1. S. 68: Cash Credit – Long-Term Capital Gain on the sale of shares cannot be treated as unexplained cash credit when the genuineness of the transaction is proved.

   The controversy involved is that the capital gain earned on the sale of shares can be unexplained cash credit.? The Commissioner (Appeals) & Tribunal considering the facts of the assessee observed that, the relevant evidence which includes the purchase bill, payment consideration through the bank, dematerialization of shares, and allotment of the shares amalgamated new entity in lieu of earlier company. There is no contrary evidence to doubt the correctness of the evidence produced by the assessee. Hence held that the capital gain is not unexplained credit.

   The Revenue against the said decisions of the Tribunal filed an appeal before the High Court. The high court held that, all the facts established the genuineness of the transaction done by the assessee. There is no error or illegality in deleting the addition made under section 68 by treating the Long Term Capital Gain on the sale of shares as unexplained cash credit. Pr. CIT Shri Gaurav Bagaria, ITA No.13/2020 dt.09/05/2022 (Raj)(HC) (Jaipur)

   The revenue filed a SLP, the Honorable Supreme Court dismissed the same by holding that the transaction of purchase and sale could not be treated as a sham because the assessee had produced all the relevant documentary evidence to establish the genuineness of the transaction

   and there was no contrary evidence to doubt the correctness.

   Pr. CIT v. Gaurav Bagaria, S. L. P. (C) No. 21251 of 2022 dt.21/11/2022. [2023] 452 ITR (Stat) 1

2. S.115JB: book profits is not applicable to the banking company.

   The issue involved is that, the provisions of section 115JB will not be applicable to the assesse even when the assessing authority invoked the said provision, as the tax payable under the normal provisions was lesser when compared to tax payable on the book profit under section 115JB of the Act ?”. The Court observed that, the character of the computation provisions in each case bears a relationship to the nature of the charge. The charging section and computation provisions together constitute an integrated code. When there is a case to which computation provisions cannot apply at all, such a case was not intended to fall within the charging section. The machinery provisions provided in sub-section (2) of section 115JB would be rendered wholly unworkable in the case of a banking company. The Companies Act, 1956 excluded insurance, banking companies or companies engaged in the generation or supply of electricity from the purview of section 211(1) of the Companies Act, 1956 and resultantly from the purview of section 115JB of the Act. The provisions of section 115JB of the Act have been amended with effect from April 1, 2013. The amendment was made in order to bring into line the provisions of the Income-tax Act, 1961 with those of the Companies Act, 1956. Pr. CITv. Atria Power Corporation Ltd. [2023] 452 ITR 290 (Kar)(HC)The revenue filed a SLP, the Honourable Supreme Court granted leave to appeal against this decision whether the provisions applicable to banking companies.

   PR. CIT v. Atria Power Corporation Ltd. C. A. No. 8182 of 2022 dt.0/11/2022 [2023] 452 ITR (Stat) 1

3. S.115JB: Provisions whether applicable to electricity companies

   The Controversy involved is that, whether the company engaged in the generation of power and has been established under the provisions of the Damodar Valley Corporation Act, 1948., eligible for provisions of section 115JB of the Income- tax Act, 1961. The honorable high court while deciding the issue observed that, the assessee is incorporated under the Act of Parliament known as the Damodar Valley Corporation Act, 1948. In terms of section 3(2) of the said Act, the Assessee Corporation is a body corporate having perpetual existence and common seal. The revenue’s case is that in terms of section 43 of the Corporation Act, the tax liability of the assessee has been clearly stipulated and in terms of sub-section (1) of section 143 the Assessee Corporation is liable to pay any tax on income levied by the Central Government in the same manner and in the same extent as a company. Therefore, the revenue contending that the stand taken by the assessing officer to be sustained and the contention of the assessee that section 115JB would not apply and has to be rejected. The honorable High Court by placing reliance on Kerala State Electricity Board v. Dy. CIT [2010] 329 ITR 91 held that, Kerala State Electricity Board is a statutory corporation constituted by the notification of the State of Kerala pursuant to the power vested in it by virtue of section 5 of the Electricity Supply Act, 1948. In terms of section 12 of the said Act, Kerala State Electricity Board was declared to be a body corporate having perpetual existence and a common seal with power to acquire and hold property both movable and immovable. Section 80 of the said Act could be relevant which declares the Kerala State Electricity Board to be a company within the meaning of the Income-tax Act, 1922 (old Act.) and further declares that the Board is liable to pay income tax and super-tax on its income, profits, and gins. Section 80 of the said Act is pari materia with section 43 of the DVC Act, 1948. The assessee is not obliged either to convene an annual general meeting or place its profit and loss account in such general meeting. Further, the Court pointed out that the legislature took note of the fact that the number of companies paying marginal tax and also “zero-tax” has grown and such companies earn substantial book profit and pay handsome dividends to the shareholders without paying any tax to the exchequer. Further, it was pointed out that CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of the amendment (Section 115JA) for the reason that such a policy would promote the Infrastructural development of the country. The circular issued by the CBDT, observed that the same is binding on the department. Therefore, Court held that the provisions namely, sub-section (2) of section 115JB would not stand attracted and consequently, the charging provision, namely, sub-section (1) of section 115JB would not stand attracted. Pr. CIT > v. Damodar Valley Corporation, IA NO. GA/1/2021, ITAT NO. 12 OF 2021 dt.03/12/2021 (Cal)(HC)

   
   

   The revenue filed a SLP, the Honourable Supreme Court granted special leave to the Department to appeal against this decision for Provisions whether applicable to electricity companies.

   Pr. CIT v. Damodar Valley Corporation, C. A. No. 9101 of 2022 dt.05/12/2022 (SC) (2023) 452 ITR

   (Stat) 2

   On Direct Taxes

4. S. 147: Reassessment – Change of Opinion – not permissible

   The Assessing Officer issued a notice under section 148 to reopen the assessment under section 147 for the assessment year 2012-13 and within the period of four years for the assessment year 2013-14, on the ground that the advertisement and marketing expenditure incurred by the assessee was not deductible under section 37 since the assessee was prohibited from advertising under the provisions of the Indian Medical Council Act, 1956, read with Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The objections raised by the assessee were rejected. The honourable high court observed that, in the original assessment the AO was aware of the issue of expenses incurred on advertisement and marketing by the assessee. Once the AO had applied his mind in the regular assessment proceedings having incurred advertisement and marketing expenditures, it was not open for the Assessing Officer to reopen the assessment under section 147. Rich Feel Health and Beauty P. Ltd. v. ITO [2022] 440 ITR 41 (Bom)(HC)

   The revenue filed a SLP, the Honourable Supreme Court dismissed the department’s special leave petition holding that once the Assessing Officer had applied his mind in the regular assessment proceedings of the assessee having incurred advertisement and marketing expenditure, it was not open to AO to reopen the assessment merely on a change of opinion.

   ITO vs. Rich Feel Health and Beauty Pvt. Ltd. S. L.P. (C) No. 21073 of 2022 dt.18/11/2022 [2023] 452

   
   ITR (Stat) 2

5. S. 245F: Powers & Procedure Settlement Commission

The application before the Settlement Commission, The Settlement Commission has accepted the assessee’s application, and directed it to submit its consolidated profit and loss accounts and balance sheets for the relevant assessment years before the Assessing Officer.

The Settlement Commission also opined that the accounts were complex and that it was in the interest of the revenue that the special audit be ordered. And consequently, the Settlement Commission directed that the special audit be carried out.

The honorable high court held that, since the requirement of a special audit falls under the procedure for assessment which is distinct and different from settlement proceedings, the Settlement Commission would not have jurisdiction to direct a special audit as it does not have any nexus with the settlement proceedings. The method of computation of the tax liability of the assessee is set out in section 245C and in particular in sub-sections (1A) to (1D) thereof. If the Settlement Commission is of the view that an assessee has not made a full and true declaration of the undisclosed income then the application is liable to be rejected. The honorable High Court also observed that, if the accounts put forth by the assessee before the Commission are found by the Commission on the basis of the available records or the reports of the Commissioner to be neither full nor true then the only option available with the Commission is to reject the application for settlement and relegate the assessee to the normal provisions of assessment under the Act. The Commission could not, by itself, enter upon an assessment and step into the shoes of an Assessing Officer for the purposes of making an assessment. Agson Global Pvt. Ltd. and Others vs. ITSC (2016) 380 ITR 342 (Del)(HC)

The revenue filed a SLP, the Honourable Supreme Court disposed of the special leave petition stating that on account of the abolition of the Income-tax Settlement Commission, nothing survived for adjudication in the matter to the Department. Therefore, the Power of the Settlement Commission to direct special audits is now no more issue for litigation.

ITSC v. Agson Global Pvt. Ltd. S. L. P. (C) No. 3541 of 2017 dt.23/11/2022. [2023] 452 ITR (Stat) 2

CONSTITUTION

Gender Based Discrimination
– Whether Permissible?

Dr. M.V.K. Moorthy, Supreme Court Advocate

The Hindu Succession Act, 1956 applied to the whole of the Union of India except the state of Jammu & Kashmir. Simultaneously its’ application is restricted and limited only to Hindus. It was intended to amend and codify the law relating to intestate succession among the Hindus.

A person, who is a Hindu by religion in any of its’ forms, developments including Virasaiva, a Lingayat or follower of Brahmo, Prarthana or Arya Samaj. A person, who is a Bhudhist, Jain or Sikh by religion is also recognized as Hindu. The inclusion clause in its’ widest connotation grouped within any other person, who is not a Muslim, Christian, Parsee or Jew by religion, unless proved to the contrary that any such person would not have been governed by the Hindu law or any custom or usage as part of that law.

While Sec. 2(1) is any inclusive definition of wider, width and length, sub-sec. (2) thereof inter-alia by way of an exception held that the application of the Hindu Succession Act, 1956 shall not apply to the members of any Schedule Tribe within the meaning of clause (25) of article 366 of the Constitution of India, unless the Central Government by Notification in the official Gazette directs otherwise.

In this article, I am deal with the exemption or exclusion of the members of any Scheduled Tribe from the operation of the Act.

To proceed further with the topic, it is necessary to know what is meant by Scheduled Tribes.

For this purpose, we have to look at clause (25) of article 366, which defines certain expression specifically used therein. According to clause (25), Schedule Tribes means such Tribes or Tribal communities or parts of or groups within such types or Tribal communities as are deemed under article 342 to the Schedule Tribes for the purpose of the constitution. In this regard, it is also necessary to know the scope of article 342, which provided for Scheduled Tribes, and article 341 provides for Schedule Castes. Thus, there is an intelligible differentia between the Schedule Castes and Schedule Tribes. The notifying authority by a public notification is the President of India to specify the Tribes or Tribal communities or parts of or groups within Tribes or Tribal communities, which shall for the purpose of the constitution be deemed to be the Schedule Tribes in relation to that state or Union Territory. So is the same procedure to specify the castes, races or Tribes or parts of or groups within the castes, races or Tribes shall for the purpose of the constitution be deemed as Schedule Caste.

For both the articles, the Parliament has been conferred with power by law to include or exclude from the list, Schedule Castes or Schedule Tribes by way of public notification any caste, race or Tribe or part of or group.

I feel it profitable to explain or clarify as to what is Schedule Caste? or what is Schedule Tribe? The makers of the Constitution of India, after thorough deliberation and discussion at length appended schedules 1 to 12. Amongstthe schedules, Schedule 1 in terms of articles 1 and 4 grouped certain states in the country as well as the Union Territories, Schedule 2 in terms of the relevant articles divided in 5 parts provided for the emoluments payable to the President and the Governors of the states, Speakers and Deputy Speakers of the House of the people as well as the Chairman and the Deputy Chairman of the Council of the states and the Speaker and the Deputy Speakers of the Legislative Assembly and the Chairman and the Deputy Chairman of the Legislative Council and the emoluments payable to the judges of the Supreme Court and the judges of the High Courts as also salary payable to the Comptroller and Auditor General of India, 3rd schedule provided for Forms of Oath or Affirmation of office. Whereas the 4th schedule deals with allocation of seats to the states in the Council of states. 5th schedule provides for administration and control of scheduled areas and Scheduled Tribes divided in 4 parts, 6th schedule provides to the administration of Tribal areas in the states of Assam, Meghalaya, Tripura and Mizoram. 7th schedule enumerates various legislative fields in Union list, state list as well as concurrent list and 8th schedule enumerates in the list of languages, 9th schedule in terms of article 31(b) deals with various enactments and finally the 10th schedule in terms of articles 102 & 191 provides for disqualifications of the members of legislation, whether Parliament or state Legislative Assembly on definition, 11th schedule in terms of article 243-G deals with certain Acts and 12th schedule in terms of articles 243-W lists certain legislations with reference to the subjects enumerated therein.

Therefore, the castes or Tribes mentioned in the schedule as notified by the President of India are known as Schedule Castes or Schedule Tribes. The interesting feature i.e., exemption or exclusion of the operation of the act as laid down in sub-sec. (2) of sec. 2 of the Hindu Succession Act excluded members of any Schedule Tribe as mentioned in clause (25) of articles 366 R/w article 342. Thus, it is clear that members of any Schedule Tribe is not entitled for the benefit of the applicability of the Hindu Succession Act for the purpose of devolvement or sharing right in any of the properties as well as monetary benefits. Coming to the present topic, it is to examine in terms of sec. 2(2), a female member of the Schedule Tribe (ST) is not entitled to share by survivorship in compensation awarded for acquisition of ancestral land in view of the exclusion of the applicability of the Act to Schedule Tribes?

In the process of finding an answer for this problem, articles 14 & 21 of the Constitution of India do also play a dominant role as one enshrines for equity and equality, while the other one pertains to right to life with all dignity, decency and majesty.

Though the issue underwent certain judicial review exercises earlier, in the absence of any amendments to sec. (2) of the Hindu Succession Act, 1956, the position of law is still affirmative excluding the members of Schedule Tribes from the applicability of the Act as well as the benefits thereunder. In a recent case that arose under the provisions of Land Acquisition Act, 1894 the claim for share in the amount of compensation paid in connection with the acquisition of the land by way of survivorship. The land in the name of a common ancestor of the Tribal female member and other co-parcners was acquired by the state on payment of the eligible amount of compensation. The common ancestor viz., x died leaving behind his two sons, Y & Z. Y died leaving behind his 4 sons viz., A, B, C & D and a daughter E. Similarly the 2nd son (Y) of X also died leaving behind his two daughter viz., F & G. An amount of Rs.6 crores was settled in favour of some of the respondents and daughters of Y. The daughter of Y claimed 1/5th share in the amount of compensation in a reference u/s.30 of the Land Acquisition Act. Such claim came to be rejected by the Reference Court mainly on the ground of non-applicability of the Hindu Succession Act to the S.T. Community. Therefore, the claimantbeing the daughter of the S.T. is not entitled to any share in the compensation and the order of the Reference Court was affirmed by the concerned jurisdictional High Court and such judgment of the High court came to be assailed in the Hon’ble Apex Court.

The Appellant before the Supreme Court placed reliance on the decision of the Supreme Court. The supreme Court, in the case of Kishwar vs. State of Bihar reported in (1996) 5 SCC 125, pleading that a daughter is also entitled to the share in the compensation amount by application of the provisions of Hindu Succession Act. That apart the denial of right to the succession to the Schedule Tribe woman would amount to violate of article 21. It was also pleaded that exclusive succession in the male line of heirs shall remain in suspended animation till the immediate female relatives of the last male tenant continue to depend for their livelihood. Denial of the equal right to the woman/daughter belonging to S.T would amount to a gender based discrimination and cannot be denied the right in the joint family property in which all co-parcners have the equal share. The respondent authority viz., the Land Acquisition Officer opposed the case of the applicant. The Land Acquisition Officer mainly placed his argument, contending that the appellant being female member of the S.T is not entitled for any share in the compensation and as per sub-sec. (2) of sec-2 of the Hindu Succession Act being he members of the Schedule Tribe. It was also pleaded that as held in the case of Labishwar Manjhi v. Pran Manjhi reported in (2000) 8 SCC 587, if the members of the S.T. follow customary and practices of Hinduism, then only the Hindu Succession Act would be applicable and such factual evidence is not brought on record. In the event of conflict between law and equity, the law would prevail as held in the case of B. Premanand v. Mohan Koikal reported in(20110 4 SCC 266. If the law is to be amended, it is for the legislature, but not for the court.

On the basis of the above factual matrix, it must be concluded that the claimant, a member of the S.T. is exempted from the application of the Hindu Succession Act in terms of sub- sec. (2 of Sec. (2)). Therefore, the claim of any right of survival is impermissible and in the absence of any amendment to the inhibition placed, the parties shall be governed by the existing law. Equity, of course, shall be extended to all the co-parcners, but when there is a conflict in between the law should prevail, for, equity can only supplement the lw, but cannot supplant the law. Therefore, in the light of the legislative inhibition obtaining in Sec.2(2) of Hindu Succession Act in relation to the members of the S.T., it is for the legislature of the states to comprehensively examine the question on the premise of the constitutional ethos voicing a need to amend the law. It is also to be highlighted that but for the legal inhibition, there may not be any justification to deny the right of survivorship, so far as the female member of the Tribal community is concerned. When the daughter from a non- tribal community is entitled to equal share in the property of a father, there is no reason to deny such right to the daughter of the tribal community to deny the equal right to a female member of the tribal community, even after 75 years of the Constitution of India guaranteeing the right to equality, it is high time for the Central Government to look into the matter and to amend the Hindu Succession Act, so that as also to achieve a balance of equity and equality as also dignify to life in terms of articles 14 & 21 is maintained.

Therefore, it would be in the interest of equity, equality and right to life with dignity and majesty, the Central Government shall, in addition to looking at the S.Ts for votes in the elections, do the minimum justice by removal of inequality and anomaly in law.