclude that the finding of fact was perverse in any manner whatsoever. That apart, if the finding of fact arrived at by the Tribunal were to be set aside, a specific question regarding a perverse finding of fact ought to have been framed by the High Court. The Revenue did not seek the framing of any such question. The High Court was not justified in upsetting a finding of fact arrived at by the Tribunal, particularly in the absence of a substantial question of law being framed in this regard. (Civil Appeal Nos. 10547-10548 of 2011, dt. 15-10-2015) (AY. 1995-96)

Mangalore Ganesh Beedi Works v. CIT (SC); www.itatonline.org

S.32 : Depreciation – Plant – Prawn ponds – The “functional” test has to be applied to determine whether an asset is “plant”. Even a pond designed for rearing prawns can be “plant”

(i) Applying the ‘functional test’, since the ponds were specially designed for rearing/breeding of the prawns, they have to be treated as tools of the business of the assessee and depreciation was admissible on these ponds.

(ii) In Commissioner of Income Tax v. Anand Theatres 224 ITR 192 it was held that except in exceptional cases, the building in which the plant is situated must be distinguished from the plant and that, therefore, the assessee’s generating station building was not to be treated as a plant for the purposes of investment allowance. It is difficult to read the judgment in the case of Anand Theatres so broadly. The question before the Court was whether a building that was used as a hotel or a cinema theatre could be given depreciation on the basis that it was a “plant” and it was in relation to that question that the court considered a host of authorities of this country and England and came to the conclusion that a building which was used as a hotel or cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the Court said, “To differentiate a building for grant of additional depreciation by holding it to be a plant in one case where a building is specially designed and constructed with some special features to attract the customers and the building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable.” This observation is, in our view, limited to buildings that are used for the purposes of hotels or cinema theatres and will not always apply otherwise. The question, basically, is a question of fact, and where it is found as a fact that a building has been so planned and constructed as to serve an assessee’s special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance

ACIT v. Victory Aqua Farm Ltd. (2015) 280 CTR 32 (SC)

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

The assessee purchased gas cylinders. Since the manufacturing unit had not started to function, assessee leased out the gas cylinders to two parties to earn some income. The income was assessed as business income. The Assessing Officer disallowed depreciation on the ground that the gas cylinders were not purchased for leasing business. Disallowance was confirmed by High Court. On appeal allowing depreciation the Supreme Court held that the assessee has proved ownership of gas cylinders and use of gas cylinders for business purposes. Once these ingredients are proved, the assessee was entitled to depreciation. (AY 1986-87)

K.M. Sugar Mills Ltd. v. CIT (2015) 373 ITR 42 / 231 Taxman 245 / 278 CTR 100 (SC)

S. 37(1) : Business expenditure – Legal expenses incurred for protecting the business of the firm- Held to be allowable business expenditure

Tribunal held that legal expenses incurred for defending the business of the going concern and for protecting its interest could not be said to be personal in nature nor could it could be said that the expenses were unreasonable or not bona fide. High Court reversed the finding of Tribunal. On appeal allowing the claim the Court held that the High Court was not justified in upsetting a finding of fact arrived by the Tribunal particularly in the absence of a substantial question of law being framed in this regard. Accordingly the order of Tribunal was restored. (Civil Appeal Nos. 10547-10548 of 2011, dt. 15-10-2015) (AY 1995-96)

Mangalore Ganesh Beedi Works v. CIT (SC); www.itatonline.org

S.40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Amendment w.e.f. 1st April, 1996 restricting the disallowance at 20 per cent being substantive in nature cannot be applied retrospectively

Dismissing the appeal of assessee the Court held that, amendment made in section 40(A)(3) w.e.f .1st April, 1996 restricting disallowance to 20% being substantive in nature, cannot be applied retrospectively and therefore, the benefit of this amendment cannot be allowed over the entire block period beginning from 1st April, 1986 and ending on 13th September, 1996 , simply because the date of amendment falls within the aforesaid block period. [BP. 1-4-1986 to 13-9-1996)

M.G. Pictures (Madras) Ltd. v. ACIT (2015) 373 ITR 39 / 278 CTR 105/ 231 Taxman 241 (SC)

S.44BB : Mineral oils – Computation – The “pith and substance” test has to be applied to determine the dominant purpose of each agreement. If the dominant purpose is mining, the income is assessable only u/s. 44BB and not as “fees for technical services”

The Supreme Court had to consider the following question: “Whether the amounts paid by ONGC to non-resident assessees /foreign companies for providing various services in connection with prospecting, extraction or production of mineral oil is chargeable to tax as “fees for technical services” under Section 44D read with Explanation 2 to Section 9(1)(vii) of the Income-tax Act or will such payments be taxable on a presumptive basis under Section 44BB of the Act”? HELD by the Supreme Court:

(i) ” The Income-tax Act does not define the expressions “mines” or “minerals”. The said expressions are found defined and explained in the Mines Act, 1952 and the Oil Fields (Development and Regulation) Act, 1948. While construing the somewhat pari materia expressions appearing in the Mines and Minerals (Development and Regulation) Act 1957 regard must be had to the provisions of Entries 53 and 54 of List I and Entry 22 of List II of the 7th Schedule to the Constitution to understand the exclusion of mineral oils from the definition of minerals in Section 3(a) of the 1957 Act. Regard must also be had to the fact that mineral oils is separately defined in Sections 3(b) of the 1957 Act to include natural gas and petroleum in respect of which Parliament has exclusive jurisdiction under Entry 53 of List I of the 7th Schedule and had enacted an earlier legislation i.e. Oil Fields (Regulation and Development) Act, 1948. Reading Section 2(j) and 2(jj) of the Mines Act, 1952 which define mines and minerals and the provisions of the Oil Fields (Regulation and Development) Act, 1948 specifically relating to prospecting and exploration of mineral oils, exhaustively referred to earlier, it is abundantly clear that drilling operations for the purpose of production of petroleum would clearly amount to a mining activity or a mining operation. Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non-resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under Section 44BB or Section 44D of the Act.

(ii) The test of pith and substance of the agreement commends to us as reasonable for acceptance. Equally important is the fact that the CBDT had accepted the said test and had in fact issued a circular as far back as 22-10-1990 to the effect that mining operations and the expressions “mining projects” or “like projects” occurring in Explanation 2 to Section 9(1) of the Act would cover rendering of service like imparting of training and carrying out drilling operations for exploration of and extraction of oil and natural gas and hence payments made under such agreement to a non-resident/foreign company would be chargeable to tax under the provisions of Section 44BB and not Section 44D of the Act. We do not see how any other view can be taken if the works or services mentioned under a particular agreement is directly associated or inextricably connected with prospecting, extraction or production of mineral oil. Keeping in mind the above provision, we have looked into each of the contracts involved in the present group of cases and find that the brief description of the works covered under each of the said contracts as culled out by the appellants and placed before the Court is correct.

(iii) The above facts would indicate that the pith and substance of each of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non-resident assessees or foreign companies under the said contracts is more appropriately assessable under the provisions of Section 44BB and not Section 44D of the Act. (AYs 1985-86 & 1986-87)

Oil & Natural Gas Corporation Limited v. CIT (2015) 376 ITR 306/121 DTR 289/ 278 CTR 153 (SC)

S.54G : Capital gains – Shifting of industrial undertaking from urban area – Section does not require that the machinery etc. has to be acquired in the same Assessment Year in which the transfer takes place. It is sufficient if the capital gain is “utilised” towards purchase of P&M by giving advances to suppliers. Section 24 of the General Clauses Act applies also to ‘omissions’ along with ‘repeals’ and saves rights given by subordinate legislation

The assessee, a private limited company, had an industrial unit at Majiwada, Thane, which was a notified urban area. With a view to shift its industrial undertaking from an urban area to a non-urban area at Kurukumbh Village, Pune District, Maharashtra, it sold its land, building and plant and machinery situated at Majiwada, Thane to Shree Vardhman Trust for a consideration of Rs. 1,20,00,000/-, and after deducting an amount of Rs. 11,62,956/-, had earned a capital gain of Rs. 1,08,33,044/-. Since it intended to shift its industrial undertaking from an urban area to a non-urban area, out of the capital gain so earned, the appellant paid by way of advances various amounts to different persons for purchase of land, plant and machinery, construction of factory building etc. Such advances amounted to Rs. 1,11,42,973/- in the year 1991-92. The appellant claimed exemption under Section 54G of the Income- tax Act on the entire capital gain earned from the sale proceeds of its erstwhile industrial undertaking situate in Thane in view of the advances so made being more than the capital gain made by it. The AO & CIT(A) rejected the claim though the Tribunal upheld it. The High Court reversed the Tribunal and held that as the notification declaring Thane to be an urban area stood repealed with the repeal of the Section under which it was made, the appellant did not satisfy the basic condition necessary to attract Section 54G, namely that a transfer had to be made from an urban area to a non-urban area. Further, the expression “purchase” in Section 54G cannot be equated with the expression “towards purchase” and, therefore, admittedly as land, plant and machinery had not been purchased in the assessment year in question, the exemption contained in Section 54G had to be denied. On appeal by the assessee HELD reversing the High Court:

(i) On a conjoint reading of the aforesaid Budget Speech, notes on clauses and memorandum explaining the Finance Bill of 1987, it becomes clear that the idea of omitting Section 280ZA and introducing on the same date Section 54G was to do away with the tax credit certificate scheme together with the prior approval required by the Board and to substitute the repealed provision with the new scheme contained in Section 54G. It is true that Section 280Y(d) was only omitted by the Finance Act, 1990 and was not omitted together with Section 280ZA. However, we agree with learned counsel for the appellant that this would make no material difference inasmuch as Section 280Y(d) is a definition Section defining “urban area” for the purpose of Section 280ZA only and for no other purpose. It is clear that once Section 280ZA is omitted from the statute book, Section 280Y(d) having no independent existence would for all practical purposes also be “dead”. Quite apart from this, Section 54G(1) by its explanation introduces the very definition contained in Section 280Y(d) in the same terms. Obviously, both provisions are not expected to be applied simultaneously and it is clear that the explanation to Section 54G(1) repeals by implication Section 280Y(d).

(ii) From a reading of the notes on clauses and the Memorandum of the Finance Bill, 1990, it is clear that Section 280Y(d) which was omitted with effect from 1-4-1990 was so omitted because it had become “redundant”. It was redundant because it had no independent existence, apart from providing a definition of “urban area” for the purpose of Section 280ZA which had been omitted with effect from the very date that Section 54G was inserted, namely, 1-4-1988. We are, therefore, of the view that the High Court in not referring to Section 24 of the General Clauses Act has fallen into error.

(iii) It is clear that even an implied repeal of a statute would fall within the expression “repeal” in Section 6 of the General Clauses Act. This is for the reason given by the Constitution Bench in M.A. Tulloch & Co. that only the form of repeal differs but there is no difference in intent or substance. If even an implied repeal is covered by the expression “repeal”, it is clear that repeals may take any form and so long as a statute or part of it is obliterated, such obliteration would be covered by the expression “repeal” in Section 6 of the General Clauses Act.

(iv) On omission of Section 280ZA and its re-enactment with modification in Section 54G, Section 24 of the General Clauses Act would apply, and the notification of 1967, declaring Thane to be an urban area, would be continued under and for the purposes of Section 54A.

(v) A reading of Section 54G makes it clear that the assessee is given a window of three years after the date on which transfer has taken place to “purchase” new machinery or plant or “acquire” building or land. We find that the High Court has completely missed the window of three years given to the assessee to purchase or acquire machinery and building or land. This is why the expression used in 54G(2) is “which is not utilised by him for all or any of the purposes aforesaid….”. It is clear that for the assessment year in question all that is required for the assessee to avail of the exemption contained in the Section is to “utilise” the amount of capital gains for purchase and acquisition of new machinery or plant and building or land. It is undisputed that the entire amount claimed in the assessment year in question has been so “utilised” for purchase and/or acquisition of new machinery or plant and land or building.

(vi) The aforesaid construction by the High Court of Section 54G would render nugatory a vital part of the said Section so far as the assessee is concerned. Under sub-section (1), the assessee is given a period of three years after the date on which the transfer takes place to purchase new machinery or plant and acquire building or land or construct building for the purpose of his business in the said area. If the High Court is right, the assessee has to purchase and/or acquire machinery, plant, land and building within the same assessment year in which the transfer takes place. Further, the High Court has missed the key words “not utilised” in sub-section (2) which would show that it is enough that the capital gain made by the assessee should only be “utilised” by him in the assessment year in question for all or any of the purposes aforesaid, that is towards purchase and acquisition of plant and machinery, and land and building. Advances paid for the purpose of purchase and/or acquisition of the aforesaid assets would certainly amount to utilisation by the assessee of the capital gains made by him for the purpose of purchasing and/or acquiring the aforesaid assets. We find therefore that on this ground also, the assessee is liable to succeed. (AY 1991-92)

Fibre Boards (P) Ltd. v. CIT (2015) 279 CTR 89 (SC)

S.80HHC : Export business – Conditions under third and fourth provisos to S. 80HHC inserted by Taxation Laws (Second Amendment) Act, 2005 would not operate retrospectively and, for the period prior to that, cases of exporters having a turnover below Rs. 10 crore and those above Rs. 10 crore would be treated similarly

Amendment to S. 80HHC(3) was made by the Taxation Laws (Second Amendment) Act, 2005 with retrospective effect i.e. with effect from 1st April, 1998 (AY 1998-99 onwards). By this amendment, benefit of deduction u/s. 80HHC was also extended to income taxable u/ss. 28(iiid) and 28(iiie). Such benefit under the amendment was carved out for two categories of exporters, namely,

(i) Those whose export turnover was less than Rs. 10 crores during the previous year and (ii) those whose export turnover was more than Rs. 10 crores during the previous year. Insofar as entitlement of these benefits to exporters having turnover of more than Rs. 10 crores was concerned, the amendment provided that deduction would be available only if the exporter had satisfied two conditions stipulated in the third and fourth provisos to the said amendment, i.e., the assessee has necessary and sufficient evidence to prove that:

a) He had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and

b) The rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme.

The assessees, being exporters falling under the second category (i.e. whose exports were greater than 10 crore), filed a writ petition challenging the conditions mentioned in the third and fourth provisos to S. 80HHC(3) contending that these conditions are severable and therefore these two conditions should be declared ultra vires. The High Court decided the issue in favour of the writ petitioners by concluding that the operation of the above stated conditions under third and fourth provisos to S. 80HHC could be given effect from the date of amendment and not in respect of earlier assessment years on the basis that, the retrospective amendment should not be detrimental to any assessee having an export turnover of more than Rs. 10 crore and whose assessments were still pending. On a Special Leave Petition filed by the Department, the Supreme Court concurred with the judgment given by the High Court, and gave a direction that conditions stipulated in the third and fourth provisos to S. 80HHC would not operate retrospectively and cases of exporters having a turnover below Rs. 10 crore and those above Rs. 10 crores would be treated similarly during the period prior to the amendment (i.e. 1st April, 2005).

CIT v. Avani Export (2015) 119 DTR 352/ 232 Taxman 357 / 232 Taxman 357 (SC)

S.94(7) : Transaction in securities – Dividend stripping – Loss – Set off – Loss arising in the course of a dividend stripping transaction before the insertion of S.94(7) w.e.f. 1st April, 2002 cannot be disallowed

Loss arising in the course of a dividend stripping transaction before the insertion of S. 94(7) w.e.f. 1st April, 2002 cannot be disallowed. CIT v. Walfort Share & Stock Brokers (P) Ltd. (2010) 326 ITR 1 (SC) followed.

CIT v. Globe Capital Market Ltd. (2015) 373 ITR 58 / 278 CTR 264/120 DTR 311 (SC)

S.147 : Reassessment – Change of opinion – Original assessment completed under section 143(1) – No question of change of opinion – Main issue not addressed by High Court – Order set aside and matter remanded to Tribunal

Notice was issued to the assessee for reassessment for the assessment year 1991-92 on the ground that capital gains chargeable to tax had escaped assessment in that year. Challenging the validity of this notice, the assessee preferred a writ petition which the High Court allowed, quashing the reassessment proceedings. Meanwhile pursuant to the notice, the Assessing Officer had passed an assessment order on the merits rejecting the contention of the assessee that the transaction in question did not amount to a sale in the assessment year in question and the assessee’s appeal before the Commissioner (Appeals) was dismissed. On further appeal, the Appellate Tribunal simply following the judgment of the High Court in the writ petition, allowed it. On appeal :

Held, allowing the appeal, that the main issue involved in the case had not been addressed by the High Court. The Department had taken a contention that since the assessee’s return was accepted under section 143(1) of the Act, there was no question of “change of opinion” inasmuch as while accepting the return no opinion was formed and, therefore, on this basis, the notice issued was valid. The judgment of the High Court had to be set aside. Since the judgment of the High Court had been set aside, as a result, the order passed by the Appellate Tribunal also would stand set aside. Accordingly the matter is remanded to Tribunal for decision of appeal on the merits. (AY 1991-92)

CIT v. Zuari Estate Development and Investment Co. Ltd. (2015) 373 ITR 661/279 CTR 527 (SC)

S.194I : Deduction at source – Rent – In deciding whether a payment is for “use of land”, the substance of the transaction has to be seen. If the payment is for a variety of services and the use of land is minor, the payment cannot be treated as “rent ” – Charges for landing and take-off services as well as parking charges aircraft paid by airlines to AAI are surcharges for various services and facilities hence such charges cannot be treated as rent – No liability to deduct tax at source

The Supreme Court had to consider the conflict of judicial opinion between the Delhi High Court in CIT v. Japan Airlines Co (2010) 325 ITR 298 (Del.) and that of the Madras High Court in CIT v. Singapore Airlines Ltd. (2013) 358 ITR 237 (Mad.) on the question whether landing/ parking charges paid by an airline company to the AAI were payments for a contract of work under Section 194-C or in the nature of ‘rent’ as defined in Section 194-I. The Delhi High Court decided the issue in favour of the department following its earlier decision in the case of United Airlines v. CIT (2006) 287 ITR 281. It took the view that the term ‘rent’ as defined in Section 194-I had a wider meaning than ‘rent’ in common parlance as the definition included any agreement or arrangement for use of land. The High Court further observed that the use of land began when the wheels of an aircraft touched the surface of the airfield and similarly, there was use of land when the aircraft was parked at the airport. However, the Madras High Court dissented from the view of the Delhi High Court. HELD by the Supreme Court reversing the Delhi High Court and affirming the Madras High Court:

(i) From the reading of s. 194-I, it becomes clear that TDS is to be made on the ‘rent’. The expression ‘rent’ is given much wider meaning under this provision than what is normally known in common parlance. In the first instance, it means any payment which is made under any lease, sub-lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as ‘rent’. In the second place, such a payment made even under any other ‘agreement or arrangement for the use of any land or any building’ would also be treated as ‘rent’. Whether or not such building is owned by the payee is not relevant. The expressions ‘any payment’, by whatever name called and ‘any other agreement or arrangement’ have the widest import. Likewise, payment made for the ‘use of any land or any building’ widens the scope of the proviso;

(ii) The charges which are fixed by the AAI for landing and take-off services as well as for parking of aircraft are not for the ‘use of the land’. That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges are for services and facilites offered in connection with the aircraft operation at the airport. There are various international protocols which mandate all such authorities manning and managing these airports to construct the airports of desired standards which are stipulated in the protocols. The services which are required to be provided by these authorities, like AAI, are aimed at passengers’ safety as well as on safe landing and parking of the aircraft. Therefore, it is not mere ‘use of the land’. On the contrary, it is the facilities, that are to be compulsorily offered by the AAI in tune with the requirements of the protocol, which is the primary focus;

(iii) When the airlines pay for these charges, treating such charges as charges for ‘use of land’ would be adopting a totally naïve and simplistic approach which is far away from the reality. We have to keep in mind the substance behind such charges. When matter is looked into from this angle, keeping in view the full and larger picture in mind, it becomes very clear that the charges are not for use of land per se and, therefore, it cannot be treated as ‘rent’ within the meaning of Section 194-I of the Act;

(iv) However, the reason given by the Madras High Court that the words ‘any other agreement or arrangement for the use of any land or any building’ have to be read ejusdem generic and it should take it colour from the earlier portion of the definition namely “lease, sub-lease and tenancy” and to thereby, limit the ambit of words ‘any other agreement or arrangement’ is clearly fallacious. A bare reading of the definition of ‘rent’ contained in explanation to Section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy which is to be treated as ‘rent’. That is rent in traditional sense. However, second part is independent of the first part which gives much wider scope to the term ‘rent’. As per this whenever payment is made for use of any land or any building by any other agreement or arrangement, that is also to be treated as ‘rent’. Once such a payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent of very wide connotation. To that extent, High Court of Delhi appears to be correct that the scope of definition of rent under this definition is very wide and not limited to what is understood as rent in common parlance. It is a different matter that the High Court of Delhi did not apply this definition correctly to the present case as it failed to notice that in substance the charges paid by these airlines are not for ‘use of land’ but for other facilities and services wherein use of the land was only minor and insignificant aspect. Thus it did not correctly appreciate the nature of charges that are paid by the airlines for landing and parking charges which is not, in substance, for use of land but for various other facilities extended by the AAI to the airlines. Use of land, in the process, become incidental. Once it is held that these charges are not covered by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act. (AY 1997-98 to 1999-2000 )

Japan Airlines Co. Ltd. v. CIT (2015) 279 CTR 1(SC)

S.234B : Interest – Advance tax – Interest is automatic if conditions are met. Form I.T.N.S. 150 is a part of the assessment order and it is sufficient if the interest has been calculated there even though the assessment order does not contain any direction to charge interest

The assessment order did not contain any direction for the payment of interest. The ITAT and the Delhi High Court held that since no direction had actually been given in the assessment order for payment of interest, the case was covered by the decision of the Supreme Court in ‘Commissioner of Income Tax & Ors. v. Ranchi Club Ltd.’ [(2001) 247 ITR 209] which merely dismissed the appeal affirming the High Court judgment reported in ‘Ranchi Club Ltd. v. Commissioner of Income Tax’ [(1996) 217 ITR 72]. The Department claimed before the Supreme Court that in view of the decision in ‘Kalyankumar Ray v. Commissioner of Income Tax, West Bengal-IV, Calcutta [1992 Supp (2) SCC 424] interest under Section 234B is part of Form I.T.N.S. 150 which is not only signed by the Assessing Officer but it is really part of the assessment order itself. HELD by the Supreme Court allowing the appeal:

It will be seen that under the provisions of Section 234B, the moment an assessee who is liable to pay advance tax has failed to pay such tax or where the advance tax paid by such an assessee is less than 90 per cent of the assessed tax, the assessee becomes liable to pay simple interest at the rate of one per cent for every month or part of the month. The levy of such interest is automatic when the conditions of Section 234B are met. The facts of the present case are squarely covered by the decision contained in Kalyankumar Ray’s case inasmuch as it is undisputed that contained a calculation of interest payable on the tax assessed. This being the case, it is clear that as per the said judgment, this Form must be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of Section 143, which is referred to in Explanation 1 to Section 234B. This being the case, we set aside the judgment of the High Court and allow the appeal of the Revenue.

CIT v. Bhagat Construction Co. Pvt. Ltd. (2015) 279 CTR 185 (SC)

S.245HA : Settlement Commission – Provision for abatement of proceedings where no order passed by cut-off date – Discrimination likely among applicants for factors not under their control – Provisions arbitrary – To be read down so that proceedings treated as abated only where failure owing to reasons attributable to applicant – Direction to proceed with applications as if not abated where delay not attributable to applicant – Supreme Court – No interference. [Constitution of India, Article 14, 226]

On petitions challenging the validity of Section s245HA(1)(iv) and (3) of the Income-tax Act, 1961, as amended by the Finance Act, 2007, the High Court found the provisions violative of Article 14 of the Constitution, but did not invalidate the provisions, and instead, read them down, in particular, the provisions of section 245HA(1)(iv), so that only where the application could not be disposed of for any reasons attributable on the part of the applicant would proceedings abate under section 245HA(1)(iv). The court directed the Settlement Commission to consider whether the proceedings had been delayed on account of reasons attributable to the applicant and if they were not, to proceed with the application as if not abated. On appeal to the Supreme Court :

Held, affirming the decision of the High Court, that the judgment of the High Court was a well-considered one and did not call for any interference.

UOI v. Star Television News Ltd. (2015) 373 ITR 528/231 Taxman 341/ 124 DTR 225/279 CTR 531 (SC)

S.260A : Appeal – High Court –Instructions – Monetary limits – CBDT Instruction No. 3/2011 dated 9-2-2011 specifying monetary limits for filing appeals by the department applies only to appeals filed after that date and not to pending appeals

The Supreme Court had to consider whether Instruction No. 3/2011 dated 9-2-2011 issued by the Central Board of Direct Taxes setting out limits for filing appeals to the ITAT and the High Courts applied even to appeals filed before the date of the Instruction. The High Court dismissed the appeals of the Department on the ground that the said Instruction applied even to appeals filed before that date. On appeal by the department to the Supreme Court HELD reversing the High Court:

The appeals and review petitions preferred by the department before the High Court, were disposed of on the basis of the instructions issued by the Central Board of Direct Taxes dated 9-2-2011. It is not a matter of dispute, that all the appeals were preferred prior to 2011, whereas, the instructions dated 9-2-2011 clearly indicate in paragraph 11 thereof, that they shall not govern cases which have been filed before 2011, and that, the same will govern only such cases which are filed after the issuance of the aforesaid instructions dated 9-2-2011. In view of the above, the instant appeals are allowed, the impugned orders passed by the High Court hereby set aside. The matters are remitted back to the High Court for re-adjudication of the appeals on merits, in accordance with law.

CIT v. Suman Dhamija (2015) 279 CTR 329/124 DTR 169 (SC)

S.260A : Appeal – High Court –Power of review – High Courts, being Courts of Record under Article 215, have the inherent power of review. There is nothing in s. 260A(7) to restrict the applicability of the provisions of the CPC to S. 260A appeals

In an appeal under s. 260A, the Guwahati passed an order (332 ITR 91) in which it held that transport subsidies and other incentives were not eligible for relief u/s. 80-IB. The assessee filed a review petition (358 ITR 551) in which it contended that the High Court had gone on to answer the questions without first framing substantial questions of law. The High Court allowed the review petition and recalled the judgement. Thereafter, it passed a judgement (CIT v. Meghalaya Steels Ltd. [2013] 356 ITR 235) in which it held that the said transport subsidies and other incentives were eligible for relief u/s 80-IB. The department argued before the Supreme Court that under section 260A(7), only those provisions of the Civil Procedure Code could be looked into for the purposes of Section 260A as were relevant to the disposal of appeals, and since the review provision contained in the Code of Civil Procedure is not so referred to, the High Court would have no jurisdiction under Section 260A to review such judgment. HELD by the Supreme Court dismissing the appeal:

High Courts being Courts of Record under Article 215 of the Constitution of India, the power of review would in fact inhere in them. This was in fact so decided in a slightly different context while dealing with the power of review of writ petitions filed under Article 226 by a judgment reported in AIR 1963 SC 1909 5 (Shivdeo Singh & Ors. v. State of Punjab and Ors.). It is also clear that on a cursory reading of Section 260A (7), the said Section does not purport in any manner to curtail or restrict the application of the provisions of the Code of Civil Procedure. Section 260A(7) only states that all the provisions that would apply qua appeals in the Code of Civil Procedure would apply to appeals under Section 260A. That does not in any manner suggest either that the other provisions of the Code of Civil Procedure are necessarily excluded or that the High Court’s inherent jurisdiction is in any manner affected.

CIT v. Meghalaya Steels Ltd. (2015) 279 CTR 189 (SC)

S.261 : Appeal – Supreme Court – Company wound up and no person to pursue the appeal –Appeal dismissed

Against the order of the High Court dismissing the assessee’s appeal on the question of allowance of depreciation for the block period, holding that the Tribunal had arrived at findings of fact after appreciating the evidence on record, including material seized during the course of search and seizure proceedings, and no substantial question of law arose out of the order of the Tribunal, the Supreme Court, taking note of the fact that the assessee-company had been wound up and there was nobody to pursue the appeals, dismissed the appeals.

Patira Food Products P. Ltd. v. ACIT (2015) 373 ITR 165 (SC)

S.261 : Appeal – Supreme Court – Assessment – Valuation Officer – Whether report of, called for by Assessing Officer, can be made basis for assessment – Appeal dismissed leaving question open

Against the decision of the High Court dismissing the Department’s appeal against the order of the Tribunal holding that the Assessing Officer could not have relied upon the report of the Valuation Officer called for on a commission under section 131(1)(d), the Department appealed to the Supreme Court : The Supreme Court dismissed the appeal in view of the meagreness of the amount involved in the appeal, keeping the question of law open.

CIT v. Om Prakash Bagadia (HUF) (2015) 373 ITR 670 / 267 CTR 621 / 233 Taxman 131 (SC)

S.261 : Appeal – Supreme Court – Cash credit – Tax effect low and no substantial question of law

The Assessing Officer treated a sum claimed to be a loan as unexplained cash credit and the Commissioner (Appeals) upon examination of the documentary evidence sustained the addition and this was upheld by the Tribunal, and the High Court, holding that the finding of the Tribunal being based on cogent material could not be said to be perverse and no substantial question of law arose from the order of the Tribunal. On appeal : The Supreme Court dismissed the appeal, holding that the tax effect was very nominal and that even otherwise, there was no substantial question of law which arose for consideration. (AY 1998-19)

Krishan Kumar Aggarwal v. Assessing Officer, Income-tax (2015) 373 ITR 679 /124 DTR 288/ 280 CTR 35 (SC)

S.261 : Appeal – Supreme Court – Small tax effect – Matter has a cascading effect – Circular dt. 9th February 2011, should not be applied ipso facto – Liberty given to the department to move High Court

Allowing the appeal of Revenue the Court held that; where the matter has a cascading effect, there are cases in which common principle may be involved in subsequent group matters or large number of matters, in such cases attention of High Court has to be drawn. Circular dt. 9 th Feb, 2011 (2011) 332 ITR 1 (St.), should not be applied ipso facto. Liberty wass given to the department to move High Court.

CIT v. Century Park (2015) 373 ITR 32 / 278 CTR 110 / 120 DTR 308 (SC)

S.261 : Appeal – Supreme Court – Depreciation – Studio – Plant – Low tax effect – Appeal not entertained

The assessee, engaged in the production of cinematograph films, claimed higher depreciation on its studio which was situated in a big landscape. The building was designed in such a way that the wooden partitions could be removed for creating different settings or scenes. On the question whether a part of the studio building constituted plant, the High Court held that part of the studio building would come within the term “plant” entitled to depreciation at the rate applicable to plant and machinery. On appeal to the Supreme Court :

Having regard to the fact that the tax effect was minimal, the Court refused to interfere with the appeals and dismissed them, leaving the question of law open. Refer CIT v. Navodaya [2004] 271 ITR 173 (Ker.)(HC).

CIT v. Navodaya (2015) 373 ITR 637 (SC)

S.261 : Appeal – Supreme Court – Business expenditure – Fines and penalties – Tax effect low – Appeal not entertained

Penalty of Rs. 10,61,698 imposed on the assessee-bank by the Reserve Bank of India for committing violation of provisions of the Reserve Bank of India Act, 1934, and the Banking Regulation Act, 1949, was claimed as business expenditure by the assessee-bank in respect of the assessment years 1984-85 to 1991-92. The High Court allowed it. On appeal :

The Supreme Court dismissed the appeals without going into the merits, having regard to the smallness of the amount, but left the question of law open. (AY. 1984-1985 to 1991-92)

CIT v. Dhanalakshmi Bank Ltd. (2015) 373 ITR 526 / 124 DTR 228/ 279 CTR 439/V (SC)

S.261 : Appeal – Supreme Court – Small tax effect – Appeal was dismissed solely on the ground that the tax effect thereof is Rs. 4,22,830/-.

Appeal filed by the assessee is not entertained and is entertained and is dismissed solely on the ground that the tax effect is Rs. 422, 830/ only. The issue involved was taxability of capital gain in respect of sale of agricultural land. (AY. 1986-1987)

Alexander George v. CIT (2015) 373 ITR 49 / 278 CTR 112 / 120 DTR 310 (SC).

S.261 : Appeal – Supreme Court – Intercorporate dividends – Estimated expenditure – Tax effect low and matter being old, appeal was not entertained

From the judgment of the High Court answering in favour of the assessee the question whether the Department was entitled to import the rule of proportionate expenditure and interest contemplated by section 20 of the Income-tax Act, 1961, as it then stood into section 80M of the Act, the Department appealed to the Supreme Court:

The Supreme Court refused to entertain the appeals holding that the tax effect was nominal and the matter was very old. (AY 1970-71)

CIT v. Central Bank of India (2015) 373 ITR 524 (SC)

Wealth-tax Act, 1957.

S.7 : Valuation of property – Vacant land subject to the Land Ceiling Act – Excess land would have to be valued at Rs. 2 lakh for purpose of Wealth Tax. [S. 2(e), 2(m), 2(q), 3, Urban Land Ceiling Act, 1962, Ss. 6, 11(6), 20]

The Supreme Court had to consider whether for the purposes of Wealth Tax Act, the market value of the vacant land belonging to the assessee should be taken at the price which is the maximum compensation payable to the assessee under the Urban Land Ceiling Act, 1962?

The factual position is as follows:

(i) The Assessment Years in respect of which question was to be determined were 1977-1978 to 1986-1987.

(ii) Ceiling Act had come into force w.e.f. 17-2-1976 and was in operation during the aforesaid Assessment Years.

(iii) The Competent Authority under the Ceiling Act had passed orders to the effect that as per Section 11(6) of the Ceiling Act, the maximum compensation that could be received by the assessee was Rs. 2 lakhs. In accordance with Section 30 of the Ceiling Act, the declaration dates back to 17-2-1976 on which date the Ceiling Act was promulgated in Karnataka.

(iv) The order of the Competent Authority was challenged by the assessee by filing appeal before the Karnataka Appellate Tribunal. This appeal was, however, dismissed on 15-7-1998.

Against that order, writ petition was filed wherein provisions of the Ceiling Act were also challenged. Because of the pendency of these proceedings or due to some other reason, notification under Section 10(1) of the Ceiling Act was not passed.

(v) In the year 1999, Ceiling Act was repealed. At that stage, the writ petition filed by the assessee was still pending. The effect of this Repealing Act was that the property in question remained with the assessee and was not taken over by the Government.

HELD by the Supreme Court:

(i) “It is clear that the valuation of the asset in question has to be in the manner provided under Section 7 of the Act. Such a valuation has to be on the valuation date which has reference to the last day of the previous year as defined under Section 3 of the Income-tax Act if an assessment was to be made under that Act for that year. In other words, it is 31st March immediately preceding the assessment year. The valuation arrived at as on that date of the asset is the valuation on which wealth tax is assessable. It is clear from the reading of Section 7 of the Act that the Assessing Officer has to keep hypothetical situation in mind, namely, if the asset in question is to be sold in the open market, what price it would fetch. Assessing Officer has to form an opinion about the estimation of such a price that is likely to be received if the property were to be sold. There is no actual sale and only a hypothetical situation of a sale is to be contemplated by the Assessing Officer.

(ii) Thus, the Tax Officer has to form an opinion about the estimated price if the asset were to be sold in the assumed market and the estimated price would be the one which an assumed willing purchaser would pay for it. On these reckoning, the asset has to be valued in the ordinary way.

(iii) The High Court has accepted, and rightly so, that since the Property in question came within the mischief of the Ceiling Act it would have depressing effect insofar as the price which the assumed willing purchaser would pay for such property. However, the question is as to what price the willing purchaser would offer in such a scenario?

(iv) The combined effect of the aforesaid provisions, in the context of instant appeals, is that the vacant land in excess of ceiling limit was not acquired by the State Government as notification under Section 10(1) of the Ceiling Act had not been issued. However, the process had started as the assessee had filed statement in the prescribed form as per the provisions of Section 6(1) of the Ceiling Act and the Competent Authority had also prepared a draft statement under Section 8 which was duly served upon the assessee. Fact remains that so long as the Act was operative, by virtue of Section 3 the assessee was not entitled to hold any vacant land in excess of the ceiling limit. Order was also passed to the effect that the maximum compensation payable was Rs. 2 lakh. Let us keep these factors in mind and on that basis apply the provisions of Section 7 of the Wealth Tax Act.

(v) One has to assume that the property in question is saleable in the open market and estimate the price which the assumed willing purchaser would pay for such a property. When the asset is under the clutches of the Ceiling Act and in respect of the said asset/vacant land, the Competent Authority under the Ceiling Act had already determined the maximum compensation of Rs. 2 lakh, how much price such a property would fetch if sold in the open market? We have to keep in mind what a reasonably assumed buyer would pay for such a property if he were to buy the same. Such a property which is going to be taken over by the Government and is awaiting notification under Section 10 of the Act for this purpose, would not fetch more than Rs. 2 lakh as the assumed buyer knows that the moment this property is taken over by the Government, he will receive the compensation of Rs. 2 lakh only. We are not oblivious of those categories of buyers who may buy “disputed properties” by taking risks with the hope that legal proceedings may ultimately be decided in favour of the assessee and in such an eventuality they are going to get much higher value. However, as stated above, hypothetical presumptions of such sales are to be discarded as we have to keep in mind the conduct of a reasonable person and “ordinary way” of the presumptuous sale. When such a presumed buyer is not going to offer more than Rs. 2 lakh, obvious answer is that the estimated price which such asset would fetch if sold in the open market on the valuation date(s) would not be more than Rs. 2 lakh. Having said so, one aspect needs to be pointed out, which was missed by the Commissioner (Appeals) and the Tribunal as well while deciding the case in favour of the assessee. The compensation of Rs. 2 lakh is in respect of only the “excess land” which is covered by Sections 3 and 4 of the Ceiling Act. The total vacant land for the purpose of Wealth Tax Act is not only excess land but other part of the land which would have remained with the assessee in any case. Therefore, the valuation of the excess land, which is the subject matter of Ceiling Act, would be Rs. 2 lakh. To that market value of the remaining land will have to be added for the purpose of arriving at the valuation for payment of Wealth Tax. (AY. 1977-78 to 1986-87)

S. N. Wadiyar (Dead) Through LR v. CWT(2015) 378 ITR 9/ 280 CTR 233/ 125 DTR 330 (SC)

S.40(3)(vi) : Company – Exemption – Building used for business – Used by subsidiary – Not exempt

Portion of factory building used by subsidiary of assessee for carrying out job work for assessee. Assessee charging subsidiary licence fee and subsidiary charging assessee for work done. Independent entities–Portion of building used by subsidiary not used by assessee for purpose of its business. Dismissing the appeal the Court held that user must be by assessee for purposes of its business hence on facts the assesse is not entitled to claim exemption. (AY. 1984-85)

Kapri International (P) Ltd. v. CWT (2015) 373 ITR 50 / 231 Taxman 34 / 277 CTR 463 / 277 CTR 463/ 231 Taxman 34 (SC)

Companies (Profits) Surtax Act, 1964

S.24AA : Exemption – Agreement with foreign company – Mineral Oils – Scope of exemption cannot be expanded by a judicial pronouncement – Principles of interpretation of a law conferring an exemption or concession

The Supreme Court had to consider the scope of Notification bearing No. GSR 307(E) dated 31-3-1983 issued under Section 24AA of the Surtax Act by which exemption was granted in respect of surtax in favour of foreign companies with whom the Central Government has entered into agreements for association or participation of that Government or any authorised person in the business of prospecting or extraction or production of mineral oils. ONGC was notified as the “authorised person”. The question was whether the exemption could be extended to agreements entered into by ONGC with different foreign companies for services or facilities or for supply of ship, aircraft, machinery and plant, as may be, all of which were to be used in connection with the prospecting or extraction or production of mineral oils. Such agreements did not contemplate a direct association or participation of ONGC in the prospecting or extraction or production of mineral oils but involved the taking of services and facilities or use of plant or machinery which is connected with the business of prospecting or extraction or production of mineral oils. HELD by the Supreme Court:

(i) The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or /substance of the notification granting exemption.

(ii) Section 24-AA of the Surtax Act was brought into the statute book by Act 16 of 1981 i.e. Finance Act, 1981 with effect from 1-4-1981. The explanatory notes on the provisions of Finance Act [Paragraph 11(4) and 26(1)] clearly goes to show that the legislative intent behind inclusion of Section 24-AA is to encourage foreign companies to enter into participating contracts with the Union Government in the business of oil exploration or production. The further legislative intent was to seek greater participation of foreign companies in the matter of providing services including supply of ships, aircrafts, machinery or plant in connection with business of extraction or production of mineral oils. The aforesaid legislative intent which is two-fold is manifested by the two limbs of sub-section 2 of Section 24AA of the Surtax Act to which the power of exemption was intended to operate i.e. sub-sections 2(a) and 2(b) of Section 24AA. If out of the two limbs where the power of exemption was intended to operate, the repository of the power i.e. Central Government, had consciously chosen to grant exemption in one particular field i.e. foreign companies covered by sub-section 2(a) of Section 24-AA, the scope of the grant cannot be enhanced or expanded by a judicial pronouncement which is what the arguments made on behalf of the appellants intend to achieve. Any such interpretation must, therefore, be avoided. Consequently, we see no reason to depart from the basic principles of interpretation, as already noticed, that should govern the present issue. We, accordingly, do not find any merit in any of the appeals under consideration. (AY. 1986-87)

Oil & Natural Gas Corporation Limited v. CIT (2015) 377 ITR 117/ 121 DTR 302/ 278 CTR 166 (SC)

Precedent – Binding nature –Decision of Co-ordinate Bench of High Court is binding on another Co-ordinate Bench

Division Bench of the High Court having disagreed with the earlier opinion of the Co-ordinate Bench ought to have referred the matter to a Larger Bench instead of rendering a contrary decision. Decision of Co-ordinate Bench of High Court is binding on another Co-ordinate Bench .

ACIT v. Victory Aqua Farm Ltd. (2015) 280 CTR 32/ 125 CTR 117 (SC)

RESEARCH TEAM

My beloved Members,

I. DESPITE NDA’s DEBACLE IN BIHAR POLLS, JAITLEY EXPECTS GST BILL TO GET NITISH’s SUPPORT

Officials in the Finance Ministry were awaiting the verdict of the Bihar Assembly Polls with bated breath to get a sense of how fast the Narendra Modi Govt. can push the Constitutional Amendment Bill to usher in GST in Parliament, which is scheduled to meet on November 26, 2015. Jaitley said defeat in Bihar is no set back to economy inasmuch as, development agenda to continue in future. Captains of industry expressed their worry over stuck bills yet their opinion is growth, reforms are imperative to take forward the economy. In this context, following views are of significant importance:

• Finance Ministry officials believe the Centre will face more resistance in Parliament.

• Further challenges could come from the polls due in Assam, West Bengal and U.P. in the near future.

• Most analysts say that the Government’s steps to boost growth have not taken pace with economy’s needs.

• Economists also want the Govt. to shift focus to farm sector and rural distress, and ‘away from foreign tours, FDI and bullet trains’.

• Mr. K.M. Mani, who is Finance Minister of Kerala and Chairman of the Empowered Committee of State FMs on GST, is involved in Bar bribery case and the High Court has ordered further probe in his case. In these circumstances, he has already resigned. So, the Empowered Committee of FMs on GST has become headless.

• On what should be the rate of GST, Jaitley said, “the lower the better.” He further said, “I am for a GST with a proper architecture, not for a GST with a defective architecture.”

• All in all, Jaitley expects GST Bill to get Nitish’s support. Let us be positive on this aspect.

II. INDIRECT TAX MOPUP SURGES 36.8% IN OCTOBER 2015

On the indirect tax front, there is a good news that it went up by 36.8% in October 2015. These collections continue to suggest a healthy growth in the underlying tax base. The recent hike in excise duty is going to add another Rs. 3,000 crore to the Treasury.

2. Thus, on the economic front, renowned industrialist Mr. Rahul Bajaj, opined: “I am relived Modi has 3.5 years more. Modi and Jaitley, therefore, have a long inning and they will not be discouraged from proceedings ahead with reforms in full speed. I will be surprised and very disappointed if the Congress does not respond in the same spirit, especially on GST”.

III. “CONSISTENT TAX POLICY WILL AID MAKE IN INDIA. NEED TO BE MORE INVESTOR-FRIENDLY”: RBI GOVERNOR

Speaking at a Seminar organised by Think-tank “Gateway House” in Mumbai on 19-10-2015, Raghuram Rajan said, “We need to make our tax regime more investor friendly. Let us make taxation more transparent, more predictable. Let us do all things necessary to allow our business to create what is needed.”

2. Rajan who had earlier pushed for a more domestic focus on manufacturing and suggested ‘Make For India’ as an alternative to ‘Make In India’, said that predictable taxation would help to achieve the Government’s objective of ‘Make In India’. For this purpose, we need to create the framework to do business easier.

3. The Governor’s above comments come at a time when the Government’s preparation for next Union Budget is gathering pace. Meantime, the Government has invited suggestions from industry associations for changes in duty structure, rates and broadening of tax base on both direct and indirect taxes. He further said, Finance Minister Arun Jaitley had reiterated the Government’s decision to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years along with phasing out of tax exemptions and incentives.

IV. “INFLATION IN BHARAT AT 6.5%. BUT IN INDIA IT IS 4.5%” : HSBC REPORT

You will be surprised to read this report prepared by Global Financial Services Firm HSBC (reported in E.T. dt. 23-10-2015), saying notwithstanding the fact that overall inflation has fallen strikingly in the last few months, its benefit have not been equally distributed with the rate of price rise running higher in rural areas than in urban centres because of structural bottlenecks, says the report.

2. The report further says that rural inflation has not fallen as much as urban inflation and the ‘excess inflation’ that the rural India is facing is apparent across major sub-categories like fuel, core and food. “Structural bottlenecks are preventing rural Indians from benefiting fully from global disinflation”, HSBC said in a Research note, adding that this is seen in greater use of non-oil based fuels, where prices remains higher in rural homes.

3. India’s underlying inflation momentum at 5.5% year-on-year is running below RBI’s January Inflation target of 6%, it said. Details however showed it to be higher at 6.5% for Rural India, while for Urban India it stood at 4.5%, it added.

4. The report further noted that benefits of cheaper imports are not reaching rural areas as efficiently and steeper declined in the potential growth of rural India is likely driving its excess core inflation.

5. According to the said report, excess inflation in rural India arises from each of the main constituents – food, fuel, transportation and core inflation. The dramatic drop in oil prices have not passed on to the rural areas.

6. HSBC said rural Indians do not seem to have benefited as much as from food imports as their urban counterparts.

7. May we therefore appeal to Modi Govt. through ‘NITI Aayog’ call for this report study it minutely and take corrective action so that the rural Indians benefit on their daily necessities of life. Nonetheless, this report indicates the deficiency qua the research input of HSBC in the working of ‘NITI Aayog’, whose job was to have detected this serious distortion much earlier.

V. NO TOP JURIST MADE SC JUDGE IN 65 YRS: GOI“IT WAS WRONG TO IGNORE CONSTITUTIONAL PROVISION”

A. The Centre made the above points among its suggestions to better the collegium system, seeking a bigger pool of candidates than High Courts. In its 65 years of existence, the Supreme Court has never got a ‘distinguish jurist’ as a judge, making the Union Govt. pitch for the implementation of a constitutional provision mandating the appointment of this rare breed to the highest court of the land. The Constitution, under Article 124, provides for the appointment of SC judges from 3 sources – a person who has been a HC Judge for 5 years; who has been an HC advocate for 10 years; and, ‘a person who is, in the opinion of the President, a distinguished jurist.’ Interestingly, the Constitution does not provide for the appointment of a distinguish jurist – Article 217(2) says judicial officers and advocates with 10 years experience can be appointed as SC Judges.

The Centre said the collegium system has traditionally selected High Court Chief Justices for appointment as SC Judges, ignoring the two other pools of talent. Further, “Merit should not be sacrificed for seniority and a deserving candidate who may be a senior judge of an SC should also be considered for elevation to the Supreme Court without him becoming Chief Justice of a High Court.” (Source: TOI dt. 11-11-2015)

B. FREE LEGAL AID SHOULD BE BASIS FOR JUDGES’ SELECTION: PM

Prime Minister Narendra Modi recently said that his Government was committed to justice for all which was important for the overall development of the country. He was speaking at a convention of the National Legal Services Authority (NALSA) at Delhi in the presence of Justice T. S. Thakur who will assume the office of the CJI on December 2, 2015. Justice Thakur is at present the Chairman of NALSA.

2. On his suggestion of including the criterion of time spent by judges for 3 legal aid to the poor for judicial appointments, Modi said if such a provision was made, it will help develop a sense of accountability and sensibility towards the poor.

VI. FORTHCOMING EVENTS OF AIFTP

Last but not the least, may I invite your attention to the ensuing two important events viz. ‘Taxcon 2015 Conference’ and ‘18th National Convention’ at Hyderabad scheduled on 27th and 28th November, 2015 and 26th and 27th December, 2015, respectively, which you should not forget to attend with brother colleagues. I am confident that due to your wholehearted support, the above two events bound to be successful and worth remembering forever.

With best wishes and regards,

J. D. Nankani
National President

IS GST FADING AWAY IN ABSENCE OF LEGISLATIVE MANDATE, RATE OF TAX, PROPER CLASSIFICATION OF GOODS AND SERVICES, AND SET-UP OF IMPLEMENTATION STRUCTURE AT NATIONAL AND STATE LEVEL

As per ET report dt. 2-11-2015 under title ‘Setting Stage for Passage of GST Bill’, it was stated that the Govt. was not going to wait till the ensuing Budget to kick in reforms in various sectors. The Empowered Committee meeting which was scheduled to meet in October 2015, but the meeting was deferred. Yet, by pushing hard on its reforms agenda, the Govt. intended to set the stage for passage of GST Bill in Parliament. Earlier, the Empowered Committee of State Finance Ministers released 3 reports on (i) GST payment process dt. April 2015, (ii) GST Registration dt. July 2015 and (iii) Refund process dt. August 2015 inviting stakeholders to debate on the same and send in their suggestions as early as possible improving the above processes. The Committee is expected to meet on November 20, 2015. Meantime, the Chairman of the Empowered Committee Mr. K.M. Mani, who was a Finance Minister of Kerala, has since resigned from the post. Obviously, now, the Committee has become headless till new Chairman is elected. Therefore, the draft legislations on Central GST (CGST), State GST (SGST) and Inter-State GST (IGST) circulated amongst the States for consideration are on hold. The CGST will be framed based on the model GST law. Also the States were to draft their own GST based on the draft model law, with minor variation incorporating State based exemptions.

The drafts of the above proposed legislations are based on 3 principles – (i) definitional clarity, (ii) certainty in assessment and (iii) promoting ease of doing business. Contrary to these principles, as per TOI report dt. 14-10-2015, it is stated that GST Panel has black listed defaulting dealers and suggested compliance rating for them, which will hurt buyers who will be denied input tax credit. In this context, following pain points have been noticed in GST business process:

• The dealers purchasing goods from black listed dealers, will be denied input tax credit.

• There is no centralised registration for Central GST and integrated GST.

• Exporters will no longer be able to obtain non duty paid inputs and will have to claim credit / rebate at a later stage. Thus, blocking their funds thereby a hazard in the way of doing business with ease, as promised.

• Even a partial refund will not be made upfront and automatically when a claim is filed; the entire refund will be made after due processing at one go, within the set time period. Again, this procedure will harm the flow of input credit and doing the business with ease as promised.

As per further TOI report dt. 22-10-2015 and ET report dt. 23-10-2015, on return filing procedures following pain points have been observed:

• Monthly forms, multiple formats increase compliance requirements for taxpayers.

• Returns to be filed in GSTN portal, either by the taxpayer after registering himself or through a recognised tax return preparer (TRP).

• No documents to be submitted with returns. Documents to be shown only during GST Audit when conducted.

• No revision of returns to be allowed. Adjustments to be made in the next periods return, interest for payment shortfall to be auto computed.

• Taxpayers’ filing compliance increases in terms of periodicity, number of different forms and levels of details.

• GST regime to have 8 forms for filing periodic e-returns for Central GST, State GST and Integrated GST.

• There will also be provision for filing GST returns by non-resident taxpayers in Form GST R-5. Non-resident taxpayers could include taxi aggregators like Uber.

• Late fees is suggested for non-filers and late filers of returns.

• Where return is filed without full payment of taxes, it is recommended that the said return will be treated as invalid return. Also, once returns are filed, there will be no provision for revision of returns. Indeed, such provision is unheard of in taxation matters as well as it is contrary to the principle of doing business with ease, as promised.

It appears that Mr. Arun Jaitley, Hon’ble Finance Minister, sensed the above scenario and recently opined at the meeting dt. November 9, 2015 of the high-level committee for central assistance to States (Business Standard dt. 10-11-2015) and stated that on what should be the rate of GST, he said, ‘the lower the better’ he further stated that the Govt. was open to suggestions on improving the architecture of GST. “I am for a GST with a proper architecture, and not for GST with a defective architecture”, he added.

The above two very recent observations of the Hon’ble Finance Minister, clearly indicate that GST is not going to come so soon.

With the above latest background, I had an opportunity to go through the views of celebrities in the taxation field, namely, Shri Parthasarathi Shome and Mr. Dorab R. Sopariwala. Views of both these distinguished personalities are worth consideration. Hence, the same are reproduced below:

Let us share the views of Shri Parthasarathi Shome:

“I write today because I care about this tax, having assisted some 30 countries in its reform or introduction, becoming involved in India since 1995. Neither I will be shy in revealing that as a Chairman of the task force on tax policy and administration for India’s 10th Five Year Plan in 2001 that report recommended seamless tax on goods and services with parallel channels for the Centre and States. I made presentations to Mr. K. C. Pant, the stalwart Dy. Chairman, Planning Commission. Addressing me as a Professor, Pant replied solemnly that I should present the best and not think of downsizing for which others would be readily available.

Thereafter, much water has gone down the bridge. A decade letter Mr. Sinha, then Chairman, Parliamentary Finance Committee invited me to provide views on GST which are on record. The 2015 Parliamentary Select Committee on GST also invited me for my views.

The current GST proposals fail essential tests including Mr. Sinha’s Parliamentary Committee recommendations. The shedding occurred reflecting individual States’ interests. They bypassed National concerns while the Centre, appearing to be in a hurry, accommodated this watering down process. I wonder what Mr. K.C. Pant would have to say were he to witness these developments.

First, presuming that GST will occur on April 1, 2016, India is the first country I have experience with considerably less clarity regarding the intricacies in its proposed structure, transitional arrangements, administration and procedure and framework to contain inflationary ramifications. In other countries consultation on the actual proposals would have taken place in an open manner.

Second, one major characteristic of GST is that it should not distinguish between goods and service. Yet, in its GST, India is likely to continue with this distinction. The argument put forward is that services are currently be taxed at only 14 per cent at the level of centre; hence, any equality of rates between goods and services would raise the tax rate on services too much. But the solution is not to keep a separate lower rate for services, rather to consult, educate and arrive at understanding with business chambers and traders.

Third, States have been allowed to have bands in their GST rates. This debate started with States initially pleading they should be given some flexibility with rates in periods of emergency for temporary extra revenue. That then snowballed into full-fledged bands that even their prevailing VAT rate does not allow. Theoretically a band being a continuous line, the SGST could have infinite rates. I cannot imagine the impending impossible life of an inter-State dealer. Thus, GST could potentially go back to the future, reinvesting the sales tax era that prevailed prior to VAT.

Fourth, excluding petroleum products will robe GST of comprehensive Input Tax Credit (ITC). Relatedly, capital goods would continue to be given ITC only over two years and not in one year. Both these would result in considerable cascading or ‘tax on tax’ for business and, since they will certainly attempt to pass this downstream to consumers, the latter will face an array (if prices that would not reflect market demands accurately). Instead, the relative prices among all goods and services will reflect different cascading elements in them, reducing GST to a hybrid production / consumption tax. Exemption of alcohol for domestic consumption will also suffer from, and contribute to, similar limitations. Given that one State that would considerably enjoy protection of revenue from petroleum production is the Prime Minister’s own, this is the moment to rise above State specific interests and, in the national interest, include petroleum fully in GST, just as he displayed acumen by retracting his 2015 Land Acquisition Bill to reincorporate social impact analysis and States’ views.

Fifth, a one per cent inter-State trade tax will be retained and reviewed by GST Council. This tax will cascade since exporting States will retain its revenue without allowing ITC. Again, this will favour exporting States that are richer. Fiscal federalism comprises not just Centre-State but also inter-State equity. The Finance Minister could boldly remove this tax from GST framework, declaring it will not only be insufficient due to cascading but inequitable among rich versus poor States, just as he has accepted not to impose MAT on FIIs.

In sum, their remains much work to design a good GST. Otherwise, it can be called GST but neither will price distortions reduced, nor business decisions or consumption reflect demand-driven prices, nor administration and compliance be simplified, nor GDP be impacted positively, nor revenue excel, nor the world accept it in a global pantheon of GSTs.”

(Source: Business Standard dt. 16-9-2015)

Views of Mr. Dorab R. Sopariwala

“There is wide consensus in India that the GST is a good idea primarily because it stops the cascading of taxes, unites goods and services under one head, reduces leakages and brings more products and services into the tax net.

A strong proponent of GST, Mr. Adi Godrej has been saying for 5 years or more that it will add one per cent to India’s Gross Domestic Product (GDP). Others have been saying that it might add even two per cent or more. And what is the evidence? Probably, the 2009 study by the National Council of Applied Economic Research, which states that GDP could increase by 0.9-1.7 per cent if a comprehensive GST was implemented.

So, what is the problem? Well, the problem is the usual one. It is an awfully crafted tax; a constitutional elephant created in Committee. For the past 7-8 years, the GST Council has been trying to thrash out the problems. Already there are compromises galore and one is left wondering what other surprises are in store.

Some months ago, Finance Minister Shri Arun Jaitley said the best was often the enemy of the good and that we should not look for the ‘ideal’ GST in this first, hesitant effort. That is certainly true but it is equally true that the bad is also the enemy – and a mortal one – of the good. Which is what this GST Bill is. And the hoped-for increase in GDP was premised on a ‘comprehensive’ GST – not a moth-eaten, half-baked one.

The GST is, by definition, a destination – based tax. To add one per cent tax on inter-State transaction is to violate the very principle of the GST. Even Arvind Subramanian, the Government’s Chief Economic Advisor, has spoken out against it. The Government now proposes some tinkering (such as excluding inter-company transfers across States) but that will create its own problems and more avenues for ‘creativity’ in tax arbitrage. Does the Government need to succumb to this demand, which militates against the very principle of GST – particularly as States are now being fully compensated for the loss of CST for the preceding five years?

But the Gorilla in the room is that electricity, real estate, petroleum products and potable alcohol are out of the GST net. These ‘left out’ categories taxes account for probably 40-50 per cent of States’ revenues. Thus, industries does not get a set-off for, say, their use of petroleum products etc. and the cascading continues. It is just my convoluted mind or do others also think that these four sectors are the once that are cash cows for our political masters?

If India is to benefit fully from the GST, there must be a clear provision in the Bill that ensures these four products do come into the net – even if they do so several years later. Else, going by our record, it will never happen.

We are told that ‘all indirect taxes’ will be subsumed in the GST. India will be one common market. One country, one tax. But each State is allowed to have its own GST Bill and no law requires these laws to be in harmony. And there appears to be nothing to prevent a State from having a different rate from others or imposing a ‘temporary surcharge’, during, say, a financial emergency, which could last for years (like the ‘Bangladesh Refugee’ Surcharge, levied in 1972 on bus tickets in Maharashtra, which lasted forever 40 years!)

Further, what do we do if a State imposes an additional indirect tax under another guise ? And what happens if some States declined to give input credit on some products as they currently do under Value Added Tax, on the ground that input credit is a facility and not a right of a taxpayer.

The GST is an idea whose time has come. This is a big bang reform and the Government has to get it right and not wholly or in full measure but very substantially. A slipshod bill will result in the country paying a heavy price for this most significant attempt at reforming our indirect taxes and facing global challenges for the future.

While the GST is sacrosanct, April 1, 2016 is not. Getting it right is. So, let us debate, discuss and finally roll out a reform that the country can be proud of.”

(Source: Business Standard dt. 11-9-2015)

All in all, considering the above scenario and updated views of eminent experts, it is our humble view and suggestion that the Hon’ble Finance Minister Mr. Arun Jaitley, should himself get involved into the gamut pertaining to GST, and not fully depend on Empowered Committee and its reports, if the whole exercise is to be completed in a time bound schedule. Further, he should invite or pay visits personally across the country’s main business centers and all the interests and in particulars Tax Bars and its Apex body, namely, All India Federation of Tax Practitioners, Mumbai, for a large scale discussions, which are going to be affected by the proposed GST. In this context, the latest information is that Mr. Arun Jaitley while at Dubai remarked thus : “Without compromising on architecture, and keeping a general consensus between States and the Centre in mind, I think a discussion on GST is possible.” Viewed from this point of view, let us not fix in a hurry any deadline for its immature implementation. Of course, apart from the above, the Winter Session of the Parliament and the deadlock in the Rajyasabha, holds the key for further course of action in the matter. Notwithstanding this, let us be positive about the ensuing GST.

D.H. Joshi
Associate Editor