12. Industrial
Infrastructure Development Corporation (Gwalior) M. P. Ltd. vs. CIT (2018) 403
ITR 1 (SC)
Registration
of Trusts – Commissioner of Income-tax had no power to cancel registration till
October 1, 2004 and the power conferred by the amendment was prospective –
Order of Commissioner of Income-tax passed u/s. 12A is quasi judicial in nature
and therefore section 21 of General Clauses Act has no application
The Appellant, a State
Government Undertaking, was established with a view to develop and assist the
State in the development of industrial growth centers/areas, to promote,
encourage and assist the establishment growth and development of industries in
the State of M.P.
On 10.02.1999, the
Appellant filed an application in the format prescribed u/s. 12-A of the Act to
the Commissioner of Income Tax (hereinafter referred to as “the CIT”)
for grant of registration. According to the Appellant, since they were engaged
in public utility activity which, according to them, was for a charitable
purpose u/s. 2(15) of the Act, they were entitled to claim registration as
provided u/s. 12A of the Act. Since the application for registration was
delayed in its filing, the Appellant also made an application for condonation
of delay in filing the application.
By order dated 13.04.1999,
the CIT (Gwalior) condoned the delay and granted the registration certificate
as prayed for by the Appellant. In Clause 3 of the registration certificate, it
was mentioned that the certificate is granted without prejudice to the
examination on merits of the claim of exemption after the return is filed.
On 27.11.2000, the CIT
issued a show cause notice to the Appellant stating therein as to why the
registration certificate granted to the Appellant by order dated 10.02.1999
u/s.12A of the Act be not cancelled/withdrawn. The show cause notice also set
out the factual grounds for the withdrawal of the registration certificate. The
Appellant was asked to reply the show cause notice. The Appellant accordingly
filed their reply and opposed the grounds on which the withdrawal/cancellation
of the certificate was proposed.
By order dated 29.04.2002,
the CIT did not find any substance in the stand taken by the Appellant in their
reply and accordingly cancelled/withdrawn the certificate issued to the
Appellant.
The Appellant felt
aggrieved and filed rectification application u/s.154 of the Act before the CIT
on 04.07.2002 contending therein that the order of the CIT dated 29.04.2002
cancelling/withdrawing the registration certificate contains an error apparent
and, therefore, it is required to be rectified or/and recalled. It was
contended that once the CIT grants the registration certificate u/s. 12A, he
has no power to cancel/recall the certificate granted to the Assessee.
On 20.12.2002, the CIT
rejected the application filed by the Appellant for rectification holding that
there was no error in his order cancelling the registration certificate granted
to the Appellant. In other words, the CIT held that he had the power to cancel
the certificate once granted by him and, therefore, the order for cancelling
the registration certificate is legal and proper.
Aggrieved by the said
order, the Appellant filed an appeal before the Income Tax Appellate Tribunal,
Agra Bench. By order dated 26.08.2004, the ITAT allowed the Appellant’s appeal
and set aside the order dated 29.04.2002 passed by the CIT by which he had
cancelled/withdrawn the registration certificate.
The Revenue felt aggrieved
by the order of the ITAT and filed appeal in the High Court at Gwalior Bench
u/s. 260-A of the Act. The High Court, allowed the appeal filed by the Revenue
and set aside the order passed by the ITAT and restored the order of the CIT.
The Division Bench of the
High Court placed reliance on section 21 of the General Clauses Act and held
that since there is no express power in the Act for cancelling the registration
certificate u/s. 12A of the Act and hence power to cancel can be traced from
section 21 of the General Clauses Act to support such order. In other words, in
the opinion of the High Court, section 21 is the source of power to pass
cancellation of the certification granted by the CIT when there is no express
power available u/s. 12A of the Act.
It is against this order,
the Assessee felt aggrieved and filed the appeal by way of special leave before
the Supreme Court.
According to the Supreme
Court, the main questions, that arose for its consideration in this appeal,
were four:
First, whether the CIT has
express power to cancel/withdraw/recall the registration certificate once
granted by him u/s. 12A of the Act and, if so, under which provision of the
Act?
Second, when the CIT grants
registration certificate u/s.12A of the Act to the Assessee, whether grant of
certificate is his quasi judicial function and, if so, its effect on exercise
of his power of cancellation of such grant of registration certificate?
Third, whether Section 21
of the General Clauses Act can be applied to support the order of cancellation
of the registration certificate granted by the CIT u/s. 12A of the Act, in
case, if it is held that there is no express power of cancellation of
registration certificate available to the CIT u/s. 12A of the Act? and
Fourth, what is the effect
of the amendment made in section 12AA introducing Sub-clause (3) therein by
Finance (No-2) Act 2004 w.e.f. 01.10.2004 conferring express power on the CIT
to cancel the registration certificate granted to the Assessee u/s. 12A of the
Act.
The Supreme Court held
that, the CIT had no express power of cancellation of the registration
certificate once granted by him to the Assessee u/s. 12A till 01.10.2004. It is
for the reasons that, first, there was no express provision in the Act vesting
the CIT with the power to cancel the registration certificate granted u/s. 12A
of the Act. Second, the order passed u/s. 12A by the CIT is a quasi judicial
order and being quasi judicial in nature, it could be withdrawn/recalled by the
CIT only when there was express power vested in him under the Act to do so. In
this case there was no such express power.
Indeed, the functions
exercisable by the CIT u/s. 12A are neither legislative and nor executive but
as mentioned above they are essentially quasi judicial in nature.
Third, an order of the CIT
passed u/s. 12A does not fall in the category of “orders” mentioned
in Section 21 of the General Clauses Act. The expression “order”
employed in section 21 would show that such “order” must be in the
nature of a “notification”, “rules” and “bye
laws” etc. (see – Indian National Congress (I) vs. Institute of
Social Welfare and Ors., 2002 (5) SCC 685).
In other words, the order,
which can be modified or rescinded by applying section 21, has to be either
executive or legislative in nature whereas the order, which the CIT is required
to pass u/s. 12A of the Act, is neither legislative nor an executive order but
it is a “quasi judicial order”. It is for this reason, section 21 has
no application in this case.
The general power, u/s. 21
of the General Clauses Act, to rescind a notification or order has to be
understood in the light of the subject matter, context and the effect of the
relevant provisions of the statute under which the notification or order is
issued and the power is not available after an enforceable right has accrued
under the notification or order. Moreover, section 21 has no application to
vary or amend or review a quasi judicial order. A quasi judicial order can be
generally varied or reviewed when obtained by fraud or when such power is
conferred by the Act or Rules under which it is made. (See Interpretation of
Statutes, Ninth Edition by G.P. Singh page 893).
According to the Supreme
Court, it was not in dispute that an express power was conferred on the CIT to
cancel the registration for the first time by enacting sub-section (3) in
section 12AA only with effect from 01.10.2004 by the Finance (No. 2) Act 2004
(23 of 2004) and hence such power could be exercised by the CIT only on and
after 01.10.2004, i.e., (assessment year 2004-2005), because the amendment in
question was not retrospective but was prospective in nature.
The Supreme Court allowed
the appeal setting aside the order of the High Court and restoring the order of
the ITAT, however clarifying that, the CIT would be free to exercise his power
of cancellation of registration certificate u/s. 12AA(3) of the Act in the case
at hand in accordance with law.
13. The
Director, Prasar Bharati vs. CIT (2018) 403 ITR 161 (SC)
Deduction
of tax at source – Payments made by the Appellant pursuant to the agreement in
question were in the nature of payment made by way of “commission”
and, therefore, the Appellant was under statutory obligation to deduct the
income tax at the time of credit or/and payment to the payee
The Appellant known as
“Prasar Bharati Doordarshan Kendra” functioned under the Ministry of
Information and Broadcasting, Government of India. The dispute in this case
related to the Appellant’s Regional Branch at Trivandrum.
The Appellant, in the
course of their business activities, which included the running of the TV
channel called “Doordarshan”, had been regularly telecasting
advertisements of several consumer companies.
With a view to have a
better regulation of the practice of advertising and to secure the best
advertising services for the advertisers, the Appellant entered into an
agreement with several advertising agencies. The agreement, inter alia,
provided that the Appellant would pay 15% by way of commission to the Agency.
In the assessment year
2002-2003 (01.06.2001 to 31.03.2002) and 2003-2004 (01.04.2002 to 31.03.2003),
the Appellant paid a sum of Rs. 2,56,75,165/- and Rs. 2,29,65,922/- to various
accredited Agencies, with whom they had entered into the aforementioned agreement
for telecasting the advertisements given by these Agencies relating to products
manufactured by several consumer companies. The amount was paid by the
Appellant to the Agencies towards the commission in terms of
the agreement.
The AO was of the view that
the provisions of section 194H of the Act were applicable to the payments made
by the Appellant to the Agencies because the payments were made in the nature
of “commission” as defined in Explanation appended to section 194H of
the Act. The AO held that the Appellant, therefore, committed default thereby
attracting the rigor of section 201(1) of the Act because they failed to deduct
the “tax at source” from the amount paid to various advertising
agencies during the Assessment Years in question as provided u/s.194A of the
Act.
On quantification, the AO
found that during the Assessment Year 2002-2003, the Appellant had paid a sum
of Rs. 2,56,75,165/- towards the commission to the Agencies and on this sum,
they were required to deduct tax amount to Rs. 16,34,283/- and a sum of Rs.
3,80,611/- towards interest for delayed payment u/s. 201(1-A) of the Act and
during the Assessment Year 2003-2004, the Appellant had paid a sum of Rs.
2,29,65,922/- towards the commission to the Agencies and on this sum, they were
required to deduct tax amounting to Rs. 11,15,944/- and a sum of Rs. 1,54,050/-
towards interest for delayed payment u/s. 201(1-A) of the Act.
The Appellant felt
aggrieved and filed appeals before the Commissioner of Income Tax (Appeals)-II,
Thiruvananthapuram. By order dated 04.03.2005, the Commissioner concurred with
the reasoning and conclusion arrived at by AO and accordingly dismissed the
appeals.
The Appellant felt
aggrieved and filed appeals before the Tribunal. By order dated 28.03.2007, the
Tribunal following its earlier order allowed the appeals and set aside the
orders passed by AO and CIT (Appeals).
The Revenue (Income Tax
Department), felt aggrieved by the order passed by the Tribunal, filed appeals
u/s. 260-A of the Act in the High Court. By impugned judgment, the High Court
allowed the appeals and while setting aside the Tribunal’s order restored the order of CIT (Appeals) and AO.
The High Court was of the
opinion that the provisions of section 194H were applicable to the payments made
by the Appellant to the Agencies during the period in question because the
payments made were in the nature of “commission” paid to the Agencies
as defined in Explanation appended to section 194H of the Act and since the
Appellant failed to deduct the “tax at source” while making these
payments to the Agencies in terms of the agreement in question, they committed
default of non-compliance of section 194H resulting in attracting the
provisions of section 201 of the Act.
The Appellant (Assessee)
felt aggrieved and filed appeals by way of special leave in Supreme Court.
According to the Supreme
Court, the High Court was right in holding that the provisions of section 194H
were applicable to the Appellant because the payments made by the Appellant
pursuant to the agreement in question were in the nature of payment made by way
of “commission” and, therefore, the Appellant was under statutory
obligation to deduct the income tax at the time of credit or/and payment to the
payee.
The aforementioned
conclusion of the High Court was clear from the undisputed facts emerging from
the record of the case because we notice that the agreement itself has used the
expression “commission” in all relevant clauses; Second, there is no
ambiguity in any Clause and no complaint was made to this effect by the
Appellant; Third, the terms of the agreement indicate that both the parties
intended that the amount paid by the Appellant to the agencies should be paid
by way of “commission” and it was for this reason, the parties used
the expression “commission” in the agreement; Fourth, keeping in view
the tenure and the nature of transaction, it is clear that the Appellant was
paying 15% to the agencies by way of “commission” but not under any
other head; Fifth, the transaction in question did not show that the
relationship between the Appellant and the accredited agencies was principal to
principal rather it was principal and Agent; Sixth, it was also clear that
payment of 15% was being made by the Appellant to the agencies after collecting
money from them and it was for securing more advertisements for them and to
earn more business from the advertisement agencies; Seventh, there was a Clause
in the agreement that the tax shall be deducted at source on payment of trade
discount; and lastly, the definition of expression “commission” in
the Explanation appended to Section 194H being an inclusive definition giving
wide meaning to the expression “commission”, the transaction in
question did fall under the definition of expression “commission” for
the purpose of attracting rigour of section 194H of the Act.
14. K.
Raveendranathan Nair vs. CIT (2018) 403 ITR 180 (SC)
Appeal to
the High Court – Court fees – Wherever Assessee is in appeal in the High Court
which is filed u/s. 260A of the IT Act, the court fee payable shall be the one
which was payable on the date of such assessment order – In those cases where
the Department files appeal in the High Court u/s. 260A of the IT Act, the date
on which the appellate authority set aside the judgement of the Assessing
Officer would be the relevant date for payment of court fee
The Supreme Court noted
that by amendment in the Income Tax Act, 1961 (hereinafter referred to as the
‘IT Act’) in the year 1998, section 260A was inserted providing for statutory
appeal against the orders passed by the Income Tax Appellate Tribunal. In this
very section, under sub-section (2)(b), court fees on such appeals was also
prescribed which was fixed at Rs. 2,000/-. However, sub-section (2)(b) of
section 260A prescribing the aforesaid fee was omitted by amendment carried out
in the said Act, with effect from June 01, 1999. It was presumably for the
reason that insofar as court fee payable on such appeals are concerned, which
are to be filed in the High Court, it is the State Legislature which is
competent to legislate in this behalf.
In the State of Kerala, the
law of court fee is governed by the Kerala Court Fees and Suits Valuation Act,
1959 (hereinafter referred to as the ‘1959 Act’). Section 52 thereof relates to
the fee payable in appeals. Thus, with the omission of Clause (b) of
sub-section (2) of section 260A of the IT Act, fee became payable on such
appeals as per section 52. The State Legislature thereafter amended the 1959
Act by Amendment Act of 2003 and inserted section 52A therein, which was passed
on March 06, 2003. In fact, before that an Ordinance was promulgated on October
25, 2002 which was replaced by the aforesaid Amendment Act, the Act
categorically provided that section 52A is deemed to have come into force on
October 26, 2002. As per the amended provision, viz. section 52A of the 1959
Act, the fee on memorandum of appeals against the order of the Income Tax
Appellate Tribunal or Wealth Tax Appellate Tribunal is to be paid at the rates
specified in sub-item (c) of item (iii) of Article 3 of Schedule II. This
sub-item (c) reads as under:
(c) Where such income One
percent of the assessed income,
exceeds two lakh rupees subject to a maximum of ten
thousand rupees
It is clear from the above
that fee is now payable, where such income exceeds two lakh rupees, at the rate
of 1% of the ‘assessed income’, subject to a maximum of ten thousand rupees.
The question that arose for
consideration before the High Court in the impugned judgement, against which
the appeals arose before the Supreme Court, was payment of fee as per the
aforesaid Schedule on the appeals that are filed on or after October 26, 2002.
As per the State of Kerala, on all appeals which are filed against the order of
Income Tax Appellate Tribunal or the Wealth Tax Appellate Tribunal on or after
October 26, 2002, fee is payable as per the aforesaid amended provisions. The
Appellant herein, however, contend that in all those cases which were even
pending before the lower authorities, i.e. the Assessing Officer, Commissioner
of Income Tax (Appeals) or Income Tax Appellate Tribunal and orders were passed
even before October 01, 1998, the right to appeal had accrued with effect from
October 01, 1998 and, therefore, such cases would be governed as on the date
when the orders were passed by the lower authorities and the court fee would be
payable as per the unamended provisions. The High Court has not accepted this
plea of the Appellant and has held that any appeal ‘filed’ on or after October
26, 2002 shall be governed by section 52A of the 1959 Act.
The Supreme Court held as
under:
(i) Wherever Assessee is in
appeal in the High Court which is filed u/s. 260A of the IT Act, if the date of
assessment is prior to March 06, 2003, section 52A of the 1959 Act shall not
apply and the court fee payable shall be the one which was payable on the date
of such assessment order.
(ii) In those cases where
the Department files appeal in the High Court u/s. 260A of the IT Act, the date
on which the appellate authority set aside the judgement of the Assessing
Officer would be the relevant date for payment of court fee. If that happens to
be before March 06, 2003, then the court fee shall not be payable as per
Section 52A of the 1959 Act on such appeals.
15. B. L. Passi vs. CIT (2018) 404 ITR 19 (SC)
Royalty or
fees for technical services – The Appellant was not entitled to deduction u/s.
80-O as there was no material on record to prove the sales effected by Sumitomo
Corporation to its customers in India in respect of any product developed with
the assistance of Appellant’s information and also on as to how the service
charges payable to Appellant were computed
The Appellant filed his
return disclosing income of Rs.
57,40,360/- for the
Assessment Year (AY) 1997-98 while claiming deduction of Rs. 58,87,045/-
under Section 80-O of the Income Tax Act, 1961 (in short ‘the IT Act’) on a
gross foreign exchange receipt of Rs. 1,17,74,090/- received from Sumitomo
Corporation, Japan. Sumitomo Corporation was interested in supplying dies for
manufacturing of body parts to Indian automobile manufacturers and entered into
a contract with the Appellant under which the services of the Appellant herein
were engaged by using his specialised commercial and industrial knowledge about
the Indian automobile industry. Sumitomo Corporation also agreed to pay
remuneration at the rate of 5% of the contractual amount between Sumitomo Corporation
and its Indian customers on sales of its products so developed. The Appellant
claimed to have supplied to Sumitomo Corporation the industrial and commercial
knowledge, information about market conditions and Indian manufacturers of
automobiles and also technical assistance as required by the Corporation.
The case of the Appellant
was selected for scrutiny by the Income Tax Department, Delhi and in response
to notice u/s. 143(2) of the IT Act, the Appellant along with others attended
the assessment proceedings from time to time justifying the claim u/s. 80-O of
the IT Act. The Assessing Officer, vide order dated 27.03.2000 u/s.143(3) of
the IT Act assessed the total income at Rs. 1,18,43,060/- and determined the
sum payable by the Assessee to the tune of Rs. 43,25,960/-. Being aggrieved by
the order dated 27.03.2000, the Appellant preferred an appeal before the
Commissioner of Income Tax (Appeals). The Appellate Authority, vide order dated
20.02.2002, partly allowed the appeal and held that the Appellant is entitled
to deduction u/s. 80-O of the IT Act. Being aggrieved by the order dated
20.02.2002, the Revenue went in appeal before the Tribunal. The Tribunal, vide
order dated 10.10.2005, allowed the appeal filed by the Revenue. The Appellant
approached the High Court by filing an appeal challenging the order of the
Tribunal dated 10.10.2005 which was dismissed on 13.12.2006 by a Division Bench
of the High Court.
Aggrieved by the judgement
and order dated 13.12.2006, the Appellant filed this appeal by way of special
leave before the Supreme Court.
The Supreme Court noted
that, provisions similar to section 80-O of the Act were originally in the
former section 85-C of the Income Tax Act, 1961 which was substituted by
Finance (No. 2) Act, 1971. Section 80-O was inserted in place of section 85C
which was deleted by the Finance (No. 2) Act, 1967. While moving the bill
relevant to the Finance Act No. 2 of 1967, the then Finance Minister highlighted
the fact that fiscal encouragement needs to be given to Indian industries to
encourage them to provide technical know-how and technical services to newly
developing countries. It is also seen that the object was to encourage Indian
companies to develop technical know-how and to make it available to foreign
companies so as to augment the foreign exchange earnings of this country and
establish a reputation of Indian technical know-how for foreign countries. The
objective was to secure that the deduction under the section shall be allowed
with reference to the income which is received in convertible foreign exchange
in India or having been received in convertible foreign exchange outside India,
is brought to India by and on behalf of taxpayers in accordance with the
Foreign Exchange Regulations.
The Supreme Court in
respect to the facts of the case at hand observed that, it was evident from
record that the major information sent by the Appellant to the Sumitomo
Corporation was in the form of blue prints for the manufacture of dies for
stamping of doors. Several letters were exchanged between the parties but there
was nothing on record as to how this blue print was obtained and dispatched to
the aforesaid company. It was also evident on record that the Appellant has not
furnished the copy of the blue print which was sent to the Sumitomo Corporation
neither before the Assessing Officer nor before the Appellate authority nor
before the Tribunal. The provisions of section 80-O of the IT Act mandate the
production of document in respect of which relief has been sought. The Supreme
Court was of the opinion that therefore it had to examine whether the services
rendered in the form of blue prints and information provided by the Appellant
fell within the ambit of section 80-O of the IT Act or any of the conditions
stipulated therein in order to entitle the Assessee to claim deduction.
The blue prints made
available by the Appellant to the Corporation could be considered as technical
assistance provided by the Appellant to the Corporation in the circumstances if
the description of the blue prints was available on record. The said blue
prints were not even produced before the lower authorities. In such scenario,
when the claim of the Appellant was solely relying upon the technical
assistance rendered to the Corporation in the form of blue prints, its
unavailability created a doubt and burden of proof was on the Appellant to
prove that on the basis of those blue prints, the Corporation was able to start
up their business in India and he was paid the amount as service charge.
Further, with regard to the
remuneration to be paid to the Appellant for the services rendered, in terms of
the letter dated 25.01.1995, it had been specifically referred that the
remuneration would be payable for the commercial and industrial information
supplied only if the business plans prepared by the Appellant resulted
positively. Sumitomo Corporation would pay to PASCO International service
charges equivalent to 5% (per cent) of the contractual amount between Sumitomo
and its customers in India on sales of its products so developed. From a
perusal of the above, it was clear to the Supreme Court that the Appellant was
entitled to service charges at the rate of 5% (per cent) of the contractual
amount between Sumitomo Corporation and its customers in India on sales of its
products so developed but there was nothing on record to prove that any product
was so developed by the Sumitomo Corporation on the basis of the blue prints
supplied by the Appellant as also that the Sumitomo Corporation was able to
sell any product developed by it by using the information supplied by the
Appellant. Meaning thereby, there was no material on record to prove the sales
effected by Sumitomo Corporation to its customers in India in respect of any
product developed with the assistance of Appellant’s information and also on as
to how the service charges payable to Appellant were computed.
In view of the foregoing
discussion, the Supreme Court was of the view that in the present facts and
circumstances of the case, the services of managing agent, i.e., the Appellant,
rendered to a foreign company, were not technical services within the meaning
of section 80-O of the IT Act. The Appellant had failed to prove that he
rendered technical services to the Sumitomo Corporation and also the relevant
documents to prove the basis for alleged payment by the Corporation to him. The
letters exchanged between the parties could not be claimed for getting
deduction u/s. 80-O of the IT Act.
The Supreme Court further held
that the Appellant was a managing agent and the High Court was right in holding
the principal agent relationship between the parties and that there was no
basis for grant of deduction to the Appellant u/s. 80-O of the IT Act.
