1. Payment of duty – Liability of financial institution – In respect of any instrument executed in its favour or create any right in favour of such financial institution – Provision in that regard not arbitrary, unreasonable or unfair – Article 19(1)(g) of Constitution – Maharashtra Stamp Act of 1958, S. 30A

Agreement relating to deposit of title deeds – compulsorily registrable:

Section 30 is dealing with duty by whom payable. As set out in section 30, in the absence of an agreement to the contrary the expenses of providing the proper stamp shall be borne in cases of these instruments and which are set out in clause (a) of S. 30 by the person drawing or making such instrument, in the case of a conveyance including conveyance of mortgaged property, by the grantee in the case of a lease or agreement to lease by the lessee or intended lessee. Hence, the duties are payable by these persons and on instruments falling in the categories enumerated above. However, notwithstanding anything contained in section 30 any instrument referred to in the above clauses of section 30 is executed on or after the commencement of the Maharashtra Tax Laws (Levy and Amendment) Act, 2013, in favour of or by any financial institution which creates any right in favour of any such financial institution then the liability to pay proper stamp duty shall be on the financial institution concerned without affecting its rights, if any, to collect it from the other party.

The court observed that this cannot be said to be an impediment on the right to carry on banking business or any trade, occupation and profession within the meaning of sub-clause (g) of clause (1) of Article 19 of the Constitution of India. It is only after the Amendment Act that this liability comes on to the bank / financial institution.

A large number of dealings and transactions so also services rendered by banks and financial institutions resulting in large number of instruments being executed in favour of or by any financial institution create a right in favour of such institutions. Therefore, to smoothen the process of collection of stamp duty and not to delay it, the State has decided to fix the liability to pay proper stamp duty on such financial institutions and the provision has taken care not to affect any right in such institutions to collect it from the other party.

It has also been held that Agreement relating to deposit of title deeds, where such deposit has been made by way of security for repayment of loan or an existing or future deed is compulsorily registrable.

State Bank of India, Mumbai and Others v. State of Maharashtra and others: AIR 2016(NOC) 448 (Bom.).

2. Deficit Stamp Duty – Market value of property: Stamp Act sec. 47A

Deficit stamp duty of market value of property is to be determined with reference to its character on date of execution of instrument and its potentiality as on that date. Collector proceeded to levy circle rate for residential plot to compute market value of property on mere assumption or that property was residential. Even inspection report subsequently called indicating that plot was utilised for residential purpose not based on any evidence order passed by collector in absence of any material on record, liable to set aside.

Smt. Vijaya Jain v. State of U.P. and Others. AIR 2016 (NOC) 449 (All.)

3. Reading down provision – Section does not suffer from any inherent limitation such as ambiguity, vagueness – Adoption of Rule of reading down – Not called for

Reading down is an interpretative device to save a statute or a provision thereof from the vice of unconstitutionality. It has a limited application. It cannot be taken recourse to when the legislative intent is explicit and interpretative ambiguity is absent. It is not a deliberate device to mutilate the meaning of the provision lest it should perish. Interpretation is an intellectual rescue operation by the judiciary to extricate a trapped meaning from a rubble of words.

However, it was held in instant case that as S. 56A of Kerala Co-operative Societies Act does not suffer from any inherent limitations, such as ambiguity, vagueness, as have been mentioned above, calling for adopting the interpretative device is not called for.

No enactment can be struck down only on ground that it is arbitrary or unreasonable. Some or other constitutional infirmity must be found before invalidating an Act.

Radhakrishna Kurup v. Nadakkal Service Co-operative Bank Ltd. & Ors. AIR 2016 (NOC) 453 (Ker.)

4. Suit for partition – Court fees – Has to be paid to extent of share claimed – Order directing to deposit court fee on the basis of valuation of entire property, not proper – Court Fees Act, 1977 sec 7 (iv)(b)

It is not in dispute that the suit was filed by the petitioner for partition by metes and bounds of his share. In a partition suit how the suit has to be valued has been already considered by the judgments of Madras High Court reported in AIR 1947 Mad. 273, AIR 1953 Pat 342, AIR 1979 Orissa 71, AIR 1962 Bombay 4 and AIR 1944 Privy Council 65, held that in a case of simple partition suit the plaintiff has to value his suit for purposes of pecuniary jurisdiction and Court fee to the extent of his share claimed out of the joint family property.

The decision of J & K High Court in Trilok Nath Lotha v. Jawahir Lal Kotha & Ors. 1988 KLJ 600 was relied.

Pt. Tara Chand v. Deepak & Others. AIR 2016 Jammu and Kashmir 95

5. Appeal – Against consent decree – Maintainability – Transfer of property during pendency of suit – Sale deed would only convey to the extent of title of vendor – Transferee pendent lite can exercise all rights of transferor – Can seek equitable partition

The position of a person on whom any interest has devolved on account of a transfer during the pendency of any suit or a proceeding is somewhat similar to the position of an heir or a legatee of a party who dies during the pendency of a suit or a proceeding, or an official receiver who takes over the assets of such a party on his insolvency. When a party to a decree dies, leaving some heirs, in the final decree proceedings, shares may be allotted to such heirs. Similarly, in the case of transferee pendente lite, if there is no dispute, final decree Court can proceed to make allotment of the properties in an equitable manner instead of rejecting their claim for such equitable partition on the ground that they have no locus standi. A transferee from a party of a property which is the subject matter of partition can exercise all the rights of the transferor. There is no dispute that a party can ask for an equitable partition. A transferee from him, therefore, can also seek for an equitable partition, even if the transfer is during the pendency of the suit. Such a construction of section 54 of the Code of Civil Procedure advances the cause of justice.

Syed Basheer Malik and Anr v. Smt. Jameeela Begum and Ors. AIR 2016 (NOC) 395 (Kar.)

6. Compensation – Victim – Definition of – Should also include child born out of illegal act of sexual abuse with minor

A definition of victim in para 2(d) of U.P. Victim Compensation Scheme should also include the child born out of illegal act of sexual abuse with minor. The new born child is victim in the sense that she/he is forced to live a life of shame and stigma without his/her fault. She/he is brought in this world destined to suffer because while father refuse to lend his name to child, mother abandons her/him for social reasons. Injury to reputation is to violation of right to live with dignity. The child is victim of circumstances. She/he definitely suffer injury of being left the world to fend for himself without any support.

“A” through her Father “F” v. State of U.P through Prin. Secy., Med. & Health Ser. & Ors. AIR 2016 (NOC) 396 (All.)

7. Partnership – Proceeding by unregistered firm –Maintainability. Partnership Act of 1932, S. 69

Bar under S. 69 of the Partnership Act would extended to any proceedings before the court. If the proceeding are not before a court bar under S. 69 would not be applicable.

Bar under S.69 of the partnership Act does not apply to an application filed under S. 11 of the Act (26 of 1996) or to the arbitration proceeding itself since application for appointment of arbitrator is not made to court but Chief justice or his designate, bar under S. 69 of the Partnership Act (1932) would not applicable.

Dattatray N. Sawant and Another v. Nitida A. Mehta and Others. AIR 2016 (NOC) 403 (Bom.)

8. Modification of date of birth: Evidence Act sec. 35

Date of birth is carried in books of school for whole length of period of schooling. It cannot be modified after entry is brought in CBSE records. Modification in date of birth in CBSE records is restricted only in clerical mistakes. Date of birth cannot be modified only to make it congruent with date of birth as entered in birth certificate.

Mandeep Singh v. Central Board of Secondary Education and Others. AIR 2016 (NOC) 404 (P. & H.)

9. Wakf property – Determination of dispute: Wakf Act, 1995 Sections 83, 65 & 51

As per provisions of Act, any dispute relating to wakf property must be determined by Wakf Tribunal. Therefore where questioned of the bona fides of the Board in taking over direct management of the property and retaining management despite lapse of five years, not transferring administration thereof to the first petitioner, entering into a development agreement with the fifth respondent, and transferring right etc. Were decision to take over direct management of the property (under section 65 of the Act) and the decision to develop the property followed by execution of a development agreement (ostensibly under section 51 of the Act) must be construed as included in “an order made under this Act” and, therefore, amenable to challenge before the Waqf Tribunal. It has to be remembered that the jurisdiction of a writ Court under Article 226 is an extraordinary jurisdiction, which should be exercised sparingly and in fit cases where the party aggrieved has no other remedy available to him.

Khoja Sunnat Jamat and Another v. Board of Waqf, West Bengal and Others. AIR 2016 (NOC) 405 (Cal.)

10. Election – Second order for recounting of votes – Is not permissible in event first recounting is already done and election results are announced. Karnataka Panchayat Raj Act and Rules

In terms of provisions contained in sub-rule (6) of Rule 71 of Karnataka Panchayat Raj (Conduct of Election) Rules, 1993, once total number of votes polled by each candidate had been announced as per sub-rule (1) or sub-rule (5), the Returning Officer shall complete and sign the result sheet in Form 31 and no application for recount shall be entertained thereafter. Sub-rule (2) provides that a candidate or his agent may apply in writing to the Returning Officer to recount the votes either wholly or in part stating the grounds on which demand for recount is made. If such an application is made, as per sub-rule 3, the Returning Officer shall decide the matter and may allow the application in whole or in part or might reject it in toto, if it was a frivolous one. As per sub-rule (5), if the Returning Officer decides to allow the recount of the votes, then the recount of votes has to be done in accordance with the rules applicable and he is required to amend the result sheet in Form 31 to the extent necessary after such recount and announce the amendment so made by him. Once such total number of votes polled by each candidate has been announced in terms of sub-rule (5), the Returning Officer shall complete and sign the result sheet in Form 31 and no application for recount shall be entertained thereafter. Therefore, there is no provision under the Act and Rules for another recount. Indeed, such a process is prohibited.

T.J. Prasanna Kumar v. Returning Officer, Chikamangaluru and Another. AIR 2016 (NOC) 441 (Kar.)

11. Enlargement of estate – Right of Hindu widow – Right to maintenance out of profits of property of husband after his death thus would not enlarge into absolute right in her favour

Section 14 of the Hindu Succession Act will not have any application to a case where a widow had no rights whatsoever in the properties except a right of maintenance out of the proceeds of the property. To come within the scope of the said Section of the Hindu Succession Act, the Hindu female must not only be possessed of the property but she must have acquired the property either by way of inheritance or devise, or at a partition or “in lieu of maintenance or arrears of maintenance” or by gift or her own skill or exertion or by purchase or by prescription and a mere right of maintenance without acquisition of some right in the property is not sufficient to attract the said Section.

Where widow had not acquired any right in the property by way of inheritance or devise, or at a partition or “in lieu of maintenance or arrears of maintenance” or by gift or her own skill or exertion or by purchase or by prescription. As such, it cannot be held that she had limited interest in the property within the meaning of Section 14 of the Hindu Succession Act and since the right to property, but only a right against the property, her right to maintenance out of profits of property of husband after his death would not become absolute right by virtue of S. 14(1).

Vasudevan v. Devakay and others. AIR 2016 (NOC) 442 (Ker.)

A. Classification of Service

Business Auxiliary / Support Services

1. The Tribunal held that octroi agents engaged in reading invoices and challans, filling up forms and obtaining clearance at check posts do not deal with documents for title since they’re not authorised to do so and therefore not liable for service tax under Business Auxiliary Services.

Trimurti Octroi Company v. CCE – (2015) 40 STR 152 (Tri. – Mum.)

2. The Apex Court held that where a specific service was excluded from the purview of service tax, the authorities could not levy service tax indirectly under the general charging head of business auxiliary services and therefore held that the cash management services rendered by the assessee, being excluded from the ambit of banking and financial services could not be liable to charge under the head of business auxiliary services.

CCE, C & ST v. Federal Bank Ltd. – (2016) 42 STR 418 (SC)

3. The Tribunal held that the activity of running the retail outlet of HPCL, including physical delivery of petroleum products, providing adequate security for retail outlet, maintaining proper and correcting the amount of transactions, handling receipts/storage/delivery of stock for sale of products, arranging for effective operation of air/water and other customer oriented facilities, housekeeping and other jobs etc., are covered under the definition of Business Auxiliary Services and not under Manpower Supply Service.

Harinder Goyal v. CCE – (2016) 42 STR 61 (Tri. – Del.)

4. The Tribunal held that, ginned cotton which comes into existence as a result of ginning process on cotton produced by farmers, was covered within the inclusive definition of ‘agricultural produce’ under Notification No. 13/2003-ST and therefore commission received by the assessee in respect thereof is eligible for exemption.

R. K. & Sons v. CCE – (2016) 42 STR 314 (Tri. – Del.)

5. The Tribunal held that services provided by automobile dealers to financial institutions was decided to be categorised as Business Auxiliary Service only upon issuance of Circular No. 87/06/2006-ST dated 6-11-2006 and therefore demands arising out of this issue prior to the said date could not be confirmed.

CCE v. Ratnaprabha Motors – 2016-TIOL-1299-CESTAT-Mum.

6. The Tribunal held that service tax was not leviable on collection of smart card / vehicle registration fees and other charges since the said charges were neither covered under ‘Customer Relationship’ nor any residual category of ‘other transaction processing’ under the Business Support Services category.

Wonder Cars Pvt. Ltd. v. CCE – (2016) 42 STR 1055 (Tri. – Mum.)

7. The Tribunal held that the services provided by the assessee, who deputed employees to its group companies to assist the group companies sell its goods (as per the directions of the group company), could not be considered as business auxiliary services and therefore not liable to service tax since the assessee did not render any service of promotion or marketing of goods manufactured by the group companies.

Franco Indian Pharmaceutical P. Ltd. v. CST – (2016) 42 STR 1057 (Tri. – Mum.)

8. The Tribunal held that service tax was not payable under business auxiliary service on surplus arising from purchase and sale of space in a principal-to-principal transaction of multi-modal transporters since business auxiliary services did not include principal to principal transactions.

Greenwich Meridian Logistics (I) Pvt Ltd. v. CST – 2016-TIOL-869-CESTAT-Mum

Cargo Handling Service

9. The Apex Court held that for taxability under CHS, goods must be cargo and activity of loading/unloading and packing/unpacking must be carried out by an independent agency and therefore where the assessee only supplied labour for working in packing plant as per specific requirement of customer and supervised work done by them and no part of loading or unloading or packing of cement service provided by them was liable to service tax under CHS.

DC of CE v. Sushil & Company – (2016) 42 STR 625 (SC)

Construction Services

10. The Tribunal held that where the assessee provided services of border fencing across Indo-Bangladesh Border, the same was not liable to service tax under Erection Commissioning and Installation services since Fence even though a structure, cannot be read in isolation but along with commissioning or installation of plant & machinery and as such, border fencing structure standing alone cannot be subjected to service tax under ECI service.

Mackintosh Burn Ltd. v. CCCE&ST – 2016 42 STR 161 (Tri. – Kolkata)

11. The Tribunal held that construction of college building which is carrying out technical education approved by AICTE, Government of Maharashtra amounts to non-commercial construction and therefore not liable to service tax.

CST v. S. M. Sai Construction – (2016) 42 STR 716 (Tri. – Mum.)

Club or Association Service

12. The Tribunal held that receipts from members were not liable to service tax since the transaction between the two did not satisfy the charging section viz., 65(105)(zzze) of the Finance Act, 1994. Further, it held that reimbursement received from staff towards accommodation was not liable to service tax since privileges of employer- employee relation was outside the purview of service tax and the activity did not come within the definition of taxable service of renting of immovable property.

Gondwana Club v. CC & CE – (2016) 42 STR 895 (Tri. – Mum.)

Credit Card Services

13. The Larger Bench of the Tribunal held that merchant discount earned by the acquiring bank from the merchant establishment was not taxable under the category of credit card services prior to May 1, 2006, since prior to the introduction of section 65(33a) with effect from May 1, 2006, which defines credit card services, the said transactions were not covered under the earlier definition provided under section 65(12).

Standard Chartered Bank v. CST – (2015) 40 STR 104 (Tri. – LB)

Dredging Services

14. The Tribunal held the services provided for the purposes of desilting of the Mithi River was liable to service tax under the category of Dredging Services

R.P. Shah v. CCE – (2016) 42 STR 839 (Tri. – Mum.)

Franchise Service

15. The Tribunal held that where the assessee got branded firebricks and other refractory material manufactured from other manufacturers and the department sought to demand service tax on differential price of purchase and sale under franchise service, as per definition of franchise, one conditions precedent was that the franchisee was granted representational right to sell goods identified by franchisor, whereas in this case, the manufacturers did not have any representational right to manufacture/sell goods except compliance of purchase order of appellant and therefore the same was not liable to service tax. It held that merely because the word ‘franchise’ was used in the agreement it does not ipso facto mean that franchise services were rendered.

Ace Calderys Ltd. v. CST, Bhopal (2016) 42 STR 8 (Tri. – Del.)

Management, Maintenance and Repair Service

16. The Tribunal held that management and maintenance of parks and roadside plantation and maintenance on behalf of local bodies was liable to service tax under MMR Service w.e.f. 1-5-2006. Further, it held that since the assessee had not obtained ST registration and not filed returns the extended period of limitation was invocable.

Tarachand Chaudhary v. CCE – (2016) 42 STR 83 (Tri. – Del.)

Manpower Recruitment & Supply Agency Services

17. The Tribunal held that supplying models / actors for advertising of products of TV serials / films were not covered within the definition of Manpower Recruitment Services & Supply Agency Services during the period from 2001-02 to 2002-03.

Israni Networking v. CCE – (2016) 42 STR 917 (Tri. – Mum.)

Port Service

18. The Tribunal held that where the agreement entered into between the assessee and the licensee for the development of a berth as a container terminal, its operation and maintenance on BOT basis, was in the nature of a licence agreement, it cast certain principal and operational obligations on the appellant and therefore the royalty fee received therefrom would be liable to service tax under the Port Service category.

Tuticorin Port Trust v. CCE – (2016) 42 STR 512 (Tri. – Chennai)

Real Estate Agent Service

19. The Tribunal held that administrative/transfer charges recovered for rendering services in relation to real estate viz., changing names of owner (last allottee) in records prior to execution of sale deed in favour of buyer clearly falls within Real Estate Agent Service. Further, since there was an order of the Commissioner (Adjudication) Service Tax, New Delhi in another case holding that such transaction not dutiable, the appellant’s claim regarding bona fide belief was supported and therefore extended period of limitation could not be invoked.

Ajay Enterprises Pvt. Ltd. v. CST – (2016) 42 STR 471 (Tri. – Del.)

Rent –a-cab services

20. The Tribunal held that the services provided by the assessee viz., providing of buses for transportation of passengers on a stage carrier basis, was liable to service tax and it dismissed the contention of the assessee that the said services could not be treated as hire in light of the Motor Vehicles Act, 1988 which provided that the hire of buses with stage carriage was not permitted, since the chargeability of services under the Finance Act 1994 was independent of the Motor Vehicles Act, 1988.

S.K. Kareemun v. CCEC & ST – (2016) 42 STR 988 (Tri. – Bang.)

Renting of Immovable Property

21. The Court held that rent collected for lease of various plots allotted by the assessee to lessees for construction of factories was liable to service tax under the category of Renting of Immovable Property Services and that the term of lease (whether for short duration or for 90 years or perpetuity) did not make a difference. Further, it held that letting of vacant land for construction of buildings used in the furtherance of business or commerce at a later stage was only taxable with effect from July 1, 2010.

Greater Noida Industrial Development Authority v. CCE – (2015) 40 STR 95 (All.)

22. The Court held that renting of vacant land for construction of a building for use at a later stage for business or commerce is liable for service tax only with effect from July 1, 2010 and not prior to that date.

CST v. Greater Noida Development Authority – (2015) 40 STR 46 (All.)

Restaurant services and short-term accommodation services

23. The Court upheld the constitutionality of imposition of service tax on supply of food during rendering restaurant services and short term accommodation servives since the service tax was imposed only on the service aspect of the transaction.

Ballal Auto Agency v. UOI – (2015) 40 STR 51 (Kar.)

Supply of Tangible Goods Service

24. The Tribunal held that where the assessee hired helicopters for customers to ferry persons and cargo for offshore operations along with the flight crew and maintenance crew with fully operational helicopters, the purport and object of agreement being for charter hiring, the activity clearly fell under SOTG service.

Technical testing and analysis

25. The Tribunal held that services of clinical testing of drugs and medicine was not liable to service tax prior to May 1, 2006.

Wellquest v. CST – (2015) 40 STR 185 (Tri. – Mum.)

Telecom Service

26. The Court held that activation of SIM cards was a service and not a sale and in the absence of any statutory provision under the State VAT Law authorising collection of sales tax / VAT on SIM Cards, the collection of VAT was without authority of law and nonest. Accordingly, the Court directed the VAT department to transfer the amount due as refund of unauthorised VAT collected, to the Service Tax Department for adjusting the same towards the demand made by them.

Idea Cellular Ltd. v. UOI – (2016) 42 STR 823 (P&H)

Works contract Services

27. The Apex Court held that the five types of works contracts covered by Section 65(105)(zzzza) would be liable to service tax only with effect from June 1, 2007 under the category of works contract services and not prior to that date under any other category of service.

CCE & C v. Larsen & Toubro Ltd. – (2015) 39 STR 913 (SC)

28. The Tribunal held that the supply and installation of Metal Crash Barriers alongside highways was a composite contract involving supply of materials and provision of service falling under category of Works Contract Service and not liable to Service Tax prior to 1-6-2007 as held by Apex Court in case of Larsen & Toubro Ltd. 2015 (39) STR 913 (SC).

Pioneer Fabrication Pvt. Ltd. v. CCE – (2016) 42 STR 563 (Tri. – All.)

29. The Court held that where the assessee provided works contract services to IIT it was not liable to service tax in respect of such services, since IIT, set up by the Act of Parliament was a Governmental authority and therefore the construction activity was exempt from service tax under clause 12(c) of the Mega Exemption Notification.

Shapoorji Palonji and Co. Pvt. Ltd. v. CCE, C & ST – 2016-TIOL-556-PATNA-ST

B. Valuation

30. The Tribunal held that the free supply of items provided by service recipient of site formation service could not be added to assessable value of service to levy service tax. It further held that the bonus given to the assessee by service recipient for efficient use of diesel and explosives could not be added to value of service as the same was not known at time of performance of service and was calculated subsequent to completion of service and it was more in nature of prize money for good performance and in no way linked to value of services.

AMR India Ltd. v. CCE & ST – (2016) 42 STR 329 (Tri. – Bang.)

31. The Tribunal held that for the purpose of determining the ‘gross amount charged’ on which service tax was to be levied, the payment actually received by the assessee and not the notional average of gross consideration for 10 years inclusive of lease advance not actually received, was to be considered. It further held that as per Accounting Standard – 19 followed by assessee, said notional amount is not income for purpose of computing tax under Income Tax Act and therefore cannot be held liable to service tax. Since said notional amount was not payment actually received, it was neither consideration nor gross amount charged in terms of section 67(1) of FA, 1994.

Reliance Infratel Ltd. v. CCE – (2016) 42 STR 452 (Tri. – Mum.)

32. The Tribunal held that the amount received as consideration should be considered as cum tax amount unless the amount of tax is recovered separately.

CST v. Bluechip Corporate Investment Centre Ltd. – 2016 (42) STR 50 (Tri. – Mum.)

33. The Tribunal held that when TDS liability of foreign service provider was borne by service recipient and the service provider was paid entire consideration as per the contract, such TDS component would not constitute consideration for service.

Magarpatta Township Development & Construction Co. Ltd. v. CCE – [2016] 68 taxmann.com 280 (Mumbai-CESTAT)

34. The Authority held that the incentive/volume discount received by the assessee who provided services of an advertising agency providing professional services to the advertisers in relation to placement of advertisements in various media via two business models was not liable to services tax since there was no legal or contractual obligation to pay such volume discounts which were purely gratuitous and discretionary on the part of the media owners. It held that there had to be a nexus between activity and consideration and therefore incidental receipts of such incentives / volume discounts was not liable to service tax.

M/s. Akqa Media India (P) Ltd. – 2016-TIOL-14-AAR-ST.

35. The Tribunal held that free supplies provided to the sub-contractor by the construction service provider was not includible in the gross amount of taxable services for the purpose of computing service tax.

Harsh Construction v. CCE&ST – (2016) 42 STR 844 (Tri. – Ahmd.)

36. The Tribunal held that the benefit of deduction of cost of raw materials consumed in providing retreading of old and used tyres was not available to the assessee. It further held that the concept of deemed sales of goods was only applicable in the case of works contracts and not in the case of maintenance and repair services and therefore the value of rubber was includible in the gross amount of services and the benefit of Notification No 12 / 2003- ST was not available in the instant case.

CCE v. Tyresoles India Pvt. Ltd. – (2016) 42 STR 861 (Tri. – Mum.)

37. The Court held that in absence of machinery provisions to exclude non-service elements from a composite contract of construction of residential complex service, no service tax can be levied.

Suresh Kumar Bansal v. Union of India & Or. –2016-TIOL-1077-HC-EL-ST

C. CENVAT Credit

38. The Tribunal held that credit of service tax paid on courier services availed for speedier delivery of final products to the customers was admissible as it was an activity relating to the business of the assessee and denial of CENVAT credit on the ground that it was in the nature of services in relation to the outward transportation beyond the place of removal was incorrect.

CCE v. Sakata Inx India – (2015) 39 STR 865 (Tri. – Del.)

39. The Tribunal held that credit of service tax on clearing and forwarding agent services was admissible and that credit of service tax paid on commission agent’s services was inadmissible.

CCE v. Nutrine Confectionery Co. Ltd. – (2015) 39 STR 866 (Tri. – Bang.)

40. The Tribunal held that credit of service tax paid on lending of office, maintenance charges, brokerage or commission paid for obtaining office premises, insurance of plant and machinery, security charges, housekeeping charges and accident insurance of employees being availed in the course of business of manufacturing was admissible.

CCE v. Taurus Agile Technology Corporation P. Ltd. – (2015) 39 STR 880 (Tri. – Del.)

41. The Tribunal held that denial of CENVAT credit on the ground that the invoices contain the previous address of the assessee was incorrect. Further, it held that CENVAT credit on mobile phone bills used by officials of the assessee was admissible and that service tax paid on dismantling of plant and machinery for shifting it to new premises being an integral part of business activity was also admissible as CENVAT Credit.

Paradise Plastics Enterprises Ltd. v. CCE – (2015) 39 STR 889 (Tri. – Del.)

42. The Tribunal held that services rendered by consignment agents in relation to promotion of sale would fall within the expression of ‘sales promotion’ as mentioned in the definition of input services and hence credit on the same was admissible.

Vishal Pipes Ltd. v. CCE – (2015) 39 STR 864 (Tri. – Del.)

43. The Court allowed the assessee CENVAT Credit of service tax paid on lease rent of land and construction services for putting up its factory since the factory was used for manufacture of final products. It held that the construction services used for setting up the factory would fall in the ‘means’ part of the definition of input service being a service used directly or indirectly for the manufacture of final product.

CCE v. Bellsonica Auto Components India Pvt. Ltd. – (2015) 40 STR 41 (P&H)

44. The Tribunal held that where the assessee availed credit on various services received by 3 offices, which were utilised for payment of duty liability in respect of its single manufacturing unit, the credit could not be denied on the ground of non-registration as an Input service distributor since the ISD registration was only required where there was more than one manufacturing unit.

CCE v. Taurus Agile Technology Corporation P. Ltd. – (2015) 39 STR 88 (Tri. – Del.)

45. The Tribunal held that there is no bar for claiming refund of unutilised credit pertaining to the previous quarters under Notification No.5 / 2006.

Innor Solutions Pvt. Ltd. v. CST – (2015) 39 STR 698 (Tri. – Del.)

46. The Tribunal held that CENVAT credit on telephone bills in the name of the Director but bearing the address of the office premises could not be disallowed. Further, it held that CENVAT credit in respect of unregistered branch premises subsequently registered and a part of the assessee’s centralised registration was not disallowable.

Ketan Motors Ltd. v. CCE – (2015) 39 STR 858 (Tri. – Mum.)

47. The Court held that where the assessee, engaged in providing commercial coaching and training, organized celebrations for encouraging successful students who completed their courses, the service tax paid on catering, photography and tent services used for organising the said celebrations could not be considered as used for providing output services and therefore CENVAT Credit on the same could not be allowed.

The Court further held that CENVAT Credit on repair of motor vehicles and travelling expenses on business tours, having no nexus to the provision of commercial training and coaching services could not be allowed.

Bansal Classes v. CCE & ST – (2015) 39 STR 967 (Raj.)

48. The Court held that CENVAT credit of duty paid on cement and steel bought by the assessee, a port service provider, and supplied to a contractor for construction of new jetties would be admissible even though the services provided by the contractor was an exempted service.

Mundra Ports & Special Economic Zone Ltd. v. CCE & CUS – (2015) 39 STR 726 (Guj.)

49. The Tribunal held that canteen services (outdoor catering services), garden maintenance services, event management services availed by the assessee, a port services provider, for an opening ceremony and other ceremonial occasions was allowable as input services as it was used for the purposes of business.

Gateway Terminals I Pvt. Ltd. v. CCE – (2015) 39 STR 1027 (Tri. – Mum.)

50. The Tribunal held that CENVAT Credit of service tax paid on life insurance of staff and rent a cab services availed for providing conveyance to staff was allowable especially considering that these costs were included for the purpose of billing to the clients.

Mount Kellet Management (I) Pvt. Ltd. v. CST – (2015) 40 STR 165 (Tri. – Mum.)

51. The Court held that there was no infirmity in the finding of the Tribunal that service tax credit could be utilised for payment of excise duty on goods manufactured by the assessee and that such cross-utilisation was neither barred nor prohibited.

CCE v. S. S. Engineers 2016 (42) STR 3 (Bom.)

52. The Court held that repair, maintenance of company vehicles, rent-a-cab services were in relation to business activities of assessee as they were directly/indirectly involved in the manufacture of final product and therefore eligible for CENVAT credit.

CCE & ST v. Mangalore Refinery & Petrochemicals Ltd – (2016) 42 STR 6 (Kar.)

53. The Tribunal allowed CENVAT credit of service tax paid on service of private placement of shares for raising capital for implementing new project to manufacturer of automotive wheels as the definition of input service was not restricted to services directly linked to manufacturing activity only.

Steel Strips Wheels Ltd. v. CCE – (2016) 42 STR 72 (Tri. – Del.)

54. The Tribunal held that an ISD can distribute CENVAT credit even without taking registration and non-registration was not a ground for denial of credit. It held that the TR-6 challan is proper document for passing CENVAT credit.

Bhansali Engg. Polymers Ltd. v. CCE – (2016) 42 STR 86 (Tri. – Del.)

55. The Tribunal allowed CENVAT credit of services utilised for running canteen, maintenance of garden and cleanliness in residential colony on the facts of the case.

Mukund Ltd. v. CCE – (2016) 42 STR 88 (Tri. –Mum.)

56. The Tribunal held that service provided to Jammu & Kashmir was an exempt service under the Cenvat Credit Rules, 2004 and therefore provisions of Rule 6 for proportionate reversal were applicable. It is also held that, services provided to SEZ and United Nations were not to be treated as exempted service for invoking provisions of Rule 6 of CCR, 2004.

Adecco Flexione Workforce Solutions Ltd. v. CCEC & ST – (2016) 42 STR 202 (Tri. – Bang.)

57. The Court held that, since assessee did not exercise the option of availing abatement under Rule 2A of Valuation Rules in respect of Works Contract Service and discharged tax liability in full, the Revenue was not put to loss by availment of credit on inputs and therefore the appeal by revenue was not sustainable.

CCEC & ST v. S. V. Jiwani – (2016) 42 STR 209 (Bom.)

58. The Tribunal held that towers and shelters and pre-fabricated material used for such towers and shelters were neither capital goods nor inputs. The towers were immovable structure and ipso facto non-marketable and non-excisable. Further, since there was no nexus between above duty paid inputs and telecommunication service it further held that, by classifying product and paying duty under particular tariff heading, automatic claim for that item could not be made and eligibility of any item for credit was to be decided as per CCR, 2004.

Tower Vision India Pvt. Ltd. v. CCE – (2016) 42 STR 249 (Tri. – LB)

59. The Tribunal held that where the assessee claimed CENVAT credit of service tax paid on input services procured before registration and contended that they had taken credit only when construction of mall was completed and ready to be rented out (post registration), substantial benefit could not be denied and the delay in registration could be ignored when there was no violation of legal provisions.

Vamona Developers Pvt. Ltd. v. CCCE&ST (2016) 42 STR 277 (Tri. – Mum.)

60. The Tribunal held that the requirement of filing declaration under Rule 6(3A) was directory and not mandatory and where most of the requirement of such declaration were already available in the Revenue’s record, Rule 6 could not be used as tool of oppression to extract amount which is much beyond remedial measures. It held that CCR, 2004 is a delegated legislation and subservient to main Act and cannot override section 93 of FA, 1994.

Tata Technologies Ltd. v. CCE – (2016) 42 STR 290 (Tri. – Mum.)

61. The Tribunal allowed the assessee CENVAT credit of service tax paid on Construction Service, Repair & Maintenance Service, Security Service, Manpower Recruitment Service, Works Contract etc., used in residential colony of the employees attached to the factory since the factory was located in a remote area and the residential colony was required for the smooth running of business.

Reliance Industries Ltd. v. CCE & ST – (2016) 42 STR 457 (Tri. – Mum.)

62. The Tribunal held that CENVAT credit of service tax paid on membership of CII & TN Electricity Consumer Association, Group Mediclaim Policy and Housekeeping charges was allowable since such services were essential to carry on business of manufacture of final product.

Hinduja Foundries v. CCE – 42 STR 494 (Tri. – Chen.)

63. The Tribunal held that any service received, which is commercially required for the purpose of carrying on business of service provider is covered by the expression “activity relating to business” contained in Rule 2(l) of CCR, 2004 and eligible for CENVAT Credit.

CST v. Jubilant Biosys Ltd. – (2016) 42 STR 729 (Tri. – Bang.)

64. The Tribunal held that since the capital goods were received during construction activity and installed in hotel premises and undoubtedly used for providing output service for which assessee got registration subsequently, the credit was admissible.

CCE v. Kamat Construction & Resorts Pvt. Ltd. – (2016) 42 STR 450 (Tri. – Mum.)

65. The Tribunal held that where the assessee availed CENVAT Credit on renovation services which was classified under the category of Works Contract, since Works Contract Services was excluded in definition of Input Service, it was not open for the assessee to avail input service credit by changing its category.

JDSU India Pvt. Ltd. v. CST – (2016) 42 STR 752 (Tri. – Mum.)

66. The Tribunal held that the membership of business clubs like the Enterpreneur Organisation was indirectly related to the promotion of business and therefore was an input service for which the assessee could legally take CENVAT credit of related expenses.

Pam Pharma & Allied Machinery Co. P. Ltd. v. CCE – (2016) 42 STR 757 (Tri.-Mum.)

67. The Court held that where the assessee utilised MODVAT credit of duty paid on import of machinery in 1999 and also claimed depreciation in respect of same duty component in their income tax returns for that year and in the subsequent years but gave up the claim of depreciation under the Income-tax Act, by revising its returns or rectifying its records under section 154 (since due date for filing revised return had elapsed), the benefit of MODVAT credit could not be denied to the assessee.

Lumax Ltd. v. CCE – [2016] 68 taxmann.com 156 (Madras HC)

68. The Tribunal held that failure to intimate the department under Rule 6(3A) of the CENVAT Credit Rules was a mere procedural lapse and denial of benefit of proportionate reversal of credit was not justified.

Aster P. Ltd. v. CC & CE – 2016-TIOL-1035-CESTAT-Hyd.

69. The Tribunal held that when the excess payment made by the assessee was not in dispute, denial of adjustment against subsequent liability on a mere procedural lapse (i.e. the excess being adjusted suo motu without intimating and being in excess of the prescribed limit) and strict interpretation was not justified.

CC & CE & ST v. State Bank of Hyderabad – 2016-TIOL-1105-CESTAT-Hyd.

70. The Tribunal held that a manufacturer was eligible to take CENVAT credit of service tax, inadvertently paid by job worker whose activities were exempt from service tax.

CCE v. Fiamm Minda Automotive Ltd. – (2016) 68 taxmann.com 147 (Del. – CESTAT)

71. The Court held that where CENVAT credit was available for adjustment against demand which was adequate to safeguard the interest of Revenue, insistence upon further deposit would cause undue hardship and further prima facie case was also established for waiver of pre-deposit. Thus, the Court reduced the amount of further deposit having regard to the availability of CENVAT credit and directed the Tribunal to restore the appeal.

United Cargo Transport Services v. CST – 2016-TIOL-323-HC-MAD-ST

72. The Tribunal held that where the assessee was first registered as a service recipient and subsequently amended its registration to that of a service provider, it could not be denied CENVAT credit on capital goods utilised by it merely on that ground. It held that CENVAT credit could only be denied where no registration was done. Further, it held that the assessee was entitled to claim 100 per cent CENVAT credit on capital goods in the subsequent year where it did not claim any CENVAT credit on capital goods in the first year of use.

CE v. Kamat Constructions & Resorts (P) Ltd. – 2016 (42 STR 450 (Tri. – Mum.)

73. The Tribunal held that relevant date for calculation of time limit of 1 year for CENVAT credit refund shall be the date of export invoice.

Paul Mason Consulting India (P) Ltd. v. CCE & ST- (2016) 42 STR 686 (Tri. – Ahmd.)

74. The Tribunal held that there are options available under Rule 6(3) of the CENVAT credit Rules, 2004 to reverse CENVAT credit which could be exercised by the assessee on its own and it wasn’t for the department to determine the option to be exercised.

M/s Dwarkadas Mantri Nagri Sahakari Bank Ltd. v. CCEC – 2016-TIOL-702-CESTAT-Mum.

75. The Court held that in view of settled law the credit of service tax paid on outward freight up to customer’s premises was admissible.

CCE v. Rine Machine Tools 2016 (42) STR 809 (P&H)

76. The Tribunal, after going through the agreement between the assessee and its overseas agents pertaining to the receipt of market information on a quarterly basis for various market segments, held that services provided pursuant to the agreement were to be construed as sales promotion and that credit thereon was admissible. Further it held that, the explanation inserted in Rule 2(l) providing that sales promotion includes services by way of sale of dutiable goods on commission basis was declaratory in nature and hence effective retrospectively.

Essar Steel India Ltd. v. CCE&ST – (2016) 42 STR 869 (Tri. – Ahd.)

77. The Tribunal allowed CENVAT credit on service tax paid on services of advice, procedural issues as to raising finance by pledging of shares, advisory services provided in relation to disinvestment of stakes and acquisition of shares in a company etc. as the expansion of business activity was directly connected with the activity of service provided by the assessee and therefore had correlation to the business undertaken by the assessee.

Hinduja Global Solutions Ltd. v. CCEST&C, Bengaluru 2016 (42) STR 932 (Tri. – Bang.)

78. The Tribunal held that neither Rule 5 of CCR, 2004 which provided for grant of refund, nor Notification No 12/2005- ST, which provided for rebate of service tax paid in respect of export of services, stipulated that the assessee had to export services on or after 19-4-2005 to avail benefit of rebate of CENVAT credit. Hence, it cannot be said that only export made after 19-4-2005 were eligible for refund in Rule 5. Further it is held that, substantial benefit cannot be denied in absence of specific embargo in rules.

J. P. Morgan Services India Pvt. Ltd. v. CCE(ST) Mumbai 2016 (42) STR 982 (Tri.-Mum.)

79. The Court held that prior to the insertion of clause (d) in Rule 7 of CCR, 2004, there was no requirement of distributing input service credit on pro rata basis.

CCE v. National Engineering Industries Ltd. 2016 (42) STR 945 (Raj.)

80. The Tribunal held that where the payment of goods by the buyer was on a receipt and acceptance basis, since the responsibility of transportation and transit insurance was on the assessee, the assessee was entitled to claim credit of GTA and insurance services availed.

Ashoka Industries v. CCE, Jaipur-I 2016 (42) STR 1009 (Tri. – Del.)

81. The Tribunal allowed the assessee CENVAT credit on various services as they fell under the inclusive part of definition of input services used for providing operating port and its services. Further, it held that cement and steel used for construction of jetty could not be considered to be used for providing taxable output services and were neither capital goods nor inputs and therefore CENVAT credit thereon was not admissible.

Adani Port & Special Economic Zone Ltd. v. CST – 2016 (42) STR 1010 (Tri. – Ahmd.)

D. Others

Appeal

82. The Court held that the requirement for mandatory pre-deposit of 7.5 per cent of tax demand for filing an appeal before the Tribunal was not to be imposed where the assessee received a Show Cause notice prior to 6-8-2014 i.e. date of introduction of this mandatory pre-deposit, even though the appeal was filed after the said date since the law of appeal as applicable at the time of initiation of proceedings was to be considered.

Fifth Avenue Sourcing P. Ltd. v. CST (2015) 40 STR 71 (Mad.)

83. The Court held that where an appeal was dismissed merely for a part default in payment of pre-deposit and not on merits on which the assessee had an arguable case, the matter could be restored by the Tribunal if sufficient compliance was made later.

Classic Builders (Madras) P. Ltd. v. CESTAT – (2016) 67 taxmann.com 173 (Madras)

84. The Court held that a High Court is bound by an earlier decision of its co-ordinate Bench even if such decision was not challenged by Revenue due to its policy decision as the reason for not challenging the order has no relevance.

CCE & ST v. Mangalore Refinery & Petrochemicals Ltd. – 2016 (42) STR 6 (Kar.)

85. The Court held that in spite of alternate remedies provided in the Act, writ petition can be entertained if imposition of duty is per se unsustainable and illegal which was so in the given case though the service in question was exempt, the revenue had raised demand by disregarding exemption notification and the amended provisions of law.

Audhyogik Kendra Vikas Nigam v. CCC,CE,ST –[2016] 67 taxmann.com 92 (Madhya Pradesh HC)

86. The Court held that it was empowered to reduce the amount of pre-deposit as directed by the Tribunal on the grounds of financial difficulties of the assessee and directed it to pay pre-deposit equal to mandatory percentage as prescribed in section 35F of Central Excise Act,1944 even for appeals filed during the year 2012.

Maa Engineering v. Registrar – 2016 42 STR 425 (Ori.)

Demand / Extended Period

87. The Court held that follow on show cause notice based on earlier 3 show cause notices on the same issue could not invoke the extended period.

Simplex Infrastructures Ltd. v. CST – (2015) 39 STR 938 (Cal.)

88. The Tribunal held that the amount charged for supervision of manpower clearly fell under the category of Management Consultants Service and since the value of services were not disclosed in ST-3, the extended period of limitation was invokable.

Artefact Infrastructure Ltd. v. CCE – 2016 (42) STR 34 (Tri. – Mum.)

89. The Tribunal held that where the revenue had conducted investigation during the period August 2008 to December 2008 but had issued show cause notice after a lapse of 1¾ years in September 2010, the extended period of limitation was not invokable.

Shree Alloys Industries Pvt. Ltd. v. CCE – (2015) 39 STR 869 (Tri. – Del.)

90. The Tribunal held that where the assessee providing services to postal department which paid service tax on total value of services including value of services of appellant, the postal department would be entitled for CENVAT credit if service tax was paid by the assessee and therefore since it was a revenue neutral situation the demand on the assessee was not sustainable.

Dinesh M. Kotian v. CCE & ST – (2016) 42 STR 772 (Tri. – Mum.)

91. The Court held that since there was no assessment order against the petitioner, if could not be forced to pay an amount merely because it admitted the service tax liability in statements recorded. It held that the Department had the liberty to initiate appropriate action for recovery only after service tax liability was confirmed vide adjudication order and the same was not deposited.

Prosper Build Home P. Ltd. v. UOI – (2016) 42 STR 247 (All.)

92. The Tribunal held that in the case of a Hire Purchase Contract, the instalment payments are only the obligations of the hirer whereas the taxable event occurs when the contract is entered into and therefore the contention of the department that the service is continued to be provided during the payment of instalments and that the assessee is liable to pay service tax when the lease rental is paid is incorrect. Accordingly it was held that rate of service tax will be the rate prevalent on the date of contract and the demand for differential liability was set aside.

Electronica Finance Ltd. v. Commissioner of Central Excise – 2016-TIOL-947 – CESTAT – Mum.

93. The Court held that where the assessee conceded the demand on merits merely because no penalty was imposed in the original order it did not form sufficient ground for non-invoking the extended period of limitation.

AS Transport v. CESTAT – (2016) 42 STR 957 (Mad.)

Export of Services

94. The Tribunal held that the conditions of realisation of export proceeds in convertible foreign exchange required under Rule 3(ii) of the Export of Services Rules, 2005 was complied with by the assessee when the FIRC was in Indian rupees since it indicated that the foreign currency earned by the assessee was realized in India.

Sun-area Real Estate Pvt. Ltd. v. CST – (2015) 30 STR 897 (Tri. – Mumbai)

95. The Tribunal held that where the assessee was engaged in the activity of identifying customers in India on behalf of foreign manufacturers and canvassing features of CDMA Mobile phones and also providing services of repair and maintenance of the said phones, since the services were performed in India on behalf of a client situated abroad, the services were provided to clients abroad and therefore qualified as an export of services.

Samsung India Electronics Pvt. Ltd. v. CCE – (2016) 42 STR 831 (Tri. – Del.)

96. The Tribunal held that the assessee, engaged in the export of scientific and technical consultancy services was wrongly denied refund on the alleged ground that the services did not constitute export of services as the performance was within India, since the services were received abroad and the payment for the same was received in foreign exchange which indicated that the same amounted to export of services. Further, it held that the assessee was offering research and development expertise in new compounds of pharmaceutical products and even though some of the chemicals were provided by the service recipient, the services provided in relation to those materials did not fall within the bar of Rule 4 of Place of Provision Rules, 2012.

CCE v. Sai Life Sciences Ltd. – (2016) 42 STR 882 (Tri. – Mum.)

97. The Tribunal held that investment advisory services provided to the assessee’s clients located abroad in the form of reports and memoranda, who in turn use the same for advising clients regarding investment opportunities in India qualified as export as it was immaterial as to how the reports were used by the assessee’s clients.

Further, it held that where the assessee’s bank in India received Indian rupees from an account of a bank situated in a foreign company and issued an FIRC, declaring the same, the remittance was held to be in foreign exchange considering the FEMA Regulations.

Mount Kellet Management (I) Pvt. Ltd. v. CST – (2015) 40 STR 165 (Tri. – Mum.)

Penalty/Interest

98. The Tribunal upheld the imposition of penalty where the assessee took CENVAT credit in the absence of invoices and without making any effort to produce the actual invoices.

CCE v. Taurus Agile Technology Corporation P. Ltd. – (2015) 39 STR 880 (Tri. – Del.)

99. The Tribunal held that where the assessee paid the entire differential service tax liability before the date of visit of audit officers and payment of interest before issuance of SCN, there was no intention to evade payment of service tax and hence penalty under Section 78 was not imposable.

Radhe Residency v. CCE & ST – (2016) 42 STR 65 (Tri. – Ahmd.)

100. The Tribunal held that, in spite of the assessee having exercised option to pay entire demand of tax with interest and 25 percent penalty within one month of the adjudication order, the assessee was very well entitled to challenge tax, interest or penalty and matter on merits and the issue could not be treated as settled or closed in absence of any legal provision to that effect. It is only in case of amounts paid as per Settlement Commission, the assessee has no right to challenge the same.

CCE & ST v. Apex Communications – (2016) 42 STR 153 (Tri. – Bang.)

101. The Tribunal held that where the assessee wrongly availed CENVAT Credit of service tax and later reversed the same without utilization, the liability to pay interest would only arise when duty which was legally payable was not paid. Since the assessee was not liable to pay service tax, liability to pay interest could not be imposed. Further, there was no loss to revenue since duty was paid in excess.

TNT (India) Pvt. Ltd. v. CCE & ST – (2016) 42 STR 285 (Tri. – Bang.)

102. The Apex Court held that in view of judgment in Dharmendra Textile Processors 2008 (231) ELT (SC) penalty imposed under section 76 and 78 not reducible under section 80 of FA, 1994.

CST v. Lark Chemicals P Ltd – (2016) 42 STR 417 (SC)

103. The Court held that the proviso to section 73(1) of FA, 1994 extending limitation period from six months to five years had to be construed strictly and that the initial burden was on Department to prove that situations visualized by proviso existed and once it is able to bring on record material to show that appellant was guilty of any of those situations visualized by section then burden shifted to the assessee. It further held that for applicability of the proviso there must be deliberate avoidance of payment of duty payable in accordance with law and mere omission on part of assessee was not sufficient.

Bordubi Engineering Works v. UOI 2016 (42) STR 803 (Gau.)

104. The Tribunal held that penalty u/s. 78 cannot be imposed when there is no discussion on the allegation of fraud, collusion, willful misstatement or suppression of facts in the Show Cause Notice.

GRR logistics (P) Ltd. v. CST – 2016-TIOL-1408-CESTAT-Mad.

Refund and Rebate

105. The Court held that where the assessee paid tax on services rendered outside India and claimed refund of it after a year (after the period of limitation) on the ground that the amount was to be treated as a ‘deposit’ and not ‘tax’ and therefore was not barred by limitation, the limitation would apply since the amount was paid in a TR-6 challan and therefore was to be treated as tax and that even if the payment was made under a mistake of law, the period of limitation would apply.

ACST v. Natraj and Venkat Associates – (2015) 40 STR 31 (Mad. – DB)

106. The Tribunal held that where the assessee did not show all eligible credits in its ST-3 returns but filed a revised return the refund was to be granted on the basis of balance of CENVAT credit available in the CENVAT Account and not on the basis of incorrect balance in the ST-3 return, which was later rectified by the assessee by filing a revised return in any case.

Serco Global Services Pvt. Ltd. v. CST – (2015) 39 STR 892 (Tri. – Del.)

107. The Tribunal held that the doctrine of unjust enrichment would not apply to refund of service tax on account of export.

CST v. Pulcra Chemicals (India) Pvt. Ltd. – (2015) 39 STR 700 (Tri. – Mum.)

108. The Court held that the time bar under section 11B would not apply to refund of service tax paid under mistake of fact since it did not take the colour of tax.

Geojit BNP Paribas Financial Services Ltd. v. CCE, CUS & ST – (2015) 39 STR 706 (Ker.)

109. The Tribunal held that refund of service tax on terminal handling services could not be denied on the ground that the terminal handling services were charged by the shipping line under the category of business auxiliary services instead of Port Services by the port operator.

Sopariwala Exports v. CST – (2015) 39 STR 884 (Tri – Mum.)

110. The Tribunal held that where the assessee issued a credit note for excess service tax paid due to reduction in charges initially charged, adjustment between commercial enterprises who were in constant interface could occur and such occurrence was recorded through medium of credit and debit notes and since the two entities were part of the same group, adoption of credit note as mode of settlement was acceptable as sufficient evidence of compensation for services rendered and therefore the Department was unjustified in denying refund on the ground of unjust enrichment.

Piramal Enterprises Ltd. v. CST – (2016) 42 STR 17 (Tri. – Mumbai)

111. The Tribunal held that the Asstt. Commissioner who issued SCN for rejecting rebate claim on the ground of assessee availing inadmissible credit, was incorrect in doing so since the SCN was clearly beyond jurisdiction as the amount of credit proposed to be denied was in excess of monetary limit prescribed for adjudication by AC. It further held that rejecting the rebate claim by clubbing it with denial of CENVAT credit, was not proper and the appropriate course was to hold up rebate claim and initiate separate proceedings for denial of CENVAT credit by a proper authority

Ivy Comptech Pvt. Ltd. v. CCEC&ST – (2016) 42 STR 66 (Tri. – Bang.)

112. The Tribunal held that even if there was omission in the authorised letter i.e. it was signed by the Director and not the authorized signatory, so long as signatures in the refund claim and documents were not disputed, the omission was only a technical defect, which could be condoned or cured and the department was incorrect in rejecting refund on this ground.

Sponge Enterprise Pvt. Ltd. v. CCE & ST – (2016) 42 STR 322 (Tri. – Del.)

113. The Tribunal held that the date on which original claim was filed and not the date on which the revised application rectifying calculation errors, was filed, was to be taken as the relevant date. Accordingly, it held that since the original claim was filed within the time limit prescribed, refund was not barred by limitation especially when amount mentioned in revised application was also included in original application.

Banco Products India Ltd. v. CCE&ST – (2016 – 42 STR 535 (Tri. – Ahd.)

114. The Tribunal held that where refund was initially sanctioned to the assessee and credited to Consumer Welfare Fund on the ground of unjust enrichment and consequent to the Tribunal decision, deposited in the assessee’s account within 3 months of the decision, the revenue was not liable to pay interest on refund for the period for which the said amount was present in the Consumer Welfare Fund.

Purnima Advertising Agency Pvt. Ltd. v. CST – (2016) 42 STR 710 (Tri. – Ahd.)

115. The Court held that once refund was granted under section 11B, it could not be said to be “erroneous refund” in terms of section 11A of Central Excise Act and recourse available for recovery of such refund was only by way of following procedure laid down in section 35E of the Act and not under section 11A.

Eveready Industries India Ltd. v. CESTAT – [2016] 68 taxmann.com 180 (Madras HC)

116. The Tribunal held that the provisions of section 11B of the Central Excise Act 1994 would apply to every case of refund irrespective of the fact that the payment was made without authority of law and therefore where the assessee paid service tax erroneously, the contention of the department that the payment being without the authority of law was not barred by limitation could not be accepted.

Benzy Tours & Travels (P) Ltd. vs CST – 2016-TIOL-1104-CESTAT- Mum.

117. Once the refund is allowed by Commissioner (Appeals) by speaking order, it is not open to adjudicating authority to revisit the refund claim on merits and the only recourse was to contest the same before a higher judicial authority.

Lavino Kapur Cottons (P) Ltd. v. CCE – [2016] 68 taxmann.com 280 (Mumbai-CESTAT)

118. The Tribunal held that the first date on which refund claim was filed is to be considered as date of filing of refund claim and date of subsequent re-filing / submission of documents shall be ignored for calculating stipulated time limit.

Tab India Granites (P) Ltd. v. CCE & ST – (2016) 67 taxmann.com 315 (Chennai – CESTAT)

119. The Tribunal held that an Appellate authority could reject a refund claim on grounds / issues which are not arising out of adjudication order. Further, it held that the time limit of one year for filing a refund claim was to be calculated from the quarter end.

Indago v. CST – [2016] 69 taxmann.com 199 (Mumbai-CESTAT)

120. The Tribunal held that if service receiver has borne the incidence of tax, he can apply for refund of tax before his own jurisdictional officer.

Chambal Fertilizers & Chemicals Ltd. v. CCE – [2016] 69 taxmann.com 328 (New Delhi – CESTAT)

121. The Tribunal held that an assessee claiming both refund and interest on refund had to file refund application claiming refund of both duty as well as interest amount before expiry of one year from the relevant date.

Schenck Rotec India Ltd. v. CCE – (2016) 42 STR 1066 (Tri.-Del.)

Service of Notice / Order

122. The Court held that prior to May 10, 2013, an order had to be served by Registered post with acknowledgment due and that speed post was not valid.

Premier Garment Processing v. CESTAT – (2015) 39 STR 812 (Mad)

Show Cause Notice

123. The Tribunal held that where the Adjudicating authority confirmed demand on services for catering, supply of bed rolls, supply of cleaning staff under the category of Business Support Services but the Commissioner (a did not agree and classified the same as Business Auxiliary Services, though the same was not proposed in the Show-cause notice, the order passed by the CIT(A) travelled beyond the SCN and therefore was not sustainable.

Doons Caterers v. CST – (2016) 42 STR 447 (Tri – Del.)

124. The Court held that when Show Cause Notice is issued on the basis of allegation of “suppression of facts”, department must specify particulars of allegedly suppressed facts, otherwise such SCN issued by invoking extended period of limitation is bad in law.

Simplex Infrastructures Ltd. v. CST – [2016] 69 taxmann.com 97 (Calcutta HC)

Miscellaneous

125. The Court held that it is incumbent upon an adjudicating authority to follow the decision of a Larger Bench of the Tribunal cited by an assessee unless the same can be factually distinguished.

Muthoot Finance Ltd. v. UOI – (2015) 40 STR 26 (Ker.)

126. The Court held that where the adjudication of SCN issued to the assessee was pending, the department could not freeze the bank account of the assessee by invoking the recovery powers under section 87(b) since Section 87(b) would apply only after a proceeding under section 73 was concluded by an order determining the amount due and payable by the assessee. However, it noted that the Department could invoke the provisions of 73C providing the option of provisional attachment of properties to protect the interest of the revenue.

GSP Infratech Development Ltd v. UOI – (2015) 39 STR 945 (Kar.)

127. The Court held that once approval of the Committee of SEZ was received, the jurisdictional Central Excise Officer could not refuse to issue Form A2 on the pretext that such services were not allowed.

Sai Wardha Power Company Ltd. v. UOI – (2015) 39 STR 952 (Bom.)

128. The Court held that the service receiver to whom the burden of tax is ultimately passed on is not entitled to challenge the levy as the liability is imposed on the service provider.

N. Bala Baskar v. UOI – 2016 – TIOL-824- HC-MAD-ST

129. The Court held that the removal of sub-clause (j) of section 66D i.e., Negative List resulting in levy of service tax on “access to amusement facilities and admission to entertainment events” does not amount to parliament encroaching upon Entry 62 of List II of Constitution.

Kanjirappily Amusement Park & Hotels (P) Ltd. v. UOI – [2016] 68 taxmann.com 286 (Kerala HC)

130. The Tribunal held that where the demand for extended period of limitation and penalties imposed were set aside, the question of confiscation did not arise.

CST v. Idea Cellular Ltd. – (2015) 39 STR 993 (Tri. – Mum.)

131. The Tribunal held that the transfer of funds from the Head Office to the Overseas Branch could not be treated as a transaction between two separate entities since there is no independent existence of the overseas branch as a business and its economic survival is entirely contingent upon the will of the head office and therefore taxing such transfers is not contemplated by the Finance Act, 1994.

Tech Mahindra Ltd. v. Commissioner of Central Excise – 2016-TIOL-709-CESTAT – Mum.

132. The Tribunal held that without ascertainment of the receipts from the members as a quid pro quo for an identified service, the transaction did not meet the test of having rendered a taxable service. The entrance fee merely represented the present value of the assets of the club and was not a consideration for any service that a member may obtain from the club.

Gondwana Club v. CCCE – 2016 – TIOL- 661-CESTAT-Mum.

133. The Authority held that the activity of making available system to customer would qualify to be “transfer of right to use goods” and would not be liable to service tax provided possession and effective control is transferred to customers.

SIPCA India (P) Ltd. – [2016] 67 taxmann.com 142 (AAR-New Delhi)

134. The Court held that Department cannot refuse application for adjournment on medical grounds of Chartered Accountant and pass ex parte order when case was pending with department over six years.

CHL Ltd. v. CST – 2016 (42) STR 420 (Del.)

135. The Tribunal held that when failure to make 50% payment within time limit prescribed under the Voluntary Compliance Encouragement Scheme (‘VCES’) was for reasons not attributable to declarant but for the system error, benefit of the scheme could not be denied.

CCE v. Cityland Associates – [2016] 69 taxmann.com 176 (Mumbai-CESTAT)

136. The Court held that the Commissioner (Appeals) did not have any statutory power to condone the delay beyond 30 days and that the said statutory provision was to be strictly construed and any other approach would make statutory provision otiose and open the floodgates of writ petition before High Court.

Bengal Investment Ltd. v. AC (TARC) ST-I 2016 (42) STR 817 (Cal.)

Sri Balaji Agency v. CCE&ST, Trichy 2016 (42) STR 914 (Tri. – Chennai

137. The Tribunal held that the ancillary and incidental activities of pouring, pumping and laying of concrete entirely being related to sale of RMC was without any service element and therefore not liable to service tax.

Vikram RMC (P) Ltd. v. CST, Delhi 2016 (42) STR 866 (Tri. – Del.)

1. Recovery of dues of Company by attaching Property of Director – Not Permissible

Attachment of personal property of Director for recovery of possible dues of company under The Gujarat VAT Act is not justified as per section 45(1) assessee-company would be dealer and not its directors.

[M/s. Different Solution Marketing (P.) Ltd. v. Assistant Commissioner of Commercial Taxes, [2016] 71 taxmann.com 268 (Gujarat)].

2. Recovery of dues of Principal from Agent – Not Permissible

As per Contract Act, for act of agent, principal may be held responsible, but for liability of principal, agent cannot be made responsible. Therefore, the dues of principal cannot be recovered from agent.

[M. S. Jagadeesh Kumar v. Deputy Commissioner of Commercial Taxes, [2016] 71 taxmann.com 235 (Karnataka)].

3.i) Transfer of Technical Knowhow – Sale – Liable for VAT

ii) Franchise Agreements- Giving Permissive Use – Not a Sale

i) Monsanto India developed and commercialised insect-resistant hybrid cotton seeds using a proprietary “Bollgard technology”, one that is licensed to Monsanto India by Monsanto USA through its wholly-owned subsidiary, Monsanto Holdings Private Limited (“MHPL”). This technology is further sub-licensed by Monsanto India to various seed companies on a non-exclusive and non-transferable basis to use, test, produce and sell genetically modified hybrid cotton planting seeds. In return for this technology, Monsanto India received trait fees based on the number of packets of seeds sold by the sub-licensees. These sub-licensing agreements, with almost 40 seed companies, were subject matter of dispute before the Bombay High Court for levy of VAT.

The High Court held that it is true that the essence of a ‘transfer’ is the divesting of a right or goods from transferor and the investing of the same in the transferee, and this is what Salmond on Jurisprudence and Corpus Juris Secundum both say. The seeds embedded with the technology are, in fact, transferred. Monsanto India is divested of that portion of the technology embedded in those fifty seeds and those were fully vested in the sub-licensee The effective control over the seeds, and that portion of the technology that is embedded in the seeds, was entirely with the sub-licensee. That sub licensee was not bound to use the seeds (and the embedded technology) in accordance with Monsanto India’s wishes. Monsanto India cannot further dictate to the sub-licensee what he or it may do with these technology-infused seeds. The sub-licensee can do as it wishes with them. It may not use them at all. It may even destroy the seeds. Once the transaction is complete, i.e., once possession of the technology-imbued seeds is effected, and those seeds are delivered, Monsanto India has nothing at all to do with the technology embedded in those fifty seeds given to the sub-licensee. At no point does Monsanto India have access to this portion of the technology. In other words, the transfer is to the exclusion of Monsanto India. The technology could not have been given to the sub-licensee without them; and there is no other method demonstrated anywhere of effecting any such transfer. It was held that for the transfer of a trade-mark it was not necessary to ‘hand over’ the trade-mark to the transferee or give control or possession of trade-mark to such transferee. This represents the correct position in law.

The Monsanto India sub-licensing transaction could only be a service in one circumstance, i.e., if the seed companies gave Monsanto India a bag of seeds to mutate and improve with the Bollgard Technology which would, thereafter, be returned to the seed companies. That might perhaps be a service. The sub-licensing actually amounts to passage of effective control as well of the Bollgard Technology embedded in the seeds. Accordingly it is a sale and liable to VAT.

ii) The franchise agreement was subject matter of dispute before the High Court and the High Court held that the mere inclusion of ‘franchises’ under the MVAT Act would not automatically make all franchise agreements liable to sales tax. What must be looked at is the real nature of the transaction and the actual intention of the parties. The agreement must be considered holistically, and effect must be given to the contracting parties’ intentions. The label or description of the document is irrelevant. An agreement styled as a franchise might, on a proper examination, turn out to be nothing more than a mere licence (as in Subway’s case). On the other hand, an agreement that calls itself a licence might actually be a franchise. If, in a given case, a franchise agreement is effectively nothing more than a mere permissive use, it cannot be made liable to VAT. It would be a service, and hence liable to service tax. While interpreting a taxing statute, or for that matter any statute, full effect must be given to the words used by the Legislature. This, however, does not mean that this principle must be stretched to a point which leads to an absurd result, or one that was not contemplated by the legislature. The legislature is presumed to know the law and to have acted in accordance with it. Presumably, what the legislature intended was to include only those franchise agreements that involved a transfer of the right to use or some other aspect of a deemed sale as defined under Article 366(29A) of the Constitution. The Subway’s franchise agreement grants to the franchisee nothing more than mere permissive use of defined intangible rights. It is therefore a service, and is not amenable to VAT.

As regards situs of intangible assets the Court further held that while considering tangible assets, there is no doubt as to where their situs is. It is where the goods are physically located. But, an intangible asset does not have any physical form or existence in any physical location. The legislature could have, by some appropriate deeming fiction, expressly provided for the situs of an intangible asset. This it has not done, so far as intellectual property is concerned. It has, however, specifically so provided for shares. Therefore, where the legislature thought it necessary to make express provisions for intangible assets, it has done so. In this legislative vacuum, the internationally accepted principle of mobilia sequuntur personam would apply, i.e., the situs of the owner of an intangible asset would be the closest approximation of the situs of his intangible asset. This is the principle widely used, unless there is a local legislation to the contrary; there is not. Therefore, the situs of Subway’s agreement, would be Delhi where agreements are signed.

[M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd., v. The Union of India and Others, Writ Petition No. 9175 of 2015, and M/s.Subway Systems India Pvt Ltd v. The State of Maharashtra and Others, Writ Petition No. 497 of 2015, dated 11th August, 2016, Bombay High Court].

4. Works Contract – Use of Reinforced Steel – Continues to be Declared Goods – Liable to tax @ 4% – Iron and Steel used to Fabricate Doors and Windows – Not Declared Goods – Not Exempt

Iron and Steel products are used in the execution of works contracts for reinforcement of cement, the iron and steel products becoming part of pillars, beams, roofs, etc., which are all parts of the ultimate immovable structure that is the building or other structure to be constructed does not change form as such is liable to tax @ 4%.

However in works contracts of fabrication and creation of doors, window frames, grills, etc., in which the claim of exemption for iron and steel goods that went into the creation of these items, after which the said doors, window frames, grills, etc., were fitted into buildings and other structures was not accepted in as much as the iron and steel goods, after being purchased, are used in the manufacture of other goods, namely, doors, window frames, grills, etc. which in turn are used in the execution of works contracts and are therefore not exempt from tax.

[Smt. B. Narasamma v. Deputy Commissioner Commercial Taxes Karnataka & Anr., Civil Appeal No.4 318 of 2007, 4319 of 2007, 7400 of 2016, 7401-7872 of 2016 and 7873-7916 of 2016, dated 11th August, 2016, SC].

48. S.2(42A) : Capital gains – Short-term capital asset –
Immovable property – Period of holding – Assessee received immovable
property belonging to his grandmother, by way of family settlement,
to determine nature of capital gain arising from sale of said
property the period of holding would commence from date when he
became owner of property, by virtue of family arrangement and not
from date when his grandmother expired. [Ss.45, 54EC]

Assessee received an immovable property as per wishes and intent of his grandmother who expired on 10-12-1999. Since grandmother died intestate, assessee could receive said property in year 2006 vide family arrangement. Assessee sold said property in year 2009 and claimed deduction u/s.54EC. Revenue authorities rejected assessee’s claim by holding that capital gain arising from sale of property was taxable as short-term capital gain. It was undisputed that ‘previous owners’ were sons and daughters of grandmother from whom property came to assessee by way of final settlement on 8-8-2006. Assessee sold said property on 27-9-2008. Period of holding was to be computed from date when property came to possession of assessee in terms of family settlement. Since assessee sold property before expiry of 36 months from date of obtaining possession, impugned order passed by authorities below did not require any interference. (AY. 2009-10)

Nitul B. Shah v. ITO (2016) 158 ITD 830 (Mum.)(Trib.)

49.
S.4 : Charge of income-tax –Accrual – Carbon Emission Reduction Certificates (CERs) is taxable only when the right to receive consideration for transfer of these CERs is quantified and crystallized

The Tribunal held that income from Carbon Emission Reduction Certificates (CERs) is taxable only when the right to receive consideration for transfer of these CERs is quantified and crystallized. It is not the case of the AO that the sale was made in the relevant previous year. Once the sale is not effected in the relevant previous year, there cannot be any good reasons to bring the CERs value to tax in this assessment year. Accordingly, the value of CERs even though quantifiable, cannot be brought to tax by the reason of accrual simplicitor. (AY. 2009-10)

Dy. CIT v. Kalpataru Power Transmission Ltd. (2016) 177 TTJ 394 (Ahd.)(Trib.)

50.
S.5 : Income – Accrual of dependent personnel services – Assessee rendered services in USA, salary received by him for such services in India from sister concern of US employer would be exempt from Indian taxation – DTAA – Indo-US

Assessee was transferred from Indian company to its American sister concern to act as a lead software engineer and accordingly he left India on 30-5-2007 in connection with his US employment. However, for internal facilitation, his salary for relevant period was paid by Indian company in India. Since services in question were rendered by assessee in USA, his salary income during relevant year was exempt from tax under Article 16(1). Applicability of article 16(1) depends on country where services were rendered and merely because salary was paid by Indian entity, application of Article 16(1) could not be denied. (AY. 2008-09)

Neeraj Badaya v. ADIT (2016) 157 ITD 1016 (Jaipur)(Trib.)

51.
S.9(1)(i) : Income – Deemed to accrue or arise in India (Shipping, inland waterway transport and air transport) (Limitation of benefits) – DTAA – India-Singapore

Assessee, tax resident of Singapore, earned freight income from operation of ships in international traffic and claimed benefit of Indo-Singapore Tax Treaty. AO denied benefit of Treaty on ground that freight had been remitted to a country other than Singapore. Allowing the appeal the Tribunal held that provision of Article 24 can only be triggered when twin conditions of treaty protection, by low or no taxability in source jurisdiction and taxability on receipt basis in residence jurisdiction, are fulfilled. Since in instant case freight income was taxable in Singapore on accrual basis and not on remittance basis, Article 24 had no application . Therefore, in terms of Article 8 entire freight income of assessee, which was only from operation of ships in international traffic, was taxable only in Singapore. The Assessing Officer was, thus, in error in bringing the same to tax in India.(AY. 2011-12)

Alabra Shipping Pte. Ltd. v. ITO (IT) (2015) 175 TTJ 359 (Rajkot)(Trib.)

52.
S.9(1)(vi) : Income deemed to accrue or arise in India – Fees for technical services – Consideration received for sale of computer software programme in CD Rom is not assessable as “royalty”. The retrospective amendment in Explanation 4 to section 9(1)(vi) to tax such receipts as royalty has no application to DTAA if the definition of the term “royalty” in the DTAA has remained unchanged – DTAA-India- Netherlands.

Dismissing the appeal of Revenue the Tribunal held that

(i) From the plain reading of Article 23(4) of the India-Netherlands DTAA it can be inferred that, it refers to payments of any kind received as a consideration for the use of, or the right to use any ‘copyright’ of literary, artistic or scientific work including cinematograph films, any patent, trade-mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Thus, in order to tax the payment in question as “royalty”, it is sine qua non that the said payment must fall within the ambit and scope of Para 4 of Article 12. The main emphasis on the payment constituting ‘royalty’ in Para 4 are for a consideration for the ‘use of’ or the ‘right to use’ any copyright………. The key phrases “for the use” or “the right to use any copyright of”; “any patent…….; “or process”, “or for information………,”; “or scientific experience”, etc., are important parameters for treating a transaction in the nature of “royalty”. If the payment doesn’t fit within these parameters then it doesn’t fall within terms of “royalty” under Article 12(4). The computer software does not fall under most of the term used in the Article barring “use of process” or “use of or right to use of copyrights” Here first of all, the sale of software cannot be held to be covered under the words “use of process”, because the assessee has not allowed the end user to use the process by using the software, as the customer does not have any access to the source code. What is available for their use is software product as such and not the process embedded in it. Several processes may be involved in making computer software but what the customer uses is the software product as such and not the process, which are involved into it. What is required to be examined in the impugned case as to whether there is any use or right to use of copyright? The definition of copyright, though has not been explained or defined in the treaty, however, the various Courts have consistently opined that the definition of “copyright” as given in the ‘Copyright Act, 1957’ has to be taken into account for understanding the concept.

(ii) The definition of ‘copyright’ in section 14 is an exhaustive definition and it refers to bundle of rights. In respect of computer programming, which is relevant for the issue under consideration before us, the copyright mainly consists of rights as given in clause (b), that is, to do any of the act specified in clause (a) from (i) to (vii) as reproduced above. Thus, to fall within the realm and ambit of right to use copyright in the computer software programme, the aforesaid rights must be given and if the said rights are not given then, there is no copyright in the computer programme or software. As noted by the CIT(A), under the terms of the agreement between the assessee and INFOR India, the agreement specifically forbids them from decompiling, reverse engineering or disassembling the software. The agreement also provides that the end user shall use the software only for the operation and shall not sublicense or modify the software. None of the conditions mentioned in section 14 of the Copyright Act are applicable. If the conclusion of learned CIT(A) are based on these facts and agreement, then he has righty concluded that the consideration received by the assessee is for pure sale of “shrink wrapped software” off the shelf and hence, cannot be considered as a “royalty” within the meaning of Article 12(4) of the DTAA, as the same is consideration for sale of copyrighted product and not to use of any copyright.

(iii) One of the issues which was raised by the learned DR before us is that, the Explanation 4 to section 9(1)(vi) which has been brought by Finance Act 2012 with retrospective effect in section 9(1)(vi), therefore, the meaning and definition of ‘royalty’ as given therein should be read into the DTAA. We are unable to appreciate this contention of the Ld. DR because the retrospective amendment brought into statute with effect from 1-6-1976 cannot be read into the DTAA, because the treaty has not been correspondingly amended in line with new enlarged definition of ‘royalty’. The alteration in the provisions of the Act cannot be per se read into the treaty unless there is a corresponding negotiation between the two sovereign nations to amend the specific provision of “royalty” in the same line. The limitation clause cannot be read into the treaty for applying the provisions of domestic law like in Article 7 in some of the treaties, where domestic laws are made applicable. Here in this case, the ‘royalty’ has been specifically defined in the treaty and amendment to the definition of such term under the Act would not have any bearing on the definition of such term in the context of DTAA. A treaty which has entered between the two sovereign nations, then one country cannot unilaterally alter its provision. Thus, we do not find any merit in the contention of the Learmed DR that the amended and enlarged definition should be read into the Treaty. ( ITA No. 7048/Mum/2010, dt. 13-6-2016) (AY. 2006-07)

ADIT v. Baan Global BV (Mum.)(Trib.) www.itatonline.org

53.
S.9(1)(vi) : Income – Deemed to accrue or arise in India – Royalties and fees for technical services/Software) – Consideration received by assessee for sale of software claimed to have been supplied as part of machine to end user is not royalty – DTAA – India-Israel.

Assessee non-resident company sold to its customers machines and operating software. In invoice issued by Assessee Company, consideration was mentioned separately for machine and operating software. However, there was no separate transaction of sale of software. Dominant character and essence of transaction was sale of machine by assessee and software, independently, had no value for customer. Thus it was predominantly transaction of sale of machine and therefore, it could not have been brought within definition of ‘Royalty’ as envisaged in s. 9(1)(vi). Further in absence of there being any P.E. of assessee in India, income arising from sale of machine could not have been taxed in its hands in India.)(AY. 2010- 11)

Galatea Ltd. v. Dy. CIT (2016) 157 ITD 938 / 46 ITR 690 (Mum.)(Trib.)

54.
S.10A : Free trade zone – Addition on account of suppression of stock and difference in books of accounts – Exemption is allowable [S. 133A]

Assessee is a manufacturer & Exporter of Gold Jewellery. Survey u/s 133A carried out on assessee’s premises. Assessee surrendered certain sum on account of various discrepancies . AO made addition of sum surrendered. CIT(A) sustained addition. On appeal Tribunal held that assessee is entitled to deduction. (AY. 2007-08)

Bridal Jewellery Mfg. Co. v. ITO (2016) 45 ITR 119 (Delhi)(Trib.)

55.
S.10A : Profits & gains derived from export – Interest on short term deposit is eligible for benefits.

Tribunal held that interest on short term deposit is profits of business eligible for benefits of section 10A & 10B. (AY. 2006-07)

American Express (I) (P) Ltd. v. Dy. CIT (2016) 177 TTJ 33(UO) (Delhi) (Trib.)

56.
S.13 : Denial of exemption –Trust or institution – Investment restrictions – Assessee-trust invested funds in a company in which its trustee was managing director and his wife was a director, it was a case of violation of s. 13(1)(c) and exemption u/s. 11 would not be available to assessee

The assessee, a society registered under section 12AA, was running an educational institution. During the assessment year the assessee sold a land for certain amount. The purpose of sale was to use the sale proceeds for expansion of the educational activities. However, the amount was advanced to a limited company AIPL in which trustee and his wife were directors. The A.O. treated the income from sale of land as income of the assessee and also denied exemption u/s.11 as the amount advanced to AIPL was not an approved investment u/s. 11(5) and, thus, provisions of section 13(1)(c) were attracted. The income of the assessee was computed as ‘AOP’ under section 164(2).

The CIT(A) held that condition of section 13(3) was not fulfilled as the A.O. had not proved as to what benefit accrued to the specified person from the advancement of amount in question to AIPL. Regarding denying the exemption u/s. 11 and assessing the assessee u/s. 164(2), the CIT(A) given a finding that there was valid registration u/s. 12AA and since this was not cancelled or withdrawn by the Commissioner, benefit of section 11 could not be denied. Further, capital gain arising out of transfer of capital asset was to be assessed as per section 48 and the rate was to be applied as per section 112 and not at the maximum marginal rate as suggested by the A.O.

The ITAT held that the assessee advanced amount on 30-6-2006 to AIPL and the capital gain arose on sale of land during the financial year on 31-3-2007. AIPL have returned the money on 31-3-2009 and the said amount was not invested in new asset within the previous year. Therefore, exemption u/s. 11(1)(a) is not available to the assessee. (AY. 2007-08)

Dy. DIT v. India Cements Educational Society (2016) 157 ITD 1008 / 46 ITR 80 (Chennai)(Trib.)

57.
S.14A : Disallowance of expenditure – Addition on account of disallowance under S. 14A read with Rule 8D being expenditure in relation to earning of exempt income to book profit under S. 115JB justified [S. 115JB]

Section 115JB of the Act starts with non-obstante clause ‘Notwithstanding anything contained in any other provision in this Act…” meaning thereby that the section 115JB shall be applicable notwithstanding anything contained in any other provision of the Act and shall have overriding effect upon other provisions of the Act. Hence, A.O. has rightly disallowed the expenditure by invoking the provisions of section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 for computing book profit u/s 115JB(2) of the Act read with clause (f) to explanation 1 to clause 115JB(2) of the Act. (AY. 2008-09)

Dy. CIT v. Viraj Profiles Ltd. (2016) 156 ITD 72/ 46 ITR 626/ 177 TTJ 466 (Mum.)(Trib.)

58.
S.14A : Disallowance of expenditure – Exempt income – Disallowance can not exceed exempt dividend income

The Assessee was in the business of trading of shares, cloth, commission and real estate rent, and maintained the same books of accounts for all the businesses. Due to the exempt divided income and interest expenses incurred, the AO made disallowance u/s 14A. The ITAT observed that the dividend was earned in the normal course of business, and if one assumed that some expenditure was incurred to earn the exempt income, then the disallowance could not exceed the amount of exempt income. (AY. 2008-09)

K. Ratanchand and Co. v. ITO(2016) 45 ITR 608 (Ahd.)(Trib.)

59.
S.17(3) : Profits in lieu of salary – Amount received by an assessee, acting as a Managing Director of a Company, at the time of termination of his relation with the Company in consideration of his not providing benefit of his knowledge to any other person carrying on similar activity was not taxable either u/s. 17(3) or 28(va)

On appeal, the Tribunal held:

The role assigned to the assessee clearly shows that he was not subject to the direct control or supervision of Suzuki India, but was managing all affairs of the company, evolving business strategies and advising the company. His role was clearly that of a joint venture partner in Suzuki India and not that of an employee of the company and hence the assessee was not an employee of Suzuki India, and thereby the amount received by him from the company could not be taxed as ‘profits in lieu of salary’ under section 17(3).

Further the amount was paid by Suzuki India to the assessee in consideration of not providing ‘the benefit of his knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person in India in the two wheeler segment’ it cannot be regarded as non-competition fee because it has not been paid for not competing with the payer, but for not providing the benefit of his knowledge, expertise, skills etc. to any other person in the two wheeler segment.

The contention of assessee that section 28(va) taxes a sum received for a restrictive covenant in relation to a business, but not a profession is supported by the observations in paragraph 28 on page 692 of Kanga and Palkhivala’s ‘Law and Practice of Income-tax’ that clause (va) of section 28 ‘taxes a sum received for a restrictive covenant in relation to a business, but not a profession’; and, therefore, does not fall within the ambit of section 28(va). The Supreme Court in the case of Guffic Chem. (P.) Ltd. v. CIT [2011] 332 ITR 602 held that compensation attributable to a negative/restrictive covenant is a capital receipt. Hence, the sum received by the assessee did not fall within the ambit of section 28(va), and it was not chargeable to tax as it constituted a capital receipt.

In view of the above, the claim of the assessee that the sum received by him from Suzuki India is not taxable under section 17(3)(b) andalso, said sum does not fall within the ambit of section 28(va), being a capital receipt is not taxable under the Act, is upheld (AY. 2010-11)

Satya Kant Khosla v. ITO (2015) 174 TTJ 825 (Delhi)(Trib.)

60.
S.22 : Income from house property – Annual value – Assessee did not disclose income from house property in respect of his six immovable properties, AO could not make addition to assessee’s income merely on basis of notional rent on cost of properties without computing income in accordance with provisions of sections 22 and 23

Assessee was running a dance academy and film production house. The AO noted that assessee owned six immovable properties. Since assessee did not declare any income under head ‘Income from house property’, AO after giving benefit of one house property for residential purpose and one for purpose of business, computed taxable income based on 10 per cent of book value of properties in question. It was undisputed that AO had not made any enquiry relating to computation of income in accordance with sections 22 and 23 rather computed ALV based on notional rent on cost of properties. Addition was set aside. (AY. 2007–08)

Vishwanath Acharaya v. ACIT (2016) 157 ITD 1032 / 45 ITR 554 (Mum.)(Trib.)

61.
S.28(i) : Business loss – Speculative – Derivative loss on reinstatement of foreign currency forward contracts is not speculative and is an ascertained liability [S.43(5)]

The Assessee incurred a derivative loss arising out of reinstatement of foreign currency forward contracts entered into to hedge against the forex risk on account of receivables. The AO held that it was speculative loss and that it was notional in nature. The ITAT held that derivative transactions on foreign exchange were exempt from the purview of speculative transactions since they were settled by actual delivery. Further, the ITAT also held that the marked to market loss on reinstatement of the derivative is not a notional or contingent loss, but an ascertained liability which had crystallised on the date of balance sheet. (AY. 2009-10)

Inventurus Knowledge Services P. Ltd. v. ITO (2016) 45 ITR 57 (Mum.)(Trib.)

62.
S.32 : Depreciation – Hoarding structure – Building eligible depreciation at 10%, cannot be considered as plant [S 43(3)]

Assessee firm was carrying on business of outdoor publicity through use of hoardings, during the year Assessee claimed depreciation at rate of 15 per cent on hoarding structure owned by it under category of ‘plant and machinery’. The AO. opined that hoarding structures were to be treated as ‘building’ and therefore he allowed depreciation at rate of 10 per cent. The Honorable ITAT took a view that hoarding structures did not play any operative role as apparatus or tool in carrying on trade by assessee firm or in functioning of assessee firm’s business rather those hoarding structures were merely embedded in building and erected for entities to put their advertisements. Assessee failed to satisfy functional test of ‘plant’ as given in section 43(3) and therefore order of the A.O. was upheld. (AY. 2007-08)

Asian Advertising v. ITO (2016) 158 ITD 145 (Mum.)(Trib.)

63.
S.37(1) : Business expenditure – Where assessee made payment of royalty to its foreign AE through banking channel which was supported by bills and agreements and TPO as well as A.O. on same facts had accepted payment of royalty as genuine and not sham transaction in previous assessment year, disallowance of such payment on ground of genuineness was unjustified

The A.O. disallowed royalty payment made by Assessee Company to its associated enterprise abroad on ground that assessee had not proved necessity of payment of royalty and also benefits accrued to it by using brand name of AE. In view of facts that payment was made through banking channel which was supported by bills and agreements and TPO as well as A.O. on same facts had accepted payment of royalty as genuine and not sham transaction in previous assessment year, A.O. was unjustified in disallowing royalty payment. (A.Ys. 2007-08, 2008-09)

ACIT v. L. G. Polymers India (P.) Ltd. (2016)157 ITD 1113 (Visakhapatnam)(Trib.)

64.
S.37(1) : Business expenditure – Encashment of bank guarantee – Held to be allowable as deduction

Where in respect of contract for providing coverage of Commonwealth Games, assessee had to pay certain amount to Prasar Bharati as performance bank guarantee on account of inadequate performance of said contract, it was to be allowed as deduction . (AY 2011-12)

SIS Liv v. ACIT (2016) 175 TTJ 643 (Delhi)(Trib.)

65.
S. 37(1) : Business expenditure- Expenditure on Corporate Social Responsibility (CSR), though voluntary, is allowable as business expenditure.

Expenditure on Corporate Social Responsibility (CSR), though voluntary, is allowable as business expenditure. Explanation 2 to s. 37(1) inserted w.e.f. 1-4-2015 is not retrospective. It applies only to CSR expenditure referred to in s. 135 of the Companies Act and not to voluntary CSR expenditure. (ITA No. 99/BLPR/2012, dt. 23-6-2016)(AY. 2008-09)

ACIT v. Jindal Power Limited (Raipur)(Trib.); www.itatonline.org

66.
S.37(1) : Business expenditure – Capital or Revenue – Repair of rented premises – held to be allowable [S. 30, 31]

Expenditure on repairs of rented premises, even if huge and accumulated, are allowable as revenue expenditure. Fact that CIT(A) admitted additional evidence is no justification for seeking a set aside to the AO if the CIT(A) called for a remand report from the AO: Ratio in CIT v. Savarana Spinning mills Limited (2007)293 ITR 201 (SC) is held to be not applicable. (ITA No. 5393/Del/2010, dt. 2-6-2016) (AY. 2005-06)

DCIT v. Ikea Trading (India) P. Ltd. (Delhi)(Trib); www.itatonline.org

67.
S.37(1) : Business Expenditure – Penal Interest paid to bank. – Compensatory in nature – Not an offence prohibited by any law – Allowable

The assessee had paid penal interest for not fulfilling a stipulated condition in the loan agreement which was compensatory in nature. The banks were entitled to charge extra rate of interest which was reimbursed to the assessee on fulfillment of condition. On appeal to Tribunal, it was held that the assessee has not committed any offence prohibited under any law and hence doesn’t come under the ambit of Explanation to Section 37. The expenditure was allowable. (AY. 2008-09)

ACIT v. Bharat Hi-Tech (Cement) P Ltd (2016) 176 TTJ166 (Kol.) (Trib.)

68.
S.37(1) : Business Expenditure – Commission payments could not be disallowed on ad hoc basis unless any material brought on record to justify disallowance

Assessee Company was engaged in the business of providing cellular mobile telephony network. During the year under consideration, the AO made disallowance of commission paid to distributors. On appeal to Tribunal, it was held that since the AO has not brought any material on record to show that the commission expenditure was either bogus or was not allowable, there could not be any ad hoc disallowance of the same. (AY. 2008-09)

DDIT v. Vodafone Mobile Services Ltd) (2016) 176 TTJ 430 (Delhi)(Trib.)

69.
S.37(1) : Business Expenditure – Capital or revenue – Advertisement expenditure – Display of granty signs and product launching expenses – No asset of permanent nature comes into existence – Expenditure allowed as revenue

Assessee Company was engaged in the business of providing cellular mobile telephony network. During the year under consideration, the AO made disallowance of Advertisement expenses. The Tribunal held that the expenditure incurred on display of granty signs and on product launches were allowable as revenue since no asset of permanent nature comes into existence. (AY..2008-09)

DDIT v. Vodafone Mobile Services Ltd. (2016) 176 TTJ 430 (Delhi)(Trib.)

70.
S.37(1) : Business Expenditure – Capital or revenue – Royalty paid to DOT – Necessary to run the business – Amount allowed as Revenue expenditure

Assessee Company was engaged in the business of providing cellular mobile telephony network. During the year under consideration, the AO made disallowances of Royalty paid to DOT. On appeal to Tribunal, it was held that the royalty pertaining to spectrum charges was paid to DOT on a quarterly basis as a percentage of revenue. The assessee could not run the business without making such payments and hence the same were allowable as revenue expenditure. (AY. 2008-09)

DDIT v. Vodafone Mobile Services Ltd (2016) 176 TTJ 430 (Delhi)(Trib.)

71.
S.37(1) : Business expenditure – Advertisement expenses incurred after the issuance certificate by the Censor Board is allowable

The Assessee incurred advertisement expenses after the obtaining the certificate from the Censor Board, which was disallowed by the AO based on the provisions of Rules 9A and 9B. The ITAT held that advertisement and publicity expenses incurred after obtaining the certificate from the Censor Board would be allowable to the Assessee u/s 37 based on the earlier decisions of the Tribunal. (AY. 2009-10)

Dharma Productions P. Ltd. v. ACIT [2016] 45 ITR 102 (Mum.)(Trib.)

72.
S.37(1) : Business expenditure – Ad hoc disallowance not allowed in case primary documents have not been doubted and it has not been alleged that bogus expenses or inflated expenses have been booked

The AO disallowed ad hoc 25% of certain expenses claimed by the assessee due to want of evidence. The ITAT followed earlier year and deleted the disallowance and held that the AO had not doubted the primary documents, but had made bald observations. (AY. 2009-10)

Dharma Productions P. Ltd. v. ACIT (2016) 45 ITR 102 (Mum.)(Trib.)

73.
S.40(a)(i) : Amounts not deductible – Deduction at source – Fee for professional services outside India without deduction of tax at source – Payment made outside India was not sum chargeable to tax in India – Hence, provisions of S. 195 are not applicable [S. 195]

The Assessee is engaged in business of rendering taxation, business advisory, audit related services and other consultancy services. During course of assessment proceedings it was observed by AO that Assessee had paid fee for professional services outside India without deduction of tax at source. The assessee in reply to the AO’s query explained that the payment made outside India is not sum chargeable to tax in India. Hence, provisions of section 195 were not applicable, consequently no disallowance could be made under S. 40(a)(i) of the Act.The AO however, made disallowance under section 40(a)(i) by observing that services rendered by non-residents were in areas of application of high level of skills as well as technical and industrial know-how. Hence, assessee is required to deduct tax at source while making the payment. On appeal the First Appellate Authority deleted the disallowance made by AO on the ground that Assessee did not have any liability under S. 195 r.w.s. 9(1)(vii) to deduct tax at source from those payments. The department being aggrieved by the order of the Ld. CIT(A) preferred an appeal before the Appellate Tribunal. The Tribunal dismissed the appeal of the department by observing that provision of S. 195(1) uses expression “chargeable” under the provisions of the Act. As the payment made by assessee is not chargeable to taxed in India, TDS is not required to be deducted under S.195 of the Act. (AY. 2008-09)

KPMG v. ACIT (2016) 177 TTJ 708 (Mum.)(Trib.)

74.
S.40(a)(i) : Amounts not deductible – Deduction at source – Fees for technical services – Services in nature of recruitment or placement agency do not come under purview of ‘fees for included services – DTAA ‘ India-d USA.

Services in nature of recruitment or placement agency do not come under purview of ‘fees for included services’ within meaning of Article 12(4)(b) of DTAA. Retrospective amendment to section 9 cannot change tax withholding liability with retrospective effect. Assessee company made certain payments to its overseas group companies as reimbursement of expenses incurred by them for recruitment of employees on behalf of assessee. The Assessee had furnished all necessary details about said expenditure. However, the AO made disallowance u/s. 40(a)(i) by treating said expenditure as FTS as per provisions of s. 9(1)(vii). Since payments were pure and simple reimbursement of recruitment expenses, section 195 was not attracted and, consequently, disallowance u/s.40(a)(i) was not called. (A.Y.2007-2008)

ACIT v. Lehman Brothers & Advisors (P.) Ltd. (2016) 157 ITD 1003 (Mum.)(Trib.)

75.
S.40(a)(i) : Amounts not deductible – Deduction at source – Late deposit of tax – Assessee deducted tax at source from royalty paid to its foreign associate in subsequent year and failed to deposit same within due date specified u/s. 200(1) it was to be disallowed

Assessee Company deducted TDS from royalty paid to its foreign associated enterprise in subsequent year and also failed to deposit same within due date specified u/s. 200(1), it was rightly disallowed by revenue u/s.40(a)(i). However in view of proviso to s. 40(a)(i) assessee would be eligible for deduction towards royalty payment, in year in which TDS was deducted and remitted into Government account, i.e., for assessment year 2008-09.(AYs. 2007-08, 2008-09)

ACIT v. L.G. Polymers India (P.) Ltd. (2016) 157 ITD 1113 (Visakhapatnam)(Trib.)

76.
S.40(a)(i) : Amounts not deductible – Deduction at source – non-resident Retro amendments –Disallowance was not justified as assessee could not have visualised to deduct TDS in absence of any provision at time of making payment and since there was an already prevailing law laid down by Supreme Court that in such a case no TDS was to be deducted – DTAA – India-Swiss Confederation

Assessee made payment to a non-resident company for training programmes conducted by said company outside India in which assessee sent its delegates. Assessee did not deduct TDS on said payments in view of ratio laid down by Supreme Court in Ishikawajma-Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408 (SC) wherein it was held that services rendered outside India would be taxable in India only if such services had been utilised in India. The AO disallowed payment for want of deduction of TDS holding that decision of Supreme Court would not be applicable in view of Explanation inserted with retrospective effect from 1-6-1976 which provided that fees for technical services received by a non-resident would be deemed to accrue in India whether or not it had rendered services in India. At time of making payment assessee could not have visualised to deduct TDS when there was no provision in this regard and there was already prevailing law laid down by Supreme Court that in such a case no TDS was to be deducted; therefore, disallowance for want of TDS was not justified. (AY. 2010-11)

Holcim Services South Asia Ltd. v. Dy. CIT (2016) 157 ITD 892 (Mum.)(Trib.)

77.
S.40(a)(ia) : Amounts not deductible – Deduction at source – Second proviso to s. 40(a)(ia) inserted by FA, 2013 should be treated as retrospectively applicable from 1st April, 2005 – When there are conflicting judgments of non-jurisdiction High Courts, it has to follow the view which is in favour of the assessee even if it believes that this view is not the correct law

When there are conflicting judgments of non-jurisdiction High Courts, the Tribunal is not permitted to choose based on its perception of what the correct law is because it will amount to sitting in judgment over the High Courts’ views. Instead, it has to follow the view which is in favour of the assessee even if it believes that this view is not the correct law. Second proviso to s. 40(a)(ia) inserted by FA, 2013 should be treated as retrospectively applicable from 1st April, 2005. (ITA No. 106/RPR/2016, dt. 24-6-20166) (AY. 2010-11)

R. K. P. Company v. ITO (Raipur)(Trib); www.itatonline.org

78.
S.40(a)(ia) : Amounts not deductible – R.w. S. 11 of the Act – Income computed under section 11 – No disallowance [S. 11]

Where income of the assessee has to be computed under section 11, no disallowance can be made under section 40(a)(ia) by applying commercial principles. (AYs. 2009-10 & 2010-11)

ITO v. Kalinga Cultural Trust (2016) 177 TTJ 233 (Hyd.)(Trib.)

79.
S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits –Payments through agents – Since assessee had no direct dealings with land owners, payments in question were to be regarded as covered under rule 6DD(k) which could not be disallowed

Assessee company was engaged in business of land aggregation. Nature of assessee’s business was to identify big parcels of lands and buy said land from different small landowners. The A.O. noted that assessee had made cash payments in excess of Rs. 20,000 for purchase of land. He thus invoked provisions of section 40A(3) to disallow said payments. It was noted that assessee had appointed agents who in turn selected land, negotiated price with land owners and purchased lands. Since assessee had no direct dealings with landowners and payments were made to them through agents, said payments were to be regarded as covered under provisions of rule 6DD(k) of 1962 Rules, which could not be disallowed by invoking provisions of section 40A(3).(AY. 2005-06 to 2011-12)

Om Shakthy Agencies (Madras) (P.) Ltd v. Dy. CIT (2016) 157 ITD 1062 / 177 TTJ 419 (Chennai)(Trib.)

80.
S.43(1) : Actual cost – subsidy – Capital or Revenue – Backward area subsidy received towards incentive on building and pollution control devices for setting up manufacturing unit – Not meant for working capital purposes – Held capital in nature

The assessee had set up a cement manufacturing unit in a backward district for which it was entitled to State Capital Incentive subsidy @ 25% of fixed capital investment. The assessee treated the said subsidy received towards incentive on building and pollution control devices as capital in nature. The AO treated the same as revenue subsidy for want of details. On appeal to Tribunal, it was held that the subsidy was received only as an incentive on building and pollution control devices for setting a manufacturing unit in backward district and it was not meant for working capital purposes or for running the cement manufacturing unit. The subsidy received has gone to reduce the capital cost of the assessee in view of Explanation 10 to section 43(1). The subsidy received by the assessee was capital in nature. (AY. 2008-09)

ACIT v. Bharat Hi-Tech (Cement) P. Ltd. (2016) 176 TTJ 166(Kol.) (Trib.)

81.
S.45 : Capital Gain – Cost of acquisition – Partition of HUF Family Arrangement – Cost incurred by previous owner shall be adopted and period of holding of the assets should be reckoned from 1963 – Benefit of Indexation to be granted from 1981 [S. 2(42A), 47, 49, 55(2)(b)]

Held that the family arrangements which was settled through award in 1987 should not be regarded as transfer u/s 47 as section provides that any distribution of capital assets on the total partition of HUF shall not be regarded as transfer. It cannot be said that assessee acquired property in 1987 because as per law the rights of assessee have only been reinstated or redetermined. No fresh rights have taken birth. Assessee was a beneficial owner of the property since 1963 as term ‘held’ in section 2(42A) does not imply that it should be actually be held as owner. Even otherwise, assessee would fall in situations as provided in sec. 49(1). Hence, in any case cost incurred by the previous owner shall be adopted while computing capital gains in the hands of assessee and period of holding of assets in the hands of the assessee should also be reckoned from 1963. Therefore, value for the purpose of taking cost and benefit of indexation should be adopted as on 1st April, 1981. (AY. 2007-08)

ITO v. P.M. Rungta (HUF) (2016) 176 TTJ 648 (Mum.) (Trib.)

82.
S.45 : Capital gains – Slump sale – Sale of entire share holding to subsidiary company to third party – It was mere transfer of shares cannot be assessed as slump sale [S 2(19AA, 2(42C) 48, 50B]

The assessee sold its entire share holdings in its subsidiary company to a third party. On the said sale the assessee worked the capital gains under section 48 of the Act. The AO treated the sale consideration as slump sale of undertaking and computed the capital gains under section 50B. CIT(A) upheld the order of AO. On appeal the Tribunal held that where the assessee sold its entire share holdings to third party, since it was a case of mere transfer of shares and moreover sale consideration was received by assessee itself and not by subsidiary it could not be treated as slump sale within the meaning of section 2 (42C) of the Act. (AY. 2007-08)

UTV Software Communications Ltd. v. ACIT (2016) 157 ITD 71/176 TTJ 315 (Mum.)(Trib.)

83.
S.48 : Capital gains – Portfolio management service fee paid by assessee to various portfolio managers could not be allowed as deduction while computing capital gain arising from sale of shares kept in portfolio management services accounts held with various funds. [S. 45]

Assessee earned short-term capital gain and long-term capital gain arising from portfolio management services (PMS) accounts held with various funds. In return of income, assessee claimed deduction of portfolio management fees paid to various funds from capital gains earned by him. AO rejected assessee’s claim. The ITAT held that portfolio management service fee paid by assessee to various portfolio managers could not be allowed as deduction while computing capital gain arising from sale of shares kept in portfolio management services accounts held with various funds. (AY. 2008-09)

Capt. Avinash Chander Batra v. Dy. CIT (2016) 158 ITD 604 (Mum.)(Trib.)

84.
S.50 : Capital gains – Depreciable assets – Cost of shares allotted to members of BSE pursuant to corporatisation of BSE would be calculated as per section 50 and not as per section 55(2)(ab) if depreciation was claimed on BSE membership – Indexation benefit on sale of such share would be available from date of corporatization of BSE and not from date of acquisition of original membership of BSE. [S. 55(2)(ab)]

Dismissing the appeal of assessee, the Tribunal held that; cost of shares allotted to members of BSE pursuant to corporatisation of BSE would be calculated as per section 50 and not as per section 55(2)(ab) if depreciation was claimed on BSE membership; further, indexation benefit on sale of such share would be available from date of corporatisation of BSE and not from date of acquisition of original membership of BSE. (AY. 2008-09)

Twin Earth Securities (P.) Ltd. v. ACIT (2016) 158 ITD 764/ 177 TTJ 527 (Mum.)(Trib.)

85.
S.50C : Capital gains – Full value of consideration – Stamp valuation – Amount of sale consideration has been determined in view of stamp duty valuation – Consideration cannot be estimated [S.45]

Held that provisions of sec. 50C lays down that the value adopted or assessed by Stamp Valuation Authority shall be deemed be full value of consideration. Law is well settled that scope of deeming fiction cannot be extended beyond what has been clearly mentioned in law. Full value of consideration of the asset has been determined based upon the value as was assessed by the stamp valuation authority. Therefore, once the amount of sale consideration has been determined keeping in view of provisions of law no question would arise of estimating the value of consideration once again. CIT(A) erred in estimating lease rent as it was beyond the provisions of law. (AY. 2003-04, 2006-07, 2007-08)

Kamala Brothers v. ITO (2016) 176 TTJ 178 (Mum.)(Trib.)

86.
S.50C : Capital gains – Full value of consideration – Stamp valuation – The stamp duty value on the date of agreement and not date of sale deed has to be taken [S. 45]

The assessees were all family members of two brothers, Mr. Mohd. Zia Baig and Mr. Abdul Arif Baig. The family members of Mr. Mohd. Zia Baig and Mr. Abdul Arif Baig, owned adjacent immovable properties. They sold their properties together for a sale consideration of Rs. 3,35,60,000 vide registered document No.1264 of 2006 and Rs. 3,54,40,000 vide Regd. Document No.1262 of 2006 both dated 6th March, 2006. The assessees computed long term capital gains from the above transaction on the sale consideration received by them and arrived at the long term capital gains in the hands of each of these assessees. Observing that the capital gains should have been computed adopting the deemed consideration of Rs. 4,50,62,000 as per the provisions of S.50C of the I.T. Act, the Assessing Officer held that proportionate deemed consideration has to be brought to tax. In view of the same, the Assessing Officer formed an opinion that there was reason to believe that income chargeable to tax has escaped assessment within the meaning of S.147 of the Act.

The assessee objected to the re-opening inter alia on the ground that the fair market value of the land as on 20-5-2005 on which date the land had been sold pursuant to a MOU. Accordingly, the assessee submitted that the SRO value of the property as on the date of agreement has to be considered and not as on the date of the transfer of the property. However, the Assessing Officer without considering the assessee’s submissions adopted the fair market value of Rs. 4,50,62,000. The CI T(A) confirmed the Assessing Officer’s Order. On appeal, the Tribunal held that issue as to whether the date of agreement or the date of execution of sale deed has to be considered for the purpose of adopting the SRO value under S.50C of the Act, is now settled in favour of the assessee by the decisions of the Hon’ble Supreme Court in the case of Sanjeev Lal and Smt. Shantilal Motilal v. CIT ( 2014) (365 ITR 389 (SC) as well as decisions of the co-ordinate bench of this Tribunal at Visakhapatnam in the cases of Lahiri Promoters Visakhapatnam v. ACIT, Circle 1(1), Visakhapatnam (ITA No.12/Vizag/2009 dated 22-6-2010) and Moole Rami Reddy v. ITO (ITA No.311/Vizag/2010 dated 10-12-2010). Therefore, the SRO value as on the date of agreement of sale has to be considered for the purpose of computation of capital gains. (AY. 2006-07)

Mohd. Imran Baig and Ors v. ITO (2016) 130 DTR 33 /175 TTJ 319 (Hyd.)(Trib.)

87.
S.56(2)(vii) : Income from other sources – Interest awarded on compensation for personal disability does not have the character of “income” and cannot be taxed. CBDT requested to issue instructions to mitigate hardship of accident victims [S. 145A]

The assessee is an unfortunate victim of a motor accident. On 18th May 1990, she was travelling in a car, which met a serious accident, leaving her permanently disabled, what is termed by the competent authority, at ninety percent level. She claimed a compensation of Rs. 15,00,000 for this tragic loss of her physical abilities. She did eventually get it but she had to knock the doors of Hon’ble Supreme Court, and it was finally on 26th April 2011 that her claim was upheld. As if this long struggle of 21 years in the judicial process was not enough, the destiny had more in store for her. It is this settlement of the accident compensation claim that has led to a new round of litigation- this time about taxability of a component of compensation, i.e. interest component. Mercifully, there is no, and there cannot be, any dispute about the fact that the compensation for disability cannot be subject to tax, but the stand of the Assessing Officer is that interest component on compensation awarded by Hon’ble Supreme Court is taxable as it is covered under section 145A(b) r.w.s. 56(viii) of the Act. In appeal, learned CIT(A) has confirmed this stand. On appeal by the assessee HELD allowing the appeal:

(i) Section 145A starts with a non obstante clause which restricts the scope of Section 145 dealing with the method of accounting. It is not a charging provision. The only impact it has on taxability of an income is its timing of taxability. What is not taxable is not made taxable under section 145A(b) but what is taxable under the mercantile method of accounting, i.e. on accrual basis, is made taxable on cash basis of accounting, i.e. at the point of time when interest is actually received. Nothing else needs to read into this provision, and the memorandum explaining the provision of Finance Bill 2009, as reproduced earlier, makes that amply clear. As for the provisions of Section 56(2)(viii), it is only an enabling provision, as unambiguously made clear in the above memorandum as well, to bring interest income to tax in the year of receipt rather than in the year of accrual. Section 56(2)(viii) provides that……”incomes, shall be chargeable to income tax under the head ‘income from other sources’, namely ….(viii) income by way of interest received on compensation or enhanced compensation referred to in clause (b) of Section 145A”. The starting point of this exercise is income, and it is only when the receipt is in the nature of an income, that the classification of income under a particular category arises. In other words, when interest received by the assessee is in the nature of income, such interest can be taxed under section 56 (2)(viii). Section 56(1) makes this aspect even more clear when it states that “Income of every kind, which is not to be excluded from the total income under this Act, shall be chargeable to income tax under the head “income from other sources”, if it is not chargeable to income tax under any of the heads specified in Section 14, items A to E”, and then, in the subsequent provision, i.e. Section 56(2), proceeds to set out an illustrative, rather than exhaustive list of, such “incomes”. Clearly, unless a receipt is not an income, there is no occasion for the provisions of Section 56(1) or 56(2) coming into play. Section 56 does not decide what is an income. What it holds is that if there is an income, which is not taxable under any of the heads under Section 14, i.e item A to E, it is taxable under the head ‘income from other sources’. The receipt being in the nature of income is a condition precedent for Section 56 coming into play, and not vice versa. To suggest that since an item is listed under section 56(2), even without there being anything to show that it is of income nature, it can be brought to tax is like putting the cart before the horse. The very approach of the authorities below is devoid of legally sustainable merits. The authorities below were thus completely in error in bringing the interest awarded by Hon’ble Supreme Court to tax. The question of deduction under section 57(iii), given the above conclusion, is wholly irrelevant. We vacate this action of the Assessing Officer, and disapprove the CIT(A)’s action of confirming the same. Grievance of the assessee is thus upheld.

(ii) As we part with the matter, we must say that, as fellow citizens, we are deeply anguished to take note of the long journey that the assessee had to undertake to get her dues and then to fight this unjust income tax demand on her. In order to ensure that others do not have to tread the same arduous path- at least with respect to the tax demand, and to bring an element of certainty, we would suggest that the Central Board of Direct Taxes may as well take a conscious call on issuing appropriate administrative instructions in this regard and ensuring that what was brought as a measure of relief to the taxpayers is not used, by the field officers, as a source of taxation. Such a step certainly cannot mitigate the pain of an accident victim but it can probably help in ensuring that hardships of the accident victim are not further compounded, and that’s the least that a responsive tax administration, like the one we fortunately have at present, can do.( ITA No. 630/Ahd/2016, dt. 31-5-2016)(AY. 2012-13)

Urvi Chirag Sheth v. ITO (Ahd)(Trib) ; www.itatonline.org

88.
S.68 : Cash credits – Addition cannot be made for loans taken in the period prior to the commencement of business as well as in the initial period of business. No addition in respect of parties against whom summons for examination was not issued by the AO

The Assessee obtained unsecured loans from numerous parties, while installing its plant and machinery and also for 6 months after commencement of manufacturing. Confirmation of majority of the parties was submitted by the Assessee and were even produced before the AO. However, addition u/s 68 was made by the AO for want for creditworthiness of the parties. The ITAT deleted the addition made by the AO and held that receipts during the pre-commencement period and during the initial duration of operations could be assumed to be capital receipts since the Assessee could not have earned huge income / profits during the pre-commencement and initial period of business. Further, the ITAT also held the addition could not be made on the parties who were not presented by the Assessee, since no summons for their examination was issued by the AO. (AY. 2006-07, 2007-08)

Kundles Loh Udyog v. ITO (2016) 45 ITR 11 (Chd.)(Trib.)

89.
S.68 : Cash credits – Share application money – Assessee had given complete details about share applicants clearly establishing their identity and creditworthiness addition could not be made

Where assessee had furnished name, address, PA Nos. details of share applicants, income-tax returns, bank statements of assessee-company, balance sheet of share applicants and confirmed that all payments were received through regular banking channels, obligation of assessee to prove existence of share applicants and source of share application money stood duly discharged and no addition could be made in its hand u/s. 68 on account of share application money. (AY. 2006–07)

Dy. CIT v. Global Mercantiles (P.) Ltd. (2016) 157 ITD 924 (Kol) (Trib.)

90.
S.68 : Cash credits – Immovable property – Assessee sold two flats during relevant year acquired out of his undisclosed income, since said amount had already been added to assessee’s income earlier in block assessment proceedings, AO could not make addition again

Assessee received certain amount as advance sale consideration in respect of three flats. In absence of any sale agreement, AO added said amount to assessee’s taxable income u/s. 68. It was noted that two flats had been purchased in name of assessee’s mother and wife out of his undisclosed income. It was also undisputed that addition in respect of aforesaid flats had already been made in hands of assessee in block assessment proceedings relating to earlier period. In these circumstances addition was to be set aside and matter was to be remanded back with a direction to AO to compute capital gain arising out of aforesaid two flats in hands of assessee in accordance with law. (AY. 2007-08)

Vishwanath Acharaya v. ACIT (2016) 157 ITD 1032 / 45 ITR 554 (Mum.)(Trib.)

91.
S.69B : Unexplained investments – Investment in property – Substitution of ‘full value of consideration received’ with ‘stamp value’ in terms of section 50C, is applicable in hands of seller of property who has to compute capital gains u/s. 48 pursuant to transfer of a capital asset in nature of land or building or both; same cannot be extended in case of purchaser to estimate undisclosed investment

The assessee purchased a property for a consideration of Rs. 48 lakh. The AO observed that the value determined by the stamp valuation authority for the said property was Rs. 1.05 crore and, accordingly treating the same to be the fair market value of the properties. AO made an addition of Rs. 57.13 lakhs as unexplained investment u/s. 69B. The ITAT held that substitution of ‘full value of consideration received’ with ‘stamp value’ in terms of s. 50C, is applicable only in hands of seller of property who has to compute capital gain u/s. 48 pursuant to transfer of a capital asset in nature of land or building or both and same cannot be extended in case of purchaser to estimate undisclosed investment. Where there was nothing on record to show that assessee had made any additional investment in property in addition to what had been stated in books of account, no addition could be made in its hands on basis of stamp duty charged by sub-registrar. S. 56(2)(vii) which provides for substitution of ‘stamp value’ with ‘actual purchase price, in excess of Rs. 50,000’ in hands of buyer is applicable only where any immovable property is purchased after 1-10-2009 and since in instant case property had been purchased by assessee in AY. 2006-07, S. 56(2)(vii) could not apply retrospectively. (AY. 2006-07)

Dy. CIT v. Global Mercantiles (P.) Ltd. (2016) 157 ITD 924 (Kol.) (Trib.)

92.
S.69C : Unexplained expenditure-Bribe – AO added an amount as unexplained payment made by assessee on basis of a VCD found in famous ‘Best Bakery case’ without corroborating it with any other evidence, action of AO was held to be not justified

Supreme Court, in famous Best Bakery case, found an evidence (VCD) against assessee in which it was claimed that assessee paid money to a witness for becoming hostile. Consequently, Supreme Court directed Income Tax Authorities to take decision for appropriate action against assessee. The A.O. added said money into income of assessee holding that it was an unexplained payment made by assessee. ITAT observed that, in Best Bakery case, enquiry officer gave his finding that there was no acceptable material to establish that assessee had paid money to witness and, thus, Supreme Court did not find any evidence against assessee and matter was merely left to Income-tax Authorities to look into and take action only if any tangible material came to surface. However, there was nothing on record to suggest that Revenue could unearth any evidence/tangible material against assessee to show that assessee had paid money to witness. Therefore, action of AO was not justified. (AY.2005-06)

Mahendrabhai B. Shrivastav v. ITO (2016) 158 ITD 755 (Ahd.)(Trib.)

93.
S.80-IA : Industrial undertakings – Infrastructure development –Initial assessment year – Option to choose with the assessee

The Tribunal held that option of choosing initial assessment year for claiming deduction under section 80-IA in a block of ten years out of 15 years is with the assessee. (AY. 2010-11)

Dy. CIT v. KEC Industries Ltd. (2016) 177 TTJ 6(UO) (Chd). (Trib.)

94.
S.80-IA : Industrial undertakings – Adjustment of brought forward losses set off in earlier years –There is no need to notionally carry forward these losses up to the initial assessment year and set off the same against the profits of the eligible business

The Tribunal held that losses claimed by the assessee in respect of eligible business period to the initial assessment year are to be set off against the income of the assessee from other ineligible business and there is no need to notionally carry forward these losses up to the initial assessment year and set off the same against the profits of the eligible business. (AY. 2010-11)

Dy. CIT v. KEC Industries Ltd. (2016) 177 TTJ 6)(UO) (Chd.) (Trib.)

95.
S.80-IB(10) : Housing projects –Assessee’s claim for deduction could not be restricted where the AO. failed to bring on record any material to show existence of any arrangement for business transacted between two concerns.

Assessee, engaged in manufacturing and packing of consumer articles for GCPL, a Godrej group company, claimed benefits u/s. 80-IB. the AO. noticed that main promoter of assessee had been closely associated with Godrej group and its net profit margin was significantly higher than what it should ideally be. AO. held that reasonable net profit of assessee should be 10 per cent as against 35.5 per cent declared, and applying s. 80IA(10) deduction u/s. 80-IB was allowed on 10 per cent of gross receipts. The A.O. can invoke provisions of deeming fiction created u/s. 80-IA(10) only when he proves that there is a close connection of assessee with other entity and further affairs are arranged in such a manner to inflate profits of eligible business. Since in instant case, AO had failed to bring any material on record to show existence of any arrangement for business transacted between two entities and it was not known on what basis he had arrived at net profit rate of 10 per cent. S. 80-IA(10) could not be invoked and assessee was entitled to deduction u/s. 80-IB as claimed. (AY. 2006-2007 to 2008-2009)

ACIT v. Ishwar Manufacturing Co. (P.) Ltd. (2016) 157 ITD 883 (Chd.)(Trib.)

96.
S.92C : Transfer pricing – Arm’s length price – TPO adopted a comparable operating on larger scale than assessee – When there is wide difference in brand value of two companies and, without quantification of same any company could not be ascertained as comparable

Assessee is an export oriented company and offered back office services (ITES) to one of its AE. It adopted TNM method to calculate the ALP and adopted 14 comparables but later contended before TPO to exclude Infosys BPO on grounds of its high revenue and wider business model. TPO rejected the plea of Assessee. The AO and DRP upheld the decision of TPO. The Tribunal directed the TPO to exclude Infosys BPO as comparable and held that assessee’s business profile is limited and not comparable to business model of Infosys, owing to the wide difference in turnover. The wide difference in turnover makes it clear that there is wide difference in the brand value of the two companies. Department has not brought on record any brand value of Act is on record and, When there is wide difference in brand value of two companies and, without quantification of same any company could not be ascertained as comparable of Assessee.) (AY. 2010-11)

Actis Global Services (P) Ltd. v. ITO (2016) 175 TTJ 506 (Delhi)(Trib.)

97.
S.92C : Transfer pricing – Arm’s length price – Exclusion of comparables – Comparable segmental details qua segment not reliable and Revenue generation model entirely different – Saket Projects Ltd. directed to be excluded as a comparable

Assessee engaged in business of software development and providing marketing services and had entered into international transactions in year under consideration. Case was marked to TPO. Assessee provided updated margins of comparables and sought the exclusion of a comparable, Saket Projects Ltd. on the ground that it is functionally not comparable and its segmental data is unreliable. TPO rejected the objection stating that since assessee selected the comparable showing extensive data, data is available and extreme results might consist of high profits but high profitability is not a proper ground for exclusion. ITAT accepted that comparable could not be excluded on grounds of high profitability alone but held that comparable has to be excluded because segmental details of comparable was not reliable and comparable organised events on sponsorship having an entirely different Revenue generation model of offering space on rent and selling event fees etc. (2008-09)

Qualcomm India Pvt. Ltd. v. Dy. CIT (2016) 45 ITR 370 (Delhi)(Trib.)

98.
S.92C : Transfer pricing – A company subjected to merger by way of amalgamation cannot be taken as comparable

Tribunal held as under:-

1. A company subjected to merger by way of amalgamation cannot be taken as comparable.

2. Company with outsourcing cost of 66 per cent cannot be taken as comparable to assessee having outsourcing cost at 8 per cent.

3. A company functionally similar cannot be excluded from comparables on the ground of low turnover. (AY. 2006-07)

American Express (I) (P) Ltd. v. Dy. CIT (2016) 177 TTJ 33 (Delhi)(UO)(Trib.)

99.
S.92C : Transfer Pricing – Turnover being less than 20 crores, companies having turnover in excess of 200 crore are to be excluded

Tribunal held that the assessee’s turnover being less than 20 crores, companies having turnover in excess of 200 crore are to be excluded from the list of the comparables. (AY. 2010-11)

Dy. CIT v. Obopay Mobile Technology India (P) Ltd. (2016)46 ITR(T) 42/ 157 ITD 982 / 177 TTJ 191 (Bang.)(Trib.)

100.
S.92C : Transfer pricing – Arms’ length price – Exclusion of comparables – Comparable segmental details qua segment not reliable and Revenue generation model entirely different – Saket Projects Ltd. directed to be excluded as a comparable

Assessee engaged in business of software development and providing marketing services and had entered into international transactions in year under consideration. Case was marked to TPO. Assessee provided updated margins of comparables and sought the exclusion of a comparable, Saket Projects Ltd on the ground that it is functionally not comparable and its segmental data is unreliable. TPO rejected the objection stating that since assessee selected the comparable showing extensive data, data is available and extreme results might consist of high profits but high profitability is not a proper ground for exclusion. ITAT accepted that comparable could not be excluded on grounds of high profitability alone but held that comparable has to be excluded because segmental details of comparable was not reliable and comparable organized events on sponsorship having an entirely different Revenue generation model of offering space on rent and selling event fees etc. (2008-09)

Qualcomm India Pvt. Ltd. v. Dy. CIT (2016) 45 ITR 370 (Delhi)(Trib.)

101.
S.92C : Transfer pricing – Arms’ length price – Comparable and adjustment – Assessee has benchmarked international transactions on TNMM basis and Transfer Pricing Officer has neither disputed assessee’s claim that TNMM is most appropriate method, nor comparable selected by assessee, it is not open to Transfer Pricing Officer to even reject benchmarking done by assessee.

Where assessee had benchmarked international transactions on TNMM basis and Transfer Pricing Officer had neither disputed assessee’s claim that TNMM was most appropriate method, nor comparable selected by assessee, it was not open to Transfer Pricing Officer to even reject benchmarking done by assessee and make ad hoc addition in value of international transaction; such a course of action is not permissible under scheme of transfer pricing law. Even when a method of ascertaining ALP is, for good and sufficient reasons, rejected by TPO, he has to select most appropriate method, out of recognised methods under rules 10AB and 10B, and then apply same. (AY. 2008-2009)

Det Norske Veritas A/S v. Addl. DIT (2016) 157 ITD 1022/ 178 TTJ 59 (Mum)(Trib.)

102.
S.92C : Transfer pricing –Computation of arm’s length price (Comparables and adjustments/Comparables – Illustrations) – Where on FAR analysis conclusion that a company is correctly chosen as a comparable remains unassailed, then it is necessary for revenue at that stage to bring some cogent reason, argument or fact justifying that still comparable needs to be excluded

Where on FAR analysis, conclusion that a company is correctly chosen as a comparable remains unassailed, then it is necessary for revenue at that stage to bring some cogent reason, argument or fact justifying that still comparable needs to be excluded; merely re-iterating TPO’s stand at this stage that it is consistently a loss making company, will not hold good. (A.Y. 2005 – 2006)

Dy.CIT v. Nortel Networks India (P.) Ltd. (2016) 157 ITD 971,176 TTJ 25 (Delhi) ( Trib.)(UO)

103.
S.92C : Transfer pricing – Arm’s length price – Comparables & adjustments – Company providing software development services could not be compared with company which was (a) engaged in sale and development of software, (b) having huge turnover in comparison to turnover of assessee, (c) predominantly product development company, (d) having minimal employee cost, (e) engaged in development of niche product and development service, (f) engaged in animation services or (g) incurring selling/research & development expenditure for sale/development of products

Assessee was providing software development services to its AE and non-AEs. The TPO applied (a) new comparables, (b) negative working capital adjustment and (c) took cost incurred in non-AE transactions to determine ALP. Company which was (a) engaged in sale and development of software, (b) having huge turnover in comparison to turnover of assessee, (c) predominantly a product development company, (d) having minimal employee cost, (e) engaged in development of niche product and development service, (f) engaged in animation services or (g) incurring selling/research & development expenditure for sale/development of products could not be accepted as valid comparable while determining ALP. No clear cut direction could be given for negative working capital adjustment as it was required to be analyzed on basis of assessee’s work profile and comparable companies, working results; therefore, A.O/TPO was to be directed to re-workout working capital adjustment after giving due opportunity to assessee. AO./Transfer Pricing Officer was to be directed to exclude TP adjustment on non-AE transactions and re-workout costs pertaining to AE transactions and restrict adjustment only to AE transaction. (AY. 2007-08)

NTT Data India Enterprises Application Services (P.) Ltd. v. ACIT (2016) 157 ITD 897 (Hyd.) (Trib.)

104.
S.92C : Transfer pricing – Arm’s length price – Comparables and adjustments – In case of assessee, engaged in development and delivery of domain specific software to its AE, companies having turnover in excess of Rs. 200 crore and companies having related party transactions in excess of 15 per cent, could not be accepted as comparable while determining ALP

Assessee entered into international transaction of development and delivery of domain specific software to its AE, Obapay Inc., USA. Since turnover of assessee was less than Rs. 20 crores, companies having turnover in excess of Rs. 200 crores, could not be accepted as comparables. Companies having related party transactions in excess of 15 per cent during relevant period, were not acceptable as comparables. A company engaged in development of its own software products, could not be accepted as comparables. Foreign exchange fluctuation gain was to be treated as part of operating profit while determining ALP. (AY. 2010-11)

Obopay Mobile Technology India (P.) Ltd. v. Dy. CIT (2016)157 ITD 982/ 46 ITR 42/ 177 TTJ 191 (Bang.) (Trib.)

105.
S.92C : Transfer pricing – Arm’s length price – Comparable and adjustments – Interest – Assessee claims that interest is not being charged from AEs as well as non-AEs for delay in realisation of funds given to AEs as a result of commercial transaction and that contention is not disputed to be factually incorrect, it cannot be open to TPO to compute interest and make adjustment accordingly

Where assessee claims that interest is not being charged from AEs as well as non-AEs for delay in realisation of funds given to them as a result of commercial transaction and that contention is not disputed to be factually incorrect, it cannot be open to TPO to compute interest and make adjustment accordingly. When international transactions have been benchmarked on basis of TNMM, and interest on delay in realisation of amounts is only incidental to such transactions rather than a standalone transaction, such an adjustment cannot be made independently.(AY. 2008-09)

Det Norske Veritas A/S v. Addl. DIT (2016) 157 ITD 1022 / 178 TTJ 59 (Mum.)(Trib.)

106.
S.112 : Capital gains – Long Term Capital Gains – Trusts – Capital gain earned by assessee – Trust became non-exempt u/s. 11 due to contravention of s. 13(1)(c), such capital gain would be taxed at maximum marginal rate in terms of s. 164(2) and benefit of section 112 could not be given to it

Assessee Trust earned capital gain on sale of land and claimed same as exempt income. As there was violation of section 13(1)(c), exemption u/s. 11 was denied to assessee and its income was assessed under section 164(2). Since capital gain became non-exempt as a consequence of contravention of provisions of section 13(1)(c) or (d), said income would be subject to tax at maximum marginal rate and benefit of section 112 could not be given to assessee. (AY. 2007-08)

Dy. DIT v. India Cements Educational Society (2016) 157 ITD 1008 / 46 ITR 80 (Chennai)(Trib.)

107. S.127 : Power to transfer cases – Where Addl. CIT passed
assessment order, however, no order conferring concurrent
jurisdiction to Addl. Commissioner of Income-tax over cases of
Income-tax Officer was available, assessment being without
jurisdiction was void ab initio – Notice served on old address could
not be quashed if assessee did not intimate the new address to
department. [Ss. 142, 282]

Assessee contended that there was no order u/s. 127 transferring case to Addl. Commissioner of Income-tax in exercise of concurrent jurisdiction vested in her and hence order passed by Addl. CIT was without jurisdiction. Revenue however submitted that Addl. CIT was provided concurrent jurisdiction over cases through order of Commissioner of Income-tax and, therefore, no separate order u/s. 127 was required to be passed. However, no such order conferring concurrent jurisdiction to Addl. CIT over cases of Income-tax Officer was either available on assessment record, or was produced by revenue. Thus, in absence of any such order, assessment completed by Addl. CIT being without jurisdiction was void ab initio. Tribunal also held that the notice served on old address could not be quashed if assessee did not intimate the new address to department. (AY. 2007-08)

Harvinder Singh Jaggi v. ACIT (2016)157 ITD 869/ 179 TTJ 232 (Delhi)(Trib.)

108.
S. 143(3): Assessment – Search & Seizure – Stock – Surrender of income – Deletion of addition was held to be justified [S. 132(4)

The revenue is aggrieved by the decision of learned CIT(A) in deleting the income surrendered by the assessee in the statement given under section 132(4) of the Act in both the years.

The Tribunal held that in the instant case the learned CIT has given a clear finding that the alleged excess stock pointed out by the search officials has since been reconciled by the assessee and the AO did not make any addition on account of alleged excess stock meaning thereby, he was also satisfied with the reconciliation statement furnished by the assessee.

The Tribunal further held that the assessee has maintained books of account and further the difference in stock has been duly reconciled. In the circumstance the CIT(A) was justified in deleting the additions made by the AO in AY. 2009-10 and 2010-11 respectively. (AY. 2009-10, 2010-11)

CIT v. Tribhovandas Bhimji Zaveri (2016) 177 TTJ 306 (Mum.)(Trib.)

109.
S.145 : Method of accounting –System of accounting – Assessee had two sources of income under head ‘Income from Business or Profession’, since assessee followed cash system of accounting in respect of one source of income whereas mercantile system of accounting was adopted in respect of other source of income, it did not amount to following ‘hybird system of accounting’ as prohibited by amendment in section 145 by Finance Act, 1995

Assessee was professional dance director and also producing films in form of proprietorship concern. Assessee followed cash system of accounting in respect of his professional receipts whereas he was following mercantile system of accounting for computing income from production of films. Assessee filed his return declaring certain taxable income. The A.O. took a view that assessee was following hybrid system of accounting which was not permissible in view of amendment in section 145 by Finance Act, 1995, thus, added certain amount to income of assessee from profession by following mercantile system of accounting. The assessee had two sources of income under one head i.e. ‘Income from Business or Profession’. It was undisputed that assessee followed cash system of accounting in respect of one head of income and mercantile system of accounting in respect of other head of income which did not amount to following ‘hybrid system of accounting’. In view of addition made was to be set aside. (AY. 2007-2008)

Vishwanath Acharaya v. ACIT (2016) 157 ITD 1032/ 45 ITR 554 (Mum)(Trib.)

110.
S.147 : Reassessment – Reopening on the basis of statement given to police under section 161 of Criminal Procedure Code, 1973 – Unjustified. [S. 69C]

Statement recorded by Police Officer under section 161 of Code of Criminal Procedure, 1973, is neither given ‘on oath’ nor it is tested by cross examination. Therefore, such a statement cannot be treated as substantive evidence to reopen assessment proceedings. (AY. 2006-07)

Subhash Chander Goel v. ITO (2016)156 ITD 808/ 177 TTJ 353 (Chd.)(Trib.)

111.
S.153A : Assessment – Search – An assessment made u/s. 153A only on the basis of pre-search enquiries and because the parties did not appear in response to S.133(6) summons is not valid if no incriminating material was found in search. S.143(1) Intimation is deemed to be a completed assessment if no notice u/s. 143(2) has been issued prior to the date of search – Addition was deleted. [S. 143(1)]

We are of the considered view that completed assessment interfered with by the AO u/s. 153A and confirmed by the learned CIT(A) are not sustainable in the eyes of law for the following reasons:-

(i) That in the instant case, undisputedly the AO has not made assessment on the basis of incriminating material unearthed during search and seizure operation conducted u/s 132 rather proceeded u/s. 153A of the Act on the basis of some pre-search enquiries to make an addition as has specifically been recorded in para 6 of the assessment order that, “Pre-search enquiries revealed that M/s Jaipuria Infrastructure Developers Pvt. Ltd., the flagship company involved in the real estate business of the S. K. Jaipuria group is indulged in inflating the cost of the project by debiting bogus expenses by raising bills from the non-existing parties or the entry providers.”

(ii) That the ratio of the judgment in case of CIT v. Kabul Chawla 380 ITR 173 (Del.) is required to be extracted by perusing the judgment in entirety and not by picking up the favourable sentences and by ignoring the unfavourable one. Highlighted portion of paras 37 (iv), (v), (vi) & (vii) of Kabul Chawla (supra) is crux of the issue involved which is applicable to the facts and circumstances of the case;

(iii) That the ratio of the judgment Kabul Chawla (supra) is that in all circumstances, completed assessment can be interfered with by the AO u/s. 153A only on the basis of incriminating material unearthed during the course of search;

(iv) That not only this, the addition in this case has been made by the AO u/s. 153A on the sole ground that assessee has failed to produce the parties with whom the assessee company has transacted during the year under assessment who have failed to turn up despite the issue of notice u/s 133 (6) of the Act;

(v) That the contention of the learned DR that the assessment qua the AY 2006-07 was pending as on date of search as mere issuances of acknowledgement by the Ministerial staff does not imply that assessment has been completed, is not tenable in the face of undisputed fact that when within the prescribed period, no notice u/s 143 (2) has been issued prior to the date of search, assessment is deemed to be completed;

(vi) That there is not an iota of material with the AO to initiate proceedings u/s. 153A what to talk of incriminating seized material;

(vii) That the learned CIT(A) affirmed the assessment order by relying upon the decisions relied upon by Hon’ble jurisdictional High Court in the case cited as Filatex India Ltd. v. CIT-IV – (2014) 49 taxmann.com 465 (Delhi) which has been distinguished in the Kabul Chawla (supra) on the ground that in the said case, there was some material unearthed during the search whereas in the instant case there is admittedly no incriminating material unearthed during the search to proceed u/s. 153A.( ITA Nos. 5522 & 5523/Del./2015, dt. 27-6-2016)(AYs. 2006-07, 2007-08)

Jaipuria Infrastructure Developers v. ACIT (Delhi)(Trib.); www.itatonline.org

112.
S.153A : Assessment – Search and seizure – Where pursuant to search proceedings, notice u/s. 153A was issued, since assessment in respect of some assessment years covered by said notice had already been completed and, moreover, no incriminating material was found during search, assessment for those assessment years could be made only as per original assessment u/s. 143(1) or 143(3).

Assessee raised an objection relating to invoking of jurisdiction u/s. 153A in respect of assessment years 2005-06 and 2006-07 for which original assessment was already completed. Since original assessment for aforesaid assessment years had already been completed and no incriminating material was found during search operation, assessment u/s.153A had to be made only as per original assessment which was made u/s.143(1) or u/s. 143(3).

Om Shakthy Agencies (Madras) (P.) Ltd v. Dy.CIT (2016) 157 ITD 1062 / 177 TTJ 419 (Chennai)(Trib.)

113.
S.192 : Deduction at source – Salary – Profit in lieu of salary –Tips – Assessee collected tips from customers by charging it in their bills and gave to its employees, it formed part of their salary liable for deduction of tax at source. [S. 17]

Assessee was running a hotel it collected tips from customers by charging it in their bills and gave to its employees, It did not deduct TDS thereon. Tips charged in bill, either by way of fixed percentage of amount on total bill or otherwise, which were disbursed to employees would amount to salary and thus liable for deduction of TDS. However, benefit of bona fide belief would be available to assessee and therefore it would not be treated as assessee-in-default and would only be liable to pay interest. (AY.2006-07, 2007-08)

C.J. International Hotels Ltd. V. ACIT (2016) 158 ITD 287/ 177 TTJ 447 (Delhi)(Trib.)

114.
S.194C : Deduction at source –Payment to music group – Cannot be considered as professional services – Deduction of tax at source as contractor was held to be justified [S. 194J]

The Tribunal held that live performance given by a music troupe at the assessee’s hotel cannot be considered as professional services as defined in section 194J. There was no production of any cinematography film during the performance by the group and therefore provision of section 194J are not applicable, ex-consequent deduction of tax at source under section 194C is in order. (AY. 2006-07, 2007-08)

C. J. International Hotels Ltd. v. Addl. CIT (2016)158 ITD 287 / 177 TTJ 447 (Delhi)(Trib.)

115.
S.194C : Deduction of tax at source – Contractors – Assessee deducted TDS under wrong provision in earlier assessment years which was accepted by revenue without verification, principle of consistency could not be applied to continue application of such wrong provision in later years

The assessee was engaged in business of distribution of TV channels from its own DTH network. It obtained rights from TV channels to distribute their programmes to the ultimate viewers. It made payments thereto after deducting TDS u/s.194C. The AO held that assessee paid licence fee to TV channels which was in the nature of royalty covered under Explanation 2(v) of section 9(1)(vi) and as such, TDS was to be deducted u/s. 194J. Applicability of correct TDS provision was in question. Assessee argued that it made payments in past also after deducting TDS u/s.194C, which view had not been disturbed by revenue therefore same view should be followed for assessment year in question as well. Issue was not examined in earlier years and assessee’s contention was accepted without verification. Non-examination of issue in earlier years could not give licence to assessee to claim in later years that correctly applicable section be put under carpet and, therefore, a wrong provision could not be applied in garb of consistency. (AY.2009-10)

Dish TV India Ltd. v. ACIT (2016) 157 ITD 1096 (Delhi) (Trib.)

116.
S. 194J : Deduction of tax at source – Fees for professional or technical services – TV programmes – Payment to TV channels to receive their programmes for further telecasting TDS was to be deducted u/s. 194J

Assessee made payment to TV channels to receive their programmes so that it can distribute same to its viewers through its own DTH network. It deducted TDS u/s. 194C. AO held that assessee paid licence fee to TV channels which was in nature of royalty covered under Explanation 2(v) of s. 9(1)(vi) and, thus, TDS was to be deducted u/s. 194J. S. 194C would be attracted when payment was made for carrying out work of broadcasting and telecasting and since assessee did not make payments to TV channels for telecasting rather it telecasted TV programmes on its own, TDS was not to be deducted u/s. 194C. Payment was made to TV channel for transfer of intellectual property rights in programs to be used by assessee in connection with television which was covered under Explanation 2(v) of s. 9(1)(vi) and thus TDS was to deducted u/s. 194J. (AY. 2009-10)

Dish TV India Ltd. V. ACIT (2016) 157 ITD 1096 (Delhi)(Trib.)

117.
S.201 : Deduction of tax at source – Consequence of failure to deduct or pay – Wrong deduction- Assessee deducted TDS under wrong provision resulting in lower deduction of tax but deductee paid tax on such payments by including it in its income, assessee was not to be treated as assessee-in-default although he would be liable for interest on such payments

The AO raised demand with interest for amounts on which assessee deducted TDS in wrong provision resulting in lower deduction of tax. CIT(A) directed AO to reduce demand and interest for amounts which were included by deductees in their incomes and on which due taxes were paid. Assessee should not be held liable for amounts which were taken into account for computing income and on which tax had been paid by deductee. However, assessee would be liable to pay interest under sub-section (1A) from date on which such tax was deductible to date of furnishing of return of income by deductee. (AY. 2009-10)

Dish TV India Ltd. v. ACIT (2016) 157 ITD 1096 (Delhi)(Trib.)

118.
S.206C : Collection of tax at source – Liability incurred by purchaser – AO verified and ensured that buyer of scrap from assessee – Scrap importer had duly discharged tax liability in respect of income earned in respect of goods in question, there could not be any justification of recovering tax collectible at source by assessee

TCS demands raised u/s. 206C are in nature of vicarious liabilities which survive only as long as principal liability of taxpayer remains in existence; when principal tax liability itself is extinguished, very raison d’etre of demand raised u/s. 206C ceases to hold good in law. Where it was ensured that buyer of scrap from assessee – scrap importer had duly discharged tax liability in respect of income earned in respect of goods in question, there could not be any justification of recovering tax collectible at source by assessee which was, in any event, adjustable against tax liability of buyer of scrap. (AY. 2010-11, 2011-12)

ITO v. Dudani Metal Agencies (2016) 157 ITD 1088 (Rajkot)(Trib.)

119.
S.244A : Refunds – Self assessment tax – Interest – Refund of excess self-assessment tax will not carry any interest from date of payment but it will carry interest from date of processing of return under section 143(1) till date of granting of refund [S.140A, 143(1)]

Payment of excess self-assessment tax on being allowed credit for against tax payable assumes character of tax paid upon processing of return for relevant year resulting in refund and thus refund of excess self-assessment tax will not carry any interest from date of payment but it will carry interest from date of processing of return under section 143(1) till date of granting of refund. (AY.1994-95)

Raymond Ltd. v. Dy. CIT (2015) 173 TTJ 572 (Mum.)(Trib.)

120.
S.253 : Appellate Tribunal – In case of order passed by DRP, right to file an appeal by department does not extend to a point decided either way by Assessing Officer/TPO himself, which remains intact even after direction given by DRP [S.144C ]

Tribunal held that after the insertion/amendment by the Finance Act, 2012 of/to sub-sections (2A) and (4) of section 253, the Department has acquired a right to file appeal or cross objection against the assessment order passed in pursuance of the direction of the DRP to the extent it is aggrieved against such direction. It has no right to file appeal or cross objection against the voluntary decision of the AO/TPO which was not subject matter of any adverse direction by the DRP. It can be clarified here that what has been prohibited against such an adverse position is the appellate recourse and not other remedies, if any, available as per law de hors the appellate option. Insofar as the adverse direction given by the DRP is concerned, the Assessing Officer has now got a right to assail its correctness before the Tribunal. Adverting to the facts of the instant case, though the revenue had a right to file appeal or cross objection against the direction of the DRP in accepting the cash system of accounting followed by the assessee, but it chose not to do so. Thus the doors of this route are foreclosed. (AY 2011-12)

SIS Liv v. ACIT (2016) 175 TTJ 643 (Delhi)(Trib.)

121.
S.253 : Appeal to Tribunal – Single or separate appeals [S. 201(1), 201(1A)]

Tribunal held that there is no need to file separate appeals in respect of defaults under section 201(1) & 201(1A) as there is no provision in the Act mandating the filing of separate appeals either before CIT(A) or the Tribunal against the order covering defaults under sub-section (1) or sub-section (1A) of section 201. (AY. 2006-07 & 2007-08)

C. J. International Hotels Ltd. v. Addl. CIT (2016) 158 ITD 287 / 177 TTJ 447 (Delhi)(Trib.)

122.
S.254(1) : Appellate Tribunal – Right of respondent – Revenue has no right to appeal against view taken by AO/TPO himself [ITATR, 27]

Though revenue has right to file cross objections against the adverse order of the CIT(A) but it has no right to file appeal against the view taken by the AO/TPO himself which was not disturbed in the First appeal. When TPO himself considered ASE Ltd as comparable, there could be no reason for revenue to be aggrieved against its inclusion; and department could take recourse to other legal remedies, if any, available as per law insofar as its grievance against decision of Assessing Officer/TPO was concerned. (AY. 2007-08)

ACIT v. Tech Books Electronics P. Ltd. (2016) 176 TTJ 20/65 taxmann.com 241 (Delhi)(Trib.)

123.
S.263 : Commissioner – Revision of orders prejudicial to revenue – In challenging the validity of a s. 263 revision order, the validity of the underlying s. 143(3) assessment order which is sought to be revised can be examined even if the said assessment order has not been challenged and has become final. If the assessment order is passed on a non-existent entity, the revision order is void. [S. 292B ]

Allowing the appeal of assessee the Tribunal held that; If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s. 263 to revise the non est assessment order. The original assessment order passed u/s 143(3) dt 24-10-2013 was null & void in the eyes of law as the same was passed upon a non-existing entity and, therefore, the CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the CIT is also nullity in the eyes of law and therefore the same is hereby quashed. (ITA No. 688/Mum/2016, dt. 10-6-2016)(AY. 2011-12)

Westlife Development Ltd. vs. Pr. CIT (Mum)(Trib) ; www.itatonline.org

124.
S.271(1)(c) : Penalty – Concealment – Accrual of (Banks/NBFC, in case of) – Assessee – NBFC provided security in form of cash collateral for loans purchased by purchaser-bank but did not book said amount as its income, levy of concealment penalty was justified

Assessee, a Non-Banking Financial Company, was engaged in business of providing loans. It sold a portion of loans to purchaser-bank on Bilateral Buy Out Basis. As per agreement, assessee provided cash collateral for 2 per cent of loans by way of fixed deposits of which lien was made in favour of purchaser-bank. Such cash collateral had to be utilised by purchaser-bank to cover any shortfall in repayment of loans. Assessee did not treat such cash collateral as its income on ground that its case fell in capacity of contractor and money was retained for a certain period which should not be taxable until retention period was over. The AO levied penalty for furnishing inaccurate particulars. Treatment given by assessee was incorrect and had no sanction of law and also not supported by any accounting standard and therefore claim of assessee was false and was of furnishing inaccurate particulars of income; therefore levy of penalty was justified. (AY. 2007-08)

Dy. CIT v. Madura Micro Finance Ltd. (2016) 157 ITD 918 (Chennai)(Trib.)

125.
S.271C : Penalty – For failure to deduct tax at source – Confirmation of demand raised u/s. 201, cannot be sole criteria for imposing penalty as proceedings are two separate and independent proceedings – No mala fide intention could be imputed to assessee for failure to deduct tax and, accordingly, penalty imposed was deleted. [S. 195, 201, 273B]

Imposition of penalty u/s. 271C is neither automatic nor mandatory; authority concerned is empowered u/s. 273B not to impose penalty in a deserving case if he is satisfied that there was reasonable cause for failure to comply with statutory requirement. Where confirmation of demand raised u/s. 201, cannot be sole criteria for imposing penalty u/s. 271C as proceedings u/s. 271C and 201 are two independent and separate proceedings. Assessee paid a certain sum in foreign currency to a non-resident for development of website and other allied works. Assessee submitted that payment was made without deduction of TDS under section 195 on basis of advice of her CA that tax was not required to be deducted at source on said remittances because payment was made to a non-resident having no P.E. in India and that too, for services rendered outside India. AO treated assessee as an assessee-in-default u/s. 201(1), though the assessee challenged said order, but she accepted her liability on the basis of same AO initiated penalty proceedings u/s.271C. No mala fide intention could be imputed to assessee for failure to deduct tax and, accordingly, penalty imposed u/s. 271C was deleted. (AY.2007-08)

Aishwarya Rai Bachchan (Smt.) v. Addl. CIT (2016) 158 ITD 987 (Mum.)(Trib.)

126.
S.282 : Service of notice – Rebuttal of presumption – Notice served on old address could not be quashed if assessee did not intimate the new address to department. [S. 143(2)]

Assessee filed his return for relevant assessment year. Case of assessee was selected for scrutiny and notice u/s. 143(2) was issued. Revenue had provided enough proof that notice was sent through speed post at correct address provided in return of income and receipt of postal authorities was available on record. Assessee filed an affidavit stating that said notice was not served; however, in affidavit, assessee had not furnished any reasons or evidences as to why notice sent at correct address could not be served on assessee. It was noticed that address of assessee in affidavit was different from address provided in return of income, which showed that assessee had changed his address and new address was not communicated to Income-tax Department. Onus to communicate correct address or change of address to Department was on assessee, which assessee failed to do. Thus, assessee failed to rebut presumption of valid service of notice and hence, it could be said that AO had complied requirement of service of notice u/s. 143(2) and notice was served validly.(AY.2007-08)

Harvinder Singh Jaggi v. A CIT (2016)157 ITD 869/ 179 TTJ 232 (Delhi)(Trib.)

67.

S.2(24) : Income – Assessee-society, which ran a business enterprise in its own name was duty bound to offer its profits to tax before diverting any funds to Distributable Pool Fund Account for distribution to its members

The assessee was a society of ‘Maliks’ who were owners of land (Agar) on which salt was manufactured. The society was formed inter alia to acquire from the ‘Maliks’ their rights and to manufacture salt and its by-products. Assessee manufactured and sold salt and other by-products in its own name. The sale proceeds were being transferred to an account called ‘Distributable Pool Fund Account’ for distribution among the members of the society. After such transfer to the members, the society would offer remaining income to tax. The AO held that such transfer could not be considered as expenditure, accordingly assessed the amount transferred to Distributable Pool Fund Account during the year.

The High Court held that society earns ‘profits’ which falls within the definition of ‘income’ under Section 2(24) of the Act. Therefore the AO was right in holding that the transfer of fund for subsequent distribution to the members before payment of tax is not a ‘deductible expenditure’ in computation of business income of the assessee, further held that the income declared after disbursement of profits is not logical and has no relevance to determination of taxable profit under the Income-tax Act. Further the High Court held that assessee a co-operative entity which runs a business enterprise is duty bound to offer its profits to tax before diverting any funds to the Distributable Pool Fund Account and allowed the Revenue’s appeal. (AY. 2007-08)

CIT v. Nagarbail Salt-Owners Co-operative Society Ltd. (2016) 238 Taxman 689 (Karn.)(HC)

68.
S.2(42B) : Short term capital gain – Long-term capital asset – Short-term capital asset – An agreement to purchase property merely creates a right to seek specific performance. The asset cannot be considered to be “held” from the date of the agreement so as to constitute long-term capital gains

The appellant entered into an agreement on 18th May, 1980 with M/s. Shubhada Prints Pvt. Ltd. for acquiring leasehold rights of immovable property (said land) situated at Majas Village, Jogeshwari (E), Mumbai, for consideration set out therein. The appellant purchaser was required to file a Suit in this Court being Suit No. 1077 of 1981 against the vendor Shubhada Prints Pvt. Ltd., inter alia, seeking specific performance of the agreement to assign the leasehold rights in the said land. An earnest money of Rs. 25,000/- had been paid at the time of execution of the agreement. During the pendency of the Suit, the parties arrived at Consent Terms on 11th March, 1988 pursuant to which the defendant – vendor agreed to assign the leasehold rights in the said land at a lump sum of Rs. 4,50,000/- instead the lower consideration originally payable under the suit agreement. The appellant thereafter sold the said land to one M/s. Associated Estate and Investment Corporation vide agreement dated 29th November, 1988 for a price of Rs. 37,70,000/- resulting in capital gain to him. According to the appellant, he was holding the said land since 1980 i.e. from the date of the agreement dated 18th May, 1980 and hence the gain was long-term in nature. The Assessing Officer and Tribunal, however, found that the appellant came into possession only pursuant to the Consent Terms and therefore the amount of consideration received on sale by the appellant is to be treated as short term capital gain and he was assessed accordingly. On appeal by the assessee to the High Court HELD dismissing the appeal:

(i) Consequent to the vendor not honouring the agreement dated 18th May, 1980, all that the appellant had was a right to seek specific performance which he sought to enforce by filing the suit. The appellant did not have possession of the said land. It is only on the Consent Terms being filed in Court that the appellant got ownership and possession.

(ii) In our opinion, the assessee-appellant ‘held’ the property only upon the order being passed upon filing of the Consent Terms in Court on 11th March, 1988. The said land was sold on 29th November, 1988. Therefore it falls beyond the scope of long term capital gains and within the province of short term capital gain. Accordingly, we are of the view that the gains resulting from the sale of the said land in November 1988 would be a short term capital gain.( ITA No. 75 of 2001, dt. 29-6-2016)( AY. 1989-90)

Bindiya H. Malkani v. CIT (Bom.)(HC); www.itatonline.org

68.
S.4 : Charge of income-tax – Capital or revenue – Mesne profits (Amount received from a person in wrongful possession of property) is a capital receipt and not chargeable to tax either as income or as “book profits” u/s 115JB. As the department has implicitly accepted Narang Overseas v. ACIT 100 ITD (Mum.) (SB), it cannot file an appeal on the issue in the case of other assessees

The High Court had to consider two questions in an appeal filed by the Department:

(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that mesne profits are capital receipts in the hands of the assessee and not revenue receipts chargeable to tax?

(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that mesne profits, cannot be part of book profit u/s. 115JB, as it was held as capital assets?”.

HELD by the High Court dismissing the appeal:

(i) The Tribunal has held that the mesne profits received by the assessee for the unauthorised occupation of its premises from Central Bank of India is a receipt of capital nature and thus not taxable. To reach the above conclusion, the impugned order placed reliance upon the decision of Special Bench of the Tribunal in
Narang Overseas Pvt. Ltd., v. ACIT 100 ITD (Mum.) S.B. The issue before the Special Bench in Narang Overseas Pvt. Ltd. (supra) was whether the mesne profits received by an assessee is revenue or capital in nature. The Special Bench, in its order placed reliance upon the definition of mesne profits in Section 2(12) of the Code of Civil Procedure, 1908 which reads as under:

“Mesne profits of property means those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession.”

On the basis of above, it held that any amount received from a person in wrongful possession of its property, would be mesne profits and it is capital in nature.

(ii) We find that the issue before the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. was to determine the character of mesne profits being either capital or revenue in nature. The Special Bench of the Tribunal in Narang Overseas Pvt. Ltd held that the same is capital in nature. There is no doubt that the issue arising herein is also with regard to the character of mesne profits received by the assessee. In this case also, the amounts are received by the assessee from a person in wrongful possession of its property i.e. after the relationship of landlord and tenant has come to an end. Once the Special Bench order of the Tribunal in Narang Overseas Pvt. Ltd. has taken a view on the character of mesne profits, then unless the Revenue challenges the order of the Special Bench of the Tribunal it would be unfair of the Revenue to pick and choose assessees where it would follow the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. The least that is expected of the State which prides itself on Rule of Law is that it would equally apply the law to all assessees.

(iii) We make it clear that we have not examined the merits of the question raised for our consideration. We are not entertaining the present appeal on the limited ground that the Revenue must adopt an uniform stand in respect of all assessees. This is more so as the issue of law is settled by the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra). The fact that even after the dismissal of its Appeal (L) No.1791 of 2008 for non-removal of office objections on 25th June, 2009, no steps have been taken by the Revenue to have the appeal restored, is evidence enough of the Revenue having accepted the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. Thus, the question as framed in the present facts does not give rise to any substantial question of law. (ITA No. 2356 of 2013, dt. 6-6-2016) (AY. 2008-09)

CIT v. Goodwill Theatres Pvt. Ltd. (Bom.)(HC); www.itatonline.org

70.
S.4 : Charge of income-tax –Merely because PAN of Karta was mentioned in TDS Certificate could not be a reason to tax the rental income in the hands of Karta especially when, in all the years except the present year the Department has not challenged the taxability of the said income in the hands of HUF

Assessee was an individual and also karta of his HUF. He declared rental income from a property belonging to HUF as income of HUF. AO assessed said income in the hands of the assessee on ground that TDS certificate given by tenant mentioned PAN of the assessee. High Court held that income from the property was declared by the assessee as income of HUF for all the years and has been accepted by the Department except the current year, therefore the stand taken by the AO in current year was not justified. High Court directed the AO to verify the rental agreement and decide the issue as per law. (AY. 2005-06)

M. Sathyanarayana v. ITO (2016)238 Taxman 79 (Karn.)(HC)

71.
S.4 : Charge of income-tax – Capital or revenue – Amount realised by assessee from sale of a property received as alimony from her husband, was to be regarded as capital receipt not liable to tax

Assessee’s marriage was dissolved by a decree of divorce. The assessee filed her return disclosing long term capital gain consequent to sale of 50 per cent of her share in the matrimonial house. She sought to deduct 50 per cent of cost of acquisition contending that matrimonial house was acquired using the sale proceeds of a flat in which she was a co-owner having 50 per cent share therein. AO deputed an inspector to verify the claim and on his report, AO opined that flat was owned exclusively by the former husband of the assessee and the sale proceeds from the said property were utilised to purchase the matrimonial house. He rejected the claim of deduction of cost of acquisition. CIT(A) allowed assessee’s appeal/Tribunal rejected the contention of the assessee as regards computation of capital gains on the basis that 50 per cent of the sale proceeds were received by the assessee on account of alimony from her former husband. Assessee filed an appeal to the High Court raising a new plea that lump sum alimony being a capital receipt, was not liable to tax. High Court held that, it was open to the assessee to contend that the receipt was capital in nature for the first time before High Court. It was also held that Revenue did not file appeal against the finding of the Tribunal and therefore, it was held that the sale consideration received by the assessee from sale of flat was a capital receipt. (AY. 1997-98)

Shrimati Roma Sengupta v. CIT (2016) 238 Taxman 682 (Cal.)(HC)

72.
S.9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Non-resident – Providing data transmission services were not taxable in India – Amendment inserted by Finance Act, 2012 have no effect unless DTAA is amended jointly by both parties – DTAA – India-Thailand- Netherlands

The assessees derived income from the “lease of transponders” of their respective satellites. This lease was for the object of relaying signals of their customers; both resident and non-resident television channels that wished to broadcast their programmes for a particular audience situated in a particular part of the world. The assessees were chosen because the footprint of their satellites, i.e. the area over which the satellite could transmit its signal, included India. Having held the receipts taxable under section 9(1)(vi) of the Act, the Assessing Officer also held that the assessees would not get the benefit of the Double Taxation Avoidance Agreements between India and Thailand and between India and the Netherlands. The Tribunal held that they were not taxable in India. On appeals to the High Court: Unless DTAA is jointly amended by both parties to incorporate income from data transmission services as partaking of nature of royalty or amended definition in manner so that such income automatically becomes royalty, Finance Act, 2012 which inserted Explanation 4, 5, and 6 to section 9(1)(vi) by itself would not effect meaning of term “royalties” as mentioned in Article 12 of India–Thailand DTAA, hence the receipts of the assessees from providing data transmission services were not taxable in India.(AYs. 2007-08, 2009-10)

DIT v. New Skies Satellite BV (2016) 382 ITR 114/ 238 Taxman 577/ 285 CTR 1(Delhi)(HC)

73.
S.9(1)(vi) : Income deemed to accrue or arise in India – Fees for technical services – Though in Infrasoft (2014) 220 Taxman 273 (Del.) the impact of the amendment to s. 9(1)(vi) on the question whether consideration received for sale of pre-packaged software was “royalty” or “fee for technical services” or “business income” was not examined, it is not required to be examined because u/s. 90(3) provides that the Act prevails only if it is more beneficial compared to the DTAA-India-USA

The Court had to consider whether the consideration received by the assessee on sale of pre-packaged software was “royalty” or “fee for technical services” and was, therefore, not taxable as business income. HELD by the High Court dismissing the Department’s appeal:

(i) It is not in dispute that Article 12(3) of the Double Taxation Avoidance Agreement (“DTAA”) between India and the United States of America (USA) is relevant for deciding the above issue.

(ii) The short question considered by the Court in Director of Income Tax v. Infrasoft Limited (2014) 220 Taxman 273 (Del.) was whether the term “royalty” covered by Article 12(3) of the DTAA would apply in the context of sale of pre-packaged copyrighted software. The Court stated that it has not examined the effect of the subsequent amendment to Section 9(1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the assessee is covered by the DTAA, the provisions of which are more beneficial.

(iii) Section 90(3) of the Act makes it clear in the context of an agreement (‘treaty’) for avoidance of double taxation, that it is only when the provisions of the Act are more beneficial to the assessee the Act will prevail over the treaty. Conversely, where the provision of the treaty is more beneficial to the assessee, the treaty would prevail over the Act. This legal position has been reiterated in Director of Income Tax v. Infrasoft Limited (supra) which was followed in dismissing the Revenue’s appeal in the assessee’s own case for AY 2008-09 i.e. ITA No. 477 of 2014.

(iv) The Court is not persuaded to re-examine the above issue which stands answered against the Revenue by the aforementioned order.( ITA Nos. 363 & 365 of 2016, dt. 11-7-2016)(AY. 2009-10, 2010-11)

CIT v. Halliburton Export Inc (Delhi)(HC); www.itatonline.org

74.
S.10(23G) : Infrastructure Undertaking – Definition of expression interest under section 2(28A) is exhaustive – Liquidated damages/debt syndication fees/debenture trusteeship fees can be included in the definition

The assessee claimed exemption under section 10(23G) in respect of liquidated damages payable by a borrower to the assessee in the event of a borrower committing default in repayment of the loan advanced by the assessee. The AO, held that the liquidated damages were a sort of compensation in nature received from defaulters and hence could not be treated like income arising from the activities of the assessee in respect of infrastructure financing. The Tribunal and CIT(A) affirmed the decision of the AO.

The High Court held that under the terms of a loan agreement, a borrower was imposed with a primary obligation to repay the principal together with interest. An additional obligation was cast upon a borrower to pay interest on interest or penal interest, in the event of borrower committing a default up to a particular level. Irrespective of what the finance company itself may choose to term it, such liquidated damages cannot be excluded from the definition of the expression ‘interest’ under section 2(28A), as the definition is so exhaustive. The definition is so exhaustive as to include even any service fee or other charge that is levied in respect of the monies that remain unutilised. In certain cases, the lenders imposed an obligation on the borrowers to pay the commitment charges, if after the sanction of the loan, the borrower could not make use of the funds up to a particular point of time. The definition of the word ‘interest’ under section 2(28A) includes even such commitment charges. Therefore all the three authorities committed a mistake in understanding the scope of the expression ‘liquidated damages’ and in coming to a conclusion that the same would not come within the purview of the word ‘interest’ under section 2(28A).

The AO held that the debt syndication fee is a fee charged by the assessee from the borrower, when the assessee funded the project not only from out of their own monies, but also by arranging finance from others. Therefore, in his order, the AO held that though what was charged as debt syndication fee may be a service fee, the same would not come within the purview of section 10(23G), on account of the fact that the said fee is not charged for the money that was lent by the assessee themselves. The same was upheld by the CIT(A) and Tribunal. The High Court held that if the second part of the definition in section 2(28A) was carefully looked into, it could be seen that what was included therein is ‘any service fee’. By itself, section 2(28A) does not make a distinction between a service fee charged in respect of the loans advanced by the assessee and those in respect of the loans organised from other financial institutions. In the absence of any indication either in section 2(28A) or in 10(23G), the distinction made out by the revenue could not be approved.

The next issue was whether debenture trusteeship fee would be included in the meaning of the term interest under section 2(28A) of the Act. The AO held that the income derived was not primary business but was derived from ancillary services. The CIT(A) held that this service would come under the definition but from AY. 2002-03 and not prior to it. The Tribunal upheld the findings of AO and CIT(A). High Court held that the findings of CIT(A) that the fees would be included in one assessment year and not for other was not proper and hence was ruled in favour of the assessee. (AYs. 2001-02, 2001-02)

Infrastructure Development Finance Co. Ltd. v. ACIT (2016) 238 Taxman 212 (Mad.)(HC)

75.
S.10B : Export oriented Undertakings – Inclusion of customer claim, freight subsidy and interest on FDRs in the profits of the undertaking

It is held by the High Court that the customer claim, freight subsidy and interest on FDRs are to be included in the profits of the undertaking for the purpose of computation of deduction under section 10B of the Act as they are directly related to the business of the undertaking. Insofar as the interest on FDRs is concerned, it is held that the deposits are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities and therefore, the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act. (AY. 2008-09)

Rivera Home Furnishing v. ACIT (2016)237 Taxman 520 (Delhi)(HC)

76.
S.12AA : Procedure for registration – Trust or institution – The DIT has no jurisdiction to cancel registration of a charitable institution on the ground that it is carrying on commercial activities which are in breach of the amended definition of “charitable purpose”

Dismissing the appeal of revenue, the Court held that; it is evident from Circular No. 21 of 2016 dated 27th May, 2016 that the amendment to the definition of charitable purpose by adding of the proviso, would not ipso facto give jurisdiction to the Commissioner of Income Tax to cancel the Registration under Section 12AA (3) of the Act. The jurisdiction to cancel the Registration would only arise if there is any change in the nature of activities of the institution. The above Circular clearly directs the authorities not to cancel the Registration of the charitable institution just because the proviso to section 2(15) of the Act comes into play as receipts are in excess of Rs. 25 lakh in a year. It also refers to Section 13(8) of the Act which provides that where the receipts on account of commercial activities is in excess of the limit of Rs. 25 lakh provided in second proviso to section 2(15) of the Act, then the Assessing Officer would deny the benefit of registration as a Trust for the subject Assessment Year while framing the assessment. The Court also held that; the submission made on behalf of the Revenue that the Circular No. 21 of 2016 would have only prospective effect in respect of assessment made subsequent to the amendment under Section 2(15) of the Act w.e.f. 1st April, 2016 is also not sustainable. The amendment in Section 2(15) of the Act brought about by Finance Act, 2016 w.e.f. 1st April, 2016, is essentially that where earlier the receipts in excess of Rs. 25 lakh on commercial activities would exclude it from the definition of ‘charitable purpose’ is now substituted by receipts from commercial activities in excess 20% of the total receipts of the institution. In the above view, Circular No. 21 of 2016 directs the Officer of the Revenue not to cancel Registration only because the receipts on account of business are in excess of the limits in the proviso to Section 2(15) of the Act would also apply in the present case. The impugned order has held that cancellation of a Registration under Section 12AA(3) of the Act, can only take place in case where the activities of trust or institution are not genuine and/or not carried on in accordance with its objects. The aforesaid Circular No. 21 of 2016 is in line of the finding of the Tribunal in the impugned order. The submission on behalf of the Revenue that the Trust is not genuine because it is hit by proviso to Section 2(15) of the Act, is in fact, negatived by Circular No. 21 of 2016. In fact, the above Circular No. 21 of 2016 clearly provides that mere receipts on account of business being in excess of the limits in the proviso would not result in cancellation of Registration granted under Section 12AA of the Act unless there is a change in nature of activities of the institution. Admittedly, there is no change in nature of activities of the institution during the subject Assessment Year. The further submission on behalf of the Revenue that looking at the quantum of receipts on account of commercial activities, it is unlikely/ improbable that in the subsequent Assessment Years, the receipts would fall below Rs. 25 lakh and therefore, the Commissioner is entitled to cancel the Registration. The aforesaid submission made on behalf of the Revenue is based not on facts as existing but on probability of future events. We are unable to accept the submission based on clairvoyance. Further, we are unable to understand what prejudice is caused to the Revenue since whenever the receipts on account of commercial activities is in excess of the limits provided in proviso to Section 2(15) of the Act, the Assessing Officer is mandated/required to deny exemption under Section 11 of the Act as provided in Circular No. 21 of 2016 dated 27th May, 2016. Accordingly, the issue stands covered in favour of the Revenue by virtue of Circular No. 21 of 2016.( ITA No. 2349 of 2013, dt. 6-6-2016)(AY. 2009-10)

DIT (E) v. Khar Gymkhana (Bom.)(HC), www.itatonline.org

77.
S.12A : Registration – Charitable purpose – While granting registration to a trust Commissioner is empowered to examine only genuineness of trust

While granting registration to a trust Commissioner is empowered to examine only genuineness of trust. He cannot examine the application of funds or ethical background of settlors called for at that stage. That unethical methods used for collection of funds and no charitable activities carried out cannot be the grounds on which registration can be refused.

Sree Anjaneya Medical Trust v. CIT (2016) 382 ITR 399 / 239 Taxman 399 (Ker.)(HC)

78.
S.14A : Disallowance of expenditure – Exempt income – Provision is applicable to income claimed as deduction u/s. 80P(2)(d)

The assessee, a co-operative society was engaged in marketing of milk products of the member societies. One of the activities of the assessee was to provide funds for working capital to the member societies and it earned interest income. AO while computing the deduction under section 80P(2)(d) in respect of the interest income received from the member co-operative societies, applied provisions of section 14A and disallowed expenses claimed by the assessee. High Court relying upon the judgment in case of Punjab State Co-operative Milk Producers Federation Ltd. v. CIT [2011] 336 ITR 495 (Punj. & Har.)(HC) held that provision of section 14A shall apply to income claimed as deduction u/s. 80P(2)(d). (AY. 2011-12)

Punjab State Co-operative Milk Producers Federation Ltd. v. CIT (2016) 238 Taxman 207 (P&H)(HC)

79.
S.14A : Disallowance of expenditure – Exempt income –Common interest expenses which is attributable to exempt income is to be excluded for the purpose of allocation of interest expenditure under Rule 8D(2)(iii)

The High Court has held that the variable A in Rule 8D(2)(ii) would include only those common interest expenditure which is not directly attributable to any income or receipt and therefore, this would mean that any interest expenditure, which is directly attributable to taxable income has to be excluded and the balance common interest expenditure is what should be a subject matter of allocation under the said rule. (AY. 2008-09)

PCIT v. Bharti Overseas Pvt. Ltd. (2016) 237 Taxman 417 (Delhi) (HC)

80.
S.28(i) : Business loss – Write-off of dues from government authorites – Held to be allowable as business loss

It was held that the write off of deposit with government bodies, refund from excise authorities, advances to various employees etc. were allowable as there was a finding of fact by appellate authorities that the same were incidental to the carrying on of business. (AY. 2002-03)

CIT v. ITC Ltd. (2016) 237 Taxman 533 (Cal.)(HC)

81.
S.32 : Depreciation – Benefit of unabsorbed depreciation and investment allowance is available even if return of income is filed belatedly

Assessee carried on the business of dealing in lint, cotton and cotton seeds. The return of income was filed claiming set off depreciation against the current years income and carrying forward the unabsorbed depreciation and investment allowance. The AO disallowed the set off and carrying forward of depreciation in the assessment. An appeal was filed on several ground including the ground of carry forward of depreciation and investment allowance. The CIT(A) partly allowed the appeal and remanded many issues back to AO. However, the ground of set off and carry forward was untouched by CIT(A). While passing order giving effect to CIT(A)’s order, the AO did not allow the set off and carry forward of depreciation and investment allowance. Assessee filed an application under section 154 against the order which was rejected on the ground that CIT(A) had not given any relief in its order in respect of set off and carry forward of depreciation and investment allowance. Against this order, assessee preferred an appeal which was dismissed on the ground that return of income for earlier year was not filed in accordance with section 139(3) therefore, set off and carry forward of depreciation cannot be allowed. The order of CIT(A) was upheld by the Tribunal. On appeal, the High Court held that the benefit of set off and carry forward of depreciation and investment allowance is available even if return of income is filed after due date. Also held that unabsorbed depreciation and investment allowance stands on a different footing than business loss therefore, benefit of set off and carry forward has to be allowed. (AYs. 1987-88 to 1989-90)

Rajeshwari Cotton Ginning & Pressing Industries v. ACIT (2016) 130 DTR 274 / 284 CTR 300 / 94 CCH 208 (Karn.)(HC)

82.
S.36(1)(iii) : Interest on borrowed capital – Where action of assessee to make advances to group companies at a lower rate of interest – Assessee borrowed funds at higher rate – There cannot be any business expenditure – Disallowance of differential interest was justified

The assessee had borrowed huge amount from various group companies and had, in turn, advanced large amount to certain companies at interest rate much lower than the interest rate at which it had borrowed funds. The AO concluded that the assessee had merely acted as conduit and there was no business expediency on part of the assessee and disallowed the differential portion of interest.

The High Court held that Tribunal committed two errors in reversing the decisions of the revenue authorities – the first was of applying the principles ‘for the purpose of business’ being wider than ‘for the purpose of earning income’ in abstract. Such principles had to be applied in the context of business expediency which was demonstrated in the present case. The second error committed by the Tribunal was to hold that the AO had applied the principles of Section 40A(2) of the Act which, according to the Tribunal, was not permissible. In other words, view of the Tribunal was that the AO could have either allowed or disallowed the entire interest component relatable to a particular borrowing of the assessee. However, once the AO decided to grant deduction of interest on a particular loan, it was not open for the AO to disallow the portion of interest component. In fact the AO applied the deduction to the extent the rate of interest at which the advances were made by the assessee. However, the action of the assessee to make advances at a lower rate of interest than the interest liability discharged by the assessee in borrowing such funds was not shown to be in any manner actuated by business expediency. The Assessing Officer was perfectly justified in disallowing such component of interest. The Tribunal’s decision was reversed and Revenue’s appeal was allowed. (AY. 1995-96)

CIT v. Cornerstone Exports (P.) Ltd. (2016) 238 Taxman 465 (Guj.)(HC)

83.
S.36(1)(viii) : Eligible business – Special reserve – Each clause of section 36 was independent from other in its operation –Deduction under sections 36(1)(viii) and 36(1)(viia) would be granted independently without reducing/restricting the amount of deduction granted in either of two

The AO had held that the deduction claimed by the assessee under section 36(1)(viia)(c) of the Act would be granted after reducing from the total income the deduction claimed under section 36(1)(viii) of the Act. The CIT(A) and Tribunal had upheld the decision of the AO that the deduction under clause (viii) of section 36(1) would have to be computed first before applying the deduction under clause (viia)(c) of section 36(1).

On appeal by assessee, the High Court held that it was clear that sub-section (1) of section 36 lists out the matters in respect of which deductions that can be allowed while computing the income referred to in section 28. Clauses (i) to (xi) of sub-section (1) of section 36 did not make any of those matters dependent upon one another. If an assessee was entitled to the benefit under one clause of sub-section (1) of section 36, the assessee was not deprived of the benefit of the other clause. This is how several clauses in sub-section (1) have been arranged. Thus if each of the clauses under sub-section (1) of section 36 are independent in its operation and if each one of them does not depend upon the other clause for the extension of the benefit, then the interpretation given by the Revenue could not be accepted. Thus the High Court ruled all the above issues in favour of the assessee. (AYs. 2000-01, 2001-02)

Infrastructure Development Finance Co. Ltd. v. ACIT (2016) 238 Taxman 212 (Mad.)(HC)

84.
S.37(1) : Business expenditure – Revenue expenditure incurred in particular year had to be allowed in the year of expenditure – Irrespective whether the same is amortised in the books of account – Revenue could not deny claim of the entire expenditure as deduction

Assessee had amortised the amount of Rs. 14.87 crores incurred for payment to sub-arrangers in the books of accounts for 5 years and thereby debiting only Rs. 99.16 lakh to its profit and loss account. The AO held that the assessee had amortised the amount over five years and hence a deduction only to the extent of Rs. 99.16 lakh was allowable in the subject year of assessment. The CIT(A) upheld the findings of the AO. On appeal the Tribunal relied on decision Apex Court in case of
Madras Industrial Investment Corp. Ltd v. CIT (1997 255 ITR 802 (SC) and India Cements Ltd. v. CIT ( 1966) 60 ITR 52 (SC) and held that the expenditure incurred was deductible in the year of expenditure. Aggrieved Revenue filed an appeal before the High Court.

The High Court after relying on the decision of the Apex Court in case of
Taparia Tools Ltd. v. JCIT ( 2015) 372 ITR 605 (SC) wherein it has been held that once the assessee had filed the return making a particular claim the AO was bound to carry out assessment by applying provisions of the Act and could not go beyond the return. Since the assessee had claimed the entire expenditure of Rs. 14.87 crores in the subject assessment year, the High Court ruled in favour of the assessee. Accordingly appeal of the Revenue was dismissed. (AY. 2009-10)

DIT(IT) v. Credit Lyonnais (2016) 238 Taxman 157 (Bom.)(HC)

85.
S.40(a)(iib) : Amounts not deductible – Royalty/ Privilege fee levied exclusively on State Government – The insertion of sub-clause (iib) of clause (a) of section 40 will not have retrospective effect

On writ, the High Court observed that the Revenue had drawn inspiration from the 2013 amendment, whereby clause (iib) of sub-clause (a) of section 40 was inserted by the Finance Act, 2013, with effect from 1-4-2014. This apparently treated by the AO as being clarificatory in nature and had sought to apply it with retrospective effect. Therefore, the primary reasoning of the AO was that the privilege fee imposed was unreasonable and does not take on the characteristic of a privilege fee and it could not be construed as a fee at all and it is merely a device to evade tax.

The High Court held that the attempt to disallow the privilege fee in respect of the AY prior to 2014-15 was clearly without reference to any legal provision. The High Court held that as pointed out by assessee, a plain reading of the provision would not indicate that it is to be applied with retrospective effect. There were other provisions which were also amended, and wherever the Legislature intended that certain provisions would have retrospective effect, it was expressly indicated therein and therefore, there being no such express indication insofar as the present provision with which one is concerned, it cannot be said to be applicable with retrospective effect. They Court had further relied on the Memorandum explaining the Finance Bill, 2013 and decision of the Supreme Court in case of
CIT v. Vatika Township (P) Ltd. ( 2014)(367 ITR 466 (SC) which stated that from the plain reading of the section, it was clearly prospective in nature.

The High Court held that therefore, it could safely be said that the privilege fee payable by the assessee to the State Government would be taxable with effect from 1-4-2014 and not prior thereto. The unreasonableness of the privilege fee payable is also not a ground to hold that it is a device by which the assessee and the State Government are avoiding payment of tax.

It is settled law that there is no illegality committed by the assessee in paying such privilege fee on the State Government having fixed such privilege fee. There is no legal prohibition in this regard and therefore, it cannot be said that the same could have been disallowed by the AO. Thus the petition filed by the assessee was allowed. (AY. 2010-11)

Karnataka State Beverages Corpn. Ltd. v. CIT (2016) 238 Taxman 299 (Karn.)(HC)

86.
S.43B : Certain deductions on actual payment – Issue of debentures to fund the interest liability does not amount to “actual payment” of the interest so as to qualify for deduction under Explanation 3C to S. 43B

Dismissing the review petition of the assessee the Court held that; the issue of debentures to fund the interest liability does not amount to “actual payment” of the interest so as to qualify for deduction under Explanation 3C to S. 43B.(Rev. Pet. No. 308/2015 in ITA No. 110/2005, dt. 22-7-2016)(AY. 1996-97)

CIT v. M. M. Aqua Technologies Ltd. (Delhi)(HC) www.itatonline.org

87.
S.45 : Capital gains – Business income – Profit from sale of flats is to be assessed as Capital gains and not as business income

The assessee was the owner of a house property. The assessee approached a builder for the purpose of construction of additional flats in the extra space available and the assessee received a flat on the rear side as consideration. The assessee was also entitled to the profit on sale of flats. It was held by the High Court that the profits is to be assessed as capital gains and cannot be said to be adventure in the nature of trade for the profits to be assessed as business income as assessee never had the intention to exploit the flat as commercial venture. (AY. 1990-91)

Raj Dhulari Bhasin v. CIT (2016) 236 Taxman 573 (Delhi)(HC)

88.
S.45(4) : Capital gains –Distribution of capital asset –Dissolution of firm – Partners of assessee firm constituted a private limited company – Company made partner in the firm – Partners gave their interest in the firm to the company in consideration of shares of the company – AO invoked section 45(4) – Held, whatever rights natural partners had in capital assets of firm by way of being its partners, continued to exist in form of equity shares they held in company – Held, not a case of transfer of assets on dissolution

The partners of assessee-firm, constituted a private limited company. The company was admitted as partner in the assessee-firm. Later on, the natural partners executed a release deed giving up all their rights in assessee-firm, in favour of the company. As a consequence, the company became absolute owner of the assessee-firm. The natural partners were allotted shares in the company for relinquishing their rights in the assessee-firm. AO invoked section 45(4) in the hands of the firm and held that there was a transfer of assets by way of distribution of capital assets on dissolution of the assessee-firm. High Court held that every distribution of capital assets may not lead to the attraction of section 45(4) unless it happens on the dissolution of a firm and also every distribution of capital assets on the dissolution of a firm may not attract section 45(4) unless it was a case of transfer of a capital asset. High Court, further, held that whatever rights partners had in the capital assets of the firm by way of being its partners, continued to exist in the form of equity shares that they held in the private limited company and it was a mere change in form of ownership. Accordingly, it was held that section 45(4) was not attracted. (AY. 1991-92)

Pipelines India v. ACIT (2016)238 Taxman 9 (Mad.)(HC)

89.
S.47 : Capital gains – Transaction not regarded as transfer – Gift of shares to sister company – Held, no capital gains implication by virtue of 47(iii) – Held, transaction not covered by proviso to section 47(iii) as it deals with ESOPs – Held, section 48 cannot be applied to ignore exclusions made by section 47 – Reassessment was held to be bad in law

Assessee had transferred shares, having huge market value, without consideration to its sister concern. Intimation u/s. 143(1) was issued accepting the transaction and there was no assessment u/s. 143(3). AO issued notice u/s. 148. High Court held that gift of shares are not regarded as transfer by virtue of section 47(xiii). It was also held that, proviso to section 47(xiii) would not apply to the present case, since it applies to any transfer under gift or irrevocable trust of capital asset in the nature of shares, debentures or warrants allotted by a company to its employees under Employees’ Stock Option Plan or Scheme. High Court also held that section 48 also cannot help the Revenue, since the same only deals with the computation of capital gains and cannot override the exclusions given u/s 47. (AY. 2010-11)

Prakriya Pharmacem v. ITO (2016) 238 Taxman 185 (Guj.)(HC)

90.
S.68 : Cash credits – The assessee is bound to be provided with the material used against him apart from being permitted to cross examine the deponents. The denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment order and renders it vulnerable

(i) On a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conclude that the loan was a bogus transaction.

(ii) In the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT(A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal (ITA No. 58 of 2001, dt. 30-6-2016) (AY. 1983-84)

H. R. Mehta v. ACIT (Bom.)(HC); www.itatonline.org.

91.
S.68 : Cash credits – Share capital – Initial burden which lay upon assessee to establish source of share capital received shall be duly discharged by the assessee – Without any material to contrary – No addition can be made

The High Court held that the Revenue’s allegation that the assessees were themselves being used as conduit for routing the ‘on-money’ or that investment in the Assessee was also for routing such ’on-money’ has not even prima facie been able to established by Revenue. On one hand there was attempt to treat the cash credit found in books of account to be ‘undisclosed income’ by showing investors to be paper companies. On other hand, the attempt was to show that this money in fact belong to certain other entities whose secure was not explained by assessee. Thus there was no clarity in the stand of the Revenue. During the search proceedings the Assessee had produced the books of account and also the source of investments. However the Revenue was unable to produce any further evidence to the dispute. The AO did not appear to have undertaken any particular investigation into the affairs of the Tables I, II and III apart from issuing notice under section 131 of the Act which was duly responded. Detailed findings had been given by the Tribunal after thorough examination of the records. Hence there was no reason to differ from the findings of the Tribunal. The High Court further held that since the order of the Tribunal was examined in the light of the section 68 of the Act, and hence Tribunal was fully justified in coming to the conclusion that there was no evidence to establish that there was any re-routing of the money collected by the assessee companies. Thus the High Court dismissed the appeal of the Revenue. (AY. 2003-04 to 2009-10)

CIT v. SVP Builders (India) Ltd. (2016) 238 Taxman 653 (Delhi)(HC)

92.
S.69 : Unexplained investment-Search and Seizure – It was not open for AO to draw an inference on the basis of projection of document which was ‘dumb’ document – When the assessee offered a plausible explanation for the document – The burden shifted on Revenue and hence the addition made was unjustified

The assessee was engaged in the business of real estate development. A search and seizure operation under section 132 was carried out at the business premises of the assessee as well as residential premises of its Director. The Revenue seized various materials including inter alia the documents stored in the computer of the employee of assessee which showed working of anticipated sales revenue on account of sale of space in commercial complexes developed by assessee. The AO issued notice under section 158BC to Assessee mentioning that as per documents seized, rate of sale of floor space in commercial complex was higher than rate declared by assessee in its return of income. In response to said notice, assessee submitted that documents seized were mere projections and did not represent any completed or materialised transactions. The AO rejected assessee’s explanation and made addition to taxable income on basis of rates of floor space mentioned in seized documents. The CIT(A) sustained the addition made by AO. The Tribunal however deleted the addition made by AO.

The High Court after hearing the contentions of both parties and going through the material on record held that the documents recovered from file of the computer of the employee of the firm formed the basis for the addition made by AO and CIT(A). However the sheets were in the form of printout which were unsigned and undated. The view taken by the Tribunal that mere fact that the printout stated any rates did not necessarily mean that they were sold at the rates indicated therein was a plausible view that could be taken.

The CIT(A) had placed reliance on the rates in the sheet discovered but this could not form basis for determining the actual rate. The High Court relied on
CIT v. S.M. Aggarwal (2007) 293 ITR 43 (DelhI) (HC) and held that such documents were termed as ‘dumb’ and in absence of independent corroboration it could not be relied upon as a substantive piece of evidence to determine the actual rates at which flats were sold. Mere noting of offers on slip of papers did not mean that those transactions actually took place. Further the AO had not justified on how it came to a conclusion that the figure ‘48’ occurring in one of the documents could be read as 48 lakhs. Further High Court held that it was also not open to the AO to draw an inference on the basis of the projection in the document, particularly when the assessee offered a plausible explanation for the document. The burden shifted to the Revenue to show that, on the basis of some reliable and tangible material, it was determined that the rates of flats on the second and third floors were higher than that indicated in the sales register or the sale deeds themselves. Thus the High Court was of the view that Tribunal was justified in deleting the addition made by the AO and thereby dismissed the appeal of the Revenue. (AY. 2002-03)

CIT v. Vatika Landbase Pvt. Ltd. (2016) 383 ITR 320/ 238 Taxman 448 (Delhi)(HC)

93.
S.74 : Losses – Capital Gains – Deemed short term capital gain under section 50 can be set off against brought forward long term capital gains, if character of such gain is on account of sale of long term capital asset

The assessee had set off brought forward long term capital losses against the deemed short term capital gain arose on account of the sale of depreciable asset. The AO disallowed the set off of brought forward long-term losses as the same were not permitted under section 74 of the Act. On appeal the CIT(A) and Tribunal ruled in favour of the assessee by following decision in case of
CIT v. ACE Builders (2006) 281 ITR 210 (Bom.)(HC) and Komac Investments and Finance Pvt. Ltd. (2011) 132 ITD 290 (Mum.)(Trib). Aggrieved by the Tribunal decision the Revenue was in appeal before the High Court.

High Court after placing reliance on the above decisions held that the deeming fiction under section 50 is restricted only to the mode of computation of capital gains contained under section 48 and 49 of the Act. It does not change the character of the capital gain from long-term gain to short-term gain for purpose other than section 50 of the Act. Thus for the purpose of section 74 of the Act, the deemed short term capital gain continues to be long term capital gain. As a result the Revenue’s appeal was dismissed by the High Court. (AY. 2005-06)

CIT v. Parrys (Eastern) (P) Ltd. (2016) 384 ITR 264/ 238 Taxman 14 (Bom.)(HC)

94. S.80-IA : Industrial undertakings –Infrastructure
development – As the words "derived from" are absent there is no
requirement to prove "first degree nexus" of the receipts with
the eligible business. All receipts of the undertaking are
eligible for 100% deduction

Dismissing the appeal of revenue the Court held that As the words “derived from” are absent there is no requirement to prove “first degree nexus” of the receipts with the eligible .business. All receipts of the undertaking are eligible for 100% deduction. (AY. 2005-06)

PCIT v. Bharat Sanchar Nigam Ltd. (Delhi) (HC) www. itatonline.org

95.
S.80P : Co-operative Societies – Assessee fell within the term ‘co-operative bank’ and was not entitled for deduction

The assessee was a State Co-operative Agricultural and Rural Development Bank. The question that arose before the High Court was whether assessee was a ‘co-operative bank’ which was a ‘primary agricultural credit society’ or not. According to Revenue, assessee was a co-operative bank, other than a ‘primary agricultural credit society’/’primary co-operative agricultural and rural development bank’ and, therefore, section 80P of the Act did not apply to it in view of sub-section (4) of section 80P.

The assessee submitted that section 80P(4) of the Act provided that the provisions of this section did not apply in relation to any ‘co-operative bank’ other than ‘primary co-operative agricultural and rural development bank’. In this regard, the High Court firstly decided whether the Assessee would be a co-operative bank which is a ‘primary agricultural credit society’. In this regard, the High Court went through various definitions and provisions of the Banking Regulation Act, 1949 and the National Bank for Agricultural and Rural Development Act, 1981 and Kerala Co-operative Act, 1969 and decided that the assessee would fall within the terms of the term ‘co-operative bank’. Further the High Court decided whether the assessee was a ‘primary agricultural credit society’ or not. In this regard, it observed the provisions explanation (a) to section 80P(4) of the Act and held that it was not a ‘primary agricultural credit society’. Thus the High Court held that the assessee was not a co-operative Bank which was a ‘primary agricultural credit society’ and the assessee did not fall under section 80P(4) of the Act and hence the appeal of the Assessee was dismissed. (AY. 2007-08)

Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. CIT (2016) 383 ITR 610/ 238 Taxman 638 (Ker.)(HC)

96.
S.92C : Transfer pricing – Arm’s Length Price – Selection of comparables – An investment advisor could not be compared to a merchant banker

The assessee provides private equity investment advisory services to its AE at cost plus 12.5%. The TPO selected 8 comparables and on application of Transaction Net Margin Method (TNMM) arrived at an arithmetic mean of 39.85% as against assessee operating profit of 13.12%. Dispute Resolution Panel (DRP) confirmed the TPO’s order.

On appeal, the Tribunal rejected 7 comparables of the TPO following the decision of
Carlyle India Advisors (P.) Ltd v. ACIT (2012) 53 SOT 267)(Mum.) (Trib.), where it was held that merchant bankers are not comparable to the Assessee and used only one comparable in respect of investment advisory functions of the Assessee (i.e. IDC (India) Ltd). Aggrieved by the Tribunal’s order the Revenue was in appeal before the High Court.

The High Court held that on application of Function, Assets and Risk (FAR) analysis the assessee company’s functions are similar to Carlyle India Advisors (P.) Ltd. viz. advising its AE on the possible companies it could invest. As far as assets are concerned both companies have similar expertise available for rendering advice to the AEs, and as far as risk is concerned the consideration received by it, is on cost plus basis similar to that of Carlyle India Advisors (P) Ltd. The High Court also noted that the Revenue was in appeal before the High Court against the Tribunal order in case of
CIT v. Carlyle India Advisors (P) Ltd. which was dismissed by the High Court (2013) 357 ITR 584)(Bom)(HC), following the same order of the co-ordinate Bench, the High Court dismissed the Revenue’s appeal and held that the assessee company, being an investment advisor is not comparable to a merchant banker. (AY. 2006-07)

CIT v. General Atlantic (P.) Ltd. (2016)384 ITR 271/ 238 Taxman 535 (Bom.)(HC)

97.
S.139 : Return of income – Condonation of delay in filing return – Delay of 1 day – Due to technical snags in the Departments website return uploaded only in midnight and hence date of filing reckoned by Department as the next day – Held, reason for delay satisfactorily explained – Delay to be condoned

The assessee company was engaged in the business of execution and commissioning of wind turbine generators. The due date of filing of return was 15-10-2010. Due to technical snag in the Department website, assessee could not upload the return and it could be filed only in midnight of 15-10-2010 and, hence, the date of filing had been reckoned by the Department as 16-10-2010. The assessee approached the CBDT for condonation of delay. CBDT rejected the said application. High Court held that the assessee had satisfactorily explained the delay in filing the return and it cannot be stated that the delay in filing the return had occurred deliberately or on account of culpable negligence or on account of mala fides. High Court directed the CBDT to condone the delay. (AY. 2010-11)

Regen Infrastructure & Services (P.) Ltd. v. CBDT (2016)384 ITR 407 / 238 Taxman 530 (Mad.)(HC)

98.
S. 131 : Power – Discovery –Production of evidence – Assessing Officer has the power to enforce attendance of the assessee by camping at the residence of the assessee

It is held that the single judge of the Karnataka High Court has erred in holding that the Assessing Officer does not have the power to enforce attendance of the assessee by camping at the residence of the assessee and that all that the summons to that extent means is as the Assessing Officer has already entered the premises of the residence, in order to comply with the legal requirement, he has served summons on him calling upon him to depose. To show the place where he should depose, the phrase, “camp at your residence” is mentioned.

Ramesh G. DDIT (Inv) v. Prakash V. Sanghvi (2016) 236 Taxman 176 (Karn.)(HC)

99.
S.143(1D) : Assessment – Refund – Instruction No. 1 of 2015 dated 13-1-2015 which curtails the discretion of the AO by ‘preventing’ him from processing the return and granting refund, where notice has been issued to the assessee u/s. 143(2), is unsustainable in law and quashed

Assessee was entitled huge amount of refund due to deduction of tax at source. The assessee was not granted the refund in view of Instruction No. 1 of 2015 dated 13-1-2015 curtailed the discretion of the AO by preventing him from processing the return and granting refund where notice has been issued to the assessee u/s. 143(2) of the Act. On writ allowing the petition the Court held that instruction being unsustainable in law and liable to be quashed. (W.P. 12304/2015 & CM 32604/2015, dt. 11-5-2016) (AY. 2012-13, 20013-14, 2014-15)

Tata Teleservices Limited v. CBDT (Delhi)(HC); www.itatonline.org

100.
S.143(3) : Assessment – Admission – Admission of undisclosed income by assessee is not conclusive if no evidence is found to support the admission. A retraction, though belated, is valid. Failure to provide cross-examination to assessee of persons whose statements are relied up is fatal to the addition. CBDT Directive F.No.286/98/2013 IT (INV.II] dated 18-12-2014 prohibits additions on the basis of confession

In view of Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3 (SC) and CIT vs. Chandrakumar Jethmal Kochar [2015] taxmann.com 292 (Gujarat) we are of the view that the admission made by the assessee is not a conclusive proof and such admission can be used as an evidence unless it is not retracted. The assessee in this case has already retracted the statement which in our opinion is a valid retraction. Although there had been search in the case of Gokul Corporation and its partner Shri Suresh A. Patel on which the Revenue has relied for making the additions in the case of the assessee but the Revenue could not bring any evidence or material except the statement of the assessee which was recorded on 8-1-1996 and also the statements of Shri Subhash Pandey and Shri Kashyap Thakore and these statements were although recorded at the back of the assessee. When the assessee has asked for their cross-examination, the cross examination of Shri Subhash Pandey was not given to the assessee, although the statement of the assessee was recored in consequence of the statement of Shri Subhash Pandey recorded on 1-1-1996 u/s. 131. The statements of Shri Suresh A. Patel and Shri Kashyap Thakore nowhere state the name of the assessee. Thus the Revenue has not brought any evidence. The onus, in our opinion, is on the Revenue to prove that the assessee has earned the income. It gets shifted on the assessee once the assessee claims the exemption of income. (TA No. 210 of 2008, dt. 20-7-2016)(AY. 1991-92)

CIT v. Ramanbhai B. Patel (Guj.)(HC) www.itatonline.org

101.
S. 143(3) : Assessment – Duty of the Assessing Officer is to allow deduction even if not claimed in return – Unavailed Modvat credit cannot be construed as income and there is no liability to pay tax on such unavailed Modvat credit

Once the return is filed the Assessing Officer commences the assessment proceedings, the assessing authority is not the taxpayer’s opponent, in the strictly procedural sense of the term. The Central Board of Direct Taxes Circular No. 14 (XL. 35 ) dated April 11, 1955 states that it is the duty of the Assessing Officer to make available to the assessee any legitimate and legal tax relief to which the assessee is entitled, but has omitted to claim one reason or another. Merely because the assessee in the return filed under section 139(1) has not put forth a claim for relief, he cannot be estopped from getting the tax relief if he is entitled to it in law. Accordingly following the ratio in CIT v. Indo Nippon Chemicals Co. Ltd. (2003) 261 ITR 275 (SC), that the unavailed Modvat credit cannot be construed as income and there is no liability to pay tax on such unavailed Modvat credit. (AYs. 2001-02 to 2004-05)

Dy. CIT v. Wipro Ltd. (2016) 382 ITR 179/ 236 Taxman 209/ 282 CTR 346 (Karn.)(HC)

102.
S.145 : Method of accounting – Inability of the assessee, an Advocate, to reconcile the professional receipts with the TDS certificates and to give a detailed party-wise breakup of fees receipts does not mean that the difference can be assessed as undisclosed income

The assessee challenged the order of the Commissioner of Income Tax in confirming the addition of Rs. 47,37,000 made by Assessing Officer on account of non-reconciliation of professional receipts with TDS certificates. Insofar as that aspect is concerned, the Tribunal considered this submission of both sides and found that the assessee was engaged as an Advocate to argue the matters by what is popularly known as Advocates on record or instructing Advocates method, meaning thereby the client does not engage the assessee directly but a professional or the Advocate engaged by the client requests the assessee to argue the case. The brief is then taken as the counsel brief. That being the practice, the assessee gave an explanation that the breakup as desired cannot be given and with regard to all payments. It is pointed out that at times, assessee receives fees directly from the clients or from the instructing Advocates or Chartered Accountants if such professionals have collected the amounts from the clients. Under these circumstances, the breakup as desired cannot be placed on record. An explanation which has been given by the assessee and accepted in the past has been now accepted by the Tribunal once again. On appeal by revenue dismissing the appeal the Court held that since it is accepted for the Assessment Year 2006-07, in the peculiar facts, in relation to the present assessee, we are of the view that this Appeal does not deserve to be entertained. It does not give rise to any substantial question of law. (ITA No. 1930 of 2011, dated 18-3-2014) (AY. 2006-07)

CIT v. S. Ganesh (Bom.)(HC) ;www.itatonline.org

103.
S.147 : Reassessment – After the expiry of four years – In original assessment proceedings AO accepted that the income received by the assessee is to be taxed as royalty under Article 12 of the India-USA DTAA – Notice u/s. 148 issued for taxing income under Article 7 as the AO was of the view that royalty payable was linked to its PE in India and by applying the principle of ‘force of attraction’ said royalty would be taxable as business profits under the said Article 7 – Held, reassessment not sustainable as there was no failure on part of assessee to disclose all material facts and that the assessment was reopened merely on the basis of change of opinion – DTAA – India-USA

The assessee, a US based company, was engaged in the manufacture and production of business support software. It had a wholly owned subsidiary in India, namely, OIPL. The assessee entered into a ‘Software Duplication and Distribution Licence Agreement’ with OIPL pursuant to which OIPL sub-licensed software products to various customers in India. The assessee offered the royalty received under the aforesaid agreement to tax in its return of income. During the original assessment proceedings, AO accepted the said contention of the assessee. Subsequently, AO took a view that royalty payable to the assessee by OIPL was linked to its PE in India and by applying the principle of ‘force of attraction’, the said royalty would be taxable as business profits and not as royalty under A

rticle 12 of DTAA and accordingly, issued a notice u/s. 148. High Court held that, there was no failure on the part of the assessee to disclose all material fact. The AO was well aware about the existence of PE of the assessee in India and had himself taxed the income from the aforesaid agreement as royalty income. Further, reasons for reopening of assessment also did not indicate that the AO had discovered that the royalty in question was earned by the assessee through a PE, it only alleged that it was observed that such royalty was ‘linked’ to the assessee’s PE. Thus, it was held that there was no tangible material available with the AO to reopen the assessment and that the reassessment would amount to change of opinion which is not permissible in law. (AY. 2005-06)

Oracle Systems Corpn. v. DIT(IT) (2016) 383 ITR 434/ 238 Taxman 165 (Delhi)(HC)

104.
S.147 : Reassessment – Reopening notice issued to a private trust which received contributions of Rs. 6.58 crore on the ground that it has not obtained a PAN or filed a return of income is not valid. The AO cannot assume all receipts are income and issue the reopening notice

Admitting the petition and granting the interim stay the Court observed that, reopening notice issued to a private trust which received contributions of Rs. 6.58 crore on the ground that it has not obtained a PAN or filed a return of income is not valid. The AO cannot assume all receipts are income and issue the reopening notice. (AY. 2008-09) (WP. No. 1155 of 2016, dt. 20-7-2016)

General Electoral Trust v. ITO (Bom.)(HC) www.itatonline.org

105.
S.147 : Reassessment – Notice issued to, and reassessment order passed on, a non-existing entity is without jurisdiction. A writ petition can be entertained despite the presence of alternate remedy

Normally we would not have entertained a petition as an alternative remedy to file an appeal is available to the petitioners. However, prima facie, the impugned notice has been issued in respect of a non-existing entity as M/s. Addler Security Systems Pvt. Ltd., which stands dissolved, having been struck off the Rolls of the Registrar of Companies much before its issue. Consequently, the assessment has been framed also in respect of the non-existing entity. This defect in issuing a reopening notice to a non-existing company and framing an assessment consequent thereto is a issue which goes to the root of the jurisdiction of the Assessing Officer to assess the non-existing company. Thus, prima facie, both the impugned notice dated 24th March, 2015 and the Assessment Order dated 28th March, 2016, are without jurisdiction. (WP No. 1069 of 2016, dt. 8-6-2016)(AY. 2008-09)

Jitendra Chandralal Navlani v. UOI (Bom.)(HC); www.itatonline.org

106.
S.147 : Reassessment – Gift of shares to sister company – reasons for reopening only contained the transaction and nothing more – Held, no live nexus between the transaction and the fact that income has escaped assessment –Reassessment quashed

Assessee had transferred shares, having huge market value, without consideration to its sister concern. Intimation u/s. 143(1) was issued accepting the transaction and there was no assessment u/s. 143(3). AO issued notice u/s. 148. Reasons supplied by the AO for reopening of assessment merely mentioned the transaction and his opinion that he has reason to believe that income has escaped assessment. High Court held that formation of belief by the AO must be prima facie and at the stage when the Court was testing validity of such a notice; it would not be necessary for the AO to conclusively establish that the income chargeable to tax had escaped assessment. High Court also held that there was no live nexus between the transaction and the fact that income has escaped assessment, since gift of shares to sister concern did not attract capital gain by virtue of section 47(iii). Accordingly, it was held that, reasons recorded by the AO to form belief that the income chargeable to tax had escaped assessment lacked validity. (AY 2010-11)

Prakriya Pharmacem v. ITO (2016) 238 Taxman 185 (Guj.)(HC)

107.
S.147 : Reassessment – A US company, IMA acquired shares of assessee company incorporated in Bermuda – Post merger Indian entity of both the companies merged and was named as IMI– Search and seizure proceedings were carried out at the premises of the IMI – AO opined that assessee transferred all the assets of its Indian company to the US company, IMA – High Court held that, shares of assessee company had been transferred by shareholders of assessee and not by assessee company itself – Held, there could have been no reason to believe that income has escaped assessment – Notice u/s. 148 issued to IMI instead of assessee company though the address was available with the Department – Held, bad service of notice– Held, assessment order to be quashed

Assessee was a company incorporated under the laws in Bermuda and was the holding company of the entire Techpac Group. The shares of the assessee company (equity as well as preferential) were held by certain non-resident as well as resident shareholders. A US company, IMA acquired the shares of the assessee company under a share purchase agreement in which IMA was the purchaser, the shareholders of the assessee company were the sellers. After the aforesaid acquisition, the Indian entity of IM Group called IMI merged into the Indian entity of the Techpac Group and post the merger, the name of company was changed to IMI. A search and seizure proceedings were carried out at the premises of IMI. The AO found the share purchase agreement under which shares of assessee-company had been transferred to IMA. AO contended that by virtue of the said agreement, assessee had transferred all the assets and liabilities of its Indian Group Company (i.e., Tech Pacific India) to IMA. Hence, there was a clear transfer of capital asset in India and the AO issued notices u/ss. 148, 143(2) and 142(1) to IMI. IMI received notices, it opened the postal envelope and after seeing the contents thereof, closed it and sent it back to the revenue authorities. AO passed an order u/s. 144. High Court held that there was no proper service of the notices on the assessee as the notices were served on IMI, in spite of Revenue being aware about the address of the assessee. The address of the assessee was in the share purchase agreement which was within the possession of the AO. In so far as the merits of the case were concerned, High Court held that assessee has not transferred any capital asset in India that would give rise to any capital gains tax in their hands, rather shares of the assessee-company were transferred by its shareholders to IMA. Held, therefore AO could never have reason to believe that income had escaped assessment in the hands of the assessee. (AY. 2005-06)

Techpac Holdings Ltd. v. Dy. CIT (2016) 382 ITR 474 /238 Taxman 542/ 286 CTR 412 (Bom.)(HC)

108.
S.147 : Reassessment – Report of DVO – Could not be made sole basis to reopen assessment without verification of facts to support conclusion of DVO

During the assessment proceedings for subsequent year (i.e. AY 2011-12), the AO noticed that the cost of construction claimed by the assessee for the project appeared to be less in comparison to similar projects run by other assessees. He, therefore, made a reference to the DVO for determining the cost of construction of the project of the assessee. The DVO determined the cost of construction of the entire project of the assessee at higher figure (report was for the period AY 2007-08 to AY. 2012-13). On the basis of the aforesaid report of the DVO, the AO formed the belief that the assessee had under-reported the cost of investment made by it in the ongoing project and artificially inflated the profit from the project as it was getting benefit of deduction under section 80-IB(10). He, therefore, reopened the assessment for the year under consideration.

The High Court held that except for the report of the DVO, there was no tangible material for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. Following the ruling of ACIT v. Dhariya Construction Co. ( 2010) 328 ITR 515 (SC) wherein it was held that the opinion of DVO per se is not an information for the purpose of reopening assessment under section 147 of the Act, the High Court the very assumption of jurisdiction under section 147 of the Act on the part of the Assessing Officer by issuing the impugned notice under section 148 of the Act is without authority of law, and hence, the impugned notice cannot be sustained. Further it was held that there was no profit during the year and deduction under section 80-IB(10) has not been claimed by assessee and hence objection of department on this ground in incorrect. Thus writ petition filed by the assessee is allowed. (AY. 2007-08)

Aavkar Infrastructure Company v. Dy. CIT (2016) 238 Taxman 644 (Guj.)(HC)

109.
S.147 : Reassessment – Notice issued after death of assessee returned unserved – Notice sent to legal heir after limitation period was held to be not valid

Held the limitation for issuance of the notice under section 147 read with section 148 of the Act was March 31, 2015. On March 27, 2015, when the notice was issued, the assessee was already dead. If the Department intended to proceed under section 147 of the Act, it could have done so, prior to March 31, 2015 by issuing a notice to the legal heirs of the deceased. Beyond that date, it could not proceed in the matter even by issuing notice to the legal heirs of the assessee. Thus the proceedings under section 147 read with 148 of the Act against the petitioner were wholly misconceived and were to be quashed. (AY. 2008-09)

Vipin Walia v. ITO (2016) 382 ITR 19 / 238 Taxman 1(Delhi)(HC)

110.
S.147 : Reassessment – Cash credits – Assessing Officer cannot reopen the assessment on the basis of information that huge cash deposits were made in the bank account of the assessee without examining whether such deposits were reflected in the return of income

The assessee filed return of income declaring income of Rs. 36,02,307. The return was processed under section 143(1). Subsequently, the AO reopened the assessment based on the information received from Enforcement Directorate (ED) that there have been cash deposits of Rs. 3,23,00,550 and in the investigation carried out by ED, assessee failed to explain such deposits to them. The assessee explained that it acts as an agent of an Airline and cash deposits were from the sale of tickets which were duly disclosed in the books of account. The AO rejected the explanation and assessed the cash deposits as undisclosed income. The CIT(A) confirmed the order of the AO however, the Tribunal reversed the order of CIT(A) and quashed the reassessment for want of Jurisdiction. On appeal to the High Court, it was held that AO failed to examine whether mere information received from ED provided him the vital link to from the ‘reason to believe’. Further, mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facie opinion based on the tangible material which provides the nexus or the link having reason to believe that income has escaped assessment. The AO was also required to examine whether the cash deposits were disclosed in the return of income to form an opinion that income has escaped assessment. (AY. 2002-03)

CIT v. Indo Arab Air Services (2015) 64 taxmann.com 257 / (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC)

111.
S.147 : Reassessment – Reassessment cannot be initiated merely because the assessee suffered loss on shares of the company which was floated by one of the directors of the assessee company

Assessee filed return of income declaring income of Rs. 6,23,880. In the return of income it had claimed loss of Rs. 1,28,80,000 on closing stock of shares namely, PP Ltd. whose cost was more than the market price. The assessment u/s 143 was completed without any dispute on the point of valuation. Later on, during the assessment of A. Y. 1997-98, the AO found out that the director of the assessee had floated PP Ltd. and company does not carry on any business. Therefore, the transaction carried out by assessee were collusive in nature. Accordingly, the AO issued notice u/s. 148 for assessing the loss claimed on closing stock. The order of reassessment was quashed by CIT(A) which was affirmed by the Tribunal. On appeal, the High Court held that the reason to believe was not based on tangible material or information. In fact, it was purely on the basis of surmises that the assessment was reopened. Further, the existence of common director of the companies could not give the AO “reason to believe” to reopen the assessment. Also, the loss claimed by the assessee on closing stock is based on the accounting policy which assessee has been consistently following and has been accepted by the department in the past. Therefore, the reassessment is invalid in law. (AY. 1995-96)

CIT v. Vishishth Chay Vyapar Ltd. (2016) 384ITR 505 /130 DTR 87 (Delhi)(HC)

112.
S.147 : Reassessment – Assessing Officer must pass speaking orders for separate assessment years while disposing of the objections filed for separate assessment years

Assessing Officer reopened the assessment from A.Y. 2007-08 to 2010-11. Assessee filed objections against the notice issued u/s. 148 for each year separately. The AO passed a Non-speaking composite order disposing of the objections for all the assessment years. On Writ Petition, the High Court held that the AO must a speaking order and Non-composite order disposing of the objections of the assessee. Hence, the Composite order passed was set aside. AY. 2007-08 to 2010-11)

JVS Export v. Dy. CIT (2016) 130 DTR 411 (Mad.)(HC)

113.
S.151 : Reassessment – Sanction for issue of notice – Return processed u/s. 143(1)(a) in pursuance of notice u/s. 147 –Held, not an assessment – Held, provision of section 151(1) not attracted

The assessee, an individual, did not file return for the relevant year. A notice was issued u/s. 148 to tax certain interest income. In response to said notice, the assessee filed his return. An intimation under section 143(1)(a) was issued. AO subsequently issued another notice u/s. 148 for the purpose of bringing to tax certain amount received as commission. Assessee challenged such reopening on the ground that pursuant to the first notice issued u/s. 148, intimation was issued by the AO u/s. 143(1)(a) which constituted assessment and therefore, in the light of specific provisions of section 151(1), no notice could be issued u/s. 148 unless the CCIT or CIT was satisfied that it was a fit case for issue of such a notice. High Court held that intimation issued u/s. 143(1)(a) was not an assessment and therefore, provisions of section 151(1) are not attracted. (AY. 1991-92)

Ranjeet Singh v. CIT (2016) 382 ITR 409 / 238 Taxman 522 (P&H)(HC)

114.
S.151 : Reassessment – Sanction for issue of notice – Mechanical grant of approval by affixing signature without recording any satisfaction – Held, mere fact that the Additional Commissioner did not record his satisfaction in so many words would not render invalid the sanction granted u/s. 151(2) when the reasons on the basis of which sanction was sought for was not challenged

The assessee a proprietorship concern was engaged in the business of trading in various goods. AO issued notice u/s. 148 for reopening of assessments in respect of AYs. 1990-91, 1991-92 and 1992-93. AO obtained approval of the Additional Commissioner u/s. 151(2) by order and thereafter issued notice u/s. 148. Assessee challenged the notice on the ground that Additional Commissioner mechanically granted approval by affixing his signature without recording any satisfaction. High Court held that assessee had not contended that the reasons cited by the AO for initiating reassessment proceedings u/s. 147 were irrelevant or that the AO had no reason to believe that income chargeable to tax had escaped assessment, therefore, mere fact that the Additional Commissioner did not record his satisfaction in so many words would not render invalid the sanction granted u/s. 151(2) when the reasons on the basis of which sanction was sought for was not assailed. (AYs. 1990-91 to 1992-93)

Prem Chand Shaw (Jaiswal) v. ACIT (2016)383 ITR 597 / 238 Taxman 423/ 286 CTR 252 (Cal.)(HC)

115.
S.194A : Tax Deduction at source – Interest other than interest on securities – Contingent payments – No liability to deduct tax, if income did not accrue to the supplier

The Assessee Company being an undertaking of the Government of Karnataka purchased power after entering into power purchase agreements. For such purchases when there was a delay in payment, the assessee paid interest to suppliers. During the 3 years under consideration, the assessee had created a provision for the interest amount and treated the same as expenditure to arrive at the profit but while filing the return the assessee did not treat the interest as expenditure. As these were book entries towards contingent interest payable for the first 2 years a corresponding reversal entries were made in the books indicating that the provision towards contingent interest would never be paid. However in the third year the said amount though was treated as expenditure in the profit and loss account was not excluded while arriving at the taxable income in the return of income.

The AO held that the assessee was liable to deduct tax at source on the amount of provision made towards likely interest payable and treated the assessee as in default and invoked the provisions of section 201 and 201(1A) of the Act. The same was upheld by the CIT(A) and the Tribunal. Aggrieved the assessee filed an appeal before the High Court.

The High Court after examining the applicability of section 194A of the Act to the present case held that the section mandates the tax deductor to deduct income tax on ‘any income by way of interest other than income by way of interest on securities’. The phrase ‘any income’ and ‘income tax thereon’ if read harmoniously, it would indicate that the interest which finally partakes the character of income, alone is liable for deduction of the income tax on that income by way of interest. If the said interest is not finally considered to be an income of the deductee, as per reversal entries of the provision in the present case, section 194A(1) of the Act would not be made applicable. In other words, if no income is attributable to the payee, there is no liability to deduct tax at source in the hands of the tax deductor. In view of the admitted fact that interest being not paid to the suppliers being reversed in the books of account, High Court was of the opinion that there would be no liability to deduct tax as no income accrued to the suppliers. (AY. 2005-06 to 2007-08)

Karnataka Power Transmission Corporation Ltd. v. CIT(TDS) (2016) 383 ITR 59 / 238 Taxman 287 (Karn.)(HC)

116.
S. 194J : Tax Deduction at source – Fees for professional or technical services – Supply of ready study data by a foreign company to its subsidiary cannot be constructed as technical services to resident – Not liable to deduct tax at source

The parent company (non-resident) had purchased a technical data from a foreign company which was subsequently supplied to its subsidiary in India, i.e. the assessee. The amount was recovered by the parent company from the assessee company in the subsequent year. The AO treated this amount liable for TDS under section 194J of the Act. The CIT(A) confirmed the AO’s action.

On appeal before the Tribunal, it was held that the assessee was merely supplied with ready study data and no services were rendered by the parent company to the assessee and thus payment made on such services which are reimbursement of expenses did not attract TDS. Aggrieved the revenue was in appeal before the High Court.

The High Court held that no services were rendered by the parent company to the assessee so as to be construed as technical services rendered to a resident under section 194J of the Act. As the sum paid is not chargeable to tax as per Explanation 2 to section 9(1)(vii) of the Act, therefore the assessee is not liable to deduct TDS on such payments. The Revenue’s appeal was dismissed by the High Court. (AY. 2008-09, 2009-10)

CIT v. Heramec Ltd. (2016) 238 Taxman 519 (AP&T)(HC)

117.
S.195 : Tax Deduction of tax – Non-resident – If no income accrues or arises to non-resident in India – No liability to deduct tax

The Assessee was appointed as the arranger by the State Bank of India (SBI) for mobilizing its Indian Millennium Deposits (IMDS). In turn the Assessee was entitled to appoint sub-arrangers within and outside India. The Assessee in turn received arranger fees and commission and it in turn paid sub-arranger the sub-arranger’s commission. The Assessee had failed to deduct tax at source on the sub-arrangers commission paid and hence the AO invoked the provisions of section 40(a)(i) of the Act and thereby disallowed the expenditure. On appeal the CIT(A) held that the amount paid to the non-resident sub-arranger was in the nature of commission/brokerage and not in the nature of fees for technical services in terms of section 9(1)(vii) of the Act.

The Revenue filed an appeal before the Tribunal wherein the Tribunal analysed the nature of services provided by the Assessee. In this regard, the Tribunal examined whether the services provided by the Assessee were managerial, technical or consultancy in nature. The Tribunal held that the services provided by the Assessee were neither of the three and hence upheld the order of the CIT(A). Aggrieved Revenue filed an appeal before the High Court.

The High Court held that the need to deduct tax would arise if the non-resident would earn any income chargeable to tax in India. Further the High Court also held that the services provided by the Assessee did not fall under the category of Explanation 2 to section 9(1)(vii) of the Act and hence the Assessee was not required to deduct tax at source under section 195 of the Act.

DIT(IT) v. Credit Lyonnais (2016) 238 Taxman 157 (Bom.)(HC)

118.
S.201 : Tax Deduction at source – Failure to deduct or pay – Deductees had filed their returns and had paid tax in terms of assessment – Held, in view of proviso to section 201(1) if deductees have paid taxes on the amount on which deductors have failed to deduct tax at source, demand raised consequent to 201(1) proceedings cannot be enforced

The assessee was a department of the State Government. It had made certain payments to two Corporations, namely, BRPNNL and BSRDCL, on which it failed to deduct tax at source. In 201(1) proceedings, the AO treated the assessee as assessee-in-default and raised demand. Assessee filed an appeal before the CIT(A) and simultaneously filed an application for stay of demand before the ACIT (TDS) and CIT(A). ACIT (TDS) rejected the request for stay and attached the accounts of the assessee maintained with the District Treasury Officer, for recovery of the whole amount in dispute. Assessee filed a writ petition challenging the rejection of stay and attachment of its account. High Court, after considering the Circular No.275/201/95-IT(B) dated 29-1-1997, judgment of the Hon’ble Supreme Court in case of Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226 (SC) and the proviso to section 201(1), held that a person, who fails to deduct, whole or part of the tax at source, shall not be deemed to be an assessee in default if in respect of such tax, the deductee has furnished his return of income u/s. 139 of the Act and, while furnishing the return, has taken into account such sum for computing income in such return and has paid the tax due on the income declared by him in such return. In view of the above conclusion, the High Court directed the CIT(A) to take up the appeal at the earliest and if it was found that the taxes have been paid by deductees, then to set aside the demand and to vacate the attachment of account. (AY. 2012-13 to 2014-15)

Nai Rajdhani Path Pramandal v. CIT (TDS) (2016)384 ITR 328 /238 Taxman 281 (Patna)(HC)

119.
S.201 : Tax Deduction at source – Failure to deduct or pay – Time limit for passing order –Amendment by Finance (No. 2) Act, 2014 – Increase in limitation period to 7 years for passing order u/s. 201 – Held, not retrospective – Held, amendment will not apply to those years, in whose case time limit for passing order u/s. 201 as on 1-10-2014 has expired as per the existing law – Held notices issued u/s. 201(1)/(1A) were to be quashed

The assessee was served with notices u/s. 201(1)/(1A) in December, 2014 in connection with TDS proceedings concerning AYs 2008-09 and 2009-10. The assessee contended that section 201(3) inserted vide Finance (No. 2) Act, 2009 with effect from 1-4-2010 provided period of limitation of two years from the end of financial year in which TDS statement is filed since assessee regularly filed TDS statements, period for passing order u/s. 201(3) for relevant assessment years expired on 31-3-2011/2012. Hence, assessee submitted that the notices issued in December, 2014 were time-barred. AO held that the revised time limit of 7 years prescribed by the Finance (No. 2) Act, 2014 shall apply. High Court held that, Finance Act, 2012 amended the provision of section 201(3) on 28-5-2012 and was specifically made applicable retrospectively w.e.f. 11-4-2012, whereby limitation period was substituted from four years to six years for passing orders where TDS Statement had not been filed. However, section 201(3) as amended by Finance Act No. 2 of 2014, as mentioned in the memorandum of the Finance Bill No. 2 of 2014 was stated to have effect from 1-10-2014. Thus, it was held that wherever the Parliament/Legislature wanted to make provisions applicable retrospectively, it had been so provided. High Court held that proceedings for FYs 2007-08 and 2008-09 had become time barred and for the aforesaid financial years, limitation u/s. 201(3)(i) had already expired on 31-3-2011 and 31-3-2012, respectively, much prior to the amendment in section 201 as amended by Finance Act, 2014 and therefore right had accrued in favour of the assessee. It was therefore held that notices issued u/s. 201(1)/(1A) were to be quashed. (AY. 2007-08, 2008-09)

Tata Teleservices v. UOI (2016) 238 Taxman 331/ 284 CTR 337 (Guj.)(HC)

120.
S.201 : Deduction at source – Failure to deduct or pay – Time limit for passing order – Department initiated proceedings u/s. 201 for a period earlier than four years prior to 31-3-2011 relying upon the new proviso inserted vide Finance (No. 2) Act, 2009 and the Circular explaining the said insertion – Held that Circular 5 of 2010 of CBDT clarifies that the proviso to section 201(3) was meant to expand the time limit for completing the proceedings and passing orders in relation to ‘pending cases’ – the said proviso cannot be interpreted to enable the Department to initiate proceedings u/s. 201 for a period earlier than four years prior to 31-3-2011

The department initiated proceedings u/s. 201 against assessee for non-deduction of tax at source for periods earlier than four years prior to 31st March, 2011 relying upon the new proviso inserted vide Finance (No. 2) Act, 2009 and the Circular explaining the said insertion viz. Circular 5 of 2010. The assessee contended that the proviso to section 201(3) has to be read consistent with the law explained by the Court in CIT v. NHK Japan Broadcasting Corpn [2008] 305 ITR 137/172 Taxman 230 (Delhi)(HC) and should be held not to permit the department to initiate proceedings u/s 201 for a period more than four years prior to 31-3-2011. The department rejected the contention of the assessee by relying upon the Circular No. 5 of 2010. High Court held that the Circular 5 of 2010 of CBDT clarifies that the proviso to section 201(3) was meant to expand the time limit for completing the proceedings and passing orders in relation to ‘pending cases’. The said proviso cannot be interpreted to enable the Department to initiate proceedings for declaring an assessee to be an assessee in default u/s. 201 for a period earlier than four years prior to 31-3-2011. (AY. 2003-04 to 2005-06)

Vodafone Essar Mobile Services Ltd. v. UOI (2016) 238 Taxman 625/ 285 CTR 48 (Delhi)(HC)

121.
S.222 : Collection and recovery – Certificate to Tax Recovery Officer – As per rules 60, 61 of the said schedule, petitioner cannot challenge the sale unless an application to set aside the sale has been preferred and amount sought to be recovered is deposited with the Recovery Officer – Held, petitioner did not satisfy the said condition and made an application for deferment of sale – Held, not permissible

The Petitioner Company had defaulted in repayment of its dues to the bank. Suit was filed in this respect. During the pendency of proceedings before the DRT, a settlement was arrived at, on the basis of which the DRT disposed of the suit. However, the petitioner did not honour the settlement so arrived at. Therefore, the bank initiated the recovery proceedings and obtained a Recovery Certificate from DRT. Such amount was not paid by the petitioner. Accordingly, Recovery Officer auctioned off the mortgaged property and the sale proceeds were deposited. Petitioner moved an application for deferment of the said sale on the ground that one time settlement had been arrived at between the petitioner and the bank. Recovery Officer rejected the said application as it was filed after the confirmation of sale. Petitioner contended that Recovery Officer did not follow provision of Rule 15(2) of Second Schedule to the IT Act, that when the sale is adjourned for more than one month, then a fresh application of sale has to be issued. High Court held that petitioner never challenged the sale of the mortgaged property and the only challenge was against the rejection of application of deferment of sale. It was also held that under Rule 60/ 61, a person interested in the property auctioned can make an application for cancellation of the sale within 30 days of the sale subject to amount sought to be recovered is deposited with the Recovery Officer, and since in the present case, neither any such application was made, nor any amount was deposited, the petitioner cannot invoke Rule 15(2.

Usha Offset Printers (P.) Ltd. v. Bank of Maharashtra (2016) 238 Taxman 363 (Bom.)(HC)

122.
S.234B : Interest – Advance Tax – Levy of interest is mandatory and automatic even though the same was not mentioned in the assessment order

The Assessee filed its return declaring certain taxable income. The Assessing Officer completed assessment under section 143(3) determining taxable income at a higher amount. The CIT(A) passed an order that so far as the charging of the interest under section 234B of the Act was concerned, the same was consequential and, therefore, the AO would recalculate the interest while giving effect to order passed by him. The Tribunal, however, held that as in the order of assessment the Assessing Officer had not charged any interest under section 234B of the Act, no such interest was chargeable.

On appeal by Assessee, on the ground of levy of interest under section 234B of the Act, the High Court after considering the totality of the facts and on conjoint reading of the provisions of sections 143, 234B and 156 of the Act held that when levy of interest under section 234B is mandatory and automatic and the same is on the difference between the advance tax paid and assessed tax, AO has no discretion to levy any other interest other than provided under section 234B. Thereafter, levy of interest under section 234 would be consequential and only arithmetically amount of interest is required to be calculated. Thus, even in absence of any direction with regard to section 234B by the Assessing Officer while passing assessment order under section 143(3), there can be demand and levy of interest under section 156 of the Act. It would have been a different fact if the Assessing Officer had any discretion with respect to rate of interest and/or to levy any interest considering the facts and circumstances of the case. The High Court ruled in the favour of the Revenue. (AY. 1990-91)

ACIT v. Nirma Detergent (P) Ltd. (2016) 238 Taxman 259/ 286 CTR 505 (Guj.)(HC)

123.
S.244A : Refund – Interest on refunds – Deductor claimed interest on refund – Held, interest on such refund to be granted as the deductor is an assessee – Held, interest to be granted from date of application for refund and not from the date of agreement waiving third instalment

The deductor-company entered into an agreement with a German company for transfer of technical know-how and was required to make the payment of technical know-how fees in three instalments. The deductor-company deducted tax at source on all the three instalments and deposited same in advance with department. Subsequently, the German company was not able to fulfil its obligations and by agreement dated 1-7-1992 agreed to waive the third instalment. The deductor-company filed an application for refund and same was granted. The deductor also made an application for interest u/s. 244A on the said refund which was rejected by CCIT and CBDT on the ground that deductor-company was not assessee in respect of this transaction and therefore, not eligible for interest u/s. 244A. High Court held that deductor-company was in fact the assessee by virtue of section 2(7)(b) r.w.s. 163. Further, it was held that, deductor-company, on failure to deduct tax would have become assessee-in-default and by that angle also deductor qualified as an assessee u/s. 2(7)(c). It was held that refund granted by the CBDT would fall within the provisions of section 240. Further, the High Court relied upon the judgment in case of Union of India v. Tata Chemicals Ltd. [2014] 6 SCC 335 for stating that even if there is no express statutory provision for payment of interest on the refund of excess amount/tax collected by the revenue, the Government cannot shrug off its apparent obligation to reimburse the deductor’s lawful monies with the accrued interest for the period of undue retention of such monies. Further, if the contention of the Revenue was accepted it would result in causing great hardship to the honest taxpayers. Held, deductor-company eligible for interest u/s. 244A. However, such interest accrued from the date of making application for refund of tax and not from the date of agreement waiving third instalment, since the deductor-company did not make any application for refund till 2 years after the agreement for waiver.

Sunflag Iron & Steel Co. Ltd. v. CBDT (2016) 238 Taxman 243 (Bom.)(HC)

124.
S.245D(1) : Settlement Commission – Adjudication is not required on Commissioner’ s report which is submitted in first instance objecting settlement application on the ground that there was no full and true disclosure as Settlement Commission has to pass final order after obtaining further report of Commissioner and after being satisfied that there was full and true disclosure – Petition of revenue was dismissed

The Assessee filed an application for settlement of its case before the Settlement Commission. The Settlement Commission proceeded with the application and called for report from the Commissioner. The Commissioner, in the report, objected application on ground that there was no full and true disclosure and requisite tax had also not been paid. The Commissioner argued that the Settlement Commission was required to adjudicate on objection filed by him. The Settlement Commission, however, chose to proceed with further enquiry. On writ, the Commissioner contended that the Settlement Commission could not assume jurisdiction to consider the application without adjudicating his objection at admission stage itself.

The High Court held that it was evident that the Settlement Commission was satisfied that there was a full and true disclosure of the income which was not disclosed before the AO in the application and the manner in which such income had been derived and the additional income tax payable on such income.

Further, High Court held that even assuming that the Settlement Commission had glossed over the initial report submitted by the Commissioner, as the procedure contemplated a further report to be submitted by the Commissioner, after examination of the annexure to the application, statements and other documents accompanying such annexure and on the basis of a further enquiry, if any, all of which was not made available to the Commissioner in the first instance, and the Settlement Commission being in a position to still address the question whether a full and true disclosure of the income which was not disclosed before the AO and being required to pass an appropriate order, the Revenue could not be said to be prejudiced in any fashion. Therefore, no procedural violation was caused by the Settlement Commission. It had only taken a prima facie view that the application was not invalid. A final order will necessarily have to be passed under section 245D(4) only after obtaining the report of the Commissioner under rule 9 and after being satisfied that there is full and true disclosure by the applicant.

The High Court after relying on the decision of the Apex Court in case of Ajmera Housing Corpn. (2010) 326 ITR 642 (SC), dismissed the petition of the Revenue. (AY. 2006-07)

CIT v. RNS Infrastructure Ltd. (2016) 238 Taxman 416 (Karn.)(HC)

125.
S.250 : Appeal – Commissioner (Appeals) – Recovery – Stay – Early hearing of appeal – Action of the assessee of filing Writ Petition to seek early hearing of appeal before CIT(A), while simultaneously seeking adjournment before CIT(A) on frivolous grounds is a “delaying tactic” and an “abuse of the legal process”. Petition was dismissed and the assesse was directed to pay the cost of Rs. 20,000

Assessee has filed the petition against the stay of recovery. Assessee also moved petition for an early hearing of appeal .The matter was fixed for hearing before the CIT(A) for deciding the quantum appeal, however the assessee requested for adjournments, which was granted. Before the Court it was argued that the stay may be granted. Dismissing the petition the court held that; action of the assessee of filing Writ Petition to seek early hearing of appeal before CIT(A), while simultaneously seeking adjournment before CIT(A) on frivolous grounds is a “delaying tactic” and an “abuse of the legal process”. Petition was dismissed and the assessee was directed to pay the cost of Rs. 20,000. (WP No. 911 of 2016 dt. 20-7-2016 ).

Tulsidas Trading Pvt. Ltd. v. TRO (Bom.)(HC) www.itatonline.org.

126.
S.251 : Appeal – Commissioner (Appeals) – Powers – Power of enhancement – Show cause notice issued intending to assess the assessee as AOP instead of Firm and for disallowance of expenditure – Assessee filed a writ petition for quashing the notice – Held, assessee can file explanation before the CIT(A) –Writ not maintainable

The assessee was a partnership firm trading in stocks, shares, debentures, manufacturing, buying, selling and transporting of various consumer and industrial commodities. During the assessment proceedings, AO disallowed donations made u/s. 35(1)(ii)to the tune of Rs. 2,62,50,000/-. During the appellate proceedings, CIT(A) required the assessee to show cause as to why the assessment of the assessee firm should not be enhanced on two grounds viz. he required the assessee to show cause as to why the assessee should not be assessed as an AOP and not a firm by pointing out that a partnership firm could not be a partner in a firm as indicated in the case of the assessee and secondly he also called upon the assessee firm to show cause as to why an amount of Rs. 96,60,000/- may not be disallowed as expenditure. Against the said notice, the assessee-firm filed a writ petition. High Court held that assessee can very well submit their explanation and contest the same on merits before the CIT(A), and, therefore writ was not maintainable. (AY. 2012-13)

Megatrends Inc. v. CIT (2016) 382 ITR 13/238 Taxman 192 (Mad.)(HC)

127.
S.253 : Appellate Tribunal – Appeal filed by the assessee firm signed by manager – Tribunal dismissed the appeal on preliminary issue of competence of manager to sign appeal memos – Held, manager has no authority to file appeal – Held, Department had also incorrectly accepted the return signed by the manager – Held, mistake was rectified by filing fresh Form 36, matter remanded to be decided on merits

Tribunal dismissed the appeal filed by the assessee firm on the technical ground that the appeal memorandum had been signed by the manager of the firm and not by the managing director or any of the partners. Assessee filed petition for restoration of the appeal but same was also dismissed. Assessee went to the High Court. Department argued that even at the time of filing of the appeal, the Tribunal had issued a defect memo and that a query was also raised by the Tribunal, however, assessee emphasised that manager is the competent person to sign the appeal memos. High Court held that admittedly, manager was not the correct person to sign the appeal memo. High Court also held that initial mistake is only on the part of the revenue, in accepting the return of income filed by the manager, who is allegedly incompetent and, therefore, it would have led the assessee to form an impression that when he is competent to file the return of income, he would also be competent to sign the memo of appeal. Further, since the assessee had filed revised Form 36, therefore the matter was set aside to the Tribunal to decide on merits. (AY. 2003-04)

Singara Nilgiri Plantation Co. v. Dy. CIT (2016) 238 Taxman 613 (Mad.)(HC)

128.
S.253 : Appellate Tribunal – Cross objection is not prescribed against appeal filed against order under section 263 of the Act – Hence cross objection is not maintainable

The High Court has held that cross objections under section 253(4) can be filed only in an appeal against order of the Deputy Commissioner – Appeals, the Commissioner of Appeals, the Assessing Officer preferring an appeal in pursuance of the directions of the Dispute Resolution Panel. In the instant case, the revenue has filed cross objections under section 253(4) in an appeal preferred by the Assessee against the order of the revisional authority exercising the powers under section 263. It was held that no such cross objections are maintainable in terms of section 253(4) of Act and the High Court dismissed the Revenue’s appeal. (AY. 2007–08)

CIT v. New Mangalore Port Trust (2016) 382 ITR 434/ 238 Taxman 397 / 283 CTR 342 (Karn.)(HC)

129.
S.254(1) : Appellate Tribunal – No jurisdiction to make addition which Assessing Officer or Commissioner (Appeals) did not make and on which no appeal or cross objection filed by Department

Held, allowing the appeal, that it was not open to the Tribunal to confirm the addition because no such addition was made. When the Department had not filed cross objections against the order of the Commissioner (Appeals) in respect of the impugned sum, there was no basis for the Tribunal to confirm the addition. The addition made by the Tribunal for the first time was in excess of its jurisdiction. [BP 1-4-1998 to 21-4-1998)

Sheo Kumar Mishra v. Dy. CIT (2016) 382 ITR 424 (Cal.)(HC)

130.
S.254(1) : Appellate Tribunal-Business expenditure – Non-consideration of material placed on record would itself lead to perversity in findings of facts arrived by Tribunal which would call for interference of the High Court

The Assessee paid commission (a) to taxi drivers, travel agents etc. to procure more business for Assessee and (b) to its staff for sale of tickets. The AO disallowed the said commission. The CIT(A) examined material and other evidence on record and allowed deduction to the extent amounts were verified and disallowed deduction for amounts which could not be verified. On department’s appeal the Tribunal reversed findings of the CIT(A) without considering the details filed before the lower authorities.

On Assessee’s appeal the High Court held that the CIT(A) whilst coming to the conclusion that the Assessee was entitled for deduction in respect of commission paid to taxi drivers, travel agents etc., had minutely scrutinised the material on record, but, however, on perusal of the impugned order, it appeared that the Tribunal had not at all scrutinised the material whilst reversing the findings of the Commissioner. In fact, there were no reasons recorded in the impugned order of the Tribunal to hold that the findings of the CIT(A) cannot be sustained. Non-consideration of such material would itself lead to perversity in the findings of fact, arrived at by the Tribunal which would call for interference of Court in the present appeal. As far as claim of the Assessee towards deduction on account of commission paid to the staff was concerned, the Tribunal can re-examine the matter on its own merits in the light of the judgment of the Supreme Court in the case of ShahzadaNand& Sons v. CIT (AIR 1977 SC 1182) wherein Supreme Court accepted that there can be cases where commission could be paid also to the staff for carrying out extra services. Accordingly, matter was restored to Tribunal to adjudicate the issue as per directions. (AY. 2009-10)

Emerald Cruises v. ITAT (2016) 238 Taxman 143 (Bom.)(HC)

131.
S.254(1) : Appellate Tribunal – It is the inherent power of the Tribunal to consolidate the appeals if the issues are similar and the reasons for consolidating the same is to be recorded in writing

The High Court has held that it is the inherent power of the Tribunal to consolidate the appeals if the issues involved in the appeal are similar and identical to avoid conflicting directions and orders and the same have to be recorded in writing. If they involve common questions, common arguments, they can be conveniently disposed of by a common order. However, it was held that there was no justification for consolidating matters and by keeping the earlier case pending till further appeals accumulated for subsequent years raising the same issues and questions. In that event, it would be wiser to decide the earliest case and if the same applies on facts and there is nothing different or distinguishing factor brought on record in successive assessment years, then the earlier decision can be applied and followed. (AY 2001-02)

DIT v. Societe Generale (2016) 237 Taxman 182 (Bom.)(HC)

132.
S.254(2) : Appellate Tribunal –Rectification of mistake apparent from the record – A Writ Petition filed little after four months of receipt of impugned order suffers from “delay”. If the Writ Petition does not explain the reasons for the “delay”, it is liable to be dismissed – Affidavit if desired should be filed before the Tribunal and not first time before the High Court

Dismissing the petition against the order passed by the Tribunal u/s. 254(2), the Court held that (i) We find that the impugned order of the Tribunal was passed on 4th December, 2015, received by the petitioner on 28th December, 2015. This petition has been filed on 29th April, 2016. The petition states that according to the petitioner, there is no delay in filing the petition. However, if this Court is of the view that there is a delay and delay may be condoned. However, no reasons with particulars are specified in the petition. In view of the fact that the petition itself does not explain the reason for the delay, the petition is liable to be dismissed. Court also observed that the affidavit if desired should be filed before the Tribunal and not first time before the High Court. (WP No. 1227 of 2016, dt. 27-8-2016)(AY. 2006-07)

Shirpur Gold Refiner Ltd. v. ITAT (Bom.)(HC) www.itatonline.org

133.
S.254(2) : Appellate Tribunal –Rectification of mistake apparent from the record – In an order passed in a Miscellaneous Application, the Tribunal cannot deal with the merits of the issue. The Tribunal must recall the original appellate order and refix the matter for hearing and pass an order u/s. 254(1) of the Act

This Court in its order dated 31st July, 2007 has while setting aside the order dated 7th March, 2007 of the Tribunal dismissing the petitioner’s Miscellaneous Application had held that there was an error apparent from the record in the order dated 9th May, 2006. The direction of the Court in its order dated 31st July, 2007 to the Tribunal to dispose of the Miscellaneous Application on merits as there is an error apparent on record in the order dated 9th May, 2006. This disposing of Miscellaneous Application could only be after recalling the conclusion in its order dated 9th May, 2006 allowing the Revenue’s appeal and hearing the petitioner on the issue of penalty being imposable even in the absence of a demand notice being served upon the assessee. This was for the reason that its conclusion was reached without having considered the petitioner’s contention that no penalty can be imposed in the absence of receipt of a demand notice by the petitioner. However, the Tribunal in the impugned order has dealt with the issue of imposition of penalty being imposed under Section 221 of the Act even without service of demand notice under Section 156 of the Act upon an assessee. This the Tribunal could have only done while passing an order in appeal. The consequent order which would have been passed in appeal would enable the parties to challenge the same before this Court in an appeal under Section 260A of the Act. The procedure adopted by the Revenue in this case has deprived the right of statutory appeal to the petitioner. No appeal is entertained by this Court from an order dismissing the Miscellaneous Application for rectification under Section 254(2) of the Act (see Chem Amit v. ACIT ( 2005) 272 ITR 397(Bom.)(HC)). Thus in the process of atoning for a mistake, one should take utmost care to ensure no further prejudice is caused. The rejection on merits of the contentions of the parties by the Tribunal on a substantial question of law is subject to the statutory right of appeal under Section 260A of the Act. This right cannot be bypassed by dealing with the merits in a Miscellaneous Application for rectification. (WP. No. 2102 of 2008, dt. 23-6-2016) (AY.2001-02)

Safari Mercantile Private Limited v. ITAT (Bom.)(HC); www.itatonline.org

134.
S.260A : Appeal – High Court – Strictures passed against department for casual and careless representation despite huge revenue implications. Dept. directed to take remedial measures such as updating the website, appointment of meritorious advocates, proper evaluation of work done by the advocates, ensuring even distribution of work amongst advocates etc. Prevailing practice of evaluating competence of advocates on basis of “cases won or lost” deplored – The Registry is directed to send a copy of this order on the Chairman, Central Board of Direct Taxes (CBDT) and the Principal Commissioner of Income-tax

Strictures passed against department for casual and careless representation despite huge revenue implications. Dept. directed to take remedial measures such as updating the website, appointment of meritorious advocates, proper evaluation of work done by the advocates, ensuring even distribution of work amongst advocates etc. Prevailing practice of evaluating competence of advocates on basis of “cases won or lost” deplored. Therefore, the Principal Chief Commissioner of Income Tax who is the head of all the Commissioners at Mumbai was directed to place on record the steps being taken to ensure that a consistent view is taken by the Department. The Principal Chief Commissioner of Income Tax had filed an affidavit dated 5th May, 2016. Today, the learned Additional Solicitor General tenders an affidavit of one Mr. Purshotam Tripuri, Commissioner of Income Tax (Judicial) dated 11th July, 2016 indicating the steps being taken by the department to ensure that the Revenue is properly represented. In particular, it is pointed out that the Officers of the Revenue are being sensitised to maintain consistency in preferring appeals to this court. Further, it is stated that the ‘Legal Corner’ hyperlink on the www.incometaxmumbai.gov.in home page is functional since 10th June, 2016 and entries have been made therein with regard to the questions of law which had been admitted by this Court and/or which are finally decided. This according to the Revenue would make the Assessing Officer as well as the Revenue’s Counsel aware of the questions of law which have been admitted and / or dismissed, to enable them to assist the Court in subsequent appeals. We are certain that this website could be further improved upon on receiving suggestion from the users of the Legal Corner over a period of time. The suggestion made by Dr. Shivaram in para 3 of the affidavit dated 17th June, 2016 of the respondent – assessee should be considered by the Revenue and if found appropriate, could be incorporated in the website. However, on browsing the site, it is evident that the activity of monitoring and updating the site has been outsourced to a private party. One key area that must be borne in mind is authenticity of the information uploaded and updated. If in future the requirements increase the software must be scalable and in any event must be compatible with system of the department. In the event of the third party service provider being different at any point in time, the data available on the site after the change of service provider cannot be put to risk of loss of content and/or authenticity. This will ensure a stable and dependable resource for research and representation. We trust the above concern would have been taken care of by the Revenue.

The State counsel appears for the State Government or for public bodies who together constitute the single largest litigant in our Court system. Statistics show that nearly 80% of litigation pending in the courts today has State or one of its instrumentalities as a party to it. State Counsel/counsel appointed by public bodies thus represent the largest single litigant or group engaged in litigation. It is also undeniable that for a fair, quick and satisfactory adjudication of a cause, the assistance which the Court gets from the Bar is extremely important. It is at times said that the quality of judgment or justice administered by the courts is directly proportionate to the quality of assistance that the courts get from the Counsel appearing in a case. Our system of administration of justice is so modelled that the ability of the lawyers appearing in the cause to present the cases of their respective clients assumes considerable importance. Poor assistance at the Bar by counsel who are either not sufficiently equipped in scholarship, experience or commitment is bound to adversely affect the task of administration of justice by the Court. Apart from adversely affecting the public interest which State counsel are supposed to protect, poor quality of assistance rendered to the courts by State Counsel can affect the higher value of justice itself. A fair, reasonable or non discriminatory process of appointment of State Counsel is not thus demanded only by the rule of law and its intolerance towards arbitrariness but also by reason of the compelling need for doing complete justice which the Courts are obliged to do in each and every cause. The States cannot in the discharge of their public duty and power to select and appoint State counsel disregard either the guarantee contained in Article 14 against non arbitrariness or the duty to protect public interest by picking up the best among those available and willing to work nor can the States by their action frustrate, delay or negate the judicial process of administration of justice which so heavily banks upon the assistance rendered by the members of the Bar. There are a large number of appeals filed by the Revenue from the orders of the Income Tax Appellate Tribunal. However, we find that the distribution of work amongst the panel lawyers is not equitable and also without any consideration of the issue of law involved vis-a-vis the experience of the Advocate briefed. Moreover, we find that most matters are distributed amongst a few Advocates with the result we have occasions where a single Advocate appears in eight/nine matters a day. This indeed is expecting the moon from the panel Advocate. Resultantly, the preparation suffers, leading to inadequate performance. It would therefore be appropriate to have more number of Advocates on the panel and distribute work amongst them. This would at least give an opportunity to the Advocate to prepare properly for appropriate representation. We hope the Revenue would consider our observations and make attempts to ensure that it is properly represented. This can only happen when meritorious Advocates are appointed. This would ensure that the Officers of the Revenue would value his advise as a learned man of experience and not treat him as an employee, merely because he is appointed at the instance of the Commissioner of Income Tax. The Registry is directed to send a copy of this order on the Chairman, Central Board of Direct Taxes (CBDT) and the Principal Commissioner of Income Tax. (ITA No. 2287 of 2013, dt 12-7-2016)

CIT v. TCL India Holding Pvt. Ltd. (Bom.)(HC) ; www.itatonline.org

135.
S.263 : Commissioner – Revision of orders prejudicial to revenue – Held, AO disallowed interest expenditure in accordance with Rule 8D hence view adopted by AO a plausible view – Order not erroneous

The assessee company had incurred expense on Initial Public Offer and claimed deduction u/s. 35D, which was allowed by the AO during the assessment proceedings. AO also disallowed certain interest expenditure under rule 8D(2)(ii). CIT invoked section 263 on two grounds viz. deduction of expense on Initial Public Offer should not be allowed on ground that the assessee was not an industrial undertaking and secondly entire interest expenditure incurred by assessee was attributable to earning of exempt income and should be disallowed u/s. 14A. High Court relying upon the case of Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2013] 356 ITR 460/215 Taxman 72/33 taxmann.com 117 (Guj.) held that when a claim u/s. 35D has been granted by the AO in respect of previous years, such claim cannot be disallowed subsequently without disturbing the decision in the initial year. In respect of 14A disallowance, High Court held that AO himself computed disallowance of interest expenditure u/s. 14A read with rule 8D. In both the issues, the view adopted by the AO was a plausible view and therefore, it cannot be said that the assessment order was erroneous so as to warrant exercise of powers u/s. 263. (AY. 2009-10)

PCIT v. Deep Industries Ltd. (2016) 238 Taxman 198 (Guj.)(HC)

136.
S. 263 : Commissioner – Revision of orders prejudicial to revenue – Original order was revised under section 264 – Revision by Commissioner under section 263 on original order which was already revised under section 263 of the Act is void ab initio

The original assessment order of the Assessee under section 143(3) was passed on 27-12-2009. Revision application filed by the Assessee under section 264, was allowed and the matter was remanded to the Assessing Officer. The Assessing Officer vide order dated 27-5-2011 had given effect to the order passed by the Commissioner under section 264. Subsequently, the original order passed under section 143(3) dated 27-12-2009 was revised by the Commissioner under section 263 by order dated 22-3-2012. The said order passed under section 263 was challenged by the Assessee before the Tribunal and the revenue filed cross objections against that order. The Tribunal set aside order passed by the Commissioner under section 263 as well as the cross objections filed by the revenue as the same were against a non-existing order.

On appeal the High Court held that the Commissioner had no jurisdiction to revise the order which was not in existence. Therefore the order passed by the Commissioner, revising the non-existing order is void ab initio is nullity in the eye of law. The High Court dismissing the appeal of the Revenue upheld the order of the Tribunal. (AY. 2007–08)

CIT v. New Mangalore Port Trust (2016) 382 ITR 434/238 Taxman 397/ 283 CTR 342 (Karn.)(HC)

137.
S.264 : Commissioner – Revision of other orders – Intimation u/s. 143(1) is an order for the purposes of section 264 – Non-payment of prescribed fee prior to institution of the revision proceedings, which was paid during the pendency of the proceedings, cannot be a ground for rejection of the application u/s. 264

Assessee in his return of income, offered to tax gains arising from sale of shares as short term capital gain. Subsequently, the assessee filed an application u/s. 154 before the AO contending that the capital gains on transfer of shares were actually long term capital gains exempt from tax u/s. 10(38). AO rejected the application. Assessee filed an application to the CIT u/s. 264, which was rejected by him on the ground that the assessee had not filed prescribed fee along with application u/s. 264 and secondly, the intimation u/s. 143(1) could not be regarded as an order for purpose of section 264. High Court held that, from reading of the provisions of section 264, it cannot be said that the non-payment of the prescribed fee prior to the institution of the application for revision would be fatal. Since, the assessee had paid the fees during the pendency of the proceedings, therefore, the illegality was held to be cured. High Court also held that section 264 uses the expression ‘any order’, which would imply that the section does not limit the power to correct errors committed by the subordinate authorities but could even be exercised where errors are committed by assessees. Further, it was also held that intimation u/s. 143(1) can be regarded as an order for the purpose of section 264. It was also held that CIT failed to appreciate that the assessee was not only impugning the intimation u/s. 143(1) but also the rejection of the application u/s. 154. Accordingly, the order of CIT was set aside and the matter was remanded back to him. (AY. 2008-09)

Vijay Gupta v. CIT (2016) 238 Taxman 505 (Delhi)(HC)

138.
S.271(1)(c) : Penalty – Concealment – Bogus purchases – If the assessment order in the quantum proceedings is altered by an appellate authority in a significant way, the very basis of initiation of the penalty proceedings is rendered non-existent and the AO cannot continue the penalty proceedings on the basis of the same notice

Relying on the decision of the Calcutta High Court in CIT v. Ananda Bazar Patrika Pvt. Ltd. (1979) 116 ITR 416 (Cal.), the ITAT held that “once the basis for initiation of penalty proceedings was altered or modified by the first appellate authority, the Assessing Officer has no jurisdiction thereafter to proceed on the basis of the findings of the first appellate authority.” On further appeal by the department HELD by the High Court dismissing the appeal:

Once the assessment order of the AO in the quantum proceedings was altered by the CIT(A) in a significant way, the very basis of initiation of the penalty proceedings was rendered non-existent. The AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also, the Court concurs with the CIT(A) and the ITAT that once the finding of the AO on bogus purchases was set aside, it could not be said that there was any concealment of facts or furnishing of inaccurate particulars by the Assessee that warranted the imposition of penalty under Section 271(1)(c) of the Act.( ITA No. 313/2016, dt. 13-5-2016) (AY. 2007-08)

Pr. CIT v. Fortune Technocomps (P) Ltd. (Delhi)(HC); www.itatonline.org

139.
S.271(1)(c) : Penalty – Concealment – Disclosing all particulars of income and claiming deduction based on certificate issued by chartered accountant – Deletion of penalty was held to be justified

The assessee-firm engaged in the business of manufacturing of biscuits, cookies and other bakery products filed a nil return for the AY 2009-10 on September 30, 2009, claiming deduction under section 80-IC of the Act. The Assessing Officer disallowed the deduction amounting. Penalty proceedings under section 271(1)(c) were also initiated for filing inaccurate particulars of income and an order imposing penalty was passed. The Commissioner (Appeals) upheld the order imposing penalty. The Appellate Tribunal deleted the penalty. On appeal: Held, dismissing the appeal, that the judgment of the Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218 (SC) (which held against the assessee) was rendered on August 31, 2009 but was published for the first time only on September 17, 2009. It had been categorically recorded by the Tribunal that there was very little gap between the publication of the decision of the Supreme Court in Liberty India’s case and the filing of the return by the assessee. At the time of filing the return the issue was debatable and penalty could not have been levied. Further the Tribunal had found that the assessee had disclosed all the particulars of the income and had not concealed anything. Once proper disclosure was made penalty was not attracted. The return was filed on the basis of the certificate issued by the chartered accountant though under mistake, and the assessee could take the benefit on the basis of bona fide belief. The view adopted by the Appellate Tribunal was a plausible view based on appreciation of material on record and, therefore the order did not warrant any interference by the court. The Department was unable to show any perversity or illegality in the order. No substantial question of law arose for consideration. (AY. 2009-10 )

PCIT v. S.S. Food Industries (2016) 382 ITR 388 (P &H)(HC)

140.
S.271(1)(c) : Penalty – Concealment – Validity of order – Order passed under section 271(1)(c) is invalid when the show – cause notice was issued for levy of penalty under section 271(1)(b) – Merely stating that penalty proceedings have been initiated would not satisfy the requirement of law

The Assessing Officer levied penalty under section 271(1)(c) after issuing show-cause notice under section 271(1)(b) of the Act. The penalty was levied as a consequence of the disallowance of certain finance expenses claimed as revenue expenditure which was held to be capital in nature. It is held by the High Court that the levy of penalty under section 271(1)(c) is not valid for the reason that the show-cause notice was not issued for levy of penalty under section 271(1)(c) and that in the facts and circumstances of the case, a penalty under section 271(1)(c) is untenable as the disallowance was made based on the return of income filed by the assessee. It is also held that no proper satisfaction as mandated under section 271(1B) of the Act was not recorded by the Assessing Officer and therefore, levy of penalty is unjustified. (AY 2001-02)

Safina Hotels Pvt. Ltd. v. CIT (2016) 237 Taxman 702 (Karn.)(HC)

141.
S.271(1)(c) : Penalty – Concealment – Received interest with refund amount – Did not include in profit and loss account but disclosed same in notes to accounts – Could not be said that Assessee had furnished inaccurate particulars

The Assessee received interest with the amount of income tax refund arising from orders passed by the CIT(A) for the assessment years 1993-94 to 1996-97. The revenue appealed against the order of the CIT(A) before the Tribunal. Since the matter was subjudice, the Assessee did not include the income arising out of the aforesaid amount of interest in his profit and loss account but disclosed the same in the notes to the accounts. The AO rejected the Assessee’s action and subsequently initiated penalty proceedings both for the concealment of income as well as furnishing of inaccurate particulars of income.

The High Court held that the AO himself admitted that the Assessee had disclosed the said interest income. Disclosure and concealment cannot co-exist. When a finding is recorded that disclosure was indeed made then the conclusion as regards concealment is bad. Furthermore it cannot also be said that the Assessee had furnished inaccurate particulars of income. This is so because there was no material on record to indicate that the particulars furnished by the Assessee were factually incorrect. Hence it was held that penalty under section 271(1)(c) cannot be levied on the Assesee. The Revenue’s appeal was dismissed. (AY. 2004-05)

CIT v. Pilani Investments & Industries Corporation Limited (2016) 383 ITR 635/ 238 Taxman 384/ 284 CTR 272 (Cal.)(HC)

Wealth-tax Act, 1957

142.
S.40 : Finance Act, 1983 : Net wealth – Leasehold interest in the land is to be considered while computing the net wealth of the assessee

Assessee had taken a land, situated at Pimpri, on lease from MIDC. Out of the total land admeasuring 9,605 sq.m., part of the land admeasuring 2,175 sq.m. was vacant. Assessee did not include the land in the net wealth computed for the purpose of wealth tax on the ground that definition of asset u/s 40 of Finance Act, 1983 did not include any interest held in the land and secondly, the land did not “belong” to the assessee. Assessing Officer assessed the leasehold interest in the land to wealth tax and completed the assessment. The CIT(A) and Tribunal confirmed the order of the AO. On appeal, the High Court held that the definition includes land other than agriculture land and the proviso to section 40(3)(v) uses the word “held” and not “owned” by the assessee. Therefore, leasehold interest is assessable to wealth tax. The High Court also held that the words “belonging to” have been used to include assests in possession without full ownership but having domain over it to exercise powers which would otherwise vest in the owner. Therefore, leasehold land held by the assessee belongs to the assessee and is exigible to wealth tax. (AY. 1988-89)

Jai Hind Sciaky Ltd. v. Dy. CIT (2016) 130 DTR 177 (Bom.)(HC)

22.

S.4 : Charge of income-tax – Derived – Subsidy by way of refund of excise duty and interest for setting up a new industrial undertaking is a capital receipt & not taxable as income. Alternatively, such receipts are “derived” from the industrial undertaking and are deductible u/s. 80-IB.

The assessee, pursuant to the New Industrial Policy announced for the State of J&K, received excise refund and interest subsidy, etc. which it claimed to be a capital receipt. In the alternative, it was claimed that the same was eligible for deduction u/s. 80-IB. The AO, CIT(A) and Tribunal rejected the claim and held the receipts to be revenue on the ground that the subsidy (i) was for an established industry and not to set up a new one, (ii) it was available after commercial production, (iii) it was recurring in nature, (iv) it was not for purchasing capital assets and (v) it was for running the business profitably. On appeal by the assessee, the High Court (333 ITR 335) reversed the decision of the lower authorities and held as follows:

(i) The ratio of Sahney Steel 228 ITR 253 (SC), Ponni Sugars 306 ITR 392 (SC) and Mepco Industries 319 ITR 208 (SC) is that the underlying purpose of the incentives is the test for determining whether incentives and subsidies are revenue or capital receipts. If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the subsidy scheme is to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. It is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given is irrelevant;

(ii) On facts, the object of the subsidy scheme was (a) to accelerate industrial development in J&K and (b) generate employment in J&K. Such incentives, designed to achieve a public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assessees alone. It cannot be construed as mere production and trade Incentives;

(iii) The fact that the incentives were available only after commencement of commercial production cannot be viewed in isolation. The other factors which weighed with the Tribunal are also not decisive to determine the character of the incentive subsidies in view of the stated objects of the subsidy scheme;

(iv) Question whether the subsidy receipts are eligible u/s. 80-IB not decided.

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

The issue raised in these appeals is covered against the Revenue by the decision of this Court in
“CIT v. Ponni Sugars and Chemicals Ltd.”, reported in (2008) 9 SCC 337, or in the alternate, in
“CIT v. Meghalaya Steels Ltd.“, reported in (2016) 3 SCALE 192 (383 ITR 217 (SC)). The appeals are, therefore, dismissed. (CA No. 10061 of 2011, dt. 19-4-2016)

CIT v. Shree Balaji Alloys (SC); www.itatonline.org

23.
S.37(1) : Business expenditure – Interest paid for broken period should not be considered as part of the purchase price, but should be allowed as revenue expenditure in the year of purchase of securities

Interest paid for broken period should not be considered as part of the purchase price, but should be allowed as revenue expenditure in the year of purchase of securities. (CA No. 1549 of 2006, dt. 12-8-2008)(AY.1978-79)

CIT v. Citi Bank N.A. (SC); www.itatonline.org

24.
S.37(1) : Business expenditure – Accrued or contingent liability – Provision for interest for default in payment of instalments in terms of compromise agreement with bank – Ascertained liability hence deductible

The assessee obtained a loan from a bank which it was unable to repay. It entered into a compromise with the bank by which the total liability was reduced and the reduced sum was payable in a phased manner with interest on the reducing balance and in case of delay by a period of one year in payment of respective instalments, interest was to be charged. The assessee made a provision for interest at 10% for default of compromise. For the AY. 1995-96, the Assessing Officer disallowed the provision and the disallowance was confirmed by the Commissioner (Appeals). However, the Tribunal allowed the provision for interest and on appeal by the Department, the High Court held, dismissing it, that even if the amount of loan was not paid by the assessee as per the agreement, the liability could not cease to exist, that the bilateral consented action on behalf of the parties was binding in terms of the agreement, and that therefore, the interest liability was not a contingent liability, but an ascertained liability. On appeal to the Supreme Court: The Supreme Court dismissed the appeal holding that the matter was covered against the Department by the decision in
Taparia Tools Limited v. Joint CIT [2015] 372 ITR 605 (SC). (AY. 1995-96)

CIT v. Modern Spinners Ltd. (2016) 382 ITR 472 (SC)

25.
S.80HHC : Export business –Commission – Deduction of 90% has to be on net commission not on gross commission

Following the ratio in
ACG Associated Capsules Pvt. Ltd. v. CIT (2012) 343 ITR 89 (SC), the Apex Court held that the deduction of 90% has to be on net commission not on gross commission. Order of High Court was set aside and remanded to the Assessing Officer for fresh consideration. (AYs. 1993-94, 1994-95)

Veejay Marketing v. CIT (2016) 382 ITR 395 (SC)

26.
S.80HHC : Export business – Netting of interest for computing deduction was held to be justified

The issue in the appeal was whether the Tribunal was correct in law in directing the AO to allow netting of interest for computing deduction under section 80HHC of the Act. In this regard, the Supreme Court placed reliance on the case of
ACG Associated Capsules (P) Ltd. v. CIT [(2012) 343 ITR 89 (SC). However the Revenue had disputed the correctness of the order of the High Court and contended that the High Court had made an error in framing the question and answering the same. In this regard, the Supreme Court held that in the present appeal the issue was the correctness of the opinion of the High Court and if the Revenue had any grievance with regard to the question framed and the relevance thereof, the Revenue could take remedies available to it under law including moving the High Court by way of review. Thus the appeal of the Revenue was disposed of by the Supreme Court.

Liberty Footwear Co. v. CIT (2016) 383 ITR 195/238 Taxman 89/286 CTR 369 (SC)

27.
S.115VB : Shipping business – “Tonnage Tax” Income earned on “slot charters” is also held to be eligible for tonnage on slot charter related income

It is only income from the business of operating the qualifying ship that has to be computed in accordance with the provisions of Chapter XIIG. As per Section 115VB of the Act, a company is regarded as operating a ship if it operates any ship which is owned by it or a ship which is chartered by it and it also includes a case where even a part of the ship has been chartered by it in an arrangement such as slot charter, space charter or joint charter etc. The question that has arisen for consideration pertains to ‘slot charter’ i.e., should the ‘slot charter’ operations of a ‘Tonnage Tax Company’ be carried on only in ‘qualifying ships’ to include the income from such operations to determine the ‘tonnage income’ under ‘TTS’ in terms of the provisions of Chapter XIIG of the Act? In other words, is the income derived from ‘slot charter’ operations of a ‘Tonnage Tax Company’ liable to be excluded while determining the ‘Tonnage Income’ under the ‘TTS’ if such operations are carried on in ships which are not ‘qualifying ships’ in terms of the provisions of that Chapter of the Act and the relevant provisions of the Income Tax Rules, 1962? HELD by the Supreme Court:

“(i) When the scheme of the aforesaid special provision for computation of income under TTS is exempted, we find the balance tilted in favour of the assessee as that was the precise purpose in introducing TTS in India. It may be stated in brief that in view of the stiff competition faced by the Indian shipping companies vis-a-vis foreign shipping lines, and in order to ensure an easily accessible, fixed rate, low tax regime for shipping companies, the Rakesh Mohan Committee in its report (of January, 2002) recommended the introduction of the TTS in India, which was similar to, and adopted some of the best global practices prevalent. The whole purpose of introduction of the Scheme was to make the Indian shipping industry more competitive in the global space by rationalising its tax cost. For the reason that it is impossible to cater to all shipping routes on owned ships, it is an accepted and widely prevalent practice globally and in India that shipping companies engage in slot charter operations. If such slot charter arrangements are not entered into, then Indian shipping companies will not be able to take up contract of affreightment and these contracts would have fallen to only foreign shipping lines thereby making Indian shipping industry uncompetitive. Such slot charter arrangements being with a shipping company but not in relation to or for a particular ship, it is impossible for the Indian shipping company to identify the cargo ship, which carried the goods.

(ii) We would also like to refer to Circular No. 05/2005 dated 15-7-2005 explaining the need and essence of the introduction of these provisions which was issued contemporaneously by the Central Board of Direct Taxes (CBDT). The Circular clarifies that the Scheme is a “preferential regime of taxation”. It also clarifies that “charging provision is under Section 115VA read with Section 115VF and Section 115VG.” Circulars of CBDT explaining the Scheme of the Act have been held to be binding on the Department repeatedly by this Court in a series of judgments including
Azadi Bachao Andolan v. Union of India 263 ITR 706, Navnit Lal Jhaveri v. K. K. Sen 56 ITR 198 SC, and UCO Bank v. CIT 237 ITR 889 (SC). (Civil Appeal No. 5869 of 2016, dt. 5-7-2016)

CIT v. Trans Asian Shipping service Pvt. Ltd. (SC); www.itatonline.org

28.
S.244(1A) : Refunds – Interest on refund – Assessee becoming entitled to refund pursuant to assessment order – Refund adjusted against dues for succeeding AY after three years – Entitled to interest on sum for period of delay

For the AY. 1987-88, the assessee filed its return on the basis of self-assessment and paid tax in a sum of Rs. 3,23,68,834 on September 12, 1987. Assessment was made under Section 143(3) of the Act pursuant to which an amount of Rs. 2,03,29,841 was found refundable to the assessee. Instead of immediate refund of this amount, the Assessing Officer ordered that the sum be adjusted against the demand for the year 1986-87. It was ultimately adjusted on July 25, 1991. The assessee claimed interest for the period from March 28, 1988 to July 25, 1991 but the claim was rejected by the Assessing Officer. However, the Commissioner (Appeals) allowed the assessee’s appeal holding that interest was payable on the sum under Section 244(1A) of the Act. This was upheld by the Appellate Tribunal as well as by the High Court. Held, affirming the decision of the High Court, that the amount in question, though found refundable to the assessee, was utilised by the Department and, therefore, interest was payable under section 244(1A) of the Act. (AY. 1985-86 to 1987-88)

CIT v. Jyotsna Holdings P. Ltd. (2016) 382 ITR 451/ 238 Taxman 558 (SC)

29.
S.263 : Commissioner – Revision of orders prejudicial to revenue – Even if AO applies mind and decides not to assess expenditure as unexplained u/s. 69C because the assessee withdrew the claim for deduction, the CIT is entitled to revise the assessment on the ground that the matter needed further investigation – Order is not erroneous merely because another view is possible – Revision on issue not mentioned in the notice is permissible, however he must be heard at each stage

(i) The CIT took the view that notwithstanding the withdrawal of the claim by the assessee, in view of the earlier stand taken that the said expenses were incurred for security purposes of the assessee, the Assessing Officer ought to have proceeded with the matter as the assessee was following the cash system of accounting and the filing of the re-revised return, prima facie, indicated that the additional expenses claimed had been incurred. Withdrawal of claim by assessee can be for variety of reasons and this does not mean that Assessing Officer should abandon enquiries regarding sources for incurring expenses. Assessee follows cash system of accounting and the claim regarding additional expenses was made through duly verified revised return. The claim was pressed during assessment proceedings before the A.O. after filing revised return and it was specifically stated in letter dated 13-2-2004 that expenses were for security purposes and that payments have been made out of cash balances available etc. Under the circumstances, the Assessing Officer was expected to examine the matter further to arrive at a definite finding whether assessee incurred expenses or not and in case, actually incurred, then what were sources for incurring these expenses. Assessing Officer was satisfied on withdrawal of the claim and in my view, his failure to decide the matter regarding actual incurring of additional expenses and sources thereof resulted into erroneous order which is prejudicial to the interest of revenue.”

(ii) There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned CIT. on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned CIT was perfectly justified in coming to his conclusions insofar as the issue No. (iii) is concerned and in passing the impugned order on that basis. The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the said conclusion. (CA. No. 5009 of 2016, dt. 11-5-2016) (AY. 2001-02)

CIT v. Amitabh Bachchan (2016) 384 ITR 200/135 DTR 73/286 CTR 113 (SC).

My affectionate brothers & sisters in the profession,

I feel it a very blissful blessing to journeying with all of you and its a wonderful experience in life. Comparatively our Federation has been indisputably doing well on all fronts as far as the aspect of achieving excellence in knowledge, ethics & principles which is of course possible only because of the friendly & family sense co-operation. Friends as stated in our earlier message, the much awaited 122nd Constitutional (Amendment) Bill, 2015 has been cleared by the Upper House of the Indian Parliament clearing the decks for introduction of GST regime in our country, whose success would definitely depend upon various factors. Though it’s a political decision still it’s potential impact on Indian economy as well as individual financial tolerance coupled with financial welfare will have to withstand test of times. Nevertheless as professionals in order to show that we are always equally & competitively competent with everyone on the globe, we require to equip ourselves in all respects in which direction we will activate all our zones to undertake study circle meetings every month at all places especially rural or moffusil places to enable the tax practitioner brethren to enrich their professional knowhow & legal acumen. So let all of us be ready to travel with the sovereign as also the society at large & participate in the needed reforms.

Jai Hind!

Dr. M. V. K. Moorthy.

National President

GST Uncertainty …… gone but still in-limbo

The monsoon session of the Parliament has been the most fruitful one in the current year. Unlike the past Rajya Sabha session after session there was no unnecessary blockage against passing the legislative Bills. In this session, it is worth noting that the Lok Sabha passed 15 Bills utilising as much as 110.84% of allotted time for legislative agenda, during a period of 26 days while during the same period, the Rajya Sabha passed 14 Bills with 20 sittings utilising 99.54% of the allotted time for legislative functions.

2. Such a working with co-operation from the opposition parties was a historical one when compared to the utter chaos witnessed in the past.

3. One of the important Bills, the Constitutional (122nd Amendment) Bill, hanging fire before the Rajya Sabha was unanimously passed with a few amendments which were later on approved by the Lok Sabha. The only exception to the 100% unanimity, was the walkout by members of AIDMK party from Tamil Nadu.

4. Many other subjects of national concern were also debated and discussed including the unrest witnessed in Jammu and Kashmir. Almost all parties got the opportunity to raise supplementary and participate in Question Hour. The normal citizens were happy to see that their representatives have started to do their productive job for which they were elected. In fact the session was described as ‘glorious session’ in one of the leading newspaper. In that session however one small unwarranted demand came from some of the Rajya Sabha Members, insisting that their salaries and allowances should be revised upwards. Fortunately for all the taxpayers in general such a demand was not taken to its logical conclusion; may be for the time being.

5. The passing of the 122nd Constitutional Amendment Bill by both the houses, is not the end of uncertainty about implementation of the much trumpeted Goods and Service Tax Law, ushering in the ‘one Nation one Tax’ scenario. Before the Bill becomes an Act more than 50% of the States have to ratify the same. The State of Assam has already taken the lead in that direction. This aspect of the matter itself may consume larger than planned period of enabling provisions to become an Act of Parliament.

6. The passing of the 122nd Constitutional Amendment Bill is only an enabling legislation whereafter the Parliament will have to separately pass the laws relating to CGST and IGST. Similarly the individual States will also have to pass their own State GST. Some of the avowed objects of introducing such a unique measure of indirect tax was to attain simplicity, certainty, avoiding, unhealthy rate competition between the States with one common system throughout the country without long drawn litigations that arose under the multiple taxes levied both by Centre as well as individual States.

7. Similar objects were publicised at the time of introducing the present VAT System under a common basic design by all the States. It is an admitted fact that each State have their own requirement and priority vis-à-vis its formulation of taxation policy. The scenario so cherished however have not yet been achieved even though most of the States implemented the VAT System of taxation from 1-4-2005. It is a matter of great regret that the uniformity sought to be achieved by introducing the said system could not become a reality. Presently each State has different rates of tax on goods sold in their area coupled with the levy of cess, additional tax, surcharge etc.

8. The final GST law to be heralded possibly from 1st of April, 2017, is still not made available to the public at large for their information and the necessary initiation of follow up actions required to be taken up by them in accordance with the new law.

9. The model GST Law placed on site, for the purpose of advance information is full of inconsistencies and loopholes. We would refer such instances in the near future but it is very much important for all to note certain important provisions in so far as they affect the professionals at large.

10. The first and foremost provision relates to appearance by authorised representatives. Section 86 provides for only regular employees, relatives of the assessee, advocates, chartered accountants, cost accountants and company secretaries to be competent to appear for and on behalf of a taxpayer, before GST authorities including the First Appellate Authority or the Appellate Tribunal. In other words, the large number of duly enrolled practitioners presently eligible to represent their clients would not be, as a class, permitted to represent unless the proposed GST Council recommend to include their qualifications to practice on equal footing like the other professionals covered by Section 86 under proposed Section 86(2)(d). In order to avoid undue advantage to the persons who retire from the concerned Dept., from their appearing before erstwhile colleagues immediately on retirement, a cooling period of only one year has been provided in sub-section (3) of section 86. In our opinion the persons who have spent their entire active life with the Dept., should not be eligible to represent any other person similar to the one observed before the Income Tax Appellate Tribunal as well as the High Court. Both the aspects being serious in nature would call for persistent representations from all quarters. The provisions of Section 86 have to be read with Section 34 under which the rules will prescribe the eligibility, conditions, duties and obligations for the Tax Returns preparers authorised to furnish the details of supplies both inward and outward by their principal but statutory responsibility for the correctness of the data, would always be that of the taxable person on whose behalf the details were filed by Tax Returns preparers.

11. The model GST Law would also increase tremendously the table work by all concerned including those representing their clients. Thus the cost of maintaining and furnishing the desired details in the form of supply of goods and services both by the supplier as well as the receiver of such supply will increase substantially. Sections 25 to 34 propose to include the provisions relating to returns to be furnished periodically. Monthly returns will have to be furnished within a short period of 20 days while the persons eligible to the composition levy under Section 8, will have to file quarterly returns within a period of 18 days from the end of the quarter. Such persons would be those whose turnover in the Financial Year did not exceed rupees fifty lakhs. They however would not be able to collect tax nor would they be eligible for claiming input tax credit.

12. The Statutory annual audit per each financial year will have to be conducted by only a Chartered Accountant or Cost Accountant as provided in the proposed sub-section (4) of Section 42. This will adversely affect other classes of professionals who are presently allowed to audit the books, under State enactments. In addition to such audit report, the draft law also provide for audit by tax authorities u/ss. 49 & 50 thereof.

13. With the avowed object of creating one nation one tax it was expected that a taxable person supplying goods or services from different centres located in the same State or in other States, will have to obtain only one registration certificate specifying various locations therein as their additional places. That expectation however is proved to be misplaced, in as, much as Section 19 provides for registration separately in every such State with an option for obtaining separate registration for each place of business located in the same State.

14. We may herein recall that the heart of the entire new law is the Constitution of a Council by the President, as contemplated under Article 279A within a period of 60 days from the date of enforcement of the Constitutional (122nd Amendment) Act. Such Council, however, can only recommend about the matters mentioned in sub-Article (4) of the said Article 279A. Their decision is not mandatory to be followed by all the States. Therefore there is a justifiable apprehension that some States ruled by another party then the one at Centre, may defy the decision of the Council solely for political reasons. Such instances however have to be deprecated by one and all having national interest in their heart.

15. The moot question however still continues is the drafting of individual separate SGST in accordance with the model GST Law. Our experience in that regard is not good because of quite many instances of not adhering to white paper circulated on 17th January 2005 before introduction of the State level VAT prepared as result of collective efforts by all the States in formulating its basic design. We hope such instances would become a part of the history not to be repeated by any of the States.

P. C. Joshi
Advocate
Member, Editorial Board