ICAI has released its publication ”Manual on Concurrent Audit of Banks” (Revised – 2012 Edition). (Refer 1152 of CA Journal for January, 2013.
ICAI Publication
Year: 2013
EAC Opinion – Determination of Normal capacity for the purpose of allocation of Fixed Overheads of cost of inventories and inclusion of various costs in the valuations of Inventories.
Facts: A public sector undertaking was established in the year 1976 under the administrative control of the Ministry of Steel, to develop the mine and plant facilities to produce 7.5 million tons of concentrate per year. The mines and plant facilities were commissioned in the year 1980 and the first shipment of concentrate was made in October, 1981. A pelletisation plant with a capacity of 3 million tons per year was commissioned in the year 1987 for production of high quality blast furnace and direct reduction grade pellets for export. However, in view of the Hon’ble Supreme Court verdict, the mine of the company was closed w.e.f. 31st December, 2005. After the closure of the mine, the company’s activities are restricted to production of pellets on bought out ore from outside source.
Since 1st January 2006, the mining activities of the company were stopped and hence, the production facilities of the pellet plant are wholly dependent on iron ore bought from external sources. It is, therefore, felt that under the circumstances, the average production during past five years can be considered as normal capacity for allocation of fixed overheads, in accordance with AS-2.
Expenses such as general expenses, welfare expenses, interest, advertisement and publicity, opportunity costs of loans and other income (interest recovered from employees on their loans), etc. are considered for valuation of inventories.
The company is of the view that all the expenses and other income related to the pellet plant unit only can be considered for the valuation of inventories (i.e. pellet). Such costs and other income are accumulated separately which are entirely connected to and arising from the production activity of the unit. Thus, according to the Company, the valuation of finished goods is as per AS 2.
Query:
Based on the above background, the Company has sought the opinion of the EAC regarding valuation of closing stock of finished goods as to (a) whether the average production for the last five years is to be reckoned as normal production or the budgeted production for the year under review is to be taken as normal production for the purpose of valuation of inventory? (b) Whether the expenditure on staff welfare, i.e. expenditure on township maintenance, health centre, etc. which are being maintained exclusively for the employees of that unit, general expenses, tender notice advertisement expenses and other income (interest recovered from employees on their loans) are to be considered for the purpose of valuation of inventory?
Opinion:
(i) After considering paragraph 9 of AS 2, the EAC is of the opinion that the normal capacity may be determined at the average of production of the last five years, provided it approximates the production expected to be achieved in the future periods also. However, if there are significant changes in circumstances, then such estimation would not be appropriate. In such a situation, budgeted production should be considered for determining normal capacity.
(ii) After considering paragraphs 6,7,11 & 13 of AS 2, EAC is of the view that the test for determining whether or not the cost for carrying out a particular activity should be included in the cost of inventories is whether the particular activity contributes to bringing the inventory to their present location and condition or not. Further, administrative overheads which do not contribute to bringing the inventories to their present location and condition are not to be included in the cost of inventories and are to be expensed when incurred. The overheads that are incurred to administer the factory in relation to production activities are factory or production overheads which contribute to bringing the inventories to their present location and condition and therefore such costs should be included in the cost of inventories.
The staff welfare expenditure i.e. expenditure on township maintenance and health centre, to the extent these are used by the employees of factory/production unit who render their services in relation to production activities, should be considered for inclusion in the cost of inventories. General expenses may be considered for the purpose of valuation of inventory only if these are incurred in bringing the inventories to their present location and condition. Tender notice, advertisement expenses cannot be included in the cost of inventories, as these expenses are incurred for exploring the possible supplies of materials and services and accordingly, cannot be considered as cost of purchase of inventories or other costs that are directly attributable to the acquisition. As regards interest income recovered from the employees, it is clarified that these are part of ‘other income’ and, therefore should not be adjusted in the cost of inventories.
2013 (30) STR 668 (Tri-Del) Dilip Construction vs. Commissioner of Central Excise, Raipur.
Internal movement of iron ore ‘within’ mining
area – no movement of cargo outside mining area – Held, not classifiable
under “Cargo Handling Service”
Facts:
The
Appellant was engaged in the activity of movement and transportation of
iron ore within the mining area on which the revenue proposed to levy
tax under the category of “Cargo Handling Service”.
Held:
For
an activity to fall under cargo handling service, there should be
movement of cargo from one place to another and not just internal
movement within the mining area. There was no evidence to prove that
handling service was outside the mining area. When the factual evidence
demonstrated movement of the excavated iron within the mining area from
one place to another, such operation was not a cargo handling service.
area – no movement of cargo outside mining area – Held, not classifiable
under “Cargo Handling Service”
Facts:
The
Appellant was engaged in the activity of movement and transportation of
iron ore within the mining area on which the revenue proposed to levy
tax under the category of “Cargo Handling Service”.
Held:
For
an activity to fall under cargo handling service, there should be
movement of cargo from one place to another and not just internal
movement within the mining area. There was no evidence to prove that
handling service was outside the mining area. When the factual evidence
demonstrated movement of the excavated iron within the mining area from
one place to another, such operation was not a cargo handling service.
Related Party Disclosures-AS 18
The Financial Reporting Review Board (FRRB) of ICAI has noticed that there has been non-compliance in the matter of reporting of Related Party Disclosures by some companies. The report of FRRB is published on Pages 1140-1141 of C.A. Journal for January, 2013. Some of these issues are as under.
(i) Some enterprises, while giving the Related Party disclosures, simply state that there are no material individual transactions with the related parties during the year which are not in the normal course of their business or at arm’s length basis and, accordingly, do not provide any disclosures. Others provide disclosures for “significant transactions with the related parties.”
In the opinion of the FRRB Para 23 of AS 18, it does not prescribe for classification of transactions with related parties as significant/insignificant or material/ immaterial transactions. It is also felt that all transactions with related parties must be disclosed rather than just disclosing the significant transactions. Accordingly, non-disclosure of related party transactions on the pretext that no significant transactions have taken place or that only significant transactions are required to be disclosed is not in line with AS 18.
(ii) It may be noted that paragraph 21 of AS 18, Related Party Disclosure, requires that the name of the related party and the nature of the related party relationship where control exists should be disclosed, irrespective of whether or not there have been transactions between the related parties. Following non-compliances have been commonly noted from review of the Related Party disclosures of various enterprises.
• In some cases, the names of related parties have been disclosed, but the nature of the relationship with them has not been disclosed.
• In other cases, the names and the nature of only those related parties have been disclosed with whom transactions have taken place during the year.
(iii) It is often noted from the annual reports of various enterprises that while the schedules/notes to accounts/ Cash Flow Statements/Corporate Governance Reports, either individually or together, contain the information about the transactions taking place with related parties, the same are not reported under Related Party disclosure. It has been viewed that if any transaction has taken place during the year with the related party, then the reporting enterprise is required to disclose the details of the transactions as required under paragraph 23 of AS 18. Non-disclosure of such details is contrary to AS 18.
2013 (30) STR 652 (Tri-Del) Scott Wilson Kirkpatrick India Pvt. Ltd. vs. Commissioner of Central Excise, Jaipur.
Consulting Engineer Services – Reimbursement of expenses – Held, extended period not invokable as there is bonafide belief backed by CBEC’s clarification and Tribunal decisions.
Facts:
Facts:
The appellant provided services of Consulting Engineer to National Highways Authority of India (NHAI) and received certain consideration in the form of reimbursements. As per revenue, the said consideration formed part of the value of service and hence levied tax, interest and penalty. In support of their view, they relied on Mett. Macdonald Ltd. vs. CCE 2006 (2) S.T.R. 524 (Tri.- Del) and Shri Bhagavathy Traders vs. CCE, Cochin-2011- TIOL-1155-CESTAT-BANG-LB. The appellant relied on CBEC Circulars B.43/5/97-TRU dated 02-07-1997 and B11/1/98-TRU dated 07-10-1998 which clarified that reimbursed expenses incurred by Consulting Engineers did not form part of the value of service and also relied on the decision in their own case reported in 2007 (5) S.T.R. 118 to the effect that such expenses would not be construed value of service of Consulting Engineers.
Held:
Allowing the appeal, it was held that the decision of the larger Bench of the Tribunal in Shri Bhagavathy Traders was under challenge before the Apex Court. In view of the clarification issued by the CBEC and the decisions relied by the appellant, the action of the appellant was bonafide and suppression cannot be alleged for invoking extended period of time for demanding tax.
PART A: CIC Decision
The Appellant, Shri Shashikant Barve, through his RTI application dated 25.06.2012 sought certain information ( e.g. number and names of study circles in WIRC where the bank account of the study circle is being operated during 2012; payment made by the study circles operating in Pune to any branch of ICAI for holding any joint programmes during the period 01.01.2011 to 31.12.2011; names of currently elected CAs members on WIRC Managing Committee Mumbai or Council at New Delhi; study circle wise data in respect of their members and so on.) in respect of study circles operating in Western India Regional Council (WIRC) of the Institute of Chartered Accountants of India.
The CPIO vide her letter dated 21.08.2012, while inter-alia informing the Appellant that the relationship between ICAI and CPE study circles is only for limited purpose of recognising the CPE hours, denied the information on the ground that the same was not maintained by them.
During the hearing, the Respondents stated that the study circles are voluntary organisations which have been formed for the purpose of carrying out professional learning activities. According to them, the role of ICAI is only for recognising the study activities of these study circles and there is no financial support or funding made by ICAI to these study circles. They, therefore, expressed their inability to provide the information to the Appellant as the same is not held by them.
The Appellant, on the other hand, argued that the study circles are nothing but an “extended arm” of the ICAI and that ICAI has full control over them. He, in support, refered to the “Norms for CPE Study Circles” issued by ICAI, copy of which the Respondents has produced before the Commission.
A perusal of the norms issued by ICAI in respect of CPE study circles shows that ICAI does have supervisory control over these study circles. Para of these norms deals with accounts related matters and include provisions like every CPE study circle shall submit an annual statement of receipt and payment, income and expenditure and balance sheet to the Regional Council; Convenors of CPE study circles are authorised to collect a reasonable amount per member as annual membership fee to defray the cost of holding learning activities and other incidental charges; the responsibility for ensuring financial propriety in the financial management of the study circle for production of proper audited accounts, whenever required by the supervising branch/Regional council shall be that of the Convenor and Deputy Convenor etc.
On consideration of the arguments put forth by both the parties and perusal of the records, the Commission is of the view that the information sought by the Appellant here can be accessed by the Respondent from the CPE study circles (through its Convenor or Deputy Convenor) under section 2(f) of the RTI Act, which includes in the definition of information:
“….information relating to any private body which can be accessed by a public authority under any other law for the time being in force.” “In view of the above, the CPIO is hereby directed to obtain the information in question from the respective CPE study circles, operating in Western India Regional Council (WIRC) of the ICAI, and provide the same to the Appellant within 4 weeks of receipt of this order”.
Provisions For Management, Administration and Dividend Declaration Under the Companies Act, 2013.
The Companies Act, 2013 has been passed by the Parliament. It has received the assent of the President on 29th August, 2013. After the Act is notified it will replace the existing Companies Act, 1956. By a notification dated 12-09-2013, 98 out of 470 sections of the Act have been brought into force from 12.9.2013. The provisions relating to Management and Administration of companies and other relevant provisions are contained in the following sections of the New Act. Draft Rules relating these provisions have been issued by the Government for
Public Comments.
Public Comments.
(i) Chapter VII – Section 88 to 122 – Management and Administration.
(ii) Chapter VIII – Section 123 to 127 – Declaration of Dividend
(iii) Chapter VI – Section 77 to 87 – Registration of charges.
Most of these provisions are similar to the provisions in the existing Act. Some of the important provisions which require attention during the course of management, administration and Declaration of Dividends by Companies are discussed in this Article.
1 Register of Members:
1.1 The provisions relating to maintenance of Register of Members. Debenture holders and any other securities in the company in section 88 of the New Act are similar to the provisions in sections 150 to 152 and 152A of the existing Act. Draft Rules 7.1 to 7.6 provide for the procedure and also prescribes Form in which the Register is to be maintained.
1.2 Sections 89 and 90 of the New Act which correspond to existing section 187C and 187D provide for declaration to be made by a person who does not hold beneficial interest in the shares registered in the company in his name. Similarly, the beneficial owner has also to make this declaration. This declaration is to be made in the prescribed form and submitted to the company within the prescribed time limit. Particulars of changes in beneficial interest are also to be filed with the company within 30 days of change. The company has to register particulars of such beneficial interest and file a return in the prescribed form with the ROC within 30 days of receipt of such declaration. Draft Rule 7.7 prescribes Forms for this purpose and also provides for procedure for this purpose.
1.3 The Central Government is given power to investigate about the beneficial ownership of shares in the company by appointing one or more competent persons under new section 90.
1.4 The above Register of members, debentureholders etc. can be closed for an aggregate period of 45 days in each year, but not exceeding 35 days at a time, u/s. 91 which corresponds to existing section 154. If the above Register is closed for more than the above period, the company and every defaulting officer will be liable to pay penalty of Rs. 5,000/- per day of default subject to maximum of Rs.1 lakh. It may be noted that Section 91 has come into force from 12-09-2013. Draft Rule 7.8 provides for procedure for this purpose.
1.5 If the company fails to maintain the register u/s. 88, the company and every defaulting officer shall be punishable with minimum fine of Rs. 50,000/- which may extend to Rs. 3 lakh. In the case of continuing default fine upto Rs. 10,00/- per day can also be charged.
1.6 If a person required to make declaration of beneficial interest u/s. 89, without reasonable cause, fails to make the declaration, he will be punished with fine upto Rs. 50,000/- . In case of continuing default fine upto Rs. 1,000/- per day can also be charged. Similarly, if the company makes default in filing return giving particulars of these declarations with ROC as required u/s. 89(6), it shall be liable to pay minimum fine of Rs. 500/- which may extend to Rs. 1,000/-. In the case of continuing default, further fine upto Rs. 1,000/- per day for the period of delay can be levied.
2. Annual return:
2.1 New Section 92 which corresponds to existing sections 159, 161 and 162 provides for filing the Annual Return with ROC within 60 days of holding Annual General Meeting. If such AGM is not held the Annual Return should be filed with ROC within 60 days of the last date when AGM was due to be held. In such a case the company will have to file a statement specifying reasons for not holding the AGM in time.
2.2 Broadly stated the Annual Return is to be prepared in the prescribed form containing the following particulars as on the last day of the financial year.
(i) Its Registered Office, principal place of business, particulars of its holding, subsidiary and associate companies.
(ii) Its shares, debentures and other securities and shareholding pattern.
(iii) Its indebtedness.
(iv) Its members and debenture-holders along with changes therein since the close of previous financial year
(v) Its promoters, directors, key managerial personnel (KMP) along with the charges therein since the close of the previous financial year.
(vi) Meetings of Members or a class thereof, Board and its various committees with attendance details.
(vii) Remuneration of Directors and KMP.
(viii) Penalty and punishment imposed on the company, its directors or officers with details of compounding of offenses and appeals made against such penalty or punishment.
(ix) Matters relating to certification of compliances, disclosures as may be prescribed.
(x) Details in respect of Shares held by FIIs giving their names, addresses etc. and percentage of shareholding as may be prescribed.
(xi) Such other matters as may be prescribed.
The annual return is to be signed by a Director and company secretary/company secretary in practice. In the case of one person company and small company, it is to be signed by the company secretary or, if there no secretary, by the director.
In the case of a listed company or such specified companies, as may be prescribed, the Annual Return is required to be certified by a company secretary in practice in the prescribed form.
2.3 An extract of the Annual Return in the prescribed form should form part of the Board Report.
Draft Rules 7.9, 7.10, and 7.12 provide for Forms of Annual Return etc and procedure to be followed for filing the Annual Return with ROC.
2.4 If the company does not file the Annual Return within 60 days as stated above or within the extended time as provided in section 403 with additional fees, the company shall be punishable with the minimum fine of Rs. 50,000/- which may extend to Rs. 5 lakh. Similarly, every defaulting officer will be punishable with imprisonment upto 6 months or with a minimum fine of Rs. 50,000/- which may extend to Rs. 5 lakh or with both. Similar fine can be levied on the company secretary in practice if his certificate is not in conformity with the requirements of the section.
2.5 Section 93 is a new section which provides that every listed company should file a return in the prescribed form with ROC with respect to changes in the number of shares held by promotors and top 10 shareholders within 15 days of such charge. Draft Rule 7.11 prescribes Form No.7.10 for this purpose.
2.6 New sections 94 and 95 which correspond to existing sections 163 and 164 provide for place at which Registers, Returns and other documents required to be maintained by the company shall be kept. These registers, documents etc.will be open for inspection by shareholders, debenture holders etc. Draft Rules 7.13 and 7.14 provide for detailed procedure for this purpose. It is provided that the copies of Annual Returns should be preserved for 8 years and Register of Debenture Holders, Foreign register of Members etc. should be preserved for 15 years.
3. Procedure for General Meetings:
3.1 New sections 96 to 122 deal with procedure to be followed for holding Annual General Meeting, Extra ordinary general meeting and other related matters. These sections are similar to the existing sections 166 to 197. The provisions made in the new sections being similar to existing provisions, some of the important provisions are stated in the following paragraphs.
3.2 Annual General Meeting (Section 96)
(i) One person company is not required to hold AGM.
(ii) All other companies have to hold AGM once every year within the same time limit as provided in existing sections 166 and 210. The only difference is that the first AGM which at present can be held within 18 months of date of incorporation will now required to be held within 9 months of the closing of the first financial year.
(iii) Under existing section 166 AGM can not be held on a ‘Public Holiday’. Now u/s. 96 AGM can be held on a “Public Holiday”. However, it cannot be held on a “National Holiday” as may be declared by the Central Government.
Further, under the new provision it is specifically provided that AGM can be held during business hours i.e. between 9.00 AM and 6.00 PM. The Central Government can grant exemption from this requirement, subject to such conditions which it may impose.
(iv) If there is a default in holding ay AGM, the Tribunal can, on an application by any member, direct the company to hold such a meeting subject to such conditions as the Tribunal may specify under new section 97.
(v) Similarly, the Tribunal, on its own or on an application by a Director or member, direct the company to hold any general meeting (other than AGM) subject to such conditions which it may specify under new section 98.
(vi) If there is default in holding any general meeting, in accordance with the above direction of the Tribunal the company and every defaulting officer of the company will be punishable with fine upto Rs1 lac. In case of continuing default a further fine upto Rs.5000/- per day during which default continues can be levied under new section 99.
3.3 Extraordinary General Meetings:
The procedure for calling an Extraordinary General Meeting in new section 100 is the same as in the existing section 169. This procedure is laid down in Draft Rule 7.15. This section has come into force from 12-09-2013.
3.4 Notices for General Meetings:
(i) New section 101 provides for notice to be given in writing or through electronic mode 21 clear days before the meeting in the same manner as provided in existing sections 171 and 172. However, a general meeting can be called by giving shorter notice if consent is given by at least 95% of members entitled to vote at such meeting.
(ii) Explanatory statement is to be annexed with every notice concerning each item of special business to be transacted at the General Meeting. New section 102 which corresponds to existing section 173 provides for this requirement. It explains the material facts in respect of which the explanation as under is to be provided:
(a) Nature of concern or interest, financial or otherwise in respect of each items of every director, manager, KMP, and their relatives.
(b) Any other information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon.
(iii) It is further provided in section 102 that if any item of specified business relates or affects any other company, the notice must disclose the extent of interest of every promoter, director, Manager or KMP of the company, if it is more than 2% of the paid up share capital of that company. This section has come into force on 12-09-2013.
(iv) Where, as a result of the non-disclosure or insufficient disclosure in the statement to be furnished as above by the promoter, director, manager or KMP, any benefit accrues to any of these persons, he shall hold the same in trust for the company and compensate the company to the extent of the benefit received by him.
(v) In the event of any contravention of this section, the defaulting promoter, director, manager, KMP or relatives of any of them shall be punishable with fine upto Rs.50000/-or 5 times the amount of the benefit received by such person, whichever is more.
(vi) The procedure for giving Notice of the General Meeting is given in Draft Rule 7.16.
3.5 Quorum for the General Meeting:
Under the existing section 174 quorum required for the General Meeting of members of public companies is 5 members personally present at the meeting, unless the articles stipulate a larger number. New section 103 provides for a quorum based on number of members of the company as under, unless the articles provide for larger numbers.
(i) 5 Members personally present if the number of members on the date of meeting is less than 1,000.
(ii) 15 Members, if the number of members is between 1,000 and 5,000.
(iii) 30 Members, if the number of Members are more than 5,000.
For private companies, the quorum of 2 members continue, as at present. Section 103 has come into force on 12-09-2013.
3.6 Procedure for conducting General Meeting:
(i) New sections 104 to 116, deal with the procedure for election of chairman, proxies, voting at general meeting etc. These provisions are similar to existing provision in sections 175 to 185 and 187 to 192A. Only section 108 is new. It provides that the Central Government may prescribe class of companies in which members will be allowed to exercise their voting rights by electronic means. It may be noted that Sections 104 to 107, 111 to 114 and 116 have come into force from 12-09-2013.
(ii) At present, section 190 does not provide for any requirement that members who give special notice should hold some minimum voting power in the company. New section 115, now provides that such special notice for consideration of a resolution as required under the Act or Articles can be given by such number of members holding not less than one percentage of total voting power or holding shares on which such aggregate sum not exceeding Rs. 5 lakh, as may be prescribed, has been paid up. (Refer Draft Rule 7.21).
(iii) It may be noted that new section 110 provides for passing resolutions by “Postal Ballot”. This provision is similar to existing section 192A. The company can use this procedure in respect of such items of business as the Central Government may by notification provide. (Refer Draft Rule 7.20 (16).
(iv) Form of Proxy to be given u/s. 105 (Form No.7.11) is prescribed under Draft Rule 7.17. Procedure for voting through electronic means is given in Draft Rule 7.18. Similarly procedure for Poll process is provided in Draft Rule 7.18 and procedure for Postal Ballot is provided in Draft Rule 7.20.
3.7 Resolutions and Agreements to be filed with ROC:
New section 117, which corresponds to existing section 192, provides for filing of Resolutions and Agreements specified in section 117(3) with ROC within 30 days. In the event of contravention of the provision of this section the company shall be punishable with minimum fine of Rs. 5 lakh which may extend to Rs. 25 lakh. Similarly, every defaulting officer shall be punishable with minimum fine of Rs. 1 lakh which may extend to Rs. 5 lakh. Form No. 7.14 is prescribed by Draft Rule 7.22.
3.8 Minutes of Meetings:
(i) New section 118 corresponds to existing sections 193 to 195 and 197. It provides for maintenance of minutes of proceedings of General Meetings, Board meetings and other meetings. It is specifically provided in this new section that while recording these minutes, the company shall observe the “Secretarial Standards” in this respect, issued ICSI as approved by the Central Government.
(ii) In the event of non-compliance with the requirement of this section, the company will be liable to penalty of Rs. 25,000/- and every defaulting officer shall be liable to pay penalty of Rs. 5,000/-. If any person is found guilty of tempering with the minutes, he shall be punishable with imprisonment upto 2 years and with minimum fine of Rs. 25,000/- which may extend to Rs. 1 lakh.
(iii) New section 119 which corresponds existing to section 196 provides for inspection of the minute books of general meetings of the company. If such inspection is refused, monetary penalty similar to the one stated in (ii) above can be levied on the company and the defaulting officer.
(iv) Detailed procedure for this purpose is provided in Draft Rules 7.23 and 7.24.
3.9 Some New Provisions:
Sections 120 to 122 are new. They provide as under.
(i) Maintenance and Inspection of Document in Electronic Form Section 120 provides that any document, record, register, minutes etc. which are required to be kept by a company and allowed to be inspected or copied by any person can be kept, inspected or copies given in electronic form in the prescribed manner. This is prescribed in Draft Rule 7.25.
(ii) Report on AGM
Under Section 121 a listed company is required to prepare in the prescribed manner a report on each AGM stating that such meeting was convened, held and conducted as required under the companies Act. This report is to be filed with ROC within 30 days of conclusion of AGM. Draft Rule 7.26 gives the contents of this Report. In the event of contravention of this provision, the company will be punishable with minimum fine of Rs. 1 lakh which may extend to Rs. 5 lakh. Similarly, every defaulting officer will be punishable with minimum fine of Rs. 25,000/- which may extend to Rs. 1 lakh.
(iii) One person company
Section 122 provides that sections 98 and 100 to 111 shall not apply to one person company (OPC) . If a company is required to transact any business by ordinary or special resolution u/s. 114, it shall be sufficient in the case of OPC if the said resolution is recorded in the minute book which shall be signed by the Director.
4. Registration of Charges:
4.1 New Sections 77 to 87 deal with the procedure relating to Registration of charges. These provisions are similar to provisions of sections 125 to 127, 130, 134, 135, 137, 138 and 141 to 143 of the existing Act. For this purpose, section 2(16) defines the word ‘charge’ to mean “An interest or lien created on the property or assets of a company or any of its undertakings or both as Security and includes a Mortgage. Section 2(16) has come into force from 12- 09-2013. Broadly stated, the new provisions are as under.
(i) U/s. 77 every charge on the property or as-sets (whether tangible or intangible) created by a company (whether public or private) shall be registered with ROC within 30 days of creation of such charge. For this purpose, the prescribed form will have to be filed with the fees. In the event of any delay, ROC can permit the registration of such charge within 300 days on payment of additional fees.
(ii) The existing section 125(4) requires a company to register only 9 type of charges. Under the new provision every charge created by it on property, assets or undertaking is to be registered u/s. 77.
(ii) ROC has to give a Certificate of such registration in the prescribed form.
(iv) If the company fails to register a charge, the person in whose favour charge is created can apply to ROC in the prescribed manner, as provided in section 78.
(v) ROC has to keep a Register of charges in the prescribed form. This Register will be open to inspection to any person on payment of fees.
(vi) Any modification of charge is also required to be registered with ROC.
(vii) On satisfaction of any charge, it is also to be registered with ROC within 30 days. In the event of delay, ROC can permit such registration within 300 days on payment of additional fees.
(viii) The company has also to maintain a Register of charges in the prescribed manner. This register shall be open to inspection by any member or creditor or by any other person subject to such reasonable restrictions as the company may by its AOA, impose.
(ix) If the company does not register such creation, modification or satisfaction of charge the company or any other person can apply to the Central Government u/s. 87. The Government can order such registration of charge or its modification, satisfaction etc. on such terms and conditions as it may consider appropriate.
(x) Draft Rules 6.1 to 6.10 prescribes Forms to be filed with ROC and other procedure to be followed and documents to be maintained for this purpose.
4.2 A new provision is made in section 83. It authorizes the ROC to make entries in the Register of charges if any evidence is produced before him about creation of a charge or modification/satisfaction of charge on any property/assets by a company. ROC has to intimate the concerned parties about making such entry within 30 days.
4.3 If there is any contravention of the provisions, section 86 provides for the following penalties.
(i) The company shall be punishable with a minimum fine of Rs. 1 lakh which may extend to Rs. 10 lakh.
(ii) Every defaulting officer shall be punishable with imprisonment upto 6 months or with minimum fine of Rs. 25,000/- which may extend to Rs. 1 lakh or with both.
The above penalty can be levied even if the company has complied with the above provisions but filed the particulars of charges, modification or satisfaction etc. of the charges within the extended time as stated above. This section has come into force on 12-09-2013.
5. Declaration and Payment of Dividend:
Declaration of Dividend:
5.1 New Sections 123 to 127 provide for declaration and payment of Dividends by a Company. These Sections are similar to existing sections 205 to 207. Broadly stated these provisions are as under:-
(i) The dividend can be declared and paid only out of the following profits;
(a) Profits of the financial year, after providing depreciation as stated in Section 123(2) read with Schedule II.
(b) Accumulated profits of the earlier years, after providing for depreciation u/s 123(2) read with Schedule II.
(c) Out of money provided by Central or State Government for payment of dividend in pursuance of a guarantee given by the Government.
(ii) Existing section 205(2A) provides that a dividend can be declared for any financial year only after transferring such percentage of profit not exceeding 10%, as may be prescribed. In the new section 123, it is provided that such dividend may be declared or paid after transferring such percentage of its profits for the financial year to reserves as the Company may consider appropriate. Thus a Company can declare or pay dividend in any year even without making such transfer to reserves.
(iii) In the event of inadequacy or absence of profits in any financial year, the company can declare dividend out of its “Free Reserves” in accordance with the prescribed Rules.(Refer Draft Rule 8.1)
(iv) Board of Directors can declare “Interim Dividend” out of surplus available in the Profit & Loss Account and out of profits of the Financial Year upto the date of declaration of such dividend. If the Company has made a loss upto the end of the quarter, preceding the date of declaration of interim dividend, the Board cannot declare interim dividend at a rate higher than the average dividend declared by the Company during the preceding 3 Financial Years.
(v) The amount of dividend, including interim dividend, has to be deposited in a Separate Scheduled Bank Account within 5 days from the date of declaration.
(vi) It will be possible for the Company to utilise the profits and reserves for issue of Bonus
Shares or for payment of Unpaid amount on partly paid shares.
(vii) It may be noted that a Company cannot declare or pay dividend if it has made de-fault in repayment of Deposits or Interest as provided in sections 73 and 74 till such time when the default continues.
(viii) Draft Rules 8.1 and 8.2 provides for certain conditions to be complied with before declaring dividend.
5.2 Unclaimed Dividend Account:
(i) If any dividend is not claimed or paid within 30 days from the date of declaration, it has to be transferred, within 7 days, to a “Unpaid Dividend Account” to be opened in a Scheduled Bank.
(ii) If any amount of unpaid dividend is not claimed or paid within 90 days, the company has to put the list of such unpaid dividend on the website of the company or other approved website in the prescribed manner. Draft Rule 8.3 provides for procedure for this purpose.
(iii) In the event of delay in transferring the amount to such special account, the company will have to pay 12% P.A. interest on the unclaimed dividend amount.
(iv) If the unclaimed dividend is not claimed by any shareholder for 7 years, the company will have to transfer the said amount to “Investor Education and Protection Fund” as provided in section 125. Procedure for this is provided in Draft Rule 8.4.
(v) Section 124(6) makes a departure from the existing provisions of section 205C and provides that even the shares on which dividend is not claimed for 7 years will have to be transferred to the above Fund. For this purpose, a statement in the prescribed form is to be filed with the Administrator of the Fund. The shareholder whose shares are so transferred to the above Fund will have to make a claim for return of such shares with the Administrator of the Fund in the prescribed manner. Draft Rule 8.5 gives detailed procedure for this purpose.
5.3 Investor Education and Protection Fund:
New Section 125, corresponding to existing section 205C provides for establishment of Investor Education and Protection Fund. Central Government is authorised to establish this Fund and prescribe Rules for its administration as provided in section 125. Besides the unclaimed Dividend outstanding for 7 years and shares relating to such dividend, the company has also to transfer the following amounts which have remained unclaimed for 7 years.
(a) Application Money received by the Company for allotment of shares or securities and due for refund.
(b) Matured Deposits due with Interest.
(c) Matured Debentures due with interest.
(d) Sale proceeds of Fractional Shares arising out of issue of Bonus Shares, Merger and Amalgamation.
(e) Redemption amount of Preference Shares remaining unpaid or unclaimed.
Detailed provisions are made in section 125 for administration of “Investment Education and Protection Fund”, investment of funds, return of the funds to claimants and utilisation of surplus funds. Central Government has to prescribe Rules for this purpose. It is also provided that the existing balance in Investor Education and Protection fund created u/s. 205C of the existing Act shall also be transferred to the new fund to be established under new section 125. Further, amounts transferred to the existing fund u/s. 205C (2) (a) to (d) of the existing Act can be refunded to the concerned person according to the Rules to be prescribed under new section 125. Detailed provision is given in Draft Rules 8.6 and 8.7.
5.4 Penalties for Defaults:
(i) If a Company contravenes provisions relating to unclaimed Dividends as stated in section 124, it will be punishable with a minimum fine of Rs. 5 lakh which may extend to Rs. 25 lakh. Similarly every defaulting officer will be punishable with a minimum fine of Rs. 1 lakh which may extend to Rs. 5 lakh.
(ii) If a Company has declared dividend but the same has not been paid or the warrant for the dividend has not been posted within 30 days from the date of declaration, the following penalties can be levied.
(a) Every director who is knowingly a party to the default will be punishable with imprisonment upto 2 years and with minimum fine of Rs. 1, 000/- per day during which such default continues.
(b) The Company will have to pay interest @ 18% p.a. on the dividend amount for the period of delay.
Proviso to section 127 states that under cer-tain circumstances the above penalty under (ii)will not be leviable.
(iii) It may be noted that the above minimum fine is leviable at fixed amount without reference to the amount of dividend in respect of which the default has occurred. To the extent the above penalty provisions are harsh.
(iv) Section 127 has come into force from 12-09-2013.
6. To Sum Up
6.1. The above provisions for Management and Administration of companies in the New Act are more or less on the same lines as the existing provisions of the Companies Act, 1956. These provisions are mostly procedural. The company management will have to comply with the new procedure in the day to day working. Some of the procedures have been streamlined in order to improve Corporate Governance and also to safeguard the interest of the stakeholders.
6.2 The provisions relating to declaration and payment of dividend have also been streamlined under the new Act. In order to protect the interest Fixed Depositors it is now provided that no dividend on equity shares can be declared during the period when default relating to repayment of Fixed Deposit or Interest due continues. However, the minimum fine to be levied for default relating to payment of dividend is fixed without reference to the amount of dividend involved. To this extent the provision is also harsh.
6.3 Taking an overall view of the provisions relating to management and administration of companies under the new Act, including provisions relating to declaration and payment of dividends, acceptance of public deposits and registration of charges it can be stated that these will streamline and simplify the day to day procedural requirements. The officers in charge of the management and administration of companies will have to be vigilant in complying with the new provisions to avoid any defaults. If the new provisions are complied with in the spirit in which they are enacted, the quality of Corporate Governance will improve to a great extent in the coming years.
2013-TIOL-800-ITAT-MUM ITO (TDS) vs. Jet Airways (india) Ltd. ITA No. 7439, 7440 and 7441/Mum/2010 Assessment Years: 2009-10, 2007-08 and 2008-09. Date of Order: 17-07-2013
S/s. 194H, 195(3) and Rule 29B(5) – Section 194H does not apply to amounts retained by bank while making payments to assessee for tickets booked through credit card. Amounts retained by the bank are fees and not commission. Certificates issued u/s. 195(3) are effective for the concerned financial year i.e. from the first day of the financial year and not with effect from the date of issuance thereof.
Facts I:
On 05-01-2009, there was a survey action u/s. 133A of the Act on the assessee. The assessee engaged in the business of aviation i.e. transportation of passengers and goods by air, received payments from banks for tickets booked through credit cards. The assessee received from the banks only the net amounts after retention of service charges. The Assessing Officer (AO) noted that the amounts retained by the banks for the assessment years 2007-08, 2008-09 and 2009-10 was Rs. 1,21,61,091; Rs. 4,23,31,210; and Rs. 18,24,57,871 respectively. The AO rejected the contention of the assessee that the amounts retained by the banks are in the nature of discounting charges in consideration of the immediate payment made by the banks to the assessee. He held that these amounts constituted commission u/s. 194H and since the assessee had not deducted tax on these amounts he held the assessee to be an assessee-in-default and directed the assessee to pay the amount of TDS along with interest u/s. 201(1A) of the Act.
Aggrieved, the assessee preferred an appeal to the CIT(A) who decided the issue in favor of the assessee.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Facts II:
Two banks viz. American Express Bank Ltd. and Citibank NA had obtained from the AO a certificate u/s. 195(3) for receiving payments without deduction of tax at source. The certificate mentioned that it was applicable for the financial year. However, the AO held that the certificate would apply only from the date of its issuance though the specified period mentioned in the certificate is the financial year.
The CIT(A) held that the AO is not justified in applying the certificate from the date of its issuance and bringing to tax the amount retained by the bank to tax for the concerned month by applying the provisions of section 194H of the Act. Aggrieved, the revenue preferred an appeal to the Tribunal.
Held I:
The Tribunal agreed with the contention on behalf of the assessee that the issue is square covered in favor of the assessee by the decision of the Jaipur Bench of the Tribunal in the case of M/s. Gems Paradise vs. ACIT (ITA No. 746/Jp/2011)(AY 2008-09)(order dated 02-12-2012) which was followed by the same bench of the Jaipur Tribunal in Shri Bhandari Jewellers vs. ACIT (ITA No. 746/Jp/2011)(AY 2008-09)(order dated 02- 12-2012). It also observed that similar issue was also considered by the Bangalore Bench of the Tribunal in the case of Tata Teleservices Ltd. vs. DCIT (140 ITD 451)(Bang) which has been decided by following the decision of the Hyderabad Bench of the Tribunal in the case of DCIT vs. Vah Magna Retail (P) Ltd. (ITA No. 905/Hyd/2011)(AY 2007-08)(order dated 10-04-2012) where it has been held that payments made to the banks on account of utilisation of credit card facilities would amount to bank charges and not commission within the meaning of section 194H of the Act.
Following the ratio laid down by these decisions, the Tribunal held that section 194H is not applicable to amounts retained by the bank out of payments made by it to the assessee for tickets booked by credit card.
Held II:
The Tribunal observed that the assessee had filed copies of certificates issued by AO u/s. 195(3)( dated 27-04-2006, 30-03-2007, 31-03-2008 and 31-03-2008 which were addressed to Citibank NA for financial year 2006-07 to 2008-09 respectively. It noted that the said certificates specifically mention that the said bank is authorised to receive the payments, interest without deduction of income-tax u/s. 195(1) in the respective financial years. The Tribunal considered Rule 29B(5) of the Rules and held that the certificates issued u/s. 195(3) of the Act are applicable for the concerned financial years and will not be effective only from the date of issuance thereof. The Tribunal upheld the order of CIT(A) for all the three assessment years.
The appeals filed by the department were dismissed.
2013 (30) STR 609 (Tri-Bang.) Commissioner of Central Excise, Customs & Service Tax, Visakhapatnam vs. R.A.K. Ceramics India Pvt. Ltd.
Transportation of empty containers from CFS to factory of exporter held to be “in relation to export goods” and thus eligible for refund under Notification No.41/2007.
Facts:
A manufacturer of ceramic tiles cleared such goods for export as well as for home consumption. It incurred freight for transport of goods by road which also included transportation of empty containers from CFS to the respondent’s factory and claimed refund vide Notification No. 41/2007–S.T against freight towards export. After allowing the refund claim, the amount representing transportation of empty containers from CFS to the factory was demanded back treating it as erroneous and contending that such services are not for transportation of goods for export.
Facts:
A manufacturer of ceramic tiles cleared such goods for export as well as for home consumption. It incurred freight for transport of goods by road which also included transportation of empty containers from CFS to the respondent’s factory and claimed refund vide Notification No. 41/2007–S.T against freight towards export. After allowing the refund claim, the amount representing transportation of empty containers from CFS to the factory was demanded back treating it as erroneous and contending that such services are not for transportation of goods for export.
Since the services were utilised by them for transportation of goods for exports, it was contended by the assessee that no service tax was payable by them and relied upon the decision of CCE, Madurai vs. Tata Coffee Ltd. [2011 (21) S.T.R. 546 Tri- Chennai].
Held:
Relying on Tata Coffee Ltd. (supra), it was held that the expression used in Notification No. 41/2007 “in relation to transport of export goods” was wide enough to cover event of transport of empty containers from the yard to the factory for stuffing the goods.
[2012] 137 ITD 163 (Panaji) DCIT vs. Jayalakshmi Mahila Vividodeshagala Souharda Sahakari Ltd. AY 2007-08 to 2009-10 Dated: 30th March, 2012
Section 80P and section 5(b), 5(cci) and 5(ccv) of Banking Regulation Act,1959–assessee society engaged in business of providing credit facilities to its members and collecting deposits–section 80P was amended w.e.f. 01-04-2007 and hence AO denied deduction as assessee was a co-operative bank– Held that principal business of assessee was not to accept deposits from the public for the purpose of lending or investment—hence, principal business was not banking business–assessee society entitled to deduction u/s. 80P(2)(a)(i).
Facts:
The assessee-society was engaged in business of providing credit facilities to its members by granting loans for various purposes. It also collected deposits. It availed deduction u/s. 80P. However, section 80P was amended w.e.f. 01-04-2007 whereby s/s. (4) was introduced which denied the deduction u/s. 80P to co-operative banks (other than primary agricultural credit society or a primary rural development bank). The AO denied deduction to assessee holding assessee as being a co-operative bank. The CIT(A) allowed deduction to assessee.
Held:
As per explanation to s/s. (4) of 80P, co-operative bank as defined in section 5(cci) of the Banking Regulation Act, 1959 means a state co-operative bank, a central co-operative bank and a primary cooperative bank. Assessee is not a state or central co-operative bank. The primary co-operative bank as defined in section 5(ccv) means a co-operative society (other than agricultural credit society) (1) the primary object or principal business of which is transaction of banking business, (2) the paid-up share capital and reserves of which are not less than one lakh of rupees and (3) the bye-laws of which do not permit admission of any other co-operative society as a member. The conditions No. (2) and (3) are applicable to assessee.
Banking business as defined u/s. 5(b) means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.
Going through the aims and objects of the assessee society, it is observed that none of the aims and objects allows the assessee to accept deposits of money from the public for the purpose of lending or investment. The assessee is therefore held as not to be a primary co-operative bank and in consequence thereof, it cannot be a co-operative bank as defined in the Banking Regulation Act, 1949. Thus the assessee is entitled to deduction u/s. 80P.
The new contact numbers for the DIN cell and Help desk No. for the MCA w.e.f. 17.01.2013 are
Form 68 for rectification of mistakes in Form 1, Form 1a and Form 44
The Ministry of Corporate Affairs has, vide circular No. 42/2012 dated 21st December 2012, notified that w.e.f 23.12.2012, for a period of 180 days, from that date. Form 68 may be filed with a fee of Rs. 1000/- for Form 1 and IA, and Rs. 10000/- for Form 44 to rectify the mistakes made during the filing of such forms even prior to year 2009. Earlier, this form could only be filed for mistakes to be rectified with 365 days from date of approval of the said forms by the Registrar concerned.
NOC for registration of companies or LLP’s for professional work
Vide circular No. 40/2012 dated 17th December 2012, the Ministry of Corporate Affairs has directed that in case of registration of companies or LLP’s where one of the objects is to carry on the profession of Chartered Accountant, Company Secretary, Cost Accountants, Architect etc. NOC from the concerned regulator, the approval of the council/regulators governing the profession shall be obtained both at the time of application for incorporation and while seeking to change the name of the existing LLP.
2013 (30) S.T.R. 454 (Delhi) Sercon India Pvt. Ltd. vs. Commissioner (Adjudication) Service Tax
No service tax on amount received by service receiver towards reimbursement of expenses – Intercontinental Consultants relied upon.
Facts:
The revenue imposed service tax on the reimbursed expenses of Rs. 37.55 crore received by the petitioners against which the CESTAT granted partial relief to the petitioner with regard to amount of pre-deposit. The petitioner filed a writ petition before the High Court for waiver of deposit of the balance amount and submitted before the Hon’ble Court that, he had only received a sum of Rs. 14.22 crore by way of reimbursement for expenses incurred by it. The petitioner further referred to Intercontinental Consultants & Technocrats Pvt. Ltd. vs. Union of India 2013 (29) S.T.R. 9 (Del) wherein Rule 5(1) relating to reimbursement of expenses was held to be ultra-vires the provisions of section 67 of the Act.
Held:
Referring to International Technocrats Pvt. Ltd. (supra), it was held that the amount of Rs. 14.22 Crores actually received by the petitioner towards reimbursement of expenses could not be a subject matter of service tax and the petition was allowed.
Precedent – Pendency of appeal before High Court against Larger Bench decision of Tribunal – Cannot be a ground for not following the larger bench decision
Commissioner of Central Excise, Thane I vs. Amber Processors 2012 (286) ELT 24 (Bom.)
The Tribunal relying upon the Larger Bench decision of the Tribunal in the case of Commissioner of Central Excise, Meerut – II vs. Bhushan Steel and Strips Ltd., reported in 2000 (119) ELT 293 (Tribunal – LB) had restored the matter to the file of the Adjudicating Authority for fresh decision. The fact that the appeal filed by the Revenue against the Larger Bench decision of the Tribunal is pending before the High Court could not be a ground for not following the larger bench decision of the Tribunal. The appeal was dismissed.
2013 (31) STR 229 (Tri-Mumbai) Greenspan Agritech Pvt. Ltd. vs. Commissioner of C. Ex, Pune-I
Refund Notification No.17/2009-ST dated 07-07-
2009 providing time limit of one year from date pf export did not have
retrospective effect.
2009 providing time limit of one year from date pf export did not have
retrospective effect.
Facts:
The appellant, a
100% EOU, filed a refund claim for the period October 2007 to February
2008 on 18-1-/2008 under Notification No.41/2007-ST dated 06-10-2007
which was partly rejected on the grounds of limitation and partly as not
admissible under the said notification.
The appellant contended
that since the notifications were amended time to time increasing the
period to file the refund claim from “2 months” to “6 months” vide
Notification No.32/2008-ST dated 18-11-2008 and further to “1 year” vide
Notification No.17/2009-ST dated 07-07-2009, they filed the refund
claim in time and further relied on ITW Signode India Ltd. vs. Collector
of Central Excise 2003 (158) ELT 403 (SC).
The department
contended that the part refund was time–barred as filed beyond the
admissible period of 6 months as per Notification No.32/2008 and thus
not to be allowed.
Held:
The Hon. Tribunal held that
undisputedly the refund claim was filed beyond the period of “6 months”.
The amending notification was issued after the event of the date of
export and hence, the same was time-barred. The decision of ITW Signode
India Ltd. (supra) is irrelevant in the present case as the issue
involved is the claim of benefit of notification which was required to
be strictly construed and thus time-barred.
2013 (31) STR 249 (Tri-Mumbai) Amdocs Business Services Pvt. Ltd. vs. Commissioner of C. Ex., Pune.
In case of a continuous exporter of a taxable output service, credit for input service is available, irrespective of the period to which the service pertained.
Facts:
The Appellant was a continuous exporter of taxable output services and thus filed a refund claim under Rule 5 for the period October 2010 to December 2010 for unutilised service tax paid on input services. The adjudicating authority rejected part refund of invoices for the period September 2008 to November 2008 and October 2009 to January 2010.
The department relied on Notification No.05/2006– CE (NT) dated 14-03-2006 and contended that since the services in respect of which credit was taken could not have been used for the export in the month of October 2010, refund was not admissible.
The Appellant relied on Circular No. 120/01/2010 dated 19-01-2010 and on the decision of CCE, Mysore vs. Chamundi Textiles (Silk Mills) Ltd. 2012 (26) STR 498 (Tri-Bang) and contended that there was no bar in Notification No.05/2006-CE (NT) to grant refund of input services not pertaining to the period of export for which claims were made.
Held:
Relying on Circular No.120/01/2010 dated 19-01-2010 and on Chamundi Textiles (Silk Mills) Ltd. (supra), the Hon. Tribunal held that since the Appellant was a continuous exporter of taxable output service, they were eligible for the refund of the entire amount of service tax paid by them on the input services irrespective of when the credit was taken.
S/s. 2(15), 12A, 12AA(3) – In proceedings u/s. 12AA(3) it is not open to the DIT(E) to re-examine the objects of the trust to see if the same were charitable in nature.
9. 2013-TIOL-256-ITAT-BANG
Kodava Samaj vs. DIT(e)
ITA No. 200/Bang/2012
Assessment Year: 2009-10.
Date of Order: 08-02-2013
Kodava Samaj vs. DIT(e)
ITA No. 200/Bang/2012
Assessment Year: 2009-10.
Date of Order: 08-02-2013
S/s. 2(15), 12A, 12AA(3) – In proceedings u/s. 12AA(3) it is not open to the DIT(e) to re-examine the objects of the trust to see if the same were charitable in nature.
Facts
The assessee, a society registered under the Societies Registration Act, was granted certificate of registration u/s. 12A vide order dated 27-06- 1980. As per the Memorandum of Association, the main objects for which the assessee was formed were to preserve, protect and maintain, the traditional customs, culture, heritage and language of the Kodavas; to promote and advance the social, cultural, economic, educational, physical and spiritual progress and development of the members of the Samaja; etc. The DIT(E), in view of the proviso to section 2(15) which came into effect from 01-04-2009, was of the view that the certificate of registration granted to the assessee u/s. 12A should be cancelled by invoking the provisions of section 12AA(3), because, according to him, the assessee society was carrying on activity in the nature of trade, commerce or business. He held this view for the reason that the assessee was running schools & colleges but its predominant object was not education. Also, the assessee was running a recreation club having a liquor bar and provided tables for playing cards. He held that such activities cannot be called “charitable”. He also held that the assessee cannot take the plea that it is a charitable organisation since it is running a school and surplus, if any, generated from other activities is utilised for the development of education. For these reasons, the DIT(E) cancelled the registration by passing an order u/s 12AA(3).
The assessee, a society registered under the Societies Registration Act, was granted certificate of registration u/s. 12A vide order dated 27-06- 1980. As per the Memorandum of Association, the main objects for which the assessee was formed were to preserve, protect and maintain, the traditional customs, culture, heritage and language of the Kodavas; to promote and advance the social, cultural, economic, educational, physical and spiritual progress and development of the members of the Samaja; etc. The DIT(E), in view of the proviso to section 2(15) which came into effect from 01-04-2009, was of the view that the certificate of registration granted to the assessee u/s. 12A should be cancelled by invoking the provisions of section 12AA(3), because, according to him, the assessee society was carrying on activity in the nature of trade, commerce or business. He held this view for the reason that the assessee was running schools & colleges but its predominant object was not education. Also, the assessee was running a recreation club having a liquor bar and provided tables for playing cards. He held that such activities cannot be called “charitable”. He also held that the assessee cannot take the plea that it is a charitable organisation since it is running a school and surplus, if any, generated from other activities is utilised for the development of education. For these reasons, the DIT(E) cancelled the registration by passing an order u/s 12AA(3).
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held
The Tribunal noted that the power to cancel registration already granted u/s. 12AA of the Act is contained in section 12AA(3) of the Act which states that the registration which has already been granted can be cancelled only in two situations mentioned in the section viz. (i) that the activities of the trust or institution are not genuine; and (ii) the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution. The Tribunal noted that there is no finding in the order of DIT(E) on the satisfaction of any of the two conditions mentioned in section 12AA(3). The Tribunal observed that from the facts noted by DIT(E) it does not follow that the activities of the trust are not genuine or that the activities are not being carried out in accordance with the objects. It also noted that the second proviso to the definition of “charitable purpose” provides that even if there are receipts from commercial activities below Rs. 25 lakh, it will still be considered to be a “charitable purpose”. It held that it is not open to the DIT(E) in an action u/s. 12AA(3) of the Act to examine the objects of the trust to see if the same were charitable in nature. That has already been done when registration was granted to the assessee u/s. 12AA(1) of the Act. It is not open to the DIT(E) to re-examine the objects of the trust in proceedings u/s. 12AA(3) of the Act. It noted that this proposition is supported by the following decisions, relied upon by the assessee –
(i) CIT v Sarvodaya Ilakkiya Pannai 343 ITR 300 (Mad)
(ii) Chaturvedi Har Prasad Educational Society v CIT 46 DTR (Lucknow)(Trib) 121
(iii) Bharat Jyoti v CIT 63 DTR (Lucknow)(Trib) 409. (iv) Karnataka Badminton Association v DIT(E) ITA No. 1272/Bang/2011, order dated 22.11.2012
The Tribunal quashed the order passed by DIT(E) u/s. 12AA(3).
2013 (31) S.T.R. 152 (Tri.-Del) Om Shiv Transport vs. Commissioner of Central Excise, Allahabad
Whether service tax can be demanded from service provider under one service and from service recipient under another service for the same transaction?
Facts:
The Appellants were engaged in transportation of coal in tipping trucks from coal stockyard of Northern Coal Fields Ltd. (NCL) including loading of coal into tipping trucks and railway wagons by employing their own pay loaders apart from manual breaking of coal to the stipulated sizes. The revenue demanded service tax on this considering it a cargo handling service.
The Appellants, relying on Circular No. 137/175/2007- CX4 dated 06-08-2008, contended that the services were in the nature of transport of goods by road. In respect of the same transaction, NCL was assessed to service tax as recipient of service of transport of goods by road vide adjudication order dated 09-01-2008. Invoking extended period of limitation was not warranted since the transaction was already adjudicated against NCL.
Held:
Relying on the decision of the Orissa High Court in case of Coal Carriers vs. CCE 2011 (24) STR 295 (Ori), the Tribunal held that the goods become cargo when loaded into a railway wagon/truck/ tipper and that there is a distinction between goods and cargo. Services in respect of goods were leviable to service tax under transport of goods by road services and services in respect of cargo were leviable to service tax under cargo handling services and thus, the Appellant’s services would fall under cargo handling services. However, the adjudication order did not consider certain aspects and the matter was remanded to consider the applicability of extended period of limitation in lieu of the transactions having been noticed by the revenue qua notice issued to NCL and whether service tax could be assessed once again on the same transaction under cargo handling services in the hands of the Appellants when it was already classified as transport of goods by road and service tax was collected from NCL as recipient of services.
2013 (31) STR 174 (Tri-Del) Narayan Builders vs. Commissioner of Central Excise, Jaipur.
In case of conflicts between two High Courts, the decision of the High Court in whose jurisdiction the cause of action arose is to be followed.
Facts:
The Appellants entered into an agreement with Kota Thermal Power Station (KTPS) for execution of works for coal handling system including clearing under coal handling operation circle.
In view of the clarification issued in the Regional Advisory Committee meeting on 06-09-2004, the revenue contended to levy tax on the said activity under cargo handling services. The department further relied on the decision of Coal Carriers vs. CCE 2011 (24) STR 395 (Ori.) which held such service to be taxable.
The Appellants relied on various judgments of the Delhi Tribunal and Rajasthan High Court decision in case of S. B. Construction Company vs. Union of India 2006 (4) STR 545 (Raj.) wherein the activity of the Appellants were held not to be cargo handling services u/s. 65(23) of the Finance Act, 1994.
Held:
The Hon. Tribunal at New Delhi which was neither in the jurisdiction of the Rajasthan High Court nor the Orissa High Court. The tribunal relied on the Full Bench decision of Delhi Tribunal in Madura Coats vs. CCE 1996 (82) ELT 512 which clarified that in case of conflicting decisions amongst High Courts relating to interpretation of statutory provisions or notifications, the decision of the jurisdictional High Court from where the matter was adjudicated earlier, must be followed.
Accordingly, since the cause of action had arisen within the jurisdiction of the Rajasthan High Court and the Appellants were assessed to service tax by Jurisdictional Commissioners and the Appellate Commissioner within the territorial jurisdiction of Rajasthan High Court, the Tribunal followed the decision of Rajasthan High Court in case of S. B. Construction (Supra) and decided the matter in favour of the Appellants.
Joint property – Preference of succession – Death of co-owner issueless: Hindu Succession Act 1956, section 8 & 9
Mangala & Anr vs. Dhuruwa & Other AIR 2013 Chhattisgarh 5
The late Seera Singh had three sons, namely;
(a) Amru- wife Soniya
(b) Chiter Singh – wife Hirabai
(c) Shriram – Daughter Kevrabai
According to the appellants/plaintiffs, the defendant – Dhuruwa had no title over the undivided property of late Seera Singh. They had further pleaded that Dhuruwa had taken possession of 5.55 acres of land and was attempting to take possession of the entire property. It was also pleaded that Dhuruwa was not the son of Kewrabai, therefore, he was not entitled to any share in the property and that the will executed in his favour was forged and fabricated.
According to the defendants, Amru (son of late Seera Singh) had died prior to coming into force of Hindu Succession Act, 1956 leaving no male descendant. His widow – Soniabai was only having limited interest in the property and was only entitled to be maintained out of the corpus of Hindu Undivided Family property. After the death of Amru, his share in the property devolved upon surviving sons of late Seera Singh, namely, Chiter Singh and Shriram. Chiter Singh died issueless, and therefore, his undivided share in the property devolved upon Shriram and thus Shriram became full owner of the entire property. Kewrabai was the daughter of Shriram and was married to one Shyam Ratan by custom of ‘Chudi’. Prior to her Chudi marriage with Shyam Ratan, her marriage was solemnised with Shiv Prasad. Out of wedlock with Shiv Prasad, she had a daughter – Santrabai and Santrabai was blessed with a son, namely, Hemal. Kewrabai had executed a will in favour of defendant No. 1 – Dhuruwa. The Honourable Court observed as per Section 9 of the Act of 1956, among the heirs specified in the Schedule, those in class-I shall take simultaneously and to the exclusion of other heirs; those in the first entry in class-II shall be preferred to those in the second entry, those in the second entry shall be preferred to those in the third entry, and so on in succession.
Admittedly, Chiter Singh left behind only two heirs, one Soniyabai, widow of his brother – Amru and Shriram, i.e., his brother. Both were class-II heirs. Brother’s name finds place in the second entry whereas the name of brother’s widow finds place in sixth entry. As per section 9 of the Act of 1956, heirs in the first entry in class-II shall be preferred to those in the second entry; those in the second entry shall be preferred to those in the third entry and so on in succession. Therefore, the share of Chiter Singh in the property, after his death, would devolve upon only in favour of Shriram, and not in favour of Soniyabai.
Admittedly, Kewrabai was only class-I legal heir of Shriram. After his death, Shriram’s 2/3rd share in the property, being only class-I legal heir of late Shriram, would devolve solely upon her. Kewrabai had executed a Will in favour of the respondent No. 1 – Dhuruwa, which was found to be duly proved by both the Courts below, therefore, after her death, the property in the hands of Kewrabai would devolve upon Dhuruwa and Dhuruwa became co-owner of the property to the extent of 2/3rd share, i.e., share of Shriram in the joint property. Kewrabai, being the only heir of Shriram, was competent to dispose of her 2/3rd undivided interest in the property, as per section 30 of the Act of 1956, even to the exclusion of her legal heir.
2013 (31) STR 123 (Tri – Delhi) VGL Softtech Ltd. vs. CCEx, Jaipur.
Only a Division Bench can decide the matter involving determination of liability?
Facts:
Appellant preferred an appeal along with stay application against an order of Respondent levying service tax on activity of maintenance of software for the period 09-07-2004 to 30-07-2005. A Single Member Bench decided exparte on non-appearance and directed the Appellant to deposit the entire demand along with penalty within 8 weeks. The Appellant filed a Miscellaneous Application to recall the order of the Single Member indicating that the jurisdiction of the division Bench was exercisable in the present case. On merits, the Appellant contended that the said activity was exempt vide Notification No. 20/2003-ST dated 21-08-2003 and since Explanation to section 65(zzg) [which levied service tax on software maintenance] was introduced from 01-06-2007 onwards, service tax was not applicable prior to the said date.
Held:
The Hon. Tribunal (division Bench) held that, since the Central Excise Act required the appeal involving a question of determination of liability to be heard by the division Bench, the order of Single Member Bench was recalled. On Merits, it was observed that at relevant time the said activity was exempt vide Notification No. 20/2003 and further an Explanation to section 65(zzg) was effective only from 01-06-2007. Accordingly, the stay application and appeal were allowed.
2013-TIOL-1196-CESTAT-DEL Monsanto Manufacturer Pvt. Ltd. vs. Commissioner of Central Excise, Ghaziabad.
Classification of service – essential character. Storage Charges integral part of Clearing and Forwarding Service, hence taxable under Clearing and Forwarding Service and not under Storage and Warehousing Service.
Facts:
The Appellant entered into an agreement with HLL to provide services of cold storage/clearing and forwarding operations of frozen products. Tax, interest and penalties were demanded for the said service which was confirmed by the adjudicating authority and also by the Commissioner (Appeals).
The Appellant contended that charges towards cold storage facility were distinct and different from holding of the goods which may take place during clearing and forwarding operation and were in the nature of rental for providing cold storage facility and thus incidental to the services of Clearing and Forwarding Services. Relying on CCE vs. Kulcip Medicines (P) Ltd. – 2009 (14) STR 608, they contended that the activity did not fall under C&F service. The respondents contended that the Appellant acted as a consignment agent and thus, activity of storage was an integral part of the operation of Clearing and Forwarding service.
Held:
Referring to the definition of Clearing and Forwarding service and the agreement entered by the Appellant, it was held that the Appellant was its principal’s agent. Since, the Appellant was required to maintain specific temperature for storage of frozen goods before dispatching the same as per direction of HLL, the storage of the goods in cold storage was an inseparable part of Clearing & Forwarding activity undertaken by the assessee. The essential character being Clearing and Forwarding service, referring to section 65A(2)(b), the storage charges were to be included in the taxable value and chargeable to service tax.
2013-TIOL-1054-CESTAT-MUM M/s. Kotak Securities Ltd. vs. Commissioner of Service Tax, Mumbai-I.
Service tax is payable on equity research as market research agency.
Facts:
The
Appellant conducted equity research and prepared research reports on
the financials of listed companies for their affiliate company M/s.
Kotak Mahindra Capital Company Ltd. (KMCC) and received research fees on
which no service tax was paid. An SCN demanding tax, interest and
penalties was issued to the Appellant under the category “Market
Research Services”.
The Appellant contended that they did not
provide any services in relation to product, service or utility and thus
non-taxable under the said category. It further contended that no
service was provided by them to KMCC as it was under common shareholding
of the Kotak Mahindra Group. Further, placing reliance on Circular
No.109/3/2009- ST dated 23-02-2009, it was contended that the Appellant
and KMCC jointly provided services to clients on a cost/revenue sharing
basis, and thus out of tax net.
Held:
Ordering the pre-deposit of 50% of the dues confirmed, the Hon. Tribunal observed as follows:
•
The Appellant did not produce any evidence to prove that the amount
shown under “Fee Income/Research Fees Received” in its Profit & Loss
Account was for services other than “Research Activities” undertaken
for KMCC.
• In respect of sharing of expenses not to be
considered as consideration; when a service provider charges a
consideration, he takes into account all the expenses incurred by him
and includes an element of profit. Thus, expenses were an integral part
of the consideration charged. That would not mean that the amount
received is not a consideration for the services rendered. Service tax
was a tax on provision of service and hence, whatever amount was charged
for such provision, service tax was payable, irrespective of whether
any profit was made by the service provider in the said transaction.
•
It was not in dispute that the Appellant conducted equity research and
prepared reports on the financials of the listed companies. Equities
would come under the categories of products and were considered as goods
under the Sale of Goods Act, 1934. Therefore, research on equity was a
product research. Referring to the definition of Market Research Agency
u/s. 65(69), the activity undertaken by the Appellant would fall within
its scope and accordingly, the Appellant was, prima facie, liable to pay
service tax on the said activity.
• The Appellant informed the
department of the activities undertaken by them only in March 2004 and
September 2004 and SCN was issued in March 2005. It was the date of
knowledge that was relevant for computing the time limit and thus the
SCN was not held time barred.
2013 (31) STR 227 (Tri.-Del) Paharpur Cooling Towers Ltd. vs. Commissioner of C. Ex. Raipur
Free supplied materials includible in the valuation of taxable services vide Circular No. 80/10/2004- ST dated 17-09-2004 read with Notification No. 15/2004-ST dated 10-09-2004.
Facts:
The appellant did not include the value of free supplied materials in the gross amount of taxable services and claimed abatement under commercial or industrial construction vide Notification No. 15/2004-ST dated 10-09-2004. The appellant further did not pay service tax on advances received and also availed the benefit of CENVAT credit.
Facts:
The appellant did not include the value of free supplied materials in the gross amount of taxable services and claimed abatement under commercial or industrial construction vide Notification No. 15/2004-ST dated 10-09-2004. The appellant further did not pay service tax on advances received and also availed the benefit of CENVAT credit.
The department contended that in view of the said notification read with Circular No. 80/10/2004-ST dated 17-09-2004, tax was to be levied on value addition and thus free supplies would be included in the valuation of taxable services. Further, service tax on advance received should also have been paid and CENVAT disallowed.
Held:
The Hon. Tribunal dismissing the appeal in totality held as below:
• The adjudicating authority rightly decided the issue against the appellant with respect to free supplied materials following the taxation of incremental value principle and thus, liable to tax.
• The consideration received before, during and after providing taxable services is leviable to service tax and thus, advance was also liable to tax.
• Since there was no taxability, admissibility of CENVAT credit did not arise.
• Section 73 of the Finance Act, 1994 was rightly invoked since the appellants did not claim abatement in accordance with law.
Section 271(1)(c) – Penalty cannot be levied when the dispute is not about the genuineness of the expenditure or the bonafides of the claim but only about the year of its allowability.
8. 2013-TIOL-265-ITAT-MUM
Silver Land Developers Pvt. Ltd. vs. ITO
ITA No. 8444/Mum/2010
Assessment Year: 2005-06.
Date of Order: 08-03-2013
Silver Land Developers Pvt. Ltd. vs. ITO
ITA No. 8444/Mum/2010
Assessment Year: 2005-06.
Date of Order: 08-03-2013
Section 271(1)(c) – Penalty cannot be levied when the dispute is not about the genuineness of the expenditure or the bonafides of the claim but only about the year of its allowability.
Facts
The assessee company was engaged in the business of development of land and construction of buildings. In the course of assessment proceedings the assessee was confronted with certain expenses claimed by it in the return of income which were incurred in relation to projects which have not yet commenced and not in relation to the project whose income was offered for taxation. Upon being so confronted the assessee revised its return of income, though the revision was beyond the time limit prescribed in section 139, and disallowed a sum of Rs. 31,58,467. The AO, however, further found certain other expenses amounting to Rs. 6,47,000 which were not related to the project of the assessee in respect of which profits were offered for taxation but were relating to a project which had not yet commenced. The AO, disallowed Rs. 6,47,000 on account of expenses relating to project not yet commenced. He also initiated penalty proceedings. The CIT(A) confirmed the disallowance in quantum proceedings. The AO levied penalty in respect of total disallowance of Rs. 38,05,470 made on account of expenses relating to projects yet to be commenced by holding that the assessee has furnished inaccurate particulars of income.
The assessee company was engaged in the business of development of land and construction of buildings. In the course of assessment proceedings the assessee was confronted with certain expenses claimed by it in the return of income which were incurred in relation to projects which have not yet commenced and not in relation to the project whose income was offered for taxation. Upon being so confronted the assessee revised its return of income, though the revision was beyond the time limit prescribed in section 139, and disallowed a sum of Rs. 31,58,467. The AO, however, further found certain other expenses amounting to Rs. 6,47,000 which were not related to the project of the assessee in respect of which profits were offered for taxation but were relating to a project which had not yet commenced. The AO, disallowed Rs. 6,47,000 on account of expenses relating to project not yet commenced. He also initiated penalty proceedings. The CIT(A) confirmed the disallowance in quantum proceedings. The AO levied penalty in respect of total disallowance of Rs. 38,05,470 made on account of expenses relating to projects yet to be commenced by holding that the assessee has furnished inaccurate particulars of income.
Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the levy of penalty.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held The Tribunal noted that the genuineness of the expenditure was not doubted by the AO and there was nothing in the orders of the lower authorities to doubt the bonafides of the assessee in claiming the said expenses as per the practice consistently followed. All the material particulars relating to the claim were furnished by the assessee and there was no allegation by the AO that such particulars were found to be incorrect or inaccurate. The Tribunal noted that the Supreme Court has in the case of Reliance Petro Products Ltd. observed that mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee and merely because the assessee’s claim has not been accepted, penalty cannot be attracted specially when there is no allegation that any particulars filed by the assessee in relation to his claim were found to be incorrect or inaccurate. The Tribunal noted that the dispute was only relating to the year in which the said expenses are allowable and not about the very deductibility of the expenses as the genuineness was not doubted at any stage. Considering all these facts, the Tribunal held that the penalty cannot be levied. The Tribunal cancelled the penalty levied by the AO and confirmed by the CIT(A).
The appeal filed by the assessee was allowed.
Sections 50C , 55(2)(b), 251(1)(c): Fair Market value as on 1st April 1981 should be adopted as cost of acquisition while computing the capital gains during the course of assessment even when the assessee has not filed a revised return for the said claim.
7. (2011) 133 ITD 172 (Mum)
Mrs. Gopi Shivani vs. ITO
A.Y 2005 -06
Dated: 30-11-2010
Mrs. Gopi Shivani vs. ITO
A.Y 2005 -06
Dated: 30-11-2010
Sections 50C , 55(2)(b), 251(1)(c): Fair Market value as on 1st April 1981 should be adopted as cost of acquisition while computing the capital gains during the course of assessment even when the assessee has not filed a revised return for the said claim.
Facts
The assessee had sold office premises for a consideration of Rs. 21,00,000/-. While computing the capital gains for his return of income the assessee had taken the cost as on 1st September 1968 as the cost of acquisition i.e the original cost for which property was acquired.
The assessee had sold office premises for a consideration of Rs. 21,00,000/-. While computing the capital gains for his return of income the assessee had taken the cost as on 1st September 1968 as the cost of acquisition i.e the original cost for which property was acquired.
During the course of assessment the A.O replaced the full value of consideration with the stamp duty value (i.e Rs. 42, 27,104) of the property for the purpose of section 50C .
The assessee then submitted a valuation report stating the value as on 01-04-1981 as Rs. 3,80,000. He filed a revised calculation of capital gains claiming indexed cost of acquisition to be Rs. 18,40,000.
The A.O rejected the claim on the ground that no revised return had been filed. The CIT(A) upheld the order of the A.O and rejected the claim of the assessee.
Aggrieved, the assessee filed an appeal to the Honourable ITAT.
Held
Section 55(2)(b) permits the assessee to adopt either the cost of acquisition or the fair market value as on 01-04-1981. The A.O chose to modify the capital gains calculation by replacing the full value of consideration with the stamp duty value ignoring the fact that the assessee had invested more than the capital gains derived in the NABARD bonds taking the original cost of acquisition.
Since the value under 50C was being increased and the capital gains sought to be reworked, the assessee chose to exercise the option given in the Act to adopt the fair market value. The A.O has not rejected the valuation by the registered valuer.
Thus, A.O had erred in not considering the claim of the assessee even without a revised return. Also CIT(A) had erred in not considering the claim of the assessee which is a legally permissible claim as per Section 251(1)(C) which empowers him to dispose of the appeal by passing any order as he deems fit.
2013 (31) STR 226 (Tri.-Del.) Jai Shree Road Lines vs. Commissioner of Central Excise, Jaipur-II
IConsideration of services is liable to service tax and not sharing thereof.
Facts:
The appellant already deposited service tax on consideration towards GTA services. On sharing such consideration with the truck owners the department demanded service tax considering the same as commission received from providing business auxiliary services.
Held:
Considering the basic principle that only the consideration for services provided, and not appropriation of income, is liable to service tax under Finance Act, 1994, the appeal was decided in favour of the appellant.
2013 (31) STR 251 (Tri-Ahmd) Aakash The Place To Celebrate vs. Commr. Of S. T., Ahmedabad.
Service tax paid on advance money received. Amount refunded along with service tax, – Rule 6(3) of Service Tax Rules applicable and not section 11B, hence credit claimed without time limit.
Facts:
The appellant collected advance from its clients and paid service tax on the same. Due to unforeseen circumstances, they refunded the advances along with service tax. The appellant filed a refund claim of which part amount was rejected on the grounds of time bar u/s. 83 of the Finance Act, 1994 read with section 11B of the Central Excise Act, 1944.
The appellant contended that, in the present case, Rule 6(3) of the Service Tax Rules, 1994 was applicable and thus they were eligible to avail credit of service tax paid by them since they have refunded the amount along with service tax to their clients.
The department contended that the amount was collected as service tax and deposited with the Government. Further, placing reliance on the Tribunal’s decision in case of Gujarat Road Transport Corporation, they contended that once the provisions of section 11B were invoked, the refund claim was to be filed within 1 year from the relevant date.
Held:
Citing Rule 6(3) of the Service Tax Rules, 1994, the Tribunal held that the present case was covered by Rule 6(3) since all the conditions mentioned in the said Rule were satisfied. The Tribunal further observed that the appellant was again carrying on the same business and the appellant could utilise the credit of such excess service tax paid. Rule 6(3) of the Service Tax Rules, 1994, does not prescribe any time limit and therefore, the appellant could avail the total credit of such excess service tax paid for discharging subsequent service tax liability.
2013 (31) STR 77 (Tri-Delhi) CCEx, Chandigarh vs. Facinate Advertising & Marketing.
Incentives received in the course of advertising services – Not taxable. Bad debts and discounts are deductible for payment of service tax.
Facts:
The Revenue challenging the decision of CCE (Appeals) contended that incentives received by an advertising agency, bad debts and cash discounts were taxable and thus to be included in the taxable value.
Held:
The Hon. Tribunal dismissing the appeal held that incentive was a receipt for appreciation of performance of services which was not known while providing the said service. Bad debts were on account of non-receipt of consideration and, similarly cash discounts were also not received. Thus, they do not enter into the realm of receipt of consideration to be included in the taxable value.
(Note: The period in dispute appears to be pertaining prior to the introduction of Point of Taxation Rules, 2011).
Penalty: Section 271(1)(c): Short term capital gains assessed as business income: Penalty u/s. 271(1)(c) not justified:
CIT vs. Amit Jain; 351 ITR 74 (Del):
The assessee had declared an income of Rs. 2,60,73,558/- from short term capital gains in the return of income. The Assessing Officer assessed it as income from business. He also levied penalty of Rs. 58,45,899/- u/s. 271(1)(c). The Tribunal deleted the penalty.
On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:
“i) The amount in question, which formed the basis for the Assessing Officer to levy penalty, was in fact truthfully reported in the return. In view of this circumstance, that the Assessing Officer chose to treat the income some other head could not characterise the particulars reported in the return as “inaccurate particulars” or as suppression of facts.
ii) Therefore, the Tribunal was not in error in deleting the penalty.”
Export profit: Deduction u/s. 80HHC: A. Y. 2003-04: Computation: Scrap is by-product of manufacturing activity: There were no expenses which could be excluded from sale of scrap:
R. N. Gupta Co. Ltd. vs. CIT; 213 Taxman 85(P&H): 30 Taxman.com 424 (P&H):
The assessee is engaged in manufacturing of goods for export. In the process of manufacturing, the scrap is generated, which is a by-product of manufacturing activity. The assessee included the receipts on sale of scrap as business income for computing the deduction u/s. 80HHC of the Income-tax Act, 1961. The Assessing Officer rejected the claim for deduction in respect of scrap sales. The CIT(A) allowed the assessee’s appeal and also held that no expenditure is incurred in generation and sale of scrap. Accordingly, the whole of the sale proceeds was includible in the business profit. The Tribunal held that only the profit on sale of scrap is includible and estimated such profit at 7.5%.
On appeal by the assessee, the Punjab and Haryana High Court held as under:
“i) Mr. Katoch, learned counsel for the revenue has argued that the scrap value has to be included in the total turn-over but cannot be included in business profit as only the profit after deducting the expenses of generation of scrap can be added in the business profit.
ii) We find that the argument raised by Mr. Katoch is wholly untenable. The expenditure is incurred by the assessee not for generation of the scrap but for generation of the finished product. There is and cannot be any expenses which are incurred for generation of scrap. Scrap is by-product of the manufacturing activity. Therefore, there are no expenses which could be excluded from the sale of scrap.
iii) Since the question of law stands answered by this Court in favour of assessee in the above mentioned judgments, therefore, the first substantial question of law is answered in favour of the assessee and against the Revenue.”
Educational Institution: Exemption u/s. 10(23C) (vi): A. Y. 2011-12: Institution should exist wholly for education: Government grant, incidental surplus, upgrading facilities of college including for purchase of library books and improvement of infrastructure: Not a ground for denial of exemption:
Tolani Education Society vs. DDIT(Exemption); 351 ITR 184 (Bom):
The assessee, an educational institution, made an application for approval for exemption u/s. 10(23C) (vi) of the Income-tax Act 1961. The Chief Commissioner rejected the application on the ground that the assessee was in receipt of the Government grant which formed a substantial part of the total receipt and, consequently, the case of the assessee would not fall within the purview of section 10(23C)(vi) for the reason that an institution which is wholly or substantially financed by the Government falls within the ambit of sub-clause (iiiab). Sub-clause (vi) applies to those institutions which do not fall within the ambit of sub-clause (iiiab) or sub-clause (iiiad). He was of the view that an institution which was in receipt of substantial grants from the Government would consequently not fall within the ambit of sub-clause (vi). The Chief Commissioner held that the fees which were collected by the assessee for the year ending 31-03-2011, would indicate that the assessee did not exist solely for educational purposes. He had also noted that the assessee had collected from students utility fees, project work fees, industrial visit fee and a magazine fee from which it was sought to be deduced that the assessee did not exist solely for educational purposes. Moreover, there was an increase in the asset base with the generation of surplus which indicated that the activities of the assessee were not devoted solely for educational purposes.
The Chief Commissioner held on that basis that the assessee existed for the purposes of profit. The Bombay High Court allowed the writ petition challenging the order and held as under:
“i) The Income-tax Act, 1961, does not condition the grant of an exemption u/s. 10(23C) on the requirement that a college must maintain the status quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption u/s. 10(23C).
ii) Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The provisions of section 10(23C) cannot be interpreted regressively to deny exemptions.
iii) Though the Chief Commissioner inquired into the question for the purposes of his determination under sub-clause (vi) of section 10(23C), the requirement that an institution must exist solely for educational purposes and not for the purposes of profit is common both to sub-clause (iiiab) as well as sub-clause (iiiad). Hence, the grievance of the assessee was that while on the one hand the Chief Commissioner had held that sub-clause (vi) would not be applicable to an institution which was in receipt of substantial grants from the Government (such an institution being governed by sub-clause (iiiab)), at the same time, the finding that the assessee did not exist solely for educational purposes and not for the purposes of the profit would, in effect, not merely lead to the rejection of the exemption under sub-clause (vi) but would also affect the claim of the assessee to the grant of an exemption under sub-clause (iiiab) as well.
iv) The sole and dominant nature of the activity was education and the assessee existed solely for the purposes of imparting education. An incidental surplus which was generated, and which had resulted in additions to the fixed assets was utilised as the balance-sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant.
v) The assessee was entitled to exemption u/s. 10(23C)(vi).”
GAP in GAAP— Acquisition of a Company with a Negative Net Worth
Consider Company X with assets of Rs. 120 and liabilities of Rs. 220, and consequently a negative net worth of Rs. 100, which comprises of accumulated losses of Rs. 120 and share capital of Rs. 20. Company Y acquires 51% shares of Company X, directly from promoters, for a consideration of Rs. 25. Accordingly, Company Y would recognize in the consolidated financial statements (CFS) a net liability of Rs100, goodwill of Rs. 76 and a negative minority interest (MI) of Rs. 49. The question is how does Company Y account for the negative MI of Rs. 49?
View 1: The negative MI of Rs. 49 is reduced againstthe parent’s reserves in the CFS.
The author believes that it may not be appropriate to record the unabsorbed losses on MI at the date of acquisition in the parent’s reserves in CFS. Recording unabsorbed minority losses in the parent’s reserves in CFS would carry a presumption that the parent always owned the entity. This presumption is obviously not correct and hence this view is not tenable.
View 2: The negative MI of Rs. 49 is included in goodwill on acquisition
In accordance with paragraph 13 of AS 21, goodwill is determined as follows
(a) the cost to the parent of its investment in each subsidiary and the parent’s portion of equity of each subsidiary, at the date on which investment in each subsidiary is made, should be eliminated;
(b) any excess of the cost to the parent of its investment in a subsidiary over the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognised as an asset in the consolidated financial statements;
The parent’s portion of the equity at the date of acquisition should also include the MI losses (since the minority does not absorb it the parent will have to absorb it). Thus on the basis of the above MI losses should also be included in goodwill. The total goodwill should therefore be Rs. 125. This view seems an acceptable alternative.
View 3: The negative MI of Rs. 49 is included in MI
Paragraph 26 of AS 21 Consolidated Financial Statements states: “The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority has been recovered.” Paragraph 13(e) states: Minority interests in the net assets consist of: (i) the amount of equity attributable to minorities at the date on which investment in a subsidiary is made; and (ii) the minorities’ share of movements in equity since the date the parent subsidiary relationship came in existence.
Paragraph 26, prohibits the recognition of negative MI, unless there is a binding obligation by the minority to make good the losses. Thus no negative MI can be recognised in the CFS. However a careful reading of paragraph 13(e) suggests that losses at the date of acquisition relating to minority are attributable to minority.
Thus a negative MI can be recorded at the date of acquisition. However, losses subsequent to the acquisition should not be attributed to the MI.
View 4: The negative MI of Rs. 49 is ignored
It is not possible to ignore the negative MI, as the balance sheet would not tally. Hence this view is ruled out.
The author’s opinion is that View 2 & View 3 are appropriate under the circumstances.
TS-527-ITAT-2013(Coch) English Indian Clays Ltd vs. ACIT (IT) A.Ys: 2004-2007, Dated: 18-10-2013
Section 9(1)(vii) – Providing report on market survey and identifying potential customers are consultancy services taxable as FTS under the Act.
Facts:
The Taxpayer, an Indian company, had entered into an agreement with a Foreign Company (FCo) to study the market situation in South East Asia for the product manufactured by the Taxpayer. The agreement referred to these services as ‘consultancy services’.
Facts:
The Taxpayer, an Indian company, had entered into an agreement with a Foreign Company (FCo) to study the market situation in South East Asia for the product manufactured by the Taxpayer. The agreement referred to these services as ‘consultancy services’.
The Tax Authority observed that the services are in the nature of consultancy charges under the Act and liable for withholding taxes as FCo did not carry out marketing services but was required to conduct market survey and identify potential customers.
However, the Taxpayer argued that FCo was engaged only for the purpose of marketing the Taxpayer’s product in South East Asian countries.The nature of the transaction is required to be determined on the basis of the substance and not by the nomenclature. Hence the payments cannot be considered as consultancy charges. .
Held:
The work of FCo is to identify the potential customers and file a report regarding the market strategy and developmental studies. The Agreement does not enable FCo to market the products of Taxpayer in South East Asian countries. FCo had to provide a market survey report based on which the Taxpayer could market its product. Hence the payments were in the nature of consultancy charges taxable under the provisions of the Act.
TS-511-ITAT-2013(Coch) US Technology Resources Pvt Ltd vs. ACIT A.Ys: 2007-2008, Dated: 27-09-2013
Article 12(4), India-USA DTAA – Provision of advisory services in relation to assisting in management and decision making are technical in nature and satisfies the test of ‘make available’ as stipulated under the India-US DTAA. Accordingly it is taxable as fees for included services (FIS).
Facts:
The Taxpayer is an Indian company (ICo) engaged in providing software development services to the customers based in India.
ICo had engaged an American company (FCo) to provide assistance, advice and support to ICo in management, decision making, sales and business development, financial decision making, legal matters and public relations activities, treasury service, risk management service and any other management support as may be mutually agreed between the parties.
For the above services, ICo made certain payments to FCo without deducting taxes and claimed the deduction for the same. I Co contended that the services rendered by FCo are mainly in the form of assistance in decision making; therefore, such services are clearly in the nature of management services, which is outside the ambit of definition of “FIS” under India USA DTAA. Further, it was argued that these services do not ‘make available’ any technical knowledge or expertise such that the person acquiring the service is enabled to apply the technology.
However the Tax Authority disallowed the payments on the grounds that such payments to non-residents were in the nature of consultancy fees on which tax was required to be withheld u/s. 195 of the Act. Also as soon as the advice or support is received, the same is available to ICo for using them in the decision making process of the management. Therefore, it may not be correct to say that the technical services were not ‘made available’ to ICo.
In terms of Article 12(4) of India-USA DTAA, FIS means payments of any kind to any person in consideration for rendering of any technical or consultancy services (including through the provision of services of technical or other personnel), if such services made available technical knowledge, etc.
Held:
Memorandum of Understanding between India and USA makes it clear that only services which are technical in nature can be considered for included services. Even consultancy services should be technical in nature.
The services rendered by FCo were used by ICo for making various management decisions. Tribunal also referred to the definitions of terms “management” and “decision making” from various management authors and observed that “Decision making is an act of selecting the suitable solution to the problems from various available alternative solutions to guide actions towards achievement of desired objectives”.
The knowledge accumulated by FCo through study, experience and experimentation with regard to management, finance, risk, etc. of a particular business is nothing but technical knowledge. In the era of technology transformation, the information/ experience gathered by FCo relating to financial risk management of business is technical knowledge. The knowledge and expertise of FCo would be used to support ICo in selecting suitable solution after considering all the alternatives available. Further FCo was giving training to the employees of ICo in making use of the inputs, experience, experimentation, etc. for taking better decision in order to achieve the desired objectives/goals.
The information and expertise made available to ICo was very much available with them and it could be used in future whenever the occasion arises.
Thus the management services provided by FCo were in the nature of FIS as per India-USA DTAA and subject to withholding tax in India.
TS-555-ITAT-2013(Mum) M/s. A.P. Moller vs. DDIT (IT) A.Ys: 1997-2004, Dated: 08-11-2013
Article 9, India-Denmark DTAA – Fiscally transparent Danish partnership qualifies for benefits under India-Denmark DTAA; management of a business by a representative cannot lead to an inference that the income of the entity whose business is managed belongs to the representative.
Facts:
The Taxpayer is a partnership firm established under the laws of Denmark. The Taxpayer is “managing owner” of two shipping companies (FCos) incorporated under Danish law. The shipping business and the vessels belong to FCos, which are engaged in the shipping business in international traffic at the global level.
FCos were tax resident of Denmark and also had their place of effective management (POEM) in Denmark.
The Taxpayer managed the shipping business of FCos throughout the world, including India, and also filed corporate tax return on behalf of FCos in India (which had been merged), showing the gross receipts from the shipping income in India and claiming benefits under Article 9 of India-Denmark DTAA wherein profits derived from operation of ships in international traffic are taxable only in the country in which the POEM of the enterprise is situated.
The Tax Authority contended that income from shipping business is taxable in the hands of the Taxpayer as there is no difference between FCos and the Taxpayer, which was acting as the former’s beneficial owner. A person who is a resident of contracting State is entitled to treaty benefit of a DTAA if income of such a person is subjected to tax in the resident country. As per the tax laws of Denmark, the partnership firm is regarded as a fiscally transparent entity. It is not taxed at the entity level but its partners are taxed on the income earned by the partnership firm. Since the Taxpayer is a fiscally transparent entity, the India-Denmark DTAA benefits are not available to it.
Held:
On applicability of benefits of India-Denmark DTAA to a fiscally transparent entity:
• A person who is resident of a contracting state is entitled to treaty benefits if it is liable to tax in that state. As per Danish laws, the partnership firm, as such, is not taxable.
• However, the entire income of the partnership firm is taxed in the hands of its partners and, therefore, the entire income earned by the partnership firm can be said to be fully taxable in the resident state.
• As long as income of the partnership is taxed, albeit in the hands of the partners in the resident state, the India-Denmark DTAA benefits cannot be denied. The basic purpose is whether or not the entire income is taxable in the resident state. The mode of taxability, whether in the hands of partnership or the partners, cannot be given much credence so long as the income is fully taxed in the resident state.
• Reliance was placed on the Tribunal’s ruling in the case of Linklaters LLP, [2012] 132 TTJ (Mum.) 20, to conclude that, even though the partnership firm is a transparent entity, once its income and profit is taxed in the hands of the partners, the treaty benefits should be extended to the partnership firm.
On taxability of shipping income:
• As per the Articles of Association of FCos, the Taxpayer acts as a representative of FCo and, in that capacity, it acts and carries out obligations on behalf of FCo and also files corporate tax return in India on its behalf.
• The Taxpayer can be compared to a CEO of a company who is managing the affairs of the company and this does not lead to any inference that the income of the company belongs to the CEO.
• Thus, the shipping income belongs to FCo only and not to the Taxpayer. Accordingly, the exemption under Article 9 was available to FCo, being resident of Denmark.
S/s. 32, – Depreciation is allowable on paintings which form part of furniture and fixture.
Section 40(a)(ia) is not applicable to a case where tax has been deducted u/s. 194C instead of u/s. 194I or u/s. 194J.
Facts I:
The assessee was in the business of production and distribution of advertising films. It also provided other assistance like making available locations, equipments, models and crew to the foreign as well as domestic companies. The assessee claimed depreciation on certain paintings purchased by it on the ground that these are utilised in the said preparation/advertising films, etc.
The AO was of the view that the presence of paintings is immaterial for the conduct of business. He, accordingly, disallowed depreciation claimed by the assessee on paintings. Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the action of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal.
Held I:
The Tribunal agreed with the contentions made by the assessee viz. that hiring of the painting for original shoots was unaffordable. Considering the nature of the assessee’s business, they have purchased and utilised the paintings which were either hung in the office or given to the producer for the original shoots, or used in various settings. Therefore, the paintings were also part of furniture. The Tribunal relied on the decision of Chennai Bench of ITAT in the case of Tribunal news Burnside Investments & Holdings Ltd. vs. DCIT (61 ITD 601) where it was held as under
“From the dictionary meaning of the word `furniture’ it is clear that all articles of convenience or decoration used for the purpose of furnishing a place of business or an office are articles of furniture. In the instant case, there was no dispute that these paintings were used as decorations in the office and the office was used for the purpose of business. Therefore, these paintings constitute interior decoration to give a good look to the place of business. Therefore, the assessee was entitled to depreciation on these paintings.”
Following the ratio of the above mentioned decision, the Tribunal decided the issue in favour of the assessee. This ground of appeal was allowed.
Facts II:
In the course of assessment proceedings the Assessing Officer (AO) noticed that the assessee had in respect of certain items of expenditure deducted tax u/s. 194C whereas the applicable provision, according to the AO, was section 194I or section 194J. The AO held that the assessee has short deducted tax. The AO relying on the decisions in the case of CIT vs. Prasar Bharti (292 ITR 580)(Del) and Chambers of Commerce of Income-tax Consultant vs. CBDT 75 Taxman 669 (Bom) and All Gujarat Federation vs. CBDT (214 ITR 2) disallowed the expenditure on which there was short deduction. Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal where interalia relying on the ratio of Calcutta High Court decision in the case of CIT vs S. K. Tekriwal (2012-TIOL-1057-HC-KOL-IT) it was contended that provisions of section 40(a)(ia) can be only invoked if there is no deduction of tax but not in a case where there was short deduction.
Held II: Section 40(a)(ia) can be invoked only when tax has not been deducted or has not been paid as per the provisions. Since the assessee had deducted tax u/s. 194C instead of section 194I or section 194J, the Tribunal held that it is not a case of non-deduction of tax. The Tribunal held that when tax was deducted by the assessee, even under bonafide impression under wrong provisions of TDS, provisions of section 40(a) (ia) cannot be invoked. It observed that this principle is being uniformly followed by various co-ordinate Benches and has approval of Calcutta High Court in the case of CIT vs. S. K. Tekriwal (supra). Therefore, disallowance u/s. 40(a)(ia) cannot be upheld. It was also observed that the revenue had not taken any steps u/s. 201 wherein the issue whether the deduction has to be made u/s. 194I or 194J or 194C can be considered /examined. This ground was decided in favour of the assessee.
Indian Oil Corporation Ltd. vs. Commissioner of Trade Tax, U.P., Lucknow, [2012] 47 VST 66 (All)
Sales Tax-Sale Price-Goods Kept in Bonded Warehouse by The Manufacturer Outside the State- Excise Duty Paid by The Purchaser Outside the State-Forms Part of Turnover-section 2(h) of the Central Sales Tax Act, 1956.
Facts:
The company had transferred petroleum products from its bonded warehouse to bonded warehouse of other marketing companies situated outside the State of UP and excise duty was paid by the purchaser of goods when goods were removed from the bonded warehouse. The assessing authorities included the amount of excise duty paid by the purchaser in turnover of sales and levied tax under the CST Act. The assessment order passed by the assessing authority was confirmed by the Tribunal. The petitioner company filed a petition before the Allahabad High court against the order passed by the Tribunal.
Held
The excise duty is leviable on the manufacture of product and it is at the point of removal. No goods can be removed from the factory or warehouse without the payment of duty. Therefore the initial liability to pay the excise duty was on the manufacturer while removing goods from the factory to its warehouse. However, if the permission is granted to remove the goods from the factory or warehouse to another warehouse licensed u/s. 140 belonging to some other person, without payment of duty, the duty is payable on the clearance of goods from such warehouse. In such circumstances the payment of duty is only deferred or extended from the stage of removal of goods from the factory to warehouse of the manufacturer or purchaser, but the liability to pay the excise duty, which is chargeable and payable under the act, by the manufacturer does not cease. The incidence of excise duty is directly relatable to manufacture but its collection can be deferred to later stage as a measure of convenience or expediency.
Facts:
The company had transferred petroleum products from its bonded warehouse to bonded warehouse of other marketing companies situated outside the State of UP and excise duty was paid by the purchaser of goods when goods were removed from the bonded warehouse. The assessing authorities included the amount of excise duty paid by the purchaser in turnover of sales and levied tax under the CST Act. The assessment order passed by the assessing authority was confirmed by the Tribunal. The petitioner company filed a petition before the Allahabad High court against the order passed by the Tribunal.
Held
The excise duty is leviable on the manufacture of product and it is at the point of removal. No goods can be removed from the factory or warehouse without the payment of duty. Therefore the initial liability to pay the excise duty was on the manufacturer while removing goods from the factory to its warehouse. However, if the permission is granted to remove the goods from the factory or warehouse to another warehouse licensed u/s. 140 belonging to some other person, without payment of duty, the duty is payable on the clearance of goods from such warehouse. In such circumstances the payment of duty is only deferred or extended from the stage of removal of goods from the factory to warehouse of the manufacturer or purchaser, but the liability to pay the excise duty, which is chargeable and payable under the act, by the manufacturer does not cease. The incidence of excise duty is directly relatable to manufacture but its collection can be deferred to later stage as a measure of convenience or expediency.
The court after following various decisions of the SC held that the excise duty paid by the purchaser is liable to be included in sale price for the purpose of the levy of tax under the Central Sales Tax Act, 1956.
State of Tamil Nadu vs. Sri Ram Packages [2012] 47 VST 59 (Mad)
Central Sales Tax–Deemed Export-Sale of Packing Material to Exporter-Export by Agent of Purchasing Exporter-Exempt ion Allowed-Central Sales Tax Act, 1956, section 5(3)
Facts
The Department filed a petition before the Madras High Court against the order of Tribunal allowing claim of exemption from payment of tax on sale of packing material to the exporter although actual export was made by the agent.
Held
The Tribunal has recorded findings of facts that as per the contract the person who exported yarn is an agent of the buyer and concluded the transaction as falling under the category of principal/ agency transaction and allowed the claim. The Tribunal has thus reached a finding of a fact with reference to the transaction of the assessee by way of agency sale to an exporter and there is no scope to hold otherwise. Accordingly, the petition filed by the department was dismissed.
Modi Industries Ltd. vs. State of U.P. and Others [2012] 47 VST 47 (All)
Sick Industrial Unit-BIFR-Recovery Of Dues-As Per Assessment Order After Remand-Passed After Cut Off Date-For Period Prior to Cut Off Date-Is Current Outstanding Dues-Protected By Rehabilitation Scheme-Sick Industrial Companies (Special Protection) Act, 1985.
Facts
BIFR by order dated 12-03-2007, prepared rehabilitation scheme for the petitioner having cutoff date as of 30-06-2007. The UP Commercial Tax Department applied to BIFR to allow recovery of current dues. The BIFR passed order dated 26- 03-2008 permitting the Department to recover the current dues. The company filed writ petition before the Allahabad High Court against the said order passed by the BIFR.
Held
The words “outstanding dues” and “current dues” are to be understood in the context of rehabilitation scheme prepared by the BIFR, and the object and purpose of section 22 of the Sick Industrial Companies (Special Protection) Act, 1985. The objectof preparing rehabilitation scheme is to give a protective umbrella to the sick units for rehabilitation to provide for deferment or for a different treatment of the payment of current dues, prior to the cut-off date which may be termed as outstanding dues. The current dues for the purpose of rehabilitation scheme are those which fall due after the cut-off date. The liabilities created, taxes falling due, assessed and demand rise after the cut-off date, do not fall within the provision of section 22 of the SICA Act. Any demand in pursuance of the assessment order, prior to the cut-off date had to be classified as outstanding dues to be protected by the scheme. In the case of reassessment, after remand of a period prior to cut-off date, the dues do not partake the character of current dues and is protected by the rehabilitation scheme. Accordingly, the writ petition filed by the company was allowed.
[2013] 38 taxmann.com 298 (Ahmedabad – CESTAT), Kothari Infotech Ltd. vs. CCE
Whether refund in respect of service tax paid on services exported in terms of Export of Service Rules, 2005 can be denied, if exporter service provider failed to file declaration required under Notification No. 12/2005? Held, No.
Facts:
The appellant was marketing agent of various printing machines in India supplied by its foreign supplier. It filed refund claim on 03-11-2008 in respect of service tax paid between the period from 13-04-06 to 09-02-07 under the category of “Business Auxiliary Service” on the ground that it was providing services as a commission agent to its foreign supplier and consideration in the form of commission in convertible foreign exchange. The appellant further contended that it was never liable to service tax under the category of “Business Auxiliary Service.”
Held:
The Tribunal held that, the services in the instant case constitute ‘export’ under Export of Service Rules, 2005 and hence, Rule 5 of Export of Service Rules, 2005 would be applicable. Non-filing of declaration vis-à-vis satisfying all the conditions under the said Rule 5 read with notification 12/2005-ST dated 19th April 2005 requires to be examined, the Tribunal referred to the judgment in the case of Manubhai & Co. vs. CST [Final Order No. A/1446/2010-WZB/Ahd., dated 17-9-2010 had clearly held that the requirement of filing of declaration is of procedural nature under notification and delay, if any, can be condoned. The Tribunal thus allowed refund claim file subject to the appellant filing declarations as required under the said notification read with Export of Service Rules, 2005 before the adjudicating authority.
Facts:
The appellant was marketing agent of various printing machines in India supplied by its foreign supplier. It filed refund claim on 03-11-2008 in respect of service tax paid between the period from 13-04-06 to 09-02-07 under the category of “Business Auxiliary Service” on the ground that it was providing services as a commission agent to its foreign supplier and consideration in the form of commission in convertible foreign exchange. The appellant further contended that it was never liable to service tax under the category of “Business Auxiliary Service.”
Held:
The Tribunal held that, the services in the instant case constitute ‘export’ under Export of Service Rules, 2005 and hence, Rule 5 of Export of Service Rules, 2005 would be applicable. Non-filing of declaration vis-à-vis satisfying all the conditions under the said Rule 5 read with notification 12/2005-ST dated 19th April 2005 requires to be examined, the Tribunal referred to the judgment in the case of Manubhai & Co. vs. CST [Final Order No. A/1446/2010-WZB/Ahd., dated 17-9-2010 had clearly held that the requirement of filing of declaration is of procedural nature under notification and delay, if any, can be condoned. The Tribunal thus allowed refund claim file subject to the appellant filing declarations as required under the said notification read with Export of Service Rules, 2005 before the adjudicating authority.
[2013] 38 taxmann.com 142 (Mumbai – CESTAT) I2IT (P.) Ltd. vs. CCE
Whether mess charges and hostel fees, laptop charges are to be included in the value of ‘Commercial Training and Coaching Services’? Held, No.
Facts:
The appellant was engaged in imparting education to students enrolled with them for various courses in fields of management, engineering and information technology. Issue before the Tribunal was whether the appellant is liable to pay service tax on that part of the value including mess charges, hostel charges and payment for the laptops supplied to the students.
Held:
The Tribunal held that, these charges are not consideration received for the providing the service of commercial coaching or training. Mess charges and hostel fees are for providing boarding and lodging to the students and cannot be attributed to the training or coaching rendered. Similarly, the amount recovered for the supply of laptops also cannot be attributed to the services rendered (it relates to supply of goods) and therefore, these amounts collected towards mess charges, hostel charges and laptops are excludable from the taxable value of the service rendered.
2013 38 taxmann.com 145 (New Delhi – CESTAT) Gargi Consultants (P.) Ltd. vs. CCE, Allahabad
Whether extended period is invokable if decision of Tribunal during the relevant period is in favour of the assessee but is subsequently reversed by the Hon’ble Supreme Court? Held, No.
Facts:
The appellant was engaged in providing “computer training” services during FY 2004-05 and was registered under the category of “Commercial Coaching & Training” service. Show-cause was issued demanding service tax on the ground that during the period July 2004 to March 2005 it has provided “computer training” and has not discharged service tax liability on the same. Appellant contended that that during the relevant period, all the decisions of the Tribunal were in its favour. Appellant also contended that the ‘computer training’ was vocational training and therefore exempt vide notification 9/2003-S.T. 12-06-2003 read with subsequent notification No. 24/2004-ST dated 10- 09-2004. Further it stated that the exemption in relation to ‘computer training’ was withdrawn vide notification 16-06-2005 and thus the same cannot have retrospective effect.
Held:
The Tribunal held that, although the issue on merits was no longer res integra, during the relevant period as Hon’ble Supreme Court in the case of Sunwin (supra) held during the period from 10-09-2004 to 15-06-2005, an assessee providing “computer training” services was required to pay service tax in as much as the subsequent notification effective from 16-06-2005 was only a clarificatory notification and was effective retrospectively. The Tribunal further held as such, there was a bona fide belief on the part of the appellant not to pay service tax on the “computer training services” on the basis of decisions being in its favour at that point of time. Thus, in the instant case, there was a bona fide belief on the part of the appellant and hence invocation of extended period was not justifiable.
Facts:
The appellant was engaged in providing “computer training” services during FY 2004-05 and was registered under the category of “Commercial Coaching & Training” service. Show-cause was issued demanding service tax on the ground that during the period July 2004 to March 2005 it has provided “computer training” and has not discharged service tax liability on the same. Appellant contended that that during the relevant period, all the decisions of the Tribunal were in its favour. Appellant also contended that the ‘computer training’ was vocational training and therefore exempt vide notification 9/2003-S.T. 12-06-2003 read with subsequent notification No. 24/2004-ST dated 10- 09-2004. Further it stated that the exemption in relation to ‘computer training’ was withdrawn vide notification 16-06-2005 and thus the same cannot have retrospective effect.
Held:
The Tribunal held that, although the issue on merits was no longer res integra, during the relevant period as Hon’ble Supreme Court in the case of Sunwin (supra) held during the period from 10-09-2004 to 15-06-2005, an assessee providing “computer training” services was required to pay service tax in as much as the subsequent notification effective from 16-06-2005 was only a clarificatory notification and was effective retrospectively. The Tribunal further held as such, there was a bona fide belief on the part of the appellant not to pay service tax on the “computer training services” on the basis of decisions being in its favour at that point of time. Thus, in the instant case, there was a bona fide belief on the part of the appellant and hence invocation of extended period was not justifiable.
2013] 38 taxmann.com 67 (Ahmedabad – CESTAT) Gujarat State Petronet Ltd vs. CCE, Ahmedabad
Whether service receiver can avail CENVAT credit of duties in respect of materials used by the service provider, as the service provider opted for benefit available to him under notifications specifically disentitling him to avail CENVAT Credit? Held, No.
Facts:
Appellant was engaged in rendering taxable service under the category of “Transport of goods through pipelines or other conduit service” u/s. 65(105)(zzz) of the Finance Act, 1994. It has adopted Engineering Procurement and Commissioning (EPC) model for laying of oil and gas transmission pipelines for which it received services of various EPC contractors for fabrication, assembly with equipments and devices, installation and commissioning of a pipeline system. The contract between the appellant and the contractors was on a lump sum basis; yet, two invoices were issued, one for sale of the materials (including pipes) and the other for the services rendered by them. EPC contractors claimed deduction in respect of the value of materials and goods sold in the course of rendering the taxable service and also did not take CENVAT credit of duties charged thereon under Notification 12/2003-ST dated 20-06-2003. However, the appellant availed credit of duty paid on the pipes by the EPC contractors on the basis of duty paying documents issued by the manufacturer wherein, the pipes were in the name of the contractors and appellant was shown as consignee. The appellant used the said credit to discharge its service tax liability on its output service of “transportation of goods through pipelines or other conduit services”. Department denied such CENVAT credit to the appellant.
Held:
Exemption notification has to be interpreted strictly and when the explanation to Rule 3(7) of CENVAT Credit Rules specifically provides that once the benefit of a notification is availed, no credit would be available under Rule 3 in respect of duty paid on the inputs/capital goods in respect of which a service provider or a manufacturer has availed the benefit of Notification No. 12/2003. The restriction applies not only on the service provider but extends to the service recipient, also. Further, pipes were used for construction of pipeline by the EPC contractors and pipeline system is supplied/sold to the appellant. Pipes can be considered as inputs only for provision of service of construction/erection of pipelines and not otherwise. The Tribunal stated that the definition of input/capital goods in case of service provider is stricter than that applicable to the manufacturer. Therefore, pipes were ineligible for credit as inputs/capital goods. The Tribunal also held that the CENVAT credit on construction services pertaining to the period prior to 01-04-2011 is an eligible input service. The Tribunal also held that in case the service recipient has purchased material and given to the service provider and the same is utilised by the service provider for provision of its service and the material is supplied back to the service recipient, the service recipient is entitled to CENVAT credit if all other requirements of the definition of inputs/capital goods are satisfied. The Tribunal further held that in case of materials being bought by the service recipient and given to the service provider, CENVAT credit cannot be denied on the ground that the service recipient is not registered as first/second stage dealer, Rule 9(2) may be invoked which provides discretionary powers to the Assistant/Deputy Commissioner to allow CENVAT credit in respect of defective documents, if satisfied. However, charge of suppression was not upheld noting that non-disclosure of additional information to department cannot amount to suppression of facts.
Facts:
Appellant was engaged in rendering taxable service under the category of “Transport of goods through pipelines or other conduit service” u/s. 65(105)(zzz) of the Finance Act, 1994. It has adopted Engineering Procurement and Commissioning (EPC) model for laying of oil and gas transmission pipelines for which it received services of various EPC contractors for fabrication, assembly with equipments and devices, installation and commissioning of a pipeline system. The contract between the appellant and the contractors was on a lump sum basis; yet, two invoices were issued, one for sale of the materials (including pipes) and the other for the services rendered by them. EPC contractors claimed deduction in respect of the value of materials and goods sold in the course of rendering the taxable service and also did not take CENVAT credit of duties charged thereon under Notification 12/2003-ST dated 20-06-2003. However, the appellant availed credit of duty paid on the pipes by the EPC contractors on the basis of duty paying documents issued by the manufacturer wherein, the pipes were in the name of the contractors and appellant was shown as consignee. The appellant used the said credit to discharge its service tax liability on its output service of “transportation of goods through pipelines or other conduit services”. Department denied such CENVAT credit to the appellant.
Held:
Exemption notification has to be interpreted strictly and when the explanation to Rule 3(7) of CENVAT Credit Rules specifically provides that once the benefit of a notification is availed, no credit would be available under Rule 3 in respect of duty paid on the inputs/capital goods in respect of which a service provider or a manufacturer has availed the benefit of Notification No. 12/2003. The restriction applies not only on the service provider but extends to the service recipient, also. Further, pipes were used for construction of pipeline by the EPC contractors and pipeline system is supplied/sold to the appellant. Pipes can be considered as inputs only for provision of service of construction/erection of pipelines and not otherwise. The Tribunal stated that the definition of input/capital goods in case of service provider is stricter than that applicable to the manufacturer. Therefore, pipes were ineligible for credit as inputs/capital goods. The Tribunal also held that the CENVAT credit on construction services pertaining to the period prior to 01-04-2011 is an eligible input service. The Tribunal also held that in case the service recipient has purchased material and given to the service provider and the same is utilised by the service provider for provision of its service and the material is supplied back to the service recipient, the service recipient is entitled to CENVAT credit if all other requirements of the definition of inputs/capital goods are satisfied. The Tribunal further held that in case of materials being bought by the service recipient and given to the service provider, CENVAT credit cannot be denied on the ground that the service recipient is not registered as first/second stage dealer, Rule 9(2) may be invoked which provides discretionary powers to the Assistant/Deputy Commissioner to allow CENVAT credit in respect of defective documents, if satisfied. However, charge of suppression was not upheld noting that non-disclosure of additional information to department cannot amount to suppression of facts.
2013 (32) STR 93 (Tri.-Del) Mahindra World City Ltd. vs. Commissioner of Central Excise, Jaipur – I
For tax paid on services consumed outside SEZ, exemption is not available under Notification No. 4/2004-ST dated 31st March, 2004.
In case service tax is paid on such services, the refund application should be filed u/s. 11B of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994 within 1 year from the relevant date as no procedure was prescribed under the said notification 4/2004.
Service recipient can claim refund of service tax only when incidence of service tax is not passed on.
Refund under Notification no. 9/2009-ST dated 4th March, 2009 is available subject to fulfilment of prescribed conditions only.
Facts:
The appellant paid service tax due to ambiguity in Notification No. 4/2004-ST dated 31st March, 2004. Therefore, the appellant filed a refund claim in view of section 26(e) of the SEZ Act, 2005 read with Rule 31 of the SEZ Rules, 2006 which states that no service tax is leviable in relation to authorised operations in SEZ. The refund got rejected on the following grounds:
• Refund can be filed by the person who pays service tax and not by service recipient
• Unjust enrichment
• Part amount on the basis of time bar
• No provisions to refund service tax paid on services consumed outside SEZ.
Held:
The Tribunal observed that since service tax was not payable under Notification No. 4/2004-ST dated 31st March, 2004 but was paid by the appellant, they could claim the benefit of refund of service tax. However, there being no procedure to claim refund under the said Notification, the refund application ought to have been filed under section 11B of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994. The Tribunal held that refund claim was not filed within 1 year from the relevant date i.e., the date of payment of service tax and accordingly, part refund was held to be time barred. Since there were no provisions to refund service tax paid on services consumed outside SEZ, the Commissioner (Appeals) order upheld the rejection. Service recipient can claim refund of service tax only when incidence of service tax was not passed on. In the present case, there was no evidence to prove absence of unjust enrichment and thus refund was not available to the appellant. Though part period was covered by Notification No. 9/2009-ST dated 4th March, 2009, since the appellant had not filed refund claim under the said Notification No. 9/2009-ST and in absence of evidence on records of fulfilment of conditions prescribed under the notification, refund was not allowed.
Interest u/s. 234B and 234C—Credit for minimum alternate tax has to be set off from the tax payable before levy of interest u/s. 234B and 234C of the Act.
CIT vs. Sage Metals Ltd. (2013) 354 ITR 675 (SC)
In a group of appeals filed by the Revenue before the Delhi High Court a common issue was involved, namely, whether interest u/s. 234B and 234C is to be charged before the tax credit (commonly referred to as MAT credit) available u/s. 115 JAA is set off against tax payable on total income or after it is set off? And additional issue was whether this question was debatable and therefore, the provisions of section 154 could not have been invoked.
The High Court dismissing the appeals of the Revenue held that interest u/s. 234B and 234C is to be charged after the tax credit (MAT credit) available u/s. 115JAA is set off against tax payment on total income of the year in question. The High Court further held that the decision of Benches of the Tribunal at Chandigarh and Chennai did indicate that the Tribunal was correct in law in holding that rectification could not be made by the Assessing Officer u/s. 154 of the Act as the issue regarding charging of interest u/s. 234B of the Act without giving set off of the MAT credit available to the assessee was highly debatable.
On a Special Leave Petition being filed before the Revenue before the Supreme Court, the Court noted that a short question which arose for its determination in the appeals before it was, whether the Department was entitled to charge interest u/s. 234B of the Act on the assessee bringing forward the tax credit balance into the year of account relevant to the assessment year 2001-02. According to the Supreme Court this question has been answered in favour of the assessee by its judgment in the case of CIT vs. Tulsyan NEC Ltd., (2011) 330 ITR 226 (SC). Consequently, the Supreme Court dismissed the appeals filed by the Department.
Note: Sections 234A/234B/234C have been amended to provide such set-off by the Finance Act, 2006 w.e.f. Asst.Year 2007-08.
Due Date of Payment for Allowability of Employee PF Contribution
Issue for Consideration
Under the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952, an eligible employee as well as his employer are required to make periodic contributions to the provident fund (PF) account of the employee. The employer deducts the employee’s contribution from his salary, and pays both the employer’s as well as the employee’s contribution together to the PF account of the employee. Similar provisions are contained under the Employees State Insurance Act, 1948 and Scheme (ESIC).
The employer’s contribution to the PF, etc., being a business expenditure, is an allowable deduction in computing the income of the employer under the head “Profits & Gains of Business or Profession” u/s.36(1)(iv) of the Income-tax Act, 1961. The employee’s PF and ESIC contribution, on deduction by the Employer, is deemed to be the income of the employer in the first place by virtue of section 2(24)(x), but is an allowable business deduction u/s. 36(1)(va). However, in order to claim either the employer’s PF contribution or the employee’s PF contribution as a deduction, the payment of such contribution has to be made by a specified date. While the time limit for the deduction of the expenditure, under the Income-tax Act, of the employer’s contribution is governed by section 43B(b), the employee’s contribution is governed by section 36(1)(va) of the Act.
Section 43B(b) provides that the expenditure would be allowed only in the year of actual payment. Till Assessment Year 2003-04, the proviso to section 43B provided that the deduction of employer’s PF contribution would be allowed only if the amount had actually been paid before the due date referred to in section 36(1)(va). Section 36(1)(va) provides that the employee’s contribution shall be allowed as a deduction if the amount is credited by the employer to the employee’s account on or before the due date by which the employer is required to credit the employee’s contribution under the relevant Act .
Therefore, till Assessment Year 2003-04, both employer’s as well as employees’ PF contributions were allowable as deductions only if the amounts were paid before the due date under the PF law. The proviso to section 43B has however been amended with effect from Assessment Year 2004-05 to provide that section 43B would not apply to payments made before the due date of filing of the return of income u/s. 139(1). In effect therefore, employer’s PF contribution is now allowed as a deduction in the same previous year in which the liability to pay the amount is incurred, so long as the payment is made before the due date of filing of the return of income for that year. No corresponding amendment has been made in section 36(1)(va).
The question has arisen before the tribunal and the courts as to whether the due date of filing of the return of income as applicable to the employer’s PF contribution under the proviso to section 43B can also be taken as the due date for the purposes of allowability of the employees’ PF contribution. Can the amended provisions of section 43B relaxing the time for payment of employer’s contribution be extended and applied even for claiming deduction for employees’ contribution? While the Mumbai and the Kolkata benches and the Special bench of the Tribunal have taken the view that the due date under the PF law is the relevant date for employees’ PF contribution and any payment beyond that date shall defer the deduction to the year of payment, the Delhi and Hyderabad benches of the Tribunal have taken the view that it is the due date of filing of the return of income which is the relevant date and the making of the payment by that date will enable the employer to claim deduction for the employees’ contribution. The latter view has also been the unanimous view of the Karnataka, Delhi, Himachal Pradesh and Uttarakhand High Courts.
Sudhir Genset’s case:
The issue came up for consideration of the Delhi bench of the tribunal in the case of DCIT vs. Sudhir Genset Ltd. 45 SOT 63 (URO).
In this case, pertaining to assessment years 2005- 06, 2006-07 and 2007-08, the assessing officer had made disallowances of employees’ contributions to PF and ESIC on the ground that the assessee failed to make the payment of employees’ contributions within the due dates as provided in those Acts. The Commissioner (Appeals) deleted the disallowance on the ground that though these payments were not made within the limitation provided in the PF Act and ESIC Act, these were paid before the due date of filing of the returns of income in all the three assessment years.
The Delhi bench of the tribunal was of the view that the issue was covered by the decision of the Delhi High Court in the case of CIT vs. P.M. Electronics Ltd., 313 ITR 161, where it had been held that if the assessee made payment in the PF and ESIC account, including the employees’ contribution, before the due date of the filing of the return u/s. 139 of the Income-tax Act, then no disallowance of such payment could be made by virtue of section 43B.
Since all the payments were made before the due date of filing of the return of income, the Delhi bench of the tribunal upheld the deletion of disallowance of the employees’ PF contribution.
A similar view was taken by the Hyderabad bench of the Tribunal in the cases of Imerys Ceramics (India) (P) Ltd 24 taxmann.com 320 and Patni Telecom Solutions (P) Ltd 35 taxmann.com 87 (Hyd), where the Tribunal followed the decisions of the Karnataka High Court in the cases of CIT vs. Sabari Enterprises 298 ITR 141 and CIT vs. ANZ Information Technology (P) Ltd. 318 ITR 123.
Besides these two Karnataka High Court decisions, the Delhi High Court in the case of CIT vs. AIMIL Ltd.321 ITR 508, the Karnataka High Court in the case of Spectrum Consultants India (P) Ltd 215 Taxman 597, the Himachal Pradesh High Court in the case of CIT vs. Nipso Polyfabriks Ltd. 350 ITR 327 and the Uttarakhand High Court in the case of CIT vs. Kichha Sugar Co Ltd. 35 taxmann.com 54 have all taken the view that employees’ PF contribution could not be added back to income or disallowed, even if the payment was made after the due date under the PF Act, so long as the payment was made before the due date of filing of the income-tax return u/s. 139.
LKP Securities’ case:
The issue came up recently before the Mumbai bench of the tribunal in the case of ITO vs. LKP Securities Ltd. ITA No 638/Mum/2012 dated 17th May 2013.
In this case, the assessee made delayed payments of employees’ PF and ESIC contributions, beyond the stipulated dates of 15th and 21st of the following month under the respective Acts. The PF payment was, however, made within the 5 days of grace permitted under PF law. The assessing officer disallowed such payments on the ground that the grace period was only for the purposes of not charging penal interest and other penalties under the PF Act, and was not an extension of the due date under that Act. The Commissioner (Appeals) deleted the disallowance on the ground that the payments were made before the due date of filing of the return of income, following the decision of the Delhi High Court in the case of AIMIL Ltd. (supra).
Before the tribunal, on behalf of the revenue, reliance was placed on the Kolkata bench tribunal decision in the case of DCIT vs. Bengal Chemicals and Pharmaceuticals Ltd., 10 taxmann.com 26, where the tribunal after considering the decisions of the Supreme Court in the case of Alom Extrusions Ltd 319 ITR 306 and the decision of the Karnataka High Court in the case of CIT vs. Sabari Enterprises (supra), has held that employees’ contributions were not governed by section 43B. It was also argued that the same view was taken by the Bombay High Court in the case of CIT vs. Pamwi Tissues Ltd. 215 CTR 150. It was therefore argued that employees’ contribution to PF/ESIC was not allowable if not paid before the due dates under the respective Acts.
On behalf of the assessee, reliance was placed on the Delhi High Court decision of AIMIL Ltd. (supra), where the court after considering the decision of the Supreme Court in the case of Vinay Cement Ltd 213 CTR (SC) 268, had clarified that the amendment to section 43B with effect from assessment year 2004-05 would apply to the employer’s as well as the employees’ contribution to the various welfare funds. The Delhi High Court had also held that the decision of the Bombay High Court in the case of Pamwi Tissues (supra) was no longer a good law after the Supreme Court decision of Vinay Cements (supra), and that there was no scope for any doubt after the Supreme Court decision in the case of Alom Extrusions (supra). It was therefore argued that any payment by the employer, whether in respect of the employer’s or the employees’ contribution, made before the due date of filing of the return of income would qualify for being allowed as a deduction for the relevant year.
After analysing the provisions of section 43B and the amendments carried out with effect from assessment year 2004-05, the tribunal noted that section 43b(b) covered only the employer’s contribution to such welfare funds, and that the employees’ contribution was not covered by section 43B(b). After considering the provisions of sections 37(1), 2(24)(x), 36(1)(va) and 43B(b), the tribunal noted that while the due date for payment of both employer’s and employees’ contribution under the PF Act was the same, the deductibility of the employer’s contribution under the Income-tax Act was governed by section 37(1) while the employees’ contribution was deemed to be income u/s. 2(24)(x) and governed by section 36(1)(va).
According to the tribunal, even if one overlooked the clear language of section 2(24)(x) read with section 36(1)(va) (on one hand) and section 43B(b) (on the other hand), which clearly concerned separate and distinct sums, and consider for the sake of argument, section 43B(b) as applicable to section 36(1) (va) payments, it would be rendered otiose . This was on account of the fact that the sum had to be otherwise allowable under the relevant provision for section 43B to apply, and since the payment had not been made before the due date specified in section 36(1)(va), it was not allowable under that section, and therefore section 43B did not apply to the case of employees’ contribution. On the other hand, if the payment was made before the due date specified u/s. 36(1)(va), section 43B had no functional relevance.
The Mumbai tribunal also relied on the Kolkata Special Bench tribunal decision in the case of Jt. CIT vs. ITC Ltd. 112 ITD 57, where the Special Bench had held that section 43B did not apply to payment of the employees’ contribution. The tribunal further noted that the decisions of the Supreme Court in the cases of Vinay Cement (supra) and Alom Extru-sions (supra) related to the provisions of section 43B, which did not govern the deductibility of the employees’ contribution, and related merely to the retrospectivity of the amendment in section 43B. This aspect, according to the tribunal, had been explained by the Bombay High Court in the case of Pamwi Tissues ( supra ). Though this decision of Pamwi Tissues has been reversed by the Supreme Court in the case of Alom Extrusions, the reversal was only in respect of the subject matter of retro-spectivity of the amendment. The tribunal observed that the Bombay High Court in Pamwi Tissues’ case endorsed its decision in CIT vs. Godaveri (Mannar) Sahakari Sakhar Karkhana Ltd 298 ITR 149, wherein issues other than those relating to the amendment to section 43B were also referred to. According to the tribunal, the question of applicability of the amendment in section 43B to the employees’ contribution remained unanswered or unaddressed by the Supreme Court in Alom Extrusions’ case (supra). The Supreme Court in that case did not consider or give any finding that the employees’ contribution, deduction of which was subject to section 36(1)(va), was further subjected to section 43B or that section 43B would apply even if the sum was otherwise not allowable.
As regards the decision of the Delhi High Court in the case of AIMIL Ltd., the Mumbai tribunal noted that the said decision was considered by the Kol-kata bench of the tribunal in the case of DCIT vs. Bengal Chemicals and Pharmaceuticals Ltd., 10 tax-mann.com 26 while deciding the issue against the assesssee. Though AIMIL’s decision covered payment of employees’ contribution to EPF and ESIC, according to the tribunal, the entire deliberation in that decision, as well as the subject matter of the decision was qua section 43B, including the amend-ments thereto. According to the tribunal, the High Court moved on the premise that the employees’ contribution was subject to section 43B(b), and accordingly interpreted the section as well as the nature of the amendments. Further, according to the Mumbai tribunal, the decision of the tribunal which was approved of by the Delhi High Court in AIMIL’s case did not consider the decision of the Special Bench of the Tribunal in the case of ITC Ltd (supra), and was also inconsistent with the decision of the jurisdictional Bombay High Court in Godaveri (Mannar) Sahakari Sakhar Karkhana’s case (supra), in so far as it related to the inapplicability of section 43B to payments specified u/s. 36(1)(va). Further, as per the tribunal, the absence of the relevant findings in Alom Extrusions’ case(supra), the decision in the case of AIMIL Ltd. was not the one that had considered all facts of the issue of deductibility of the employees’ contribution. The Mumbai bench of the tribunal therefore preferred not to follow the decision in the case of AIMIL Ltd. on the ground that it was not applicable or germane to the issue under consideration before the tribunal, but opted to follow the decision of the Special Bench of the tribunal in ITC Ltd. (supra) and the decision in the case of Bengal Chemicals and Pharmaceuticals (supra), since both of these were consistent with the jurisdictional High Court on the material aspect before the Mumbai bench.
Therefore, the Mumbai tribunal held that the due date for the purposes of allowability of employees’ PF contribution meant the relevant date under the PF Act, and not the due date of filing of the return of income under the Income-tax Act. Following the decision of the jurisdictional High Court in Godaveri (Mannar) Sahakari Sakhar Karkhana’s case (supra), the Mumbai tribunal however held that the benefit of the grace period had to be considered in computing the due date, and therefore held that any payments of the employees’ contribution made within the grace period was allowable as deduction.
Observations
The Delhi High Court in deciding the issue in favour of the assessee in AIMIL Ltd.’s case, clearly observed that if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only paid interest on delayed payment but also attracted penalties, for levy of which specific provisions are made in the Provident Fund Act as well as the ESI Act. The court noted that those Acts permitted the employer to make the deposit with some delays, subject to the penal consequences. This aspect of the respective laws permitting delayed payment of the dues prevailed on the High Court in taking the view that it did. It is therefore respectfully submitted that had the Mumbai tribunal appreciated that the decision of the Delhi court was a well considered decision that took into account the comprehensive gamut of the provisions of all the statutes relevant to payment of the dues, including the provisions of the Income tax Act, it would have followed the AIMIL Ltd. decision instead of dissenting from it.
The decision of the Mumbai bench of the tribunal, as stated by it, seems to have been mainly swayed by the decision of the Bombay High Court in the case of Godaveri (Mannar) Sahakari Sakhar Karkhana. On going through this decision, while one notes that one of the issues that came up before the Bombay High Court was relating to employees’ contribution, the Bombay High Court has nowhere expressly discussed or highlighted or noted the distinction between the employees’ contribution and the employer’s contribution. The court merely took a note of the provisions of sections 43B and 36(1)(va) and the amendments to section 43B. The Bombay High Court, in that case, was primarily concerned with the issue of the retrospectivity of the amendments to section 43B, just as the Delhi High Court was in the case of AIMIL Ltd. In both the cases, the courts were mainly concerned with the applicability of the amendments in section 43B and if that was so, the Mumbai tribunal did not have much to choose between the said decisions as neither of them perhaps laid down any law as far as the deduction of the employees’ contribution was concerned. Further, the said decision of the Bombay High Court in Godaveri (Mannar) Sahakari Sakhar Karkhana’s case stood overruled by the Supreme Court decision in Alom Extrusions’ case.
The Special Bench decision in the case of ITC has been rendered on the basis of the specific language of the sections and not by keeping in mind the intention of the legislature and the spirit behind the amendments. In that case, the impact of the permission to make delayed payments under the PF and ESIC Acts on payment of interest and penalty was not examined in depth.
Interest u/s. 234A: A. Y. 1996-97: Tax paid before due date but return filed late: Interest u/s. 234A not leviable
Bharatbhai B. Shah vs. ITO; 255 CTR 278 (Guj):
The due date for filing of the return of income for the A. Y. 1996-97, was 31-8-/1996. The assessee had filed the return of income late, on 27-3-1998. However, he had paid tax of Rs. 10 lakh u/s. 140A of the Income Tax Act, 1961 on 30-8-1996. The Assessing Officer processed the return u/s. 143(1)(a) of the Act and assessed the tax at Rs. 15,08,474/- and after deducting the TDS of Rs. 25,533/-, determined the tax liability at Rs. 14,82,941/-. He also levied the interest u/s. 234A of the Act on the said amount ignoring the amount of Rs. 10 lakh paid on 30-8-1996.
The assessee filed a writ petition contending that interest u/s. 234A could be levied not on the entire amount of Rs. 14,82,941/-, but only on the amount of Rs. 4,82,941/- after reducing the amount of Rs. 10 lakh paid before the due date.
The Gujarat High Court allowed the petition and held as under:
“i) If the Revenue is allowed to recover interest on the tax which is already paid within the due date, merely because the return was not filed in time, would make the provision penal in nature and expose it to challenge of its vires.
ii) In the present case, the assessee had already deposited tax of Rs. 10 lakh before the due date of filing return. The return, of course, was filed belatedly. While framing the assessment of such belated return, the Assessing Officer held that the assessee should pay further tax of Rs. 4,82,941/-. Thus, the Revenue’s demand for interest for the entire amount of Rs. 14,82,941/- u/s. 234A would fall foul to the ratio of the decision of the Delhi High Court in the case of Dr. Prannoy Roy vs. CIT; 254 ITR 755 (Del) which has been confirmed by the Supreme Court in CIT vs. Pranoy Roy; 309 ITR 231 (SC).
iii) Revenue can collect interest u/s. 234A only on the additional sum of Rs. 4,82,941/- and not on the entire amount.”
Housing project: Deduction u/s. 80-IB: A. Ys. 2004-05 to 2008-09: Built-up area of some flats exceeding 1500 sq.ft.: Within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built-up area
Viswas Promoters (P) Ltd. vs. ACIT; 255 CTR 149 (Mad)
The assessee was engaged in the business of development and construction of flats. The assessee was eligible for deduction u/s. 80-IB(10). Out of its four projects, two projects had all the flats of the specified built-up area less than 1500 sq.ft. In respect of these two projects, the Assessing Officer allowed the claim for deduction u/s. 80-IB(10) of the Act. In the remaining two projects, there were 32 flats of built-up area more than 1500 sq.ft. in one project and one flat of built up area more than 1500 sq. ft. in the other project. The assessee claimed deduction u/s. 80-IB(10) in respect of these two projects on proportionate basis corresponding to the flats of built-up area of less than 1500 sq. ft. The Assessing Officer disallowed the claim in respect of these two projects, on the ground that the condition as regards the built-up area of the flats is not satisfied. The CIT(A) allowed the assessee’s claim. The Tribunal upheld the decision of the Assessing Officer. On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and held as under:
“i) Going by the definition of the “housing project” under Explanation to section 80HHBA as the construction of “any building” and the wordings in section 80-IB(10), the question of rejection in entirety of the project on account of any one of the blocks not complying with the conditions, does not arise.
ii) In respect of each of the blocks, the assessee is entitled to have the benefit of deduction in respect of residential units satisfying the requirement of built up area of 1500 sq.ft. u/s. 80-IB(10)(c). The assessee would be entitled to the relief on a proportionate basis.”
Deduction u/s. 80JJA: A. Ys. 2003-04 and 2004- 05: Business of making fuel briquettes from bagasse: Bagasse is a biodegradable waste and the same is collected on consideration by assessee from sugar factory: Assessee entitled to deduction u/s. 80JJA
CIT vs. Smt. Padma S. Bora; 255 CTR 1 (Bom)
Assessee was engaged in the business of manufacturing fuel briquettes from bagasse purchased from sugar factory for consideration. For the A. Ys. 2003- 04 and 2004-05, the Assessing Officer disallowed the assessee’s claim for deduction u/s. 80JJA of on the following grounds:
“i) Bagasse is not a waste;
ii) It is not generated in municipal/urban limits i.e., by local authorities;
iii) It is not collected but it is purchased; and
iv) The process does not involve any treatment or recycling of a biodegradable waste.
The CIT(A) and the Tribunal allowed the assessee’s claim.
On appeal by the Revenue, Bombay High Court upheld the decision of the Tribunal and held as under:
“i) Bagasse is a biodegradable waste and the same is collected on consideration by the assessee from the sugar factory. Term “waste” has to be understood contextually i.e., place where it arises and the manner in which it arises during the processing of some article. The fact that the sugar industry regards bagasse as waste is evident from circular dated 4-2-2006, issued by the Sugar Commissioner, Maharashtra State. Besides, the ITC classification of Exim Policy also classifies bagasse as a waste of sugar industry under Chapter 23, Heading 23.20 thereof. Further, Central Excise Teriff Act, 1985 also regards bagasse as waste of sugar manufacture and has classified the same under Chapter 23, Heading 23.01.
ii) Contention of the Revenue that collection means collecting free of charge and not by purchasing is not tenable. Word “collecting” means to gather or fetch. It is a neutral word and does not mean collection for consideration or collection without consideration. In the instant case, the assessee has collected bagasse from sugar factories after making payment for the same. Thus, the requirement of collecting biodegradable waste as provided u/s. 80JJA is satisfied.
iii) Circular No. 772 dated 23rd December, 1998 does not restrict its benefits only to local bodies. In any event, the circular cannot override the clear words of section 80JJA which provides deduction in respect of profits and gains derived from the business of collecting and processing/treating of biodegradable waste for making briquettes for fuel.
iv) Therefore, Tribunal was justified in allowing deduction u/s. 80JJA on the profits derived from the business of manufacturing fuel briquettes from bagasse.”
Government Accounting Needs Urgent Reforms
At a time when the entire country is discussing the fall of the rupee, the economic gloom and the incremental damage that the Food Security Bill would cause to the Indian economy, readers will wonder why I am discussing accounting reform.
The primary reason for the panic is the presumption that a year ago, the country had plenty of foreign exchange “reserves” and this was due to consistent economic growth. There is no dispute that India has come a long way since 1947, and the comparison of the rupee-dollar exchange rate in 1947, and that of today is preposterous. Having said that, it is necessary to read the figures that the government dishes out in the context of the cash method of accounting that it follows. If the government followed the accrual method of accounting which is mandatory for corporates, the government’s balance sheet would be significantly different. Three illustrations will make the point clear.
Any student of accounting will tell you that a “reserve” in the balance sheet is a surplus which is vested in the owner of the entity. In short, reserves are nothing but owned funds. The recent liberalisation of foreign exchange controls was on the basis that the foreign exchange “reserves” that the country had were here to stay. In fact, they constituted capital inflows which were parked in India on account of the non-availability of a better return elsewhere in the world. These capital inflows had the potential of being withdrawn and were therefore a debt. Till foreign exchange inflows arise either in the form of equity investment (FDI) or are the result of income accruals, they would not have any degree of permanence. If the balance sheet was drawn up bringing to the fore this aspect, people would have been cautious while celebrating economic growth.
The second illustration is that of funding through oil bonds or similar instruments. Since government accounting is on cash basis, the bonds or similar instruments are reflected as assets in the books of oil companies but the corresponding liability is not reflected as a liability in the government balance sheet. Thus, while shoring up the economy temporarily one is creating an unrecognised liability in the hope that during the tenure of this instrument income would accrue to the government enabling it to discharge the liability when it dawned on the horizon.
The third illustration is closer to our professional domain. We all know that targets for collection of tax are set by the powers that be on the basis of the past, oblivious to the fact that tax collections would depend on the economic situation which has shown a gradual decline in the recent past. In the race to meet these irrational targets the tax authorities raise patently illegal tax demands and by misusing powers forcibly collect them as well. These collected disputed demands often constitute a liability of the government and are not its income. Though the judicial system in India is afflicted by many ills, it still functions. Consequently, many of the high-pitched demands are deleted in appeals and result in refunds. The target however is based on the tax collected in the preceding year resulting in the authorities creating further high-pitched demands which have a cascading effect. Everyone is busy passing the buck without coming to terms with reality.
The accounting and auditing profession is a much maligned profession. The auditor is restrained by the regulations of his profession and is therefore not able to defend himself in public. If analysts and regulators had paid adequate attention to what auditors report and had taken timely action, at least some of the economic disasters could have been avoided.
I believe that the accounting profession has a very important role to play in ensuring that the state of the economy is transparently put in the public domain. The first step in this direction is for the government to shift from the cash system to the accrual system. The process has begun, with an attempt to convert accounting of urban local bodies to double entry system, but the progress is agonisingly slow. This is for the reason that many of those involved in governance do not appreciate the significance of the change in method of accounting and the benefits thereof. It is treated as a low priority item on the agenda to be dealt with only if time permits. The other possibility is that they feign indifference because they are conscious that if the accrual method of accounting is followed, the picture of the economy may darken further.
The government continuously exhorts businesses to follow “global standards”. It needs to practice what it preaches. The government of New Zealand makes its financial statements public. The audited statements for the year ended 30th June 2012 are available on the government website. These have been prepared on accrual basis. The statements for the 11 months ended 31st May 2013, were released on 5th July 2013. Those interested may visit the website – www.treasury.govt.nz. I am conscious that New Zealand and India are not comparable. I have given the illustration only to establish that what is being suggested is possible. If we have the desire we will get there. But if we have to reach the goal we have to make a beginning. We are already late. The time to start is now!
Anil J. Sathe
Editor
Editor
The Bishop’s Candlesticks
Lord Mahavir taught us forgiveness. Bhagvan Buddha taught us compassion. A classic example of forgiveness and compassion, the story of “The Bishop’s Candlesticks” from “Les Miserables” by Victor Hugo comes to my mind. There is an incident which has left a deep everlasting impression on me. Briefly the story is like this.
Jean Valjeen is the main character of this book. He is released from prison after serving 19 years as a galley slave, a very torturous inhuman punishment. His crime was that he stole a loaf of bread for the starving kids of his sister; and made attempts to escape from prison. In the words of Victor Hugo, “The pecfduliarity of punishment of this kind, in which what is pitiless, that is to say, what is brutalising, predominates, is to transfer little by little, by slow stupefaction, a man into a criminal, sometimes into a wild beast.”
His misery did not end with his release. He was issued a yellow passport which branded him as a dangerous criminal. He was denied food and shelter. All inns and hotels turned him out, inspite of the fact that he was wanting to pay for the same. He had no place to go. When he had lost all hope, he was directed to go to Bishop M’s house.
Who was this Bishop M? He was a bishop who was known for his good-heartedness, and charity, his empathy and love for the poor. Bishop M, spent away most of his substantial allowance for the poor, himself leading a simple and frugal life. He lived with his sister.
Jean Valjeen knocked at the door of the Bishop late in the evening, hungry, tired, dirty and devoid of all hope. He was surprised when the Bishop received him like an honoured guest and treated him with dignity. The Bishop told him “You need not tell me who you are. This is not my house; it is the house of Christ… You are suffering. You are hungry and thirsty. Be welcome”. Jean Valjeen was stunned. For the first time in his life he was treated like a human being. The Bishop made him sit with him for dinner — on a well laid table. This was the first time in 19 years that Jean was served a decent meal. The food was served in silver plates, and the table was lit with candles in silver candlesticks. The silver plates and the silver candlesticks were the only valuables which the Bishop owned. Jean was also given a decent bed, next to the Bishop’s bed for his night’s rest. From wooden planks to a clean comfortable bed after 19 years!
But the hardened criminal within him made him restless. He decamped with the silver plates in the night.
In the morning when the theft was discovered, the Bishop’s sister lamented the sheltering of such a criminal. The Bishop was unperturbed.
Jean was caught with the silver plates and brought to the Bishop. The Bishop asked the police to release him and stated that the plates were not stolen, but gifted by him to Jean! He then addressed Jean and told him that even the silver candlesticks were gifted to him, which Jean forgot to take with him, and then handed over the candlesticks also to Jean! This completely changed the life of Jean Valjeen.
These things happen in real life too. Sir Prabhashankar Pattani was the Diwan of the erstwhile state of Bhavnagar. His jewellery was stolen. The culprit, a servant in his house was brought to him by the police. Pattani Saheb got the servant released and also gave him financial help. The servant returned the jewellery and took a vow to lead an honest life.
There is also an event in the life of Swami Dayanand Saraswati, a Hindu saint who revived the dying spirit of Hinduism. The King of Jodhpur became his devotee and started a pious life. The King broke off his relations with a dancing girl, who in order to take revenge bribed the cook of Swamiji to poison him. As he was dying in great agony Swamiji realised what had happened, called the cook and asked the cook to run away for his life to escape the wrath of the King of Jodhpur who would most certainly have killed the cook. Swamiji forgave his murderer and helped him to escape.
These are the instances of true forgiveness, true compassion, and true charity. May these help us to learn to be better human beings.
Charitable or religious trust: Section 11: A. Ys. 1998-99 to 2000-01: Exemption of income from property held under trust: Accumulation of income: For purposes of section 11(2), Form No. 10 could be furnished during reassessment proceedings
Association of Corporation & Apex Societies of Handlooms vs. Asst. DIT; 30 Taxman.com 22 (Del)
The Tribunal rejected the assessee’s claim for accumulation of income u/s. 11(2) of the Income Tax Act, 1961 on the ground that Form No. 10 had not been furnished along with the return, but was filed during the course of reassessment proceedings.
On appeal by the assessee, the assessee contended as under:
“i) The assessment included reassessment as was evident from section 2(8).
ii) Whether the assessment was an original assessment or a part of reassessment, it would not make any difference and it would be entitled to file Form No. 10 in either of the two proceedings and the revenue would have to take the said form into account.
The contention of the Department was that in view of the judgment of the Supreme Court rendered in the case of CIT vs. Nagpur Hotel Owners Association [2001] 247 ITR 201/ 114 Taxman 255 (SC) during reassessment proceedings the Form No. 10 could not be furnished by an assessee.
The Delhi High Court reversed the decision of the Tribunal, allowed the assessee’s appeal and held as under:
“i) One has to keep in mind the fact that while reopening of an assessment cannot be asked for by the assessee on the ground that it had not furnished Form No. 10 during the original assessment proceedings, this does not mean that when the revenue reopens the assessment by invoking section 147, the assessee would be remediless and would be barred from furnishing Form No. 10 during those assessment proceedings.
ii) Therefore, Form No. 10 could be furnished by the assessee-trust during the reassessment proceedings.”
2013 (32) STR 217 (Tri.-Del.) Surya Consultants vs. CCEx., Jaipur-I
Tribunal should follow the decision of jurisdictional High Court in case where contradictory judgements of other High Court exists—If any other decision discusses both the decisions then it should also be considered.
Facts:
Having been imposed penalty u/s.s 77 & 78 of the Finance Act, 1994 on confirmation of demand of tax, the appellant challenged the decision by relying on the decision of the Punjab & Haryana High Court in CCE vs. First Flight Courier Ltd. 2011 (22) STR 622 (P&H). The respondent relied on the decision of Kerala High Court in Asst. Commr. of CE vs. Krishna Poduval 2006 (1) STR 185 (Ker) for imposition of penalties u/s.s 76 & 78 of the Finance Act, 1994.
Held:
Delhi Bench fell within the jurisdiction of Punjab & Haryana High Court and thus its decision had to be followed and not the contradictory decision of the other High Court pronounced before the said decision. The Tribunal also held that both the decisions stood discussed in CCE Haldia vs. Mittal Technopak Pvt. Ltd. 2012-TIOL-1507-CESTAT-KOL. This decision should have also been considered. The Tribunal followed the decision of the Punjab & Haryana High Court and set aside the order of the Commissioner (Appeals) with consequential relief.
Facts:
Having been imposed penalty u/s.s 77 & 78 of the Finance Act, 1994 on confirmation of demand of tax, the appellant challenged the decision by relying on the decision of the Punjab & Haryana High Court in CCE vs. First Flight Courier Ltd. 2011 (22) STR 622 (P&H). The respondent relied on the decision of Kerala High Court in Asst. Commr. of CE vs. Krishna Poduval 2006 (1) STR 185 (Ker) for imposition of penalties u/s.s 76 & 78 of the Finance Act, 1994.
Held:
Delhi Bench fell within the jurisdiction of Punjab & Haryana High Court and thus its decision had to be followed and not the contradictory decision of the other High Court pronounced before the said decision. The Tribunal also held that both the decisions stood discussed in CCE Haldia vs. Mittal Technopak Pvt. Ltd. 2012-TIOL-1507-CESTAT-KOL. This decision should have also been considered. The Tribunal followed the decision of the Punjab & Haryana High Court and set aside the order of the Commissioner (Appeals) with consequential relief.
A. P. (DIR Series) Circular No. 61 dated 17th December, 2012
External Commercial Borrowings (ECB) Policy – Review of all-in-cost ceiling This circular permits availing of ECB up to INR62 billion for low cost housing projects under the Approval Route by: –
1. Developers/Builders for construction of low cost affordable housing projects.
2. Housing Finance Companies (HFC) / National Housing Bank (NHB) for financing prospective owners of low cost affordable housing units. NHB can also, in special cases, on-lend to developers of low cost affordable housing projects. ECB cannot be used for acquisition of land. Similarly, borrowing by way of issue of Foreign Currency Convertible Bonds (FCCB) is also not permitted under the scheme. Detailed guidelines are contained in this circular.
A. P. (DIR Series) Circular No. 58 dated 14th December, 2012 Trade Credits for Imports into India – Review of all-in-cost ceiling
This Circular states that for trade credit upto maturity period of three years, the present all-in-cost ceiling of 350 basis points over six months LIBOR for respective currency of credit or applicable benchmark will continue upto 31st March, 2013.
The all-in-cost ceiling will include arranger fee, upfront fee, management fee, handling/processing charges, out of pocket and legal expenses, if any.
A. P. (DIR Series) Circular No. 55 dated 26th November, 2012
Liaison Office (LO)/Branch Office (BO) in India by Foreign Entities – Reporting to Income Tax Authorities
This circular clarifies that: –
a. The Annual Activity Certificate (AAC) to Director General of Income Tax (International Taxation), Drum Shaped Building, I.P. Estate, New Delhi 110002, must be accompanied by audited financial statements including receipt and payment account.
b. Banks must, at the time of renewal of permission of LO, endorse a copy of each such renewal to the office of the DGIT (International Taxation).
A. P. (DIR Series) Circular No. 54 dated 26th November, 2012 External Commercial Borrowings (ECB) Policy for 2G spectrum allocation
This circular contains the revised guidelines for availing ECB up to INR46,414 million per company per financial year under the automatic route by successful bidders in the 2G Spectrum auction: –
(i) Refinancing of Rupee resources
Successful bidders who have made upfront payment for the award of 2G spectrum initially out of Rupee loans availed of from the domestic lenders are eligible to refinance such Rupee loans with a long-term ECB within a period of 18 months from the date of sanction of such Rupee loans for the stated purpose from the domestic lenders after showing proof of upfront payment to the bank.
(ii) Relaxation in ECB-liability ratio and percentage of shareholding
Successful bidders are permitted to avail of ECB from their ultimate parent company without any maximum ECB liability-equity ratio, if the lender holds minimum paid-up equity of 25% in the borrower company, either directly or indirectly.
(iii) Bridge Finance facility
Successful bidders can avail of short term foreign currency loan in the nature of bridge finance under the ‘automatic route’ for the purpose of making upfront payment towards 2G spectrum allocation and replace the same with a long term ECB provided the long term ECB is raised within a period of 18 months from the date of drawdown of bridge finance.
A. P. (DIR Series) Circular No. 52 dated 20th November, 2012 Export of Goods and Software – Realisation and Repatriation of export proceeds – Liberalisation
Presently, the period of realisation and repatriation of export proceeds in respect of export of goods or software, where the goods are exported on or before 20th September, 2012, is twelve months from the date of export.
This circular has extended the period of realisation and repatriation of export proceeds in respect of export of goods or software, where the goods are exported on or before 31st March, 2013, is extended from six months to twelve months from the date of export.
However, period of realisation and repatriation to India of the full export value of goods or software exported by a unit situated in a Special Economic Zone (SEZ) as well as exports made to warehouses established outside India remain unchanged.
Front Running by Non-intermediaries not a Crime – SAT
The Securities Appellate Tribunal has held that front running by investors and others (who are not intermediaries) is not in violation of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”). This is in the case of Shri Dipak Patel vs. SEBI (Appeal No. 216 of 2011, decision dated 9th November 2012).
What is front-running? Though widely discussed in press and earlier here in this column, a quick review of this term is made here. It essentially is using information about major trades by a person and in anticipation of price movements owing to such orders, the front runner himself carries out such trades first. Carried out by an intermediary such as a broker, it takes usually the following form. An investor wants to, say, buy a large quantity of shares of a particular listed company. It is expected that such purchase itself will result in increase of the market price of those shares, at least in the short run, taking various factors such as available liquidity in the market etc. The investor places this order with his broker. The broker, savvy about the implications in the market, places his own orders of purchase first. Say, the ruling market price is Rs. 100. So he buys a large quantity of shares at Rs. 100. This purchase results in the market price moving up to, say, Rs. 102. Then he places the order of his client at, obviously, Rs. 102. He sells his shares in the market and these sales expectedly go mainly to the investor. Thus, the broker is richer by Rs. 2 per share and the investor pays a higher cost of the same amount. The broker thus runs in front of the investor’s orders.
The reverse can also be done when the investor wants to sell shares, where again the broker will gain at the cost of the investor. Of course, it is not only the broker who may do this. Any person who comes to know about the proposed trades of such investor may do it – whether the employee or advisor of the investor, an employee of the broker. Indeed, the broker himself may disguise his trades by use of other names.
Front running is in a sense similar to insider trading since in insider trading too, an insider takes advantage of price sensitive information. However, front running, unlike insider trading, causes a direct and often quantifiable loss to the investor.
There have been a few earlier orders of SEBI of instances of front running, where such front runners were punished and such orders were upheld by the SAT. However, the SAT has sought to make an important distinction in this particular case. SAT has effectively said that front running is punishable only if carried out by an intermediary and not by other persons. Thus, in this case, an employee of the investor who, having come to know of its proposed trades, allegedly carried out front running. SAT held – on grounds discussed herein – that such employee could not be punished.
The facts, as narrated in the SAT order, are simple enough. An employee (“D”), who was designated as a portfolio manager of a certain foreign institutional investor (FII), came to know of certain proposed large trades by such FII. He organised with his cousins in India to carry out their own personal trades ahead of such trades. The next step was to reverse them when the FII itself came to trade. Considering the size of the proposed FII trades, it appeared that if D traded first, he would be able to move the price in a particular direction. This movement, coupled with the trades of the FII, would help them make a profit in the reverse transaction he would carry out with such FII. He (along with his cousins) allegedly made, and consistently too, such profits amounting to approximately Rs. 1.50 crores.
SEBI compiled in great detail the trades of D and the FII in such scrips. It collected information about the trades of the FII and then compared them with the trades of D. The comparison was made in both quantity and timing. The telephonic records of D and his cousins were also examined and allegedly the contacts and its timings supported the view that there were contacts between them during the time of these trades. The financial transactions between D and his cousins were also examined and similar supporting evidence was allegedly found supporting the view that D helped facilitate such transactions. It was also stated that the cousin of D who carried out such trades consistently made profits on such trades which SEBI said was rare and unbelievable in the present facts. And thus, such trades pointed out to illegitimate and illegal use of information to profit, at the cost of the employer FII.
The Adjudicating Officer thus held that these transactions were in violation of Regulation 3(a) to 3(d) of the PFUTP Regulations. Penalties aggregating to Rs. 11 crores were levied on D and his cousins. On appeal, the SAT reversed the order of the AO on two grounds.
Firstly, it took a view that front running was made a specific violation of the PFUTP Regulations and it referred to front running by intermediaries only. It compared the present Regulations with the PFUTP Regulations of 1995 which, according to SAT, covered front running by “any person”. Since D and his cousins were not intermediaries, SAT held that this clause could not apply to them.
In the words of SAT, “In the absence of any specific provision in the Act, rules or regulations prohibiting front running by a person other than an intermediary, we are of the view that the appellants cannot be held guilty of the charges levelled against them.”.
Secondly, it held that front running at best amounted to a fraud by D on his employers. It was found that the employer FII had indeed carried out an internal investigation report. Certain findings of this report were referred to by SAT. It was also noted that the employer had punished him by, effectively, making him resign. However, it did not, SAT held, amount to a manipulative practice or a fraud on the market. Hence, first, the provisions of Regulations 3(a) to 3(d) which were held to be violated by D as per the order of the Adjudicating Officer, could not apply to the present facts. What is even more interesting is that, the SAT held that in the absence of any specific provision in law, the acts could not be punishable under any other provision either.
As the SAT observed, “The alleged fraud on the part of Dipak may be a fraud against its employer for which the employer has taken necessary action. In the absence of any specific provision in law, it cannot be said that a fraud has been played on the market or market has been manipulated by the appellants when all transactions were screen based at the prevalent market price.”
The decision raises several concerns and questions. There is surely a valid point in SAT’s view that unless there is a manipulation in or fraud on the market, a purely private wrong cannot be punished by SEBI unless there is a specific provision prohibiting it. However, the question still remains that when such a wrong is carried out in the market, how private does it indeed remain? And if it remains unpunished, whether it will affect the credibility of the market?
The question also arises whether the decision was arrived at because the charges were framed too narrowly, limiting it to specific clauses in the PFUTP Regulations. Or whether the decision has a broader scope and that such decision would apply generally leaving SEBI with no powers – either under the other clauses of the PFUTP Regulations or under the Act – to deal with such acts.
There is another point that the SAT made which with due respect does not seem to be correct. It held that the 2003 PFUTP Regulations made a departure from the 1995 PFUTP Regulations. The 1995 PFUTP Regulations, as per SAT, prohibited front running by any person. The 2003 PFUTP Regulations, however, prohibited front running by intermediaries only.
SAT observed, “We are inclined to agree with learned counsel for the appellants that the 1995 Regulations prohibited front running by any person dealing in the securities market and a departure has been made in the Regulations of 2003 whereby front running has been prohibited only by intermediaries.” (emphasis supplied)
The relevant Regulation 6 of 1995 PFUTP Regulations does start with the phrase “No person shall…”. However, clause (b), which seems to be the relevant clause to which SAT refers to reads as follows:-
“(No person shall) on his own behalf or on behalf of any person, knowingly buy, sell or otherwise deal in securities, pending the execution of any order of his client relating to the same security for purchase, sale or other dealings in respect of securities.
Nothing contained in this clause shall apply where according to the client’s instruction, the transaction for the client is to be effected only under specified conditions or in specified circumstances;” (emphasis supplied)
Thus, while the prohibition is on any person, the prohibition applies provided such dealing is “pending the execution of any order of his client ”. In other words, even in the present facts where D did not apparently deal “pending the execution of any order of his client”, the 1995 PFUTP Regulations could not have applied.
Having said that, it is also clear that the present facts and decision was not with reference to 1995 Regulations but the 2003 Regulations and they do refer specifically to intermediaries. Still, this distinction sought to be made appears to be erroneous.
It seems certain that, considering the nature of the transaction, and the amounts involved and the other cases of a similar nature, SEBI will appeal this case before the Supreme Court. Perhaps, SEBI may also take an initiative and amend its Regulations, to introduce specific provisions prohibiting such transactions.
Maharashtra Housing (Regulation and Development) Act, 2012
Conveyance
Provisions relating to conveyance are dramatis personae in the Bill. The maximum upheaval has taken place in this area and hence, one needs to study these provisions in depth.
S.10(1) of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (“MOFA”) currently provides that as soon as the minimum number of persons required to form a co-operative society have taken flats, the promoter has a duty to submit an application to the Co-operative Society Registrar for the registration of the society. The minimum number is 60% of the total flats. This application as per the Rules is to be made within 4 months from the date on which the minimum number is met. The promoter can also form a company instead of a society.
The Bill has modified this provision by extending the time available for forming a society or a company. A promoter must now make an application within 4 months from the earliest of the following dates:
(a) the date on which the OC is received for the building; or
(b) the date on which a minimum 60% of the flat purchases have taken possession; or
(c) the date on which the promoter has received the full consideration for the same.
Two other new features also find a place in MHRD which are not to be found under MOFA. In the case of a layout which consists of more than one building or wings of a building, the promoter must constitute a separate co-operative society or a company in respect of each such wing or building. The abovementioned timelines for formation of the entity would be separate qua each building or wing. This is a good amendment so that the conveyance of all buildings is not delayed till the completion of the layout. In the case of Jayantilal Investments v Madhuvihar Co-op. Hsg. Society,(2007) 9 SCC 220, the Supreme Court had an occasion to consider the timing when a conveyance needed to be executed in the case of a layout. Can conveyance be delayed till all the buildings in the layout are developed was the issue? In this respect, the Solicitor General made the following arguments, which in a way are the reasons for the new provision in the Bill: “ ..
It is submitted that, it is not open to the builders to insert clauses in the agreement with the flat takers stating that conveyances will be executed only after the entire property is developed. Learned amicus curiae submitted that the contention of the promoter in the present case is that its obligation to form society and execute a conveyance only after completion of the scheme is misconceived because u/s. 10 and 11 when the builder enters into an agreement with the flat takers he is required to form a cooperative society as soon as the minimum number of flat takers is reached and, thereafter, the conveyance has to be executed in favour of the society within four months after the formation thereof in terms of Section 11. He submitted that MOFA has been enacted to regulate the activities of the builders and not to confer benefits on them…”
The Supreme Court in this case remanded the matter back to the High Court for a fresh consideration. A Bombay High Court judgment in the case of Padmavati Constructions v State of Maharashtra, 2007 (1) Bom. CR 609 had held that conveyance of buildings in a layout need not be held up till the entire layout is completed.
Further, the promoter must take steps for forming an Apex Body or Federation consisting of all co-operative societies/companies within the layout.
The Apex Body would be the nodal authority for administering and maintaining the common areas and facilities within the layout while the individual societies would retain control of the internal affairs of their own respective buildings or wings as the case may be. Thus, the Apex Body would function like an Advanced Locality Management for the layout, but it is a more structured and formal concept. There are no timelines for the formation of the Apex Body. Probably, the Rules would deal with the same.
In cases where the promoter fails to execute a conveyance, the members of the society can make an application for execution of an unilateral deemed conveyance. An appeal can be made to the Housing Appellate Tribunal against an Order in respect of an unilateral deemed conveyance.
In respect of a layout, conveyance of title from the Promoter to the Society till such time as the entire development of the layout is completed, it shall be only in respect of the structures of the buildings in which a minimum number of 60% of total flats are sold along with FSI consumed in such building. Moreover, the conveyance shall be subject to the common right to use, the internal access roads and recreation areas developed or to be developed in the layout and with the right to use of the open spaces allocated to such building in terms of the agreement for sale executed by the Promoter with each flat purchaser.
There is an important non-obstante clause which provides that irrespective of anything contained in the MHRD/other Law/any agreement/any judgment/ Court order, the Promoter is entitled to develop and continue to develop the remaining layout and to construct any additional structures thereon by consuming the balance FSI, balance TDR and any future increase in FSI or TDR.
If the FSI of the plot in a layout is increased subsequent to the conveyance of any building in the layout to flat purchasers, then a part of the increase in the FSI shall belong to the flat purchasers of the conveyed structure or structures. The part belonging to the society is computed as a proportion of the FSI utilised or consumed by the conveyed structure to the total FSI of the layout. The promoter would have a right over the balance FSI or TDR remaining after what belongs to the society and it shall not be necessary for him to obtain any consent or permission from the flat purchasers for the purpose of utilising the balance FSI or TDR rights. These are indeed interesting amendments to the existing provisions under MOFA.
In cases where the promoter’s title to be conveyed is qua the entire undivided land appurtenant to all buildings in a layout, and if no period for executing such conveyance is agreed upon, then such conveyance shall be executed by the promoter in favour of the Apex Body within such time as may be prescribed after the formation of the Apex Body. It is likely that the Rules which would be framed under MHRD would prescribe the time limit.
The Bill provides that upon execution of the conveyance in its favour, the Society/ Company shall be entitled to the FSI or TDR rights relating to the building which has been conveyed and the proportionate share in the FSI increase explained above. If, after the conveyance of the layout land to the Apex Body, there is any increase in FSI or TDR or any benefits available on a layout plan due to changes in Government policies, then such increased FSI or TDR shall be apportioned among the respective legal entities in proportion to the TDR or FSI used for the purpose of construction of the buildings managed by them.
Additions and Alterations
U/s. 7(1) of the MOFA, once the approved plans of a building have been disclosed to any flat buyer, the promoter cannot make any alteration in the structures described there, in respect of the flats which are agreed to be taken without the previous consent of the purchaser. Further, he cannot make any alterations or additions in the building’s structure without the previous consent of all persons who have agreed to take flats in that building. For instance, in Khatri Builders v Mohd. Farid Khan, 1992 (1) Bom. C.R. 305 it was held that trying to construct an additional flat on the terrace by acquiring additional FSI falls within the mischief of section 7(1) of MOFA. What constitutes a consent was the subject-matter of discussion in this case where the Court held as under:
“46. Thus, there is consistent view of this court, that the blanket consent or authority obtained by the promoter, at the time of entering into agreement of sale or at the time of handing over possession of the flat, is not consent within the meaning of Section 7(1) of the MOFA, inasmuch as, such a consent would have effect of nullifying the benevolent purpose of beneficial legislation.
47. It is, thus, clear that it is a consistent view of this court, that the consent as contemplated u/s. 7(1) of the MOFA has to be an informed consent which is to be obtained upon a full disclosure by the developer of the entire project and that a blanket consent or authority obtained by the promoter at the time of entering into agreement of sale would not be a consent contemplated under the provisions of the MOFA…”
Even in Bajranglal Eriwal v. Sagarmal Chunilal, (2008) 6 Bom.C.R. 887, it was held that it is not open to a developer/promoter to rely upon a general consent. To allow such generalised consents to operate would defeat the public policy which underlies the provisions of section 7(1).
The Bombay High Court’s decision in the case of Jitendra Shantilal Shah v Zenal Construction P Ltd, Appeal from Order No.884 of 2008 is interesting. A plot was proposed to be amalgamated with an adjoining plot on which a building was already constructed. The Court held that the proposed construction violated section 7(1), since it touched the old building and entire open space of the occupants of the old building would be blocked. An SLP has been filed (SLP(C)No.10335/2009) before the Supreme Court against this Order of the High Court. However, in Jamuna Darshan Co-op. Hsg. Society v JMC & Meghani Builders, 2011(4) BCR 185, where a separate building was to be constructed as per the plan sanctioned by the Municipal Corporation, it was held that flat purchasers’ further consent was not required to be obtained since it must be deemed to have been obtained when their agreement itself was entered into and when they were shown the sanctioned plans.
The MHRD Bill contains a similar provision as section 7(1) of MOFA albeit with a twist. In case any alterations or additions are:
(a) required by any Government Authority;
(b) required due to changes in law; or
(c) disclosed in the Agreement for Sale
then the same shall not require the prior consent of the flat purchasers. Thus, the flat buyers should carefully read the contents of the Agreement. The old legal maxim of caveat emptor or buyer beware of what you buy would squarely apply.
A second new entrant in the Bill is a provision which permits the promoter to amend the layout, including the garden, recreational area, park, playground, etc., which had been disclosed in the building plans. These can be amended without prior consent of the flat purchasers, if the same is amended in accordance with the Development Control Regulations and for utilisation of the full development potential which is available from time to time.
A third scenario has been provided where a promoter can make changes without prior approval of purchasers. In case of development under a layout or a township, the promoter can construct any new building after obtaining the local authority’s permission in accordance with the Development Control Regulations, the only caveat being that the promoter shall not reduce the aggregate area of recreation garden, park, playground without the prior consent of all flat purchasers.
The fallout of this provision probably lies in the Supreme Court’s decision in the case of Jayantilal Investments v Madhuvihar Co-op. Hsg. Society,(2007) 9 SCC 220 which held that once the original plans of the building are approved by the local authority and the flats are sold on that basis, promoter/developer is prohibited from making any additions or alterations without the consent of the flat purchasers. A comprehensive project scheme has to be disclosed on such plot of land where the builder is going to construct the flats. Builders cannot construct additional structures which is not in the original layout plan without the consent of flat purchasers. The following extract from the Supreme Court’s decision are relevant:
“……he is also obliged to make full and true disclosure of the development potentiality of the plot which is the subject matter of the agreement. ….he is also required at the stage of lay out plan to declare whether the plot in question in future is capable of being loaded with additional FSI/ floating FSI/TDR. In other words, at the time of execution of the agreement with the flat takers the promoter is obliged statutorily to place before the flat takers the entire project/ scheme, be it a one building scheme or multiple number of buildings scheme. …….the above condition of true and full disclosure flows from the obligation of the promoter under MOFA …..This obligation remains unfettered because the concept of developability has to be harmoniously read with the concept of registration of society and conveyance of title. Once the entire project is placed before the flat takers at the time of the agreement, then the promoter is not required to obtain prior consent of the flat takers as long as the builder put up additional construction in accordance with the lay out plan, building rules and Development Control Regulations etc..”
Consequent to the Supreme Court remanding the case back to the Bombay High Court, the High court in Madhuvihar Cooperative Housing vs M/s. Jayantilal Investments, First Appeal No. 786 of 2004, Order dated 7th October, 2010 has passed the following Order:
“40. It can, thus, be seen that it is settled position of law, as laid down by the Apex Court, that a prior consent of the flat owner would not be required if the entire project is placed before the flat taker at the time of agreement and that the builder puts an additional construction in accordance with the layout plan, building rules and Development Control Regulations. It is, thus, manifest that if the promoter wants to make additional construction, which is not a part of the layout which was placed before flat taker at the time of agreement, the consent, as required u/s. 7 of the MOFA, would be necessary.”
Does this new provision mean that if there is a relaxation in the FSI Policy then the promoter can amend the layout to take full advantage of the available development potential? This is one area which is likely to attract maximum attention.
Penalties
Under MOFA, the promoters, on conviction of certain offences, are punishable with imprisonment of a term upto 3 years and/or with a fine. Further, when a promoter is convicted of any offence, he is debarred from undertaking construction of flats for 5 years. Any promoter who commits a criminal breach of trust of any amount advanced for a specific purpose is liable to an imprisonment of upto 5 years and/or fine.
The Bill has converted all offences into civil offences since all imprisonment provisions have been done away with. Interestingly, the Central RERA yet retains prosecution. Failure to refund the sum received with interest in case of non-possession or the act of creating a mortgage without consent of the flat purchaser attracts a penalty of Rs. 10,000 per day or of Rs. 50 lakhs, whichever is lower. Certain offences attract a penalty of up to Rs. 1 crore. Any person who fails to comply with the orders of the HRA or the Tribunal is liable to a penalty of upto Rs. 10 lakhs. The earlier draft of the Bill provided for imprisonment in certain cases which has now been dropped.
A new penalty has been introduced on the flat purchaser/allottee in case he does not pay the sums/ charges payable under the Agreement for Sale. On an order by the HRA, the purchaser is liable to a penalty of up to Rs. 10,000 or 1% of the Agreement value, whichever is higher.
Auditor’s duty
CAs have been given an important role under the MHRD since the Bill provides that the accounts of a promoter must be audited. For this purpose, a CA would have to be conversant with the requirements of Schedule II to understand the various Heads of Accounts which the promoter is required to maintain.
Conclusion
The intent behind the Act is noble, but what one needs to see is whether the implementation of the Act would also be noble. As would be evident from the above analysis, that like a mystery novel, there are several twists and turns in this Bill. The true impact of many provisions would come out once Rules are framed and actual cases become testing waters.
One must always remember that, in Law, and more so when it comes to property law, there is often a slip between the cup and the lip. There have been several innovative concepts such as deemed conveyance which have remained ‘pie in the sky’ concepts. One can only hope that the MHRD will lead to the constitution of an effective and efficient regulator and not lead to more corruption, bureaucracy and red tape.
Succession Certificate – Application by widow for waiver in payment of court fees – Bombay Court fees Act 1959, section 379.
Shehala Pramod Desai vs. Nil, AIR 2012 Bombay 168 (High Court)
The petition has been filed for issue of succession certificate in respect of the securities left by the deceased husband of the petitioner. The petitioner has not stated or substantiated that the petitioner, as the widow, is not able to otherwise maintain herself.
The securities mentioned in the petition are the moveable property left by the deceased. The petitioner, as also her two married daughters, are entitled to have an equal share in the estate of the deceased. The petitioner would be entitled to the securities upon the death of the deceased and upon administration of his estate.
The Hon’ble Court observed that it is a settled position in law that a woman is entitled to waiver/ exemption of Court fee only in respect of applications for maintenance in matrimonial disputes or with regard to divorce and family law matters and not for property disputes.
Since the petition is in respect of only the securities, the petitioner has not applied for Probate or Letters of Administration of the deceased, but only for the issue of Succession Certificate u/s. 370 of the Indian Succession Act. Upon the certificate being issued in the form specified in the schedule VIII, the petitioner would be empowered to receive interest and dividends thereon u/s. 374(a) of the Indian Succession Act (ISA). The petitioner would, therefore, be liable to deposit the sum equal to fee payable under the Court fees act 1870 (and later Bombay Court Fees Act, 1957) as applicable u/s. 379(1) of the ISA. The fact of the succession certificate being issued would be conclusive against the companies in which the deceased held the shares and securities u/s. 381 of the ISA.
Any party aggrieved by the issue of the certificate would be entitled to apply for revocation of the certificate u/s. 383 of the ISA. The order passed herein would be liable to appeal u/s. 384 of the ISA. Thus, the petition for issue of succession certificate is no different from the provisions under which the probate or Letters of Administration are granted. The petition for Succession Certificate may be filed only because the probate or Letter of Administration would not be applied for, since it is not in respect of immoveable property left by the deceased. The petitioner is also liable to pay the court fees.
Consequently, merely because the petitioner is the widow or child of the deceased, the petitioner would not be entitled to any remission, exemption or waiver of the Court fee statutorily required to be payable u/s. 379 of the ISA for securities or other debts of the deceased.
Sale of property of Minor – Court permission – Hindu Minority and Guardianship Act 1956, section 8(4):
Ku Kamna Satyanarayan Handibag vs. Satyanarayan Chatrabhuj Handibag & Anr AIR 2012 Bombay 163 (High Court)
The applicant is maternal uncle of Ku. Kamna Satyanarayan Handibag. An application was filed by the respondent No.1 for sale of land in the name of Ku. Kamna, which had been allowed by the trial court. The said order was challenged on the ground that while allowing the said application, the trial court had not taken into consideration the interest of the minor child. It was also submitted that it was an admitted position that the said land was purchased by the respondent for Rs.4.00 lakh and the approximate value of the said land, in the application filed before the trial Court, was shown Rs.2.00 lakh. The applicant submitted that the fact that the said land was purchased for Rs.4.00 lakh and the respondent No.1 wants to sell it for just Rs.2.00 lakh, itself, shows that the respondent No.1 is not interested in protecting the interest of the minor and the Court had also not considered the interest of the minor. It was also submitted that, even the Court should have considered the provision of Sections 29 and 31 of the Guardians and Wards Act, 1890.
The Hon’ble High Court observed that in view of sub-section (4) of Section 8 of the Hindu Minority and Guardianship Act, it was incumbent upon the trial court to find out and make enquiry in depth on how the sale of the land standing in the name of the minor is going to be beneficial or advantageous to the child in future. The very fact that the land standing in the name of the minor was purchased at Rs.4.00 lakh and its approximate price is shown in the application as Rs.2.00 lakh itself is indicative of the fact that the respondent i.e. original applicant has not approached the Court with clean hands. That apart, a copy of notice received by the revision applicant in Misc. Application No. 18 of 2012 clearly indicated that, the custody of the minor is with the revision applicant i.e. maternal uncle of Kum. Kamna. In the said proceedings, there was a prayer by the applicant to declare him as a natural guardian. Therefore, in Misc. Civil Application No. 18 of 2012, a formal declaration is sought by the respondent in the said application to declare him as a natural guardian. Therefore, it follows from the said prayer that the application filed by the respondent for the sale of land standing in the name of Ku. Kamna (minor) was premature.
Apart from the above fact, the trial court was duty bound to find the truth whether the application seeking permission for the sale of land, standing in the name of the minor, would be for the benefit of the minor. However, the trial court had not made an in-depth endeavour to do such an exercise and by cryptic reasons had allowed the application filed by the respondent granting him permission to sell the land standing in the name of minor Ku. Kamna. In the application for sale of the land, the averments were general in nature and there were no specifications given by the applicant, in which he expressed his desire to protect the interest of the minor and by which mode and manner, he intends to deposit the amount after sale of land standing in the name of minor. Further, the trial court had not adverted to the provisions of Sections 29 and 31 of the Guardians and Wards Act, 1890.
The Hon’ble Court set aside the order of trial court and remitted the matter back to trial court to decide alongwith the Misc. Civil Application No.18/2012, which was kept pending for hearing.
Recovery of debts –– Limitation – Property mortgage with Bank – SRFAESI Act, 2002 section 13(2) & 36.
Somnath Manocha vs. Punjab & Sind Bank & Ors AIR 2012 Delhi 168 (High Court).
The respondent Bank had given certain loans to one M/s. General Tyre House, a partnership firm in the year 1981. For securing the loan, the appellant was one of the guarantors. He also gave the security in the form of equitable mortgage in respect of house property
The loan could not be paid by M/s. General Tyre House, which forced the Bank to file suit for recovery of Rs. 7,75,283.60 against that firm as well as the appellant and other guarantors. The aforesaid proceedings are still pending adjudication and the suit had not been decided so far. The Parliament enacted SARFAESI Act which came into effect from 18-12-2002. Though no immediate action was taken, however fresh notice dated 20- 11-2004 u/s. 13(2) was served on similar lines calling upon the appellant to pay the entire outstanding liability amounting to Rs. 3,84,59,807/- together with interest with effect from 21-11-2004. The appellant replied on 07-1-2005 questioning the validity of this notice on the ground that the action was time barred in view of the provisions of Section 36 of SARFAESI Act read with Article 62 of the Schedule to the Limitation Act. The Bank, however, took the stand that notice was not time barred.
The appellant filed a petition against the aforesaid action of the Bank taking the same plea, viz., the claim of the respondent Bank was impermissible as the action was time barred.
The Hon’ble Court held that it could not be disputed that under ordinary law, the respondent Bank had lost the remedy of enforcing the aforesaid security by way of mortgage as limitation of 12 years as provided in Article 62 of the Schedule to the Limitation Act, 1963 had expired. The Bank chose to file only a suit for recovery of money and, it did not file any suit under Order XXXIV of the CPC. In terms of order XXXIV Rule 14, the Bank was entitled to bring the mortgaged property to sale by instituting a suit for sale in enforcement of the mortgage where after obtaining a decree for payment of money, in satisfaction of the claim under mortgage. However, such a suit could be filed within the period of limitation prescribed under Article 62 in the Schedule to the Limitation Act. Thus, under the ordinary law, the Bank was precluded from filing a mortgage suit in respect of the aforesaid property.
Thus, on the date of notice issued u/s. 13(2) of SARFAESI Act, there was no such existing or subsisting right qua mortgage. In the present case, since right to file a suit or proceedings stood extinguished, the SARFAESI Act would not revive this extinguished claim. Position would have been different if the Bank had filed mortgage suit and such a suit was pending. If the period of 12 years had not expired under Article 62 in the Schedule to the Limitation Act and there was still time to file the proceedings of mortgage suit, even that would have saved the right of the Bank to enforce the provision of SARFAESI. But even that action has become time barred. It was therefore held that the claim is barred u/s. 36 of SARFAESI Act and therefore, it was not open to the Bank to proceed under this Act. The impugned notice u/s. 13(2) and 13(4) of SARFAESI Act issued by the Bank was quashed.
Professional Misconduct – Charges of preparing and signing two sets of balance sheets reflecting different entries pertaining to sale. Chartered Accountants Act, 1949, section 20(2):
Institute of Chartered Accountants of India vs. Rajesh Chadha FCA & Anr. AIR 2012 P & H 170 (High Court)
The disciplinary proceedings against the respondent- Rajesh Chadda, Chartered Accountant was initiated on the basis of a complaint u/s. 21 of the Act, received from Commissioner, Central Excise Chandigarh-II Chandigarh against the respondent. Considering the aforesaid complaint, the Council of the Institute of Chartered Accountants of India under the Act referred the case to the Disciplinary Committee for inquiry.
The complaint was that, during the audit of M/s. Ashwin Fabrics (P) Ltd., Amritsar by Central Excise Commissioner from 14.6.1999 to 16.6.1999, the Central Excise Officers came across two sets of balance sheets prepared and signed by the same Chartered Accountant i.e. the respondent herein. One set of balance sheet was prepared for Income Tax Department and another for Central Bank of India. In the two balance sheets, there was a difference of Rs. 3 crore in the entry pertaining to sale of stocks. It was mentioned in the complaint that the respondent was summoned u/s. 14 of the Central Excise Act, 1944. He accepted that both these balance sheets were prepared and signed by him.
It was therefore, requested that appropriate action may be initiated against Rajesh Chadha, of M/s. Rajesh Chadha & Associated Chartered Accountant, for professional misconduct.
In the reply filed to the complaint before the Council, the respondent admitted having made statement before the Central Excise Authorities but asserted that he ought to have taken due caution while tendering statement before the Central Excise Department.
The Disciplinary Committee also noticed that on the basis of the balance sheet, submitted by the Company, duly authenticated by the Chartered Accountant, loan was sanctioned by the Bank and that the respondent had neither to put in appearance nor the witnesses cited have been examined. He has failed to bring in evidence to prove his bona fide conduct in the entire matter. The Council also decided to recommend to the High Court that the name of the Respondent be removed from the Register of Members for a period of three years.
The Hon’ble Court in pursuance of such recommendation of the Council examined the matter and observed that the respondent had not examined any defence witnesses in support of his assertion that his signatures on the balance sheets do not tally. He had admitted before the Central Excise Authorities that both the sets of balance sheets were signed by him. Copy of the said statement was supplied to the respondent on the same date, as is apparent from the endorsement recorded at the end of the statement. It is not even asserted by the respondent that he disputed the recording of the statement at any time by submitting any objection at any time or by submitting any protest petition to the Central Excise Department. In the absence of any oral or documentary evidence, the stand in the written statement that the signatures on the two balance sheets are not genuine, cannot be believed. The nature of the print out and the other figures are exactly the same as in the other balance sheet of which Manufacturing & Trading & Profit and Loss Account for the year ending 31.3.1998, which is available in the paper book.
It was for the respondent to explain as to how for the same period, two different Manufacturing & Trading & Profit and Loss Account statements came into existence duly signed by him, giving discrepant purchase and sale figures. Having failed to give any plausible explanation, the disciplinary proceedings have rightly been concluded as to misconduct on the part of the respondent. The recommendation and order removal of respondent- Shri Rajesh Chadha as the member of the institute for the period of three years was accepted.
Gift – Acceptance of gift – Between father and daughter Transfer of property Act 1882, section 54 & 122:
Chaudhary Ramesar vs. Smt. Prabhawati Phool Chand AIR 2012 Allahabad 173 (High Court)
The plaintiff was the brother of one Mohan. Mohan neither had a son nor a daughter and that during his lifetime his wife Smt. Tirthi had died. It was alleged that the defendant got a gift-deed executed through an imposter of Mohan, which was liable to be cancelled on the grounds: that Mohan did not at all execute the gift-deed; that the statement in the gift-deed that the defendant was daughter of Mohan was incorrect; that the gift-deed was executed without a mental act of the donor; that there was no valid acceptance of the gift; that the defendant did not enter into possession of the property.
The defendant contested the suit by denying the allegations and claiming that she was the only daughter of Mohan and that Mohan had no son or other issue. It was claimed that the gift was voluntarily executed by Mohan, which was duly attested by the witnesses and registered in accordance with the law of registration; and that the gift was duly accepted by her and that her name was duly recorded in the revenue records pursuant to the gift-deed. It was also claimed that the suit was barred by limitation as also by principles of estoppel and acquiescence.
The Trial Court came to the conclusion that the gift-deed was validly executed, the execution of which was proved by its attesting witness – that the defendant was the daughter of Mohan, that the death certificate produced by the plaintiff to the effect that Mohan died on 25.5.1991, that is prior to the execution of the gift-deed, was not reliable, whereas from the evidence led by the defendant it was clear that Mohan had died on 10.8.1991; and that the name of the defendant was also mutated in the revenue records. With the aforesaid findings the suit was dismissed. The finding recorded by the Courts below that Dr. K. Shivaram Ajay R. Singh Advocates Allied laws Prabhawati (defendant) was the daughter of Mohan had not been subjected to challenge.
The Hon’ble Court observed that from a perusal of the photocopy version of the gift-deed, it appeared that bhumidhari land was gifted whereas Rs. 40,000/- has been mentioned as the valuation of the property donated and not as consideration. The valuation has been mentioned, obviously, for the purpose of payment of stamp duty. Accordingly, the first contention was not acceptable. Thus, a composite reading of the deed clearly disclosed that it was a gift of immovable property and not a sale.
On the question of valid acceptance of the gift, the learned counsel for the appellant contended that the defendant was a minor on the date of the execution of the gift-deed, therefore, in absence of any proof of valid acceptance by a guardian or next friend on her behalf, the gift would not be complete.
The Court observed that the age of Smt. Prabhawati has been disclosed as 28 years, which translates to 21 years on the date of execution of the gift-deed. In the plaint, however, it has been mentioned that from the impugned deed, acceptance is not established. In the gift-deed, there is a clear recital that the donor was transferring his possession over his bhumidhari land and that the gift has been accepted by the donee i.e. Prabhawati and that she was entitled to get her name mutated in the revenue records. This recital in the gift-deed raises a presumption about the acceptance of the gift by the donee. The trial Court while deciding issue No. 1 has taken note of the statement of Prabhawati, wherein she had stated that on the same day she entered into possession of the land and continues to remain in possession. Thus, it cannot be said that there was no acceptance of the gift. Even otherwise, assuming that actual physical possession remained with the father, then also, the gift could not have been invalidated considering the relationship of father and daughter. In the case of Kamakshi Ammal vs. Rajalaksmi and others, AIR 1995 Mad 415 (para 21) it was held that where a father made a gift to his daughter and on its acceptance by her, she allowed her father to enjoy the income from the properties settled in view of the relationship of father and daughter between the donor and donee, it could not be said that there was no acceptance of gift by the donee, even assuming that the donor continued to be in possession and enjoyment of the property gifted.
Further, even if it is assumed that the defendant was minor on the date of execution of the giftdeed, the gift would not be invalidated for lack of acceptance by another guardian or next friend, as acceptance can be implied by the conduct of the donee.
The appeal was dismissed.
Greedonomics
It is said that there is no end to Greed. The Free Dictionary defines “Greed’ as an excessive or rapacious desire, especially for wealth or possessions”.
Though, I am not an Economist but a sceptical man, I see the current economic growth driven by first spending to create demand and then instigating people to spend. This instigation, is from various mediums, such as advertising, social status, etc. This gradually becomes a habit, which will lead to the need for money. To earn money, a person will do various types of jobs and then spend the money earned on his habits. People slowly get into the trap of spending and increasing demand, which then leads to inflation.
“Our economy is based on spending billions to persuade people that happiness is buying things, and then insisting that the only way to have a viable economy is to make things for people to buy so they’ll have jobs and get enough money to buy things.” ? Philip Elliot Slater
Management Gurus and Economists may explain this phenomenon as growth. For economies, money is the root for growth, more the money circulation more is the growth. But what is the limit of growth or is there any ideal growth rate?
As a thought, if people in economies that are growing at less than 1% can live a good life, then why should we increase at 8% or even higher!! It is like we all are in a race to grow fast. But wait, is it growth or are we going towards depletion of resource at a fast pace. If the existing resources would say last for next 100 years, why do we want to deplete them in 50 years?
“Worldwide, compared to all other fossil fuels, coal is the most abundant and is widely distributed across the continents. The estimate for the world’s total recoverable reserves of coal as of January 1, 2009 was 948 billion short tons. The resulting ratio of coal reserves to consumption is approximately 129 years, meaning that at current rates of consumption, current coal reserves could last that long.” – US Energy Information Administration (www.eia.gov)
There is a law of Diminishing Marginal Utility (DMU). The law of DMU states that other things being equal, the marginal utility derived from successive units of a given item goes on decreasing. Hence, the more we have of a thing; the less we want of it, because every successive unit gives less and less satisfaction. However, there is an exception to this law for a particular thing i.e. money.
For example, when a person is hungry, the first bite of food will give the most satisfaction, then the second. Thus, the hunger is satisfied by the last bite. However, it is reverse in case of money, with every increase in earnings, the greed to have more, increases.
This concept of DMU is used in business, to increase the sale of products by fixing a lower price. Since consumers tend to buy more to equate their utility (i.e. value for money) with price, the manufacturer can expect a rise in sale and thus, increase its margin by increase in volume. Indian mythology carries many examples around Greed and Deed. Lord Krishna said, “Karma kar, phal ki chinta mat kar” meaning “perform your duty with generosity without expecting any outcome from it. However, in reality, the way the businesses are run, is purely based on profit i.e. outcome. Kenneth Allard, a former army colonel and an adjunct professor in the National Security Studies Program at Georgetown University, holding a PhD from the Fletcher School of Law and Diplomacy and an MPA from Harvard University, has written a book named “Business is War”. He was dean of students of the National War College from 1993 to 1994.
He writes “A 21st-century business strategy for succeeding in a tough global economy. To succeed in today’s turbulent business environment operating in a ‘business as usual’ mode will no longer work. Conflict and competition can come from anywhere. In tough economic times, survival is a matter of waging war, and people are looking for proven strategies to solve all types of problems..”
Thus, it can be seen that the modern philosophy of business is changing. I would quote Mahatma Gandhi which sounds paradoxical to the latest business strategies, “Earth provides enough to satisfy every man’s needs, but not every man’s greed.”
How businesses are affected by Greed:
Take an example of Satyam Computers, who in their greed to grow over its competitors and derive higher valuations, constantly showed better results and increase in earnings per share. The fact was that, there were no real customers, the invoices raised were not realised in real and the money in fixed deposits was no more than paper. There is an increasing tendency of businesses competing with each other in the race to have higher valuations, which in turn depends on higher earnings. The thing to bear in mind is that “greed is good.” That is, it’s good for a business, but perhaps not for the society in which the business survives. Unrestrained greed in the business can lead to cruelty and malpractices. A business dominated by greed will often ignore the harm their actions can cause to others. Child labour, sweat shops, unsafe working conditions and destruction of livelihoods are all consequences of businesses whose personal greed overcame their social consciences.
Greed and Society
From a macro point of view, a society that bans individual greed may suffer. It is greed that makes people want to do things, since they will be rewarded for their efforts. It is a carrot and stick approach that can yield better results. Remove the reward and it may lead to reduction in incentive to work.
“The former Soviet Union provides an example of this: the collective farms provided no individual incentive to strive, and thus produced an insufficient supply of food. The individually owned and run truck farms, however, with the possibility of selling the produce and keeping the proceeds, grew a far greater harvest per acre than the collective farms. The “greed” of American farmers has allowed them to grow food for the world, since the more they produce the more money they make.”
Nonetheless, however you regard it, unrestrained greed is detrimental to the society; unrestrained disapproval of greed is detrimental to the society. People attempt to find a balance between personal and social necessity.
“If it weren’t for greed, intolerance, hate, passion and murder, you would have no works of art, no great buildings, no medical science, no Mozart, no Van Gough, no Muppets and no Louis Armstrong.” ? Jasper Forde, The Big Over Easy
To conclude, the strange fact as understood is that, once a person generates earnings, earnings originate greed. Then slowly, the earnings that gave birth to greed, gets to the back seat and greed governs the level of earnings. Thus, there is no limit to the desire to grow earnings, because, there is no end to Greed. Here, I remember a quote from the twenty-first verse in the Sixteenth Chapter of the Bhagavad-Gita, where Lord Krishna says:
“tri-vidham narakasyedam dvaram nasanam atmanah kamah krodhas tatha lobhas tasmad etat trayam tyajet” “Give up kama, krodha, lobha i.e. lust, anger, and greed. If you become influenced or affected by them, then you will open your door to hell.”
In this Contemporary World, it is very difficult to completely give up Greed, so this New Year, let us resolve one thing, Let us Rationalise our Greed…
Investment Allowance – Whenever the assessee claims investment allowance u/s. 32A of the Act, it has to lead evidence to show that the process undertaken by it constitutes “production”.
Vijay Granites Pvt. Ltd. v. CIT (2012) 349 ITR 350(SC)
The assessee, a company engaged in the business of raising granites from mines, polishing them and exporting them outside India as also in purchasing granite blocks and after subjecting granite blocks to further processing, exporting them outside India, claimed investment allowance in respect of cranes for assessment year 1986-87 and 1987-88 and allowance u/s. 32A for the assessment year 1988-89.
The Assessing Officer disallowed the claim, firstly on the ground that cranes were transport vehicles and further on the ground that no manufacturing process was involved in cutting the granites and polishing them. On appeal, the appellate authority accepted the contention of the assessee to the effect that the machinery was not a transport vehicle and the assessee was engaged in the manufacture or production of articles and therefore entitled to deduction. On appeal by the Department, the Tribunal confirmed the aforesaid conclusion. On the basis of application filed u/s. 256(1) the Tribunal referred the questions of law to the High Court. The High Court held that the act of cutting and polishing granite slabs before exporting them, did not involve any process of manufacture or production and the assessee was not entitled to the deduction u/s. 32A.
On appeal by the assessee to the Supreme Court, the Supreme Court found that the assessee had not led evidence before the Assessing Officer as to the exact nature of activities undertaken by it in the course of mining, polishing and export of granites. The Supreme Court observed that it has repeatedly held that, whenever the assessee claims investment allowance u/s. 32A, it has to lead evidence to show that the process undertaken by it constistutes “production”. The Supreme Court remitted the case to the Assessing Officer for fresh determination within three months from the date of receipt of the record, after giving opportunity to the assessee to produce relevant evidence.
Rectification of mistakes – Issue involving moot question of law at the relevant time – Rectification not permissible.
Dinosaur Steels Ltd. v. Jt. CIT (2012) 349 ITR 360 (SC)
The assessee, an industrial undertaking engaged in the manufacturing of steel products, filed its return of income for assessment year 1999-98 disclosing an income of Rs.3,31,188 as under:
Gross Total Income Rs. 34,92,097
Less: Deduction u/s. 80IA @ 30% Rs. 10,47,629
————————
Rs. 24,44,468
Less: Brought forward losses
of earlier assessment year Rs. 21,13,280
————————-
Total Income Rs. 3,31,188
============
The return was processed u/s. 143(1)(a).
Subsequently, the Assessing Officer issued a notice u/s. 154 of the Act, calling for objections on the ground that there was a mistake in the assessment order, namely, the claim of deduction u/s. 80-IA had been allowed inadvertently before setting off the earlier years’ losses from the profits and gains of the industrial undertaking. The assessee objected to the proposal of restricting its claim u/s. 80-IA, by placing reliance on the judgment of the Madhya Pradesh High Court in the case of CIT v. K. N. Oil Industries reported in [1997] 226 ITR 547 (MP), in which the High Court held that losses of earlier years were not deductible from the total income for purposes of computation of special deduction u/s. 80HH and 80-I (predecessors of section 80-I). Further, according to the assessee, in any event, section 154 of the Act was not applicable as there was no patent error in the order passed by the Department u/s. 143(1)(a). In this connection, reliance was placed by the assessee on the judgment of this case of T.S. Balaram, ITO v. Volkart Brothers reported in (1971) 82 ITR 50 (SC). These contentions were rejected by the Assessing Officer. Aggrieved by the order passed by the Assessing Officer u/s. 154, the assessee filed an appeal to the Commissioner of Incometax (Appeals). The Commissioner of Income-tax (Appeals) dismissed the appeal by following the judgment of the Supreme Court in the case of CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. reported in (1997) 224 ITR 604(SC). Aggrieved by the said order, the assessee filed an appeal to the Income-tax Appellate Tribunal which was also dismissed, saying that deduction u/s. 80-IA can be allowed only after setting off the carry forward losses of the earlier years in accordance with section 72 of the Act, particularly when the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year was only from the industrial undertaking. According to the Tribunal, this was the law which was well settled by the judgment of the Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra). Therefore, according to the Tribunal, there was a patent mistake in the assessment order passed u/s. 143(1)(a) and consequently the Assessing Officer was right in invoking section 154 of the Act. This decision of the Tribunal has been upheld by the Court.
On an appeal by the assessee to the Supreme Court, the Supreme Court observed that the provisions of Chapter VI-A, particularly those dealing with quantification of deduction have been amended at least eleven times. Moreover, even section 80-IA, was earlier preceded by section 80HH and 80-I, which resulted in a plethora of cases. The Supreme Court noted that some of the amendments have been enacted even after the judgment of the Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra) delivered on 5th March, 1997. In the circumstances, the Supreme Court was of the view that one cannot say that this was a case of a patent mistake. The assessee had followed the judgment of the Madhya Pradesh High Court in K.N. Oil Industries (supra). Hence, the assessee was right in submitting that the issue involved a moot question of law, particularly at the relevant time (assessment year 1997-98).
For the above reasons, the Supreme Court held that section 154 of the Act was not applicable.
Bad Debt – Prior to 1-4-1989 – Allowable as deduction even in cases in which the assessee(s) made only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor.
Kerala State Industrial Development Corporation v. CIT (2012) 349 ITR 365 (SC)
The assessee, the Kerala State Industrial Development Corporation Ltd., a limited company wholly owned by the Government of Kerala, had advanced large amounts to Vanchinad Leather Ltd., a joint sector company promoted by the assessee in the year 1974 for processing hides and skins. The company started commercial production in 1977. However, it was closed down in 1980. Later it was reopened in September, 1982 and again closed down in January, 1983.
During the assessment year 1988-89, the assessee claimed deduction of Rs.55,70,949 as a provision for bad debts as in February, 1988 a declaration was made by BIFR that Vanchinad Leather Ltd. had become a sick company. The claim was disallowed on the ground that no reasonable steps had been taken for recovery of the debts and further, no part of the outstanding amount had been assessed as the income of earlier years. Also, the amount was not written off in the assessee’s accounts in claiming bad debts. The Commissioner of Income Tax (Appeals) confirmed the disallowance. The Tribunal dismissed the appeal, taking the view that the assessee could not prove that the debt had become irrevocable during the previous year and that the condition for claiming deduction u/s. 36(2)(i)(b) were not satisfied.
The following question of law was referred to the High Court u/s. 256(1) of the Act:
“Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the claim of bad debts in respect of Vanchinad Leather Ltd. was not legally sustainable and allowable?”
The High Court answered the question in favour of the revenue and against the assessee, holding that in the profit and loss account the assessee had made only a provision for bad and doubtful debt and the debt had not been written off as bad debts.
On an appeal to the Supreme Court by the assessee, the Supreme Court noted that till the end, the company could not be revived and it had been wound up. In the circumstances, applying the commercial test and business exigency test, the Supreme Court held that both the conditions u/s. 36(1)(vii) read with section 36(2)(i)(b) of the Act were satisfied observing that in Southern Technologies Ltd. v. CIT (320 ITR 577) it had held that prior to 1-4-1989 even in cases in which the assessee(s) made only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction u/s. 36(1) (vii). According to the Supreme Court, there was no reason to deny to the assessee the claim for deduction of bad debt.
[2012] 138 ITD 278 (Pune) Ramsukh Properties vs. DCIT A.Y. 2007-08 Dated: 25th July, 2012
Assessee entitled to benefit u/s. 80(IB)(10) in respect of partially complete housing project if project could not be completed in specified time for reasons beyond its control.
Facts:
The assessee was a firm engaged in the business of builders and promoters. Its housing project consisted of six buildings having 205 flats. The housing project was not fully completed in time as specified under 80(IB)(10)(a) and hence it received completion certificate for 173 flats only. The assessee claimed deduction u/s. 80-IB(10) in respect of all the 205 flats as the project has been substantially completed and as such the completion certificate was obtained. The Assessing Officer rejected the claim of the assessee for granting whole deduction in respect of whole project as well as alternative claim with regard to the proportionate deduction on the ground that the project was not completed within the stipulated period of time. On appeal, the Commissioner (Appeals) upheld the action of the Assessing Officer.
Held:
Out of 205 flats, completion certificate was obtained and furnished before the AO for 173 flats only. The request for granting whole deduction in respect of whole project has rightly been rejected because deduction u/s. 80-IB(10) could not be granted to assessee on incomplete construction at relevant point of time. However, the fault of noncompletion of construction was not attributable to assessee. In case such a contingency emerges which makes the compliance with provisions of section 80- IB(10) impossible, then benefit bestowed on an assessee cannot be completely denied. Such liberal interpretation should be used in favour of assessee when he is incapacitated in completing a project in time for reasons beyond his control. The phrase “completion” is a relative and not absolute term. Accordingly, even part completion must be construed as completion. The provisions of taxing statute should be construed harmoniously with the object of statue to effectuate the legislative intention.
Hence, it was held that the assessee is entitled for benefit u/s. 80IB(10) of the Act in respect of 173 flats completed before prescribed limit.
Bad debts: Deduction u/s. 36(1)(vii): A. Y. 2004- 05: Where books of account are not closed and not signed by Board of Directors and not adopted by shareholders as per Companies Act, it is legally permissible to make adjustments before they are finally adopted: Where accounts of assessee were open and subject to correction by auditors, bad debts could be written off even after closure of accounting period, as there is neither any condition nor any provision u/s. 36(1)(vii), that writing off of
CIT vs. U.P. Rajkiya Nirman Nigam Ltd.; [2013] 36 taxmann.com 96 (All):
For the A. Y. 2004-05, the assessee’s claim for deduction of bad debts u/s. 36(1)(vii) of the Income-tax Act, 1961 was disallowed by the Assessing Officer on the ground that the decision to write off bad debt was not taken in the relevant previous year. The Tribunal allowed the assessee’s claim.
On appeal by the Revenue, the following questions were raised before the High Court:
“i) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that assessee can keep his accounts open for an indefinite period and pass an entry at a later stage even after 12 months from the closure of the accounting period?
ii) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in allowing the claim of bad debts of the assessee on the ground that it has been written off in the accounts of the relevant previous year while failing to appreciate that decision to write off bad debt was not taken in the relevant previous year and the same were actually not done in the previous year by 31st March?”
The Allahabad High Court upheld the decision of the Tribunal and held as under:
“i) On perusal of the provisions, it reveals that the only requirement for allowing the bad debt u/s. 36 (1) (vii) of the Income-tax Act, is that any bad debt or part thereof is written off as irrecoverable and secondly, they should be written off in the accounts of the assessee for the previous year. In the instant appeal, neither the department nor the assessee disputes that the debt had become bad and it was written off.
ii) The prescription as provided is to write off bad debt by the assessee in the accounts ‘for the previous year’, but it does not say to write off bad debt ‘in the previous year’. Thus, there is a vast difference if the word ‘in’ would have been there in place of ‘for’. Further, the words ‘accounts of the assessee’ are qualified with further words ‘for the previous year’. Thus, it only means that the accounts in which the Act of writing off is to be done by the assessee should be for the previous year. Therefore, the law requires to write off the bad debt in the accounts of the assessee in the relevant accounting year. There is neither any condition nor any provision that the writing off should be done in the previous year, i.e. before end of the financial year.
iii) In the present case, debts relating to the period 1987-88 and 1998-99 claimed in the accounts which were prepared up to 31-03-2004 and as the accounts of the assessee are open and subject to corrections by the Auditors, as per the Companies Act, then such writing off can be done in those account books. No new legal proposition has been brought to our notice for treating the debt as bad or irrecoverable should be taken in the previous year itself. In other words, where account books are not closed and not signed by the Board of Directors and not adopted by the shareholders as per the Companies Act, it is legally permissible to make adjustments before they are finally adopted.
iv) Further, it is admitted that the original return, on the basis of unaudited accounts, was filed on 01-11-2004. After audit had taken place and report of the Auditors was accepted, revised return was filed on 18-08-2005 and it is only in the revised return, the debts to the tune of Rs. 2 crore and odd had been declared as bad. The ground taken by the Assessing Authority and Appellate Authority for not accepting the said bad debts during the assessment year under consideration, i.e. 2004-05 is contrary to the provisions of section 36 (1) (vii) of the Income-tax Act, and further in view of the interpretation as stated here-in-above. Therefore, the Tribunal has rightly allowed the appeal of the assessee.
v) In view of above, the questions are answered in the negative, i.e., against the Revenue and is in favour of the assessee.”
Appellate Tribunal: Power and scope: Section 80-IA: A. Ys. 2002-03 to 2008-09: CIT(A) holding rental income from towers constructed in industrial park was business income and eligible for deduction u/s. 80-IA: Revenue not challenging this finding before Tribunal: Tribunal cannot pass remand order for further enquiry on issue of character of receipt:
R. R. Industries Ltd. vs. ITO; 356 ITR 97 (Mad):
The assessee constructed towers in the industrial park and let them out to software concerns providing a platform with plug and play infrastructure. It claimed deduction u/s. 80-IA of the Income-tax Act, 1961, treating the rental income as business income. The Assessing Officer assessed the income as income from house property and disallowed the assessee’s claim for deduction u/s. 80-IA. The Commissioner (Appeals) held that the assessee had complied with section 80-IA(4)(iii) and accordingly was eligible for deduction u/s. 80-IA. He held that the income received by the assessee was to be assessed as income from business. He also agreed in principle that the deduction u/s. 80-IA would be allowed, even if the rental income was assessed as income from house property.
Before the Tribunal the Revenue challenged the view of the Commissioner (Appeals) only on his holding the income derived from letting out of industrial park buildings as income from business as against the finding made by the Assessing Officer that it was to be treated as income from house property. No question was raised on the view of the Commissioner (Appeals) that irrespective of the character of the receipt, the deduction was available. On considering the nature of the receipt, the Tribunal agreed with the submission of the assessee that income derived by developing and operating or maintaining an industrial park was assessable under the head “profits and gains of business and profession” as could be inferred from the provisions of section 80-IA(4)(iii) of the Act. The Tribunal held that the assessee as well as the Revenue had not brought out any materials to show that the facilities developed by the assessee after completion of the development was treated as an industrial park by any authority and it was not clear whether the alleged industrial park was so notified by the Central Government or not. In the absence of any material to show that what was predominant in the letting out in the building and whether the facilities were incidental, the Tribunal viewed that it was necessary to restore the issue back to the Assessing Officer for proper verification.
On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and held as under:
“i) When the Revenue had accepted the view of the Commissioner (Appeals) on section 80-IA that the assessee had complied with section 80-IA(4)(iii), nothing remained for an enquiry either as to the nature of the receipt or for that matter the facilities developed to be treated as an industrial park to consider the question of deduction u/s. 80-IA(4)(iii).
ii) The view of the Commissioner (Appeal) in this regard did not call for any interference. The Revenue did not challenge the order of the Commissioner on the section 80-IA deduction before the Tribunal.
iii) Thus, when the character of the receipt was not a question to be gone into in the matter of considering the claim of deduction u/s. 80-IA(4)(iii), no useful purpose would be served for the Revenue to again insist on a decision on the character of the receipt.
iv) The order of the Tribunal was set aside and the appeals filed by the assessee are allowed.”
Motor Accident–Compensation on account of death–In law the presumption is that the employer at the time of payment of salary deducts income tax on the estimated income of the deceased employee from the salary and in the absence of any evidence to the contrary the salary as shown in the last pay certificate should be accepted for calculating the compensation payable to the dependent(s).
Vimal Kanwar And Ors. vs. Kishore Dan And Ors. [2013] 354 ITR 95 (SC)
On 14th September, 1996, one Mr. Sajjan Singh Shekhawat, Assistant Engineer with the Public Works Department, was sitting on his scooter which was parked on the side of the road and was waiting for one Junior Engineer, N. Hari Babu, and another whom he had called for discussion. At that time, a driver of a Jeep No. RJ10C0833 came driving from the railway station side with high speed, recklessly and negligently and hit the scooter. Sajjan Singh along with his scooter came under the jeep and was dragged with the vehicle. Due to this accident, fatal injuries were caused to him and on reaching the hospital he expired. The scooter was also damaged completely. The wife of the deceased was aged about 24 years; the daughter was aged about 2 years and the mother was aged about 55 years at the time of death of the deceased. They jointly filed an application to the Tribunal alleging that negligent and rash driving by the driver of the jeep caused the death of Sajjan Singh and claimed compensation of Rs. 80,40,160.
The Tribunal determined the compensation to be granted in favour of the appellants at Rs. 14,93,700 jointly.
Though the High Court noticed certain mistakes in determination of the compensation it upheld the same. In determining the compensation, a notional deduction of income tax was made by the High Court from the salary of the deceased apart from the deduction of annual pension and came to the conclusion that the award passed by the Tribunal was just and proper.
Before the Supreme Court, the grievance of the appellants was as follows:
(i) No amount can be deducted towards provident fund, pension and insurance amount from the actual salary of the victim for calculating compensation.
(ii) In the absence of any evidence, the court suo motu cannot deduct any amount towards income tax from the actual salary of the victim.
(iii) On the facts of the present case, the Tribunal and the High Court should have doubled the salary by allowing 100% increase towards the future prospects, and
(iv) The Tribunal and the High Court failed to ensure payment of just and fair compensation.
The first issue therefore was “whether provident fund, pension and insurance receivable by the claimants come within the periphery of the Motor Vehicles Act to be termed as ‘pecuniary advantages’ liable for deduction”. The Supreme Court observed that the aforesaid issue fell for consideration before it in Mrs. Helen C. Rebello vs. Maharashtra State Road Transport Corporation reported [1999] 1 SCC 90. In the said case, it was held that provident fund, pension, insurance and similarly any cash, bank balance, shares, fixed deposits, etc., are all “pecuniary advantages” receivable by the heirs on account of one’s death but all these have no correlation with the amount receivable under a statue occasioned only on account of accidental death. Such an amount will not come within the periphery of the Motor Vehicles Act to be termed as “pecuniary advantage” liable for deduction.
The second issue was “whether the salary receivable by the claimant on compassionate appointment comes within the periphery of the Motor Vehicles Act to be termed as ‘pecuniary advantage’ liable for deduction”. The Supreme Court held that “Compassionate appointment” can be one of the conditions of service of an employee, if a scheme to that effect is framed by the employer. In case the employee dies in harness, i.e., while in service leaving behind the dependents, one of the dependents may request for compassionate appointment to maintain the family of the deceased employee died in harness. This cannot be stated to be an advantage receivable by the heirs on account of one’s death and has no correlation with the amount receivable under a statute occasioned on account of accidental death. Compassionate appointment may have nexus with the death of an employee while in service but it is not necessary that it should have a correlation with the accidental death. An employee dies in harness even in normal course, due to illness and to maintain the family of the deceased one of the dependents may be entitled for compassionate appointment but that cannot be termed as “pecuniary advantage” that comes under the periphery of the Motor Vehicles Act and any amount received on such appointment is not liable for deduction for determination of compensation under the Motor Vehicles Act.
The third issue was “whether the income tax is liable to be deducted for determination of compensation under the Motor Vehicles Act”. The Supreme Court observed that in the case of Sarla Verma vs. Delhi Transport Corporation (2009) 6 SCC 121, it was held that “generally the actual income of the deceased less income tax should be the starting point for calculating the compensation”. It was further observed that “where the annual income is in taxable range, the words “actual salary” should be read as “actual salary less tax”.
The Supreme Court noticed that in the present case, none of the respondents brought to the notice of the court that the income tax payable by the deceased Sajjan Singh was not deducted at source by the employer State Government. No such statement was made by Ram Avtar Parikh, an employee of the Public Works Department of the State Government who placed on record the last pay certificate and the service book of the deceased. The Tribunal or the High Court on perusal of the last pay certificate, did not notice that the income tax on the estimated income of the employee was not deducted from the salary of the employee during the said month or financial year. In the absence of such evidence, it was to be presumed that the salary paid to the deceased Sajjan Singh as per the last pay certificate was paid in accordance with law, i.e., by deducting the income tax on the estimated income of the deceased Sajjan Singh for that month or the financial year. The appellants had specifically stated that assessment year applicable in the instant case was 1997-98 and not 1996-97 as held by the High Court. They had also taken specific plea that for the assessment year 1997-98 the rate of tax on income more than Rs.40,000 and up to Rs.60,000 was 15% and not 20% as held by the High Court. The aforesaid fact was not disputed by the respondents. In view of the finding as recorded above and the provisions of the Income-tax Act, 1961, as discussed, the Supreme Court held that the High Court was wrong in deducting 20% from the salary of the deceased towards income tax for calculating the compensation. As per law, the presumption would be that the employer State Government at the time of payment of salary deducted income-tax on the estimated income of the deceased employee from the salary and in the absence of any evidence, the Supreme Court held that the salary as shown in the last pay certificate at Rs. 8,920 should be accepted which if rounded of came to Rs. 9,000 for calculating the compensation payable to the dependent(s).
The fourth issue was “whether the compensation awarded to the appellants was just and proper”. According to the Supreme Court for determination of this issue, it was required to determine the percentage of increase in income to be made towards prospects of advancement in future career and revision of pay.
According to the Supreme Court, admittedly, the date of birth of the deceased Sajjan Singh being 1st February, 1968; the submission that he would have continued in service upto 1st February, 2026, if 58 years is the age of retirement or 1st February, 2028, if 60 years is the age of retirement required to be accepted. The Supreme Court observed that he was only 28 years 7½ months old at the time of death. In normal course, he would have served the State Government minimum for about 30 years. Even if one does not take into consideration the future prospect of promotion which the deceased was otherwise entitled and the actual pay revisions taken effect from 1st January, 1996, and 1st January, 2006, it cannot be denied that the pay of the deceased would have doubled if he would have continued in the services of the State till the date of retirement. Hence, this was a fit case in which 100% increase in the future income of the deceased should have been allowed by the Tribunal and the High Court which they failed to do. The Supreme Court having regard to the facts and evidence on record, estimated the monthly income of the deceased Sajjan Singh at Rs. 9,000 x 2 = Rs. 18,000 per month. From this his personal living expenses, which should be one-third, there being three dependents, were deducted. Thereby, the ‘actual salary’ came to Rs. (18,000-6,000=12,000) per month or Rs. 12,000 x 12 = 1,44,000 per annum. As the deceased was 28½ years old at the time of death the multiplier of 17 was applied, which was appropriate to the age of the deceased. The normal compensation would then work out to be Rs. 1,44,000 x 17 = Rs. 24,48,000 to which the Supreme Court added the usual award for loss of consortium and loss of the estate by providing a conventional sum of R. 1,00,000; loss of love and affection for the daughter Rs. 2,00,000; loss of love and affection for the widow and the mother at Rs. 1,00,000 each, i.e., Rs. 2,00,000 and funeral expenses of Rs. 25,000.
Thus, according to the Supreme Court, in all a sum of Rs. 29,73,000 was a fair, just and reasonable award in the circumstances of this case. The rate of interest of 12% was allowed from the date of the petition filed before the Tribunal till payment is made.
Disallowance of an expenditure ‘Payable’ u/s. 40(a)(ia)
Issue for Consideration
Section 40(a)(ia) is placed in Chapter IV D that deals with computation of profits and gains of business or profession. The said section lists out various expenditures that are not deductible in computing such profits and gains notwithstanding anything to the contrary contained in sections 30 to 38.
Section 40(a)(ia) is placed in Chapter IV D that deals with computation of profits and gains of business or profession. The said section lists out various expenditures that are not deductible in computing such profits and gains notwithstanding anything to the contrary contained in sections 30 to 38.
The part, relevant for the discussion of the issue under consideration here, reads as under:
“Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head ‘profits and gains of business or profession” –
(a) In the case of any assessee
(i) —————–
(ia)any interest, commission or brokerage, rent, royalty fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid, on or before the due date specified in sub-section (1) of section 139:
Provided …………………………………………………..
Provided further ………………………………………
Explanation: …………………………………………….
On an apparent reading of the provision, it appears that an expenditure of the nature specified in the section, payable to a resident, shall not be allowed to be deducted where tax is deductible at source but has not been paid.
Since its introduction by the Finance (No.2) Act, 2004, w.e.f. assessment year 2005-06, this provision has been the subject matter of one or more controversies, some of them grave, including the challenge to the constitutionality of the provisions. The resistance of the taxpayers attracts sympathy on account of the fact that the provisions are very harsh as they call for disallowance of a genuine business expenditure, in its entirety, simply on account of non-deduction or non-payment of a miniscule amount. This torturous treatment attracts fierce opposition from the taxpayers and provides a breeding ground for an endless spate of litigation involving innovative contentions.
One such proposition, that found favour with the tribunal, is that the disallowance u/s. 40(a)(ia) be restricted to the amount that remained unpaid or payable at the end of the year on which tax is not deducted or is deducted but has not been deposited with the Government. The tribunal based its finding on the use of the term ‘payable’ in section 40(a)(ia) to hold that the said term conveyed that the expenditure that is ‘ paid’ during the year is not disallowable even where the tax is not deducted or is not deposited after deduction. In short, the disallowance is to be restricted to the expenditure that is ‘payable’ and is not to be extended to cover an expenditure that has been ‘paid’.
The Special Bench of the tribunal in Merilyn Shipping & Transports vs. Addl. CIT, 136 ITD 23 (Vishakhapatnam) accepted this line of thinking by holding that the provisions of section 40(a)(ia) were not applicable in respect of such expenditure, the payment for which was made during the year without deducting tax at source. It held that the disallowance was possible only in respect of such expenditure, the payment for which was outstanding at the end of the year.
This decision of the special bench has subsequently been expressly overruled by two decisions of the Calcutta High Court and also by a decision of the Gujarat High Court. In contrast, the Allahabad High Court recently noted that the provisions of section 40(a)(ia) applied only to such expenditure, the payment for which had remained outstanding at the year end. In the meanwhile, the operation of this decision of the special bench was put under an interim suspension by the Andhra Pradesh High Court. However, it is believed that the operation of such suspension was limited to Merilyn Shipping & Transports or at the most to the assesses in the state of Andhra Pradesh.
Any issue concerning section 40(a)(ia) assumes importance, as the said provision seeks to disallow a genuine business expenditure, for non-deduction or payment of an insignificant amount of tax.
2. Crescent Export Syndicate’s case
The issue arose before the Calcutta High Court, for the first time, in the case of CIT vs. Crescent Export Syndicate, 33 taxmann.com 250. In this case, the court was concerned with two appeals involving a common issue. In both the cases, the tribunal, relying on the decision of the Special Bench in the case of Merilyn Shipping & Transports, deleted the disallowance by the AO by holding that:
“If all the amounts have been paid, then obviously following the principles laid down by the Hon’ble Special Bench of this Tribunal in the case of Merilyn Shipping & Transports, no addition shall be made. If any amount is found to be payable as on the year end, then the Assessing Officer shall give the assessee adequate opportunity to substantiate his case as to why the disallowance, if any, should not be made by invoking the provisions of section 40(1) (ia) of the Act”.
“As the issue claimed by the assessee is that there is nothing payable as on 31-03-2006 and this expenditure of Rs. 1,08,80,559/- is paid during the year and nothing remains payable, it means that the issue is covered. Principally, we have agreement with the assessee’s counsel and are of the view that the issue is squarely covered in favour of the assessee. Principally, we allow this issue of the assessee but subject to the verification by AO that these expenses are paid within the year i.e., up to 31-03-2006 and nothing remains payable. Hence, this appeal of assessee in principle is allowed in favour of the assessee but subject to verification.”
The revenue filed appeals in both the matters requesting the Calcutta High Court to set aside the orders of the tribunal.
On behalf of the assessee, the following important contentions were placed for the consideration of the court;
• The Legislature has replaced the words “amounts credited or paid” used in the Finance Bill with the word “payable” in the final enactment. The change clearly conveyed the legislative intent of restricting the scope of the disallowance to the amounts ‘payable’ by excluding those amounts that were ‘paid’ during the year.
• Such change was not without any purpose. By changing the words from “credited or paid” to “payable”, the legislative intent has been made clear that only the outstanding amount or the provision for expense liable for TDS was sought to be disallowed in the event there was a default of TDS. Reliance was placed on the decision in the case of CIT vs. Kelvinator of India, 320 ITR 561 wherein the court, in the context of section 147, examined the implications of the deletion of the word ‘opinion’ used in the Finance Bill with the words “reason to believe” on enactment of the Bill, on receipt of representations against the omission of the words “reason to believe”,
• A construction which required, for its support, addition or substitution of words or which resulted in rejection of words, had to be avoided, unless it was covered by the rule of exception, including that of necessity. In the present provision of section 40(a) (ia) of the Act, there was no such exception and the only word used by the legislature was “payable”.
• The legislative intent had been made clear by consciously replacing the words “credited or paid” with “payable”, that only the outstanding amount or the provision for expenses were liable for TDS were to be disallowed in the event there was default in not following the TDS provisions under Chapter XVII-B of the Act.
• Sections 194 L and 194 LA provided that tax was to be deducted only at the time of payment. The language in these sections therefore showed that the legislature, where desired, had used different language in different sections.
• Reference was made, for explaining the scope and effect of section 40(a)(ia), to the circular No.5 of 2005, dated 15th July, 2005, issued by the CBDT to show that the intention to introduce the provision was to curb bogus payments by creating bogus liability.
• Section 40(a)(ia) created a legal fiction for the amounts outstanding or remained payable i.e. at the end of every year as on 31st March and such fiction could not be extended for taxing the amounts already paid.
• Section 201 took care of tax to be collected in the hands of the payee and other TDS provisions under
Chapter XVIIB of the Act. No further legal fiction from elsewhere in the statute could be borrowed to extend the field of section 40(a)(ia) for disallowing the genuine and reasonable expenditure on the amounts of expenditure already paid.
• That there might be two possible constructions. However, the construction that the word ‘payable’ was interchangeable with the word ‘paid’ made the position of the assessee, who had already paid his dues, without deducting tax, worse than the assessee who had not as yet paid his dues. In the case of the assessees, who had paid the dues without deduction of tax, disallowance of the expenditure was permanent and they had no means of deducting the tax later on relatable to the amount already paid in the earlier year and thus the relief contemplated by the proviso could never be availed by them.
• While the income in the hands of the recipient was taxed, the payer did not get the benefit thereof. A second proviso to clause (ia), effective from 1st April, 2013, was enacted to lessen the rigour of clause (ia).
The Calcutta High Court, on hearing the rival contentions, observed and held as under:
• The main thrust of the majority view, in the decision of the special bench, was based on the fact that the legislature had replaced the expression “amounts credited or paid” with the expression “payable” in the final enactment.
• The tribunal fell into an error in not realising that a comparison between the pre-amendment and post-amendment law was permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment which precisely was what was done by the Apex Court in the case of CIT vs. Kel-vinator of India Ltd. 187 Taxman 312. But the same comparison between the draft and the enacted law was not permissible. Nor could the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It was the finally enacted law which was the will of the legislature.
• The tribunal once having held “that where the language is clear the intention of the legislature is to be gathered from the language used”, then it was not open to seek to interpret the section on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies.
• The tribunal having held that “Section 40(a)(ia) of the Act created a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head ‘income from business and profession,’ if the assessee does not deduct TDS on such expenses, are disallowed”, was it open to the tribunal to seek to justify that by stating that “this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure or the amounts of expenditure already paid”? Did that not amount to deliberately reading something in the law which was not there?
• The tribunal sought to remove the rigour of the law by holding that the disallowance should be restricted to the money which was yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case as was done in the case of Bhuwalka Steel Industries vs. Bombay Iron & Steel Labour Board , 2 SCC 273.
The Calcutta High Court thereafter endeavoured to show that no other interpretation was possible in the following words:
• The key words used in section 40(a)(ia), according to the court, were “on which tax is deductible at source under Chapter XVII –B”. If the question was “which expenses are sought to be disallowed?”, the answer was bound to be “those expenses on which tax is deductible at source under Chapter XVII –B”.
Once that was realised, nothing turned on the basis of the fact that the legislature used the word ‘payable’ and not ‘paid or credited’. Unless any amount was payable, it could neither be paid nor credited. If an amount had neither been paid nor credited, there could be no occasion for claiming any deduction.
• The language used in the draft was unclear and susceptible to giving more than one meaning. By looking at the draft it could be said that the legislature wanted to treat the payments made or credited in favour of a contractor or sub-contractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words “amounts credited or paid” were used only in relation to a contractor or sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax was deductible at source under Chapter XVII-B, payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor or sub-contractor should not be deducted in computing the income of an assessee in case he had not deduced, or after deduction had not paid, within the specified time. The language used by the legislature in the finally enacted law was clear and unambiguous whereas the language used in the bill was ambiguous.
• There could be no denial that the provision in question was harsh. But that was no ground to read the same in a manner which was not intended by the legislature. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It was not the case of an inadvertent error. The suggestion that the second proviso inserted to be made effective from
1st April, 2013 should be held to have retrospective effect, could also not be acceded to for the same reason indicated above.
For the reasons discussed above, the court held that the majority views expressed in the case of Merilyn Shipping & Transports were not acceptable and the appeal was allowed in favour of the revenue.
3. Vector Shipping Services (P) Ltd.’s case
The issue again came up for consideration of the Allahabad High Court in the case of CIT vs. Vector Shipping Services (P) Ltd. in ITA No. 122 0f 2013, copy available on www. itatonline.org.
The assessee, a shipping service company, engaged the services of another company for ship management work, on its behalf, for which it paid an amount of Rs. 1.17 crore, without deduction of tax at source, on the ground that the said payment represented the reimbursement of expenses incurred by the service provider. The AO disagreed with the view of the assessee company and disallowed the entire payment u/s 40(a)(ia).
On appeal against the order of the AO, the CIT (A) held that “In the light of the above facts ——————– , when such type of expenses incurred by the appellant were totally paid and not remained payable as at the end of the relevant accounting period, provisions of section 40(a)(ia) of the Act are not applicable ………………………………. it is held that the AO was not justified in making addition of Rs.1,17,68,621/- on account of disallowance made under section 40 (a) (ia) of the I.T. Act, 1961. The same is directed to be deleted. Grounds Nos. 2 & 3 are allowed.”
The Tribunal, besides upholding the assessee’s claim that no tax was required to be deducted on a reimbursement, held that section 40(a)(ia) applied only to amounts that were “payable” as at the end of the year and not to amounts that had already been “paid” during the year relying on the decision of the Special Bench in the case of Merilyn Shipping and Transport Ltd 136 ITD 23 (SB) where a similar view was taken.
On appeal by the Income-tax Department, the Allahabad High Court was asked to answer the following:
“(a) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT has rightly confirmed the order of the CIT (A) and thereby deleting the disallowance of Rs. 1,17,68,621/- made by the Assessing Officer under section 40(a)(ia) of the I.T. Act, 1961 by ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s Vector Shipping Services (P) Ltd. and there was a Memorandum of Understanding signed between both the companies and as per the definition of memorandum of understanding, it included contract also.”
The Allahabad High Court, vide an order dated 09-07-2013, observed that the Revenue could not take any benefit from the observations made by the Special Bench of the tribunal in the case of Merilyn Shipping and Transport Ltd. to the effect that section 40 (a) (ia) was introduced in the Act with a view to augment the revenue through the mechanism of tax deduction at source and the provision was brought on statute to disallow the claim of even genuine and admissible expenses under the head ‘Income from Business and Profession’ in case the assessee did not deduct tax on such expenses and that the default in deduction of tax would result in disallowance of expenditure.
The court, importantly, in the context, noted that for disallowing expenses from business and profession on the ground that tax had not been deducted, the amount should be payable and not which had been paid by the end of the year.
4. Observations
Clarity breeds confusion. The Special Bench of the tribunal in the case of Merilyn Shipping & Transports, 136 ITD 23 (SB) (Vishakhapatnam) held that the language of section 40(a)(ia) was clear and the Calcutta High Court in Crescent Exports Syndicate’s case (supra) also held that the language was clear and unambiguous, to arrive at the conflicting decisions. Now, if the language is clear how could there have been different and importantly diverse views on the meaning of the word ‘payable’? Either one of the views is wrong or there is a genuine possibility of two views on the issue under consideration. We would prefer the latter view to hold that the term ‘payable’, when read in the context and in the background of the circumstances that surrounded its use and also the subsequent insertion of the second proviso for granting relief on payment of tax by the payee, is capable of conveying two views, both of which are possible. Needless to say that when two views are possible, a view beneficial to the taxpayer should be adopted, Vegetable Products 88 ITR 192 (SC). There are no two views on this aspect of the law of interpretation.
The Calcutta High Court’s observations on the legislative intent, if there ever was one, are interesting and so are its observations bordering on the strictures when it held that the language of the law was clear and the tribunal was wrong in gathering the legislative intent. Having said so, the court itself tried to support what in its view was clear with deductive logic supported by analytical tools to provide a harmonious interpretation. No harmony is required to be infused where the language is clear. With utmost respect, it appears that the time is ripe to altogether give up on using the tool of legislative intent as an aid to interpretation. A grave notice is required to be taken of the fact that most of these legislations are passed without any debate and even understanding of the law and it may be that the persons voting in favour of passing the legislation may not even be aware of the subject matter of the vote and of the fact that such a law is being passed with their votes. There is a strong case for the courts, in the present times, to be in tune with the times and supply such interpretation which is just and harmonious and more importantly the one that identifies with common sense.
The situation has the effect of putting the tribunal in an unenviable situation. The conflicting decisions of the High Courts have once again paved the pathway for a fresh consideration of the subject by the tribunal. Usually in such cases, the tribunal charts its own course and is allowed to do so. However, the interesting part is that in the case under consideration, there already is a special bench view, not in one case but in two cases. Merilyn Shipping & Transports, 136 ITD 23 (SB) (Vishakhapatnam) and reiterated in Rajamahendri Shipping & Oilfields Pvt. Ltd. 19 ITR(T) 616 (SB) (Vishakhapatnam). Can a division bench of the tribunal ignore the decision of the special bench to take a view contrary to what has been laid down by a special bench? While the benches of the tribunal functioning within the jurisdiction of the Calcutta and Gujarat High Courts shall follow the judgments in favour of the revenue, it will be most apt for the benches in other jurisdictions to take note of the controversy and decide the case in favour of the taxpayer by following the beaten track that requires the adoption of the view that is favourable to him, applying the principle of interpretation that requires favouring the taxpayer in cases of doubt.
A view is being expressed that the decision in Vector Shipping’s case cannot be considered to be laying any law on the subject of allowability of an expenditure where no tax is deducted, once it is shown that the payment for such an expenditure is made during the year, as was held by the special bench. It is contended by the holders of this view that the question put up for consideration of the court was primarily concerned with the liability of the assessee to deduct tax at source and the court confirmed the tribunal’s findings that the assessee was not liable to deduct tax at source and refused to admit the appeal of the revenue on the ground that no question of law was involved.
Under this view, the observations of the Allahabad High Court should be treated as the obiter dicta and not a binding decision. At this point, it is apt to reproduce the exact words of the Allahabad High Court, to the extent relevant, which read as “It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year.” These words are not words that can be taken lightly by anyone seriously dealing with the interpretation of law by consigning it to the status of irrelevant observations made out of context. The court in that case has taken a detailed notice of the order of the CIT(A) and of the tribunal, both of which directly and expressly dealt with the issue of the meaning of the term ‘payable’. In fact, the issue of liability to TDS was an issue of lesser importance to the appellate authorities and perhaps to the AO, as well. The only other thing the court noted in the order, was also about addressing the argument of the revenue to the effect that the provisions of section 40(a)(ia) should be read in a manner so as to advance the case of recovery of tax. The court strongly rejected any such contention which was directly surrounding the interpretation of the word ‘payable’. These facts clearly confirmed that the issue under consideration here was duly addressed by the court in the said case, as well.
We are fully conscious that, in the times when the courts and the tribunals are more in favour of deciding an issue by following a decision of the higher court, on an application of the law of precedent, it may be difficult for a taxpayer to persuade a tribunal not to follow the Calcutta and Gujarat High Courts’ comprehensive decisions and to consider the case on merits independently. This is evident in the decision of the Tribunal in Rishti Stock & Shares Pvt. Ltd.‘s case decided by the Mumbai tribunal on 02-08-2013 in CO No. 263/M/2012 arising out of the appeal ITA 112/M/2012, where the Tribunal preferred to follow the Calcutta and Gujarat High Court decisions.
The Calcutta High Court, in Crescent Export Syndicate’s case, delivered its judgment on 03-04-2013 and followed it up in yet another decision delivered on 04-04-2013 in CIT vs. Md. Javed Hossein Mondal, 33 taxmann.com 123. The Gujarat High Court examined the issue in CIT vs. Sikandarkhan N. Tunwar, 295 CTR 75 and vide an order dated 02-05-2013 decided the issue in favour of the revenue independent of the aforesaid two decisions of the Calcutta High Court. The Allahabad High Court in Vector Shipping’s case delivered the decision on 09-07-2013, once again independent of the aforesaid three decisions. Before all this, the Andhra Pradesh High Court had stayed the operation of the Special Bench’s decision in Merilyn Shipping‘s case. Maybe the benefit of ‘2G speed’ was not available to the Department’s counsel in Vector Shipping’s case .
The decision of the Calcutta High Court, like the decision of the special bench, is an erudite decision that has comprehensively analysed the different aspects touching the issue. In comparison, the decision of the Allahabad High Court does not reveal in detail the basis that led it to hold that no disallowance was to be made of an expenditure, the payment of which was made before the year-end without deducting tax at source. The court in that case has confirmed the findings of the tribunal that the assessee was not liable to deduct tax at source on such payments. This however cannot be construed to mean that the court had not applied its mind to the law on the subject or that it had not taken a conscious note of the issue at hand. To distinguish and ignore the express observa-tions and findings on law of a High Court under the pretext that it does not represent the verdict of the court is not a very attractive proposition to any serious student of law. Such a decision deserves equal respect, more so when the reading of the contents confirms that the only issue that was discussed was about the interpretation of section. 40(a)(ia), as otherwise the court concurred with the finding of the fact of the tribunal that the tax was not deductible in the case before it .
The position on the issue under consideration has assumed significance with the decision of the Allahabad High Court in Vector Shipping’s case which has restored the issue for a fresh consideration. The issue should be taken as one that is wide open till such time as it is addressed by the apex court of the land. The Supreme Court has recently allowed the transfer of case for examining the constitutional validity of the provisions of section 40(a)(ia). Please see Maruthi Tubes (P) Ltd., 37 taxmann.com 31.
Accounting and Auditing Professional – Introspect and Act!
When this issue reaches the hands of readers, most of my professional colleagues would have completed one of the most onerous tasks of the year, that is of issuing a tax audit report. Every year, a month before the due date, there is a clamour for an extension and this year was no different. It is true that for this year, the problem was compounded by the government requiring the tax audit report to be uploaded in electronic format and an increment in the details to be furnished in the income tax return. An extension for uploading the tax audit form has been granted, but my colleagues term the concession as inadequate. This is for the reason that in a majority of the cases, the compiling of the data that is required for income tax return as well as the tax audit report has always been treated by the client /auditee as the responsibility of the tax auditor.
The problems created and the tension that my professional colleagues face is primarily on account of the fact that the division of roles and responsibilities between the client and auditor have not been understood and appreciated by both. Clients have always taken the view that compliance is the responsibility of the auditor. This attitude is prevalent amongst the small entities to large multinationals, with only the degree varying. Apart from clients, lawmakers and regulators have also started shifting the onus of verification of compliance with the provisions to Chartered Accountants. The profession has welcomed these moves as professional opportunities. The fact that this entails an additional responsibility is lost sight of. The role and responsibility of the client in this compliance process is also not emphasised and he is not educated about this aspect. Over the years, Chartered Accountants have accepted this position, without appreciating whether they are equipped to perform the tasks that they would be required to, and whether the remuneration is commensurate.
To appreciate the actual problem faced by professionals, one must understand the overall scene. As explained in the earlier paragraphs, the responsibilities on the auditor are continuously increasing. To illustrate, the Income-tax Act alone has 46 provisions which require either an audit or certification by a Chartered Accountant. The Companies Act and State laws would add to this list. In fact, the responsibilities the Companies Act, 2013, imposes on an auditor are so onerous that senior professionals believe that new entrants to the profession would be discouraged from joining it. These are the challenges at the micro level.
At the macro level, one wonders if this is going to be the scenario for Chartered Accountants, in practice, is there an adequate number of Chartered Accountants available and have they been suitably equipped. In the year 2000, the number of Chartered Accountants in the country was 92,960 and those holding certificates, numbered 65,843 constituting 71% of the total membership. In the year 2013 the figure stands at 2,17,119 with certificate of practice being held by 103,636 persons, constituting 48% of the membership. Clearly, the number of persons joining the auditing profession which is expected to carry out these tasks has dwindled. As a consequence, younger professionals who are better equipped to handle issues requiring use of technology and newer skill-sets are not entering professional practice. On the one hand, increasing demands are being made on the profession, while the number of those with the wherewithal to satisfy these demands is reducing. There is a substantial gap between demand for good professionals and their availability. This leads to entrusting the responsibility to those who are unable to discharge it. The result is a widening expectation gap and dissatisfaction and disillusionment on both sides. What then is the solution?
Clearly, no other profession is better equipped to handle these responsibilities. Given this situation, three things need to be done. Firstly, users of services, whether they be auditees, tax authorities, regulators or the public have to appreciate the scope and limitations of the responsibilities of the professional. This aspect of the matter has to be dealt with on a war footing, and the Institute of Chartered Accountants of India (ICAI) must carry out a continuous campaign in this regard. Secondly, lawmakers and regulators have to interact with professionals before they suggest changes in laws and regulations which require furnishing of a plethora of details by taxpayers which are required to be certified/authenticated by Chartered Accountants. There is no point in collecting a huge database when one does not have the ability to digest and utilise the existing data.
Finally, and not in the least, professionals have to continuously upgrade their skills. Many of my senior colleagues would do well to remember that, while the experience that they have acquired over the years is undoubtedly invaluable, it cannot be a substitute for new knowledge and skills. The world is changing quickly and if we do not act it will drive past us.
Apart from this, the profession must interact with clients, and apprise them of their role and responsibility. We must learn to say `no’ whenever it is necessary. If we do not do this immediately, the primacy of the ICAI, an institution which is more than six decades old, will be lost. As a corollary, the respect that the profession enjoys in society will gradually evaporate. There is an erroneous perception that the existing apparatus is unable to meet the expectations. The provisions of the Companies Act, 2013, empowering the Central Government to prescribe accounting standards, and the constitution of the Financial Reporting Authority, which will oversee audit performance, are examples of this perception. Those concerned must take note of these developments. The writing is on the wall. I only hope that the leaders of our profession have the foresight and the fortitude to read it!
Anil J. Sathe
Editor
Editor
Forgiveness
‘Forgiveness is something you do for yourself’. George Kohlrieser
To practise ‘forgiveness’ one must understand ‘hurt’— hurt is the result of some act which is against our expectations and/or represents unfulfilled expectations. Both these not only result in hurt but also cause misery. The issue is: what is forgiveness and what does it do? ‘Forgiveness’ puts an end to the inner struggle that rages within, and teaches us to face life with tolerance, understanding and equanimity’. ‘Forgiveness’ is the task of transcending concepts of justice and fairness’. ‘Forgiveness’ is an attitude of compassion and understanding with which we choose to react to the world.’
Forgiveness is a gift we choose to give ourselves. Forgiveness is a choice—a choice when exercised puts our mind and heart at rest—but higher than forgiveness is to forget the instance that caused the hurt. The issue is, can we accept what has happened? Can we consider it a bad dream and like all bad dreams, forget about it? It is rightly said that it is easier to forgive but difficult to forget. Combine the two to make forgiveness complete. This is difficult—nay, very difficult—but possible. Once one can forget the hurt—forgiveness becomes easy. ‘Forgiving and forgetting’ when practiced together heal both the mind and the matter (body). David Schwerin says:
‘By forgiving people who have done us wrong, We can give ourselves the greatest gift’.
To the above quote I would like to add that it is also a gift to those who have hurt us and in case we can forget the hurt, then it would be the finest gift to ourselves.
We are living in a ‘me decade’ and in this decade, hurt is easy and forgiveness is forgotten. This is evident from recent research in the USA which brings out:
• The capacity to feel for others has dropped by 48%.
• Ability to see other’s point of view has declined by 34%. These are figures as compared to 1979. Hence, to practice forgiveness we now need to:
• Move from ‘self-justification’ to ‘self-control and selfdiscipline’.
• To be fair, honest, truthful and objective—being objective means being non-emotional—develop warmth for others and treat them with dignity and refrain from making callous comments.
We have discussed about ‘forgiving’. I believe we should also be aware of seeking ‘forgiveness’. There is no human being who can say that he has never hurt anyone—even Krishna hurt Gandhari who held him responsible for the Mahabharata and had to suffer her curse. Hence, let us also develop the art of seeking forgiveness of those whom we may have hurt by thought, word or deed. I believe seeking forgiveness is as relevant as ‘forgiving’.
However, according to Swami Shivananda, we can seek forgiveness only when we ‘eradicate self-justification’— we all indulge in ‘self-justification’ all the time. It requires courage to overcome the ego that tells us that we can do no wrong and that our hurt is the result of a fault of others. Hence, let us become aware of this malice. True happiness lies in both forgiving and seeking forgiveness.
To practice ‘forgiveness’ we must know what ‘forgiveness’ results in. In my perception, forgiveness:
• Reduces tension, guilt, anger and suffering.
• Frees us from the burden of expectations and feelings of grudge.
• Transcends our concepts of fairness.
• Makes us humane.
• Liberates us from being ‘constrained’ and sets us free.
• Removes our desire for revenge and retribution , and above all
• Restores relationships. It has been rightly said: ‘Forgiveness is the precious lubricant which keeps all relationships smooth and friction free’.
Let us remember that forgiveness is not running away from facts and feelings. It requires courage to overcome our ego—our hurt and unfulfilled expectations. Mahatma Gandhi said:
‘The weak can never forgive. Forgiveness is an attribute of the strong’.
‘The weak can never forgive. Forgiveness is an attribute of the strong’.
I also believe that a true and sincere apology is not defeat but victory over a bad situation. It is not humiliation but it exhibits humility and maturity to accept responsibility for our actions and exhibits our care for other’s feelings and value for relationship. I repeat it takes courage to apologise and seek forgiveness. Believe it is very difficult to say ‘Mujhe Maaf Kar Do’.
In conclusion, I quote George Shim: ‘We get what we give. If we give hatred, we receive hatred; if we give love, we receive love’.
And this is what St. Francis of Assisi propagates: ‘It is in pardoning that we are pardoned’.
Succession – When claimant was born, there was neither joint Hindu family nor any property belonging to Joint Hindu Family. Will – Disproportionate bequest permissible – Hindu Succession Act 1956.
The common ancestor to whom the parties trace their lineage was one Roop Narain, who was the perpetual lessee, as per perpetual lease of plot of land at New Delhi. He admittedly died intestate and was survived by two sons one of them is Amar Nath and four daughters. The other brother and the four sisters executed a relinquishment deed in favour of their brother Amar Nath, who thus inherited the perpetual lease hold rights in the property upon the death of Roop Narain. A residential building was inherited by Amar Nath. Amar Nath had two wives named Kamla Devi and Chand Rani both of whom pre-deceased Amar Nath. Dispute arose between the two sons of Amarnath – Prem Bhatnagar and his brother Daya Narain.
With respect to the property being ancestral in the hands of Amar Nath, case of the protagonist i.e. those who questioned the Will was that since Amar Nath inherited the property from his father Roop Narain, law imparted an ancestral character to the property. Secondly, that when Roop Narain died, the Hindu Succession Act, 1956 had been promulgated, as per Section 4 whereof the provisions of the Act expressly had overriding effect over any text, rule, custom or usage amongst Hindus which was contrary to the Act.
The Delhi High Court held that the text of Hindu Law is that a male Hindu, on birth, acquires an interest in the Joint Hindu family properties. If there was a Joint Hindu family property when Prem Bhatnagar was born, he could have possibly argued that he acquired an interest in the property by birth. But, when Prem Bhatnagar was born, there neither was a joint Hindu Family nor any property belonging to the joint Hindu family. The suit property was owned by his grandfather Roop Narain and parties are not at variance that Roop Narain acquired the property from his own funds. Thus, Roop Narain held the property as his individual property and not as joint Hindu family property. He died in 1957 by which date the Hindu Succession Act, 1956 was in operation. Thus, succession to the estate of Roop narain was as per Section 8 of the Hindu Succession Act, 1956 since Roop Narain died intestate.
The High Court further held that people making disproportionate bequest, is not an unknown thing in law. After all, one object of a Will is to alter the natural line of succession or a share in a property which may be inherited by devolution of interest. A disproportionate bequest by itself is not a suspicious circumstance. That relationship between a father and all his children was equally good and yet in spite thereof only one child is made the beneficiary is again not a suspicious circumstance by itself. The Will was registered before the Sub- Registrar the day next of his execution. The High Court finally held that the testator has written that the beneficiary i.e. Ravi Mohan would need the consent of Roop Rani before he could sell the property does not make Roop Rani an interest witness. She has no interest inasmuch as nothing has been bequeathed to her. The condition in the Will that if Ravi Mohan were to sell the property, he would need the permission from Roop Rani, is void, for the reason the bequest in favour of Ravi Mohan is absolute and since mode of enjoyment cannot be curtailed; a clause curtailing the same in the bequest is void.
Succession – Right of property – Female Hindu converting herself to Christianity after death of her husband. Transfer of property Act section 54, Hindu Succession Act section 26.
The appellants before the court were defendants before the trial court against whom the plaintiff/respondent had filed a suit for permanent injunction.
The defendants/appellants had filed first appeal, contending that the sale deed executed by one Poosammal dated 17.03.1995 in favour of the plaintiff cannot legally convey any saleable right since the said Poosammal had foregone her share in her husband late Pakkirisamy’s property after she converted into Christianity and married one Issac in the year 1956 and also got 5 children from the second husband Issac. Therefore, her conversion from Hinduism to Christianity, disentitles her from inheriting her deceased husband’s property and also her parents property who are Hindus. As this settled legal position was lost sight of by the trial court, defendants prayed for setting aside the decision. The First appellate court concurred with the judgment and decree of the trial court and dismissed the first appeal. As a result, the present second appeal was filed by the defendants.
The Honourable Court held that the original suit property was purchased by husband of the vendor. Though on the death of her husband the vendor had converted to Christian religion, same would not disentitle her from her right of inheritance of the property. Thus, vendor having right and title to suit property to convey same in favour of plaintiff, sale deed would be proper. It was further observed that she had converted to Christianity by marrying a Christian, therefore she would not lose her right of inheritance in property of her deceased husband by virtue of such conversion.
Stay order – No opportunity of hearing – Strictures against Commissioner (Appeals):
The issue involved in the writ petition was whether before passing any order u/s. 85 of the Finance Act, 1994 read with section 35F of the Central Excise Act, 1944, opportunity of hearing is required to be given to the petitioner, seeking waiver of condition of the pre deposit.
The petitioner had challenged the order passed by the Commissioner (Appeals) Central Excise and Service Tax, Ranchi, whereby the ld. Commissioner (Appeals) without affording any opportunity of hearing to the writ petitioner had decided the petitioner’s prayer for waiver of deposit of the duty and interest demanded and penalty imposed and for stay of the operation of the impugned order passed by the Addl. Commissioner of Central Excise, Jamshedpur. The ld. Commissioner (Appeals) C.E. and S.T. Ranchi was of the view that in view of the judgment of the Supreme Court delivered in the case of Union of India vs. M/s. Jesus Sales Corporation Ltd. (1996) (83) ELT 486 (SC) opportunity of hearing was not required before deciding the prayer for waiver of pre deposit condition provided under the proviso to section 35 for the Central Excise Act, 1944 and for passing the interim order of stay.
The petitioner submitted that there was gross indiscipline and judicial impropriety on the part of the Commissioner (Appeals), who even after decision of the Court in M/s. Panch Sheel Udyog had passed the ex parte order in the present case.
The Honourable Court observed that if Commissioner(Appeals), Central Excise & Service Tax, Ranchi was of the view that he had correctly understood the judgment of M/s. Jesus Sales Corporation Ltd (supra) and decided the matter without affording opportunity of hearing to the writ petitioner then, it was the heavy duty upon him to update himself with the laws as the said authority himself took the task of deciding the matter without the assistance of the applicant before him. The law laid down by the Honourable Supreme Court and which had already been interpreted by the various high courts should not have been ignored. The Commissioner ought to have updated his knowledge by reading the judgments referred above wherein the case of M/s. Jesus Sales Corporation Ltd has been considered and it has been held that M/s. Jesus Sales Corporation Ltd. case has not barred hearing of applicant seeking relief of waiver of condition of pre deposit. If the Commissioner (Appeals) C.E and S.T. Ranchi had no knowledge of those judgments, then he is certainly guilty of not keeping himself updated in the case where, according to him, he has been given power to decide application having civil consequences, without following principles of natural justice and finding out one old judgment ,i.e, the judgment delivered in the case of M/s. Jesus Sales Corporation Ltd which he interpreted in the manner in which he wanted to interpret. The interpretation given by the Commissioner (Appeals) Central Excise and Service Tax, Ranchi was certainly erroneous, in view of the reasons given in the other judgments, wherein the reasons have been given in detail to show that the case of M/s. Jesus Sales Corporation Ltd never laid down that opportunity of hearing is not required before passing any order under sec. 35F of the Central Excise Act, 1944 and that position has been fully explained by various High Courts.
There was clear direction of the Court in the one case of M/s. Panch Sheel Udyog to the same authority, to grant opportunity of hearing to the writ petitioner in the similar and identical facts and circumstances, yet Commissioner (Appeals) Central Excise & Service Tax, Ranchi, without giving any reference to the decision of this Court in M/s. Panch Sheet Udyog passed the impugned order, which may amount to gross contempt of this court.
The Court observed that such attitude of the Commissioner (Appeals) certainly reflects his attitude towards litigant.
In totality, it was held that order under challenge was absolutely illegal and contrary to law. The Commissioner (Appeals) had committed gross error of law in denying the opportunity of hearing to the writ petitioner.
Y. P. Trivedi vs. JCIT ITAT Mumbai `G’ Bench Before Vijay Pal Rao (JM) and Rajendra (AM) ITA No. 5994/Mum/2010 A.Y.: 2005-06. Decided on: 11th July, 2012. Counsel for assessee/revenue: Usha Dalal/A K Nayak
Delay in filing appeal due to CA’s fault is bonafide and must be condoned. Courts should take a lenient view on the matter of condonation of delay provided the explanation and the reason for delay is bonafide and not merely a device to cover an ulterior purpose or an attempt to save limitation in an underhand way.
Facts: The appeal filed by the assessee before the Tribunal was delayed by 496 days. The assessee filed an application for condonation of delay as well as affidavit of the assessee and his CA explaining the reasons for delay in filing the appeal. It was explained that the CA of the assessee on receiving the order of CIT(A) gave it to the person maintain records of appeal matters for taking photocopy and sending to assessee’s office for filing appeal. The said order got mixed up with other papers and the appeal could not be filed in time. Upon the same being noticed the appeal was filed after tracing the order. It was submitted that the delay is neither deliberate nor willful but due to misplacement of the order in the office of the CA and therefore, it was a bonafide mistake. Relying on the decision of the SC in the case of Collector, Land Acquisition v. Mst. Kajiji (167 ITR 471)(SC) it was contended that Justice oriented approach has to be taken by the Court while deciding the matter of condonation and the case should be decided on merits and not on technicalities.
Held: The Tribunal observed that the facts of the case do not suggest that the assessee had acted in a malafide manner or the reasons explained is only a device to cover an ulterior purpose. It is settled proposition of law that the Court should take a lenient view on the matter of condonation of delay. However, the explanation and the reason for delay must be bonafide and not merely a device to cover an ulterior purpose or an attempt to save limitation in an underhand way. The Court should be liberal in construing the sufficient cause and should lean in favour of such party. Whenever substantial Justice and technical considerations are opposed to each other, cause of substantial Justice has to be preferred.
Facts: The appeal filed by the assessee before the Tribunal was delayed by 496 days. The assessee filed an application for condonation of delay as well as affidavit of the assessee and his CA explaining the reasons for delay in filing the appeal. It was explained that the CA of the assessee on receiving the order of CIT(A) gave it to the person maintain records of appeal matters for taking photocopy and sending to assessee’s office for filing appeal. The said order got mixed up with other papers and the appeal could not be filed in time. Upon the same being noticed the appeal was filed after tracing the order. It was submitted that the delay is neither deliberate nor willful but due to misplacement of the order in the office of the CA and therefore, it was a bonafide mistake. Relying on the decision of the SC in the case of Collector, Land Acquisition v. Mst. Kajiji (167 ITR 471)(SC) it was contended that Justice oriented approach has to be taken by the Court while deciding the matter of condonation and the case should be decided on merits and not on technicalities.
Held: The Tribunal observed that the facts of the case do not suggest that the assessee had acted in a malafide manner or the reasons explained is only a device to cover an ulterior purpose. It is settled proposition of law that the Court should take a lenient view on the matter of condonation of delay. However, the explanation and the reason for delay must be bonafide and not merely a device to cover an ulterior purpose or an attempt to save limitation in an underhand way. The Court should be liberal in construing the sufficient cause and should lean in favour of such party. Whenever substantial Justice and technical considerations are opposed to each other, cause of substantial Justice has to be preferred.
Since the appeal could not be filed due to bonafide mistake and inadvertence, the Tribunal, in the interest of Justice, condoned the delay in filing the appeal.
(2013) 87 DTR 346 (Bang) Tata Teleservices Ltd. vs. DCIT A.Y.: 2006-07 to 2008-09 Dated: 27th November 2012
Section 194H – Service fees against credit cards is not commission and hence provisions of section 194H not applicable
Facts:
The assessee, a company engaged in the business of telecom services has arrangement with several banks whereby the customers of the assessee holding credit card can make payment for services utilised by them through credit card. When a customer makes payment by credit card, bank processes payment after retaining fees for processing payment. The Assessing Officer treated such processing charges as commission and raised demands u/s. 201(1) and 201(1A). The CIT(A) rejected the Assessing Officers stand and upheld the claim of the assessee. The Department went into appeal.
Held:
The Honourable Tribunal held that commission paid to the credit card companies cannot be considered as falling within the purview of section 194H. Even though the definition of the term “commission or brokerage” used in the said section is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person acts on behalf of another person. In the case of commission retained by the credit card companies however, it cannot be said that the bank acts on behalf of the merchant establishment or that even the merchant establishment conducts the transactions for the bank. The sale made on the basis of a credit card is clearly a transaction of the merchant establishment only and the credit card company only facilitates the electronic payment, for a certain charge. The commission retained by the credit card company is therefore in the nature of normal bank charges and not in the nature of commission or brokerage for acting on behalf of the merchant establishment.
Facts:
The assessee, a company engaged in the business of telecom services has arrangement with several banks whereby the customers of the assessee holding credit card can make payment for services utilised by them through credit card. When a customer makes payment by credit card, bank processes payment after retaining fees for processing payment. The Assessing Officer treated such processing charges as commission and raised demands u/s. 201(1) and 201(1A). The CIT(A) rejected the Assessing Officers stand and upheld the claim of the assessee. The Department went into appeal.
Held:
The Honourable Tribunal held that commission paid to the credit card companies cannot be considered as falling within the purview of section 194H. Even though the definition of the term “commission or brokerage” used in the said section is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person acts on behalf of another person. In the case of commission retained by the credit card companies however, it cannot be said that the bank acts on behalf of the merchant establishment or that even the merchant establishment conducts the transactions for the bank. The sale made on the basis of a credit card is clearly a transaction of the merchant establishment only and the credit card company only facilitates the electronic payment, for a certain charge. The commission retained by the credit card company is therefore in the nature of normal bank charges and not in the nature of commission or brokerage for acting on behalf of the merchant establishment.
Thus there is no requirement for making TDS on the commission retained by the credit card companies since payments to bank on account of utilisation of credit card facilities would be in the nature of bank charges and not commission within meaning of section 194H.
[2012] 134 ITD 463 (Mum.) Siam Commercial Bank PCL vs. DCIT (International taxation)-2(1), Mumbai A.Y. 2000-2001 Date of Order – 25th February 2011
Section 5 – Accrual of income – Discounting charges of next year shall not accrue as income in current year. Section 36(1)(vii) – Section 36(1)(viia) – Claim of bad debts is to be restricted by amount of opening balance in ‘provision for bad and doubtful debts’ account instead of closing balance and then deduction u/s. 36(1)(viia) is to be allowed
Facts I:
The assessee, a foreign bank, following mercantile system of accounting did not offer discount received on bills discounted which were relating to period after 31-03-2000, for A.Y. 2000-01. The same was brought under tax by A.O. in A.Y. 2000-01.
Held I:
The period of bill is relevant as it requires the divesting of funds by the lender for such period entailing the incurring of interest expenditure for such period. The quantum of discounting charges has direct nexus with the due date of the bill, which, in turn, determines the period for which the bank is deprived of its funds in discounting the bill. As the interest cost, of funds invested, for the subsequent year shall not become deductible in the current year, naturally the corresponding income in the form of discounting charges for the next year shall also not accrue as income in the current year.
Facts II:
For A.Y. 2000-01, the assessee claimed deduction of Rs. 1,57,46,917/- for bad debts u/s. 36(1)(vii), being the amount of bad debts written off in current year at Rs. 1,88,87,553/- less provision allowed u/s. 36(1)(viia) of A.Y. 1999-2000 at Rs. 31,40,636/-. It also claimed separate deduction in respect of provision for bad and doubtful debts of Rs. 35,02,564/- made during the current year. The AO held that the bad debts deduction should be allowed only in excess of the balance at the end of the year and not at the beginning of the year.
Held II:
In each year ordinarily there are two types of deductions, viz., firstly on account of provision made at the end of the current year by limiting it to the adjusted total income for the year and secondly the amount of bad debts actually written off. The Commissioner (Appeals) was justified in directing the AO to restrict the claim of bad debts by the amount of opening balance in the provision for bad and doubtful debts account as at the beginning of the instead of closing balance and then allowing deduction u/s. 36(1)(viia).
Facts I:
The assessee, a foreign bank, following mercantile system of accounting did not offer discount received on bills discounted which were relating to period after 31-03-2000, for A.Y. 2000-01. The same was brought under tax by A.O. in A.Y. 2000-01.
Held I:
The period of bill is relevant as it requires the divesting of funds by the lender for such period entailing the incurring of interest expenditure for such period. The quantum of discounting charges has direct nexus with the due date of the bill, which, in turn, determines the period for which the bank is deprived of its funds in discounting the bill. As the interest cost, of funds invested, for the subsequent year shall not become deductible in the current year, naturally the corresponding income in the form of discounting charges for the next year shall also not accrue as income in the current year.
Facts II:
For A.Y. 2000-01, the assessee claimed deduction of Rs. 1,57,46,917/- for bad debts u/s. 36(1)(vii), being the amount of bad debts written off in current year at Rs. 1,88,87,553/- less provision allowed u/s. 36(1)(viia) of A.Y. 1999-2000 at Rs. 31,40,636/-. It also claimed separate deduction in respect of provision for bad and doubtful debts of Rs. 35,02,564/- made during the current year. The AO held that the bad debts deduction should be allowed only in excess of the balance at the end of the year and not at the beginning of the year.
Held II:
In each year ordinarily there are two types of deductions, viz., firstly on account of provision made at the end of the current year by limiting it to the adjusted total income for the year and secondly the amount of bad debts actually written off. The Commissioner (Appeals) was justified in directing the AO to restrict the claim of bad debts by the amount of opening balance in the provision for bad and doubtful debts account as at the beginning of the instead of closing balance and then allowing deduction u/s. 36(1)(viia).
(2012) 134 ITD 269 (Visakha) Transstory (India) Ltd. vs. ITO Assessment Year: 2006-07 Date of order: 14th July, 2011
Section 80 IA – Assessee was acting through joint venture and consortium for executing eligible contracts, whether eligible to claim deduction u/s 80 IA. Joint venture was only a de jure contractor but the assessee was a de facto contractor – Joint venture or the consortium was only a paper entity and has not executed any contract itself – Assessee is entitled for the deductions u/s. 80-IA(4) on the profit earned from the execution of the work awarded to JV and consortium.
Facts:
The assessee is a company and it formed joint venture named “Navayuga Transtoy (JV)” which bid for the contract. The Irrigation Department of Andhra Pradesh awarded the contract to JV, which became entitled to execute works worth Rs. 664.50 crore. As per the terms of the JV, the assessee was to execute 40 per cent of the work in the JV, the other constituent partner was to execute 60 per cent of the works awarded. Both the constituent partners of the JV raised bills on the JV for quantity of work as certified by technical consultant appointed by the State Government. The JV in turn raised a consolidated bill on the Irrigation Department of Andhra Pradesh Government without making any additions. The Irrigation Department makes the payments to the JV, which shares the payment in accordance with the bills raised by each. The JV files its IT returns separately but does not claim any deduction u/s. 80-IA(4).
Facts:
The assessee is a company and it formed joint venture named “Navayuga Transtoy (JV)” which bid for the contract. The Irrigation Department of Andhra Pradesh awarded the contract to JV, which became entitled to execute works worth Rs. 664.50 crore. As per the terms of the JV, the assessee was to execute 40 per cent of the work in the JV, the other constituent partner was to execute 60 per cent of the works awarded. Both the constituent partners of the JV raised bills on the JV for quantity of work as certified by technical consultant appointed by the State Government. The JV in turn raised a consolidated bill on the Irrigation Department of Andhra Pradesh Government without making any additions. The Irrigation Department makes the payments to the JV, which shares the payment in accordance with the bills raised by each. The JV files its IT returns separately but does not claim any deduction u/s. 80-IA(4).
The assessee had also formed a consortium along with one M/s Corporation Transtroy, OJSC, Moscow, with the understanding that the assessee would execute 100 per cent of the works which were awarded to the consortium by the Government of Karnataka. During the year assessee executed works valued worth Rs. 31.09 crore. The assessee claimed deduction u/s. 80- IA(4) on the profits derived out of the aforesaid works. But it was disallowed by the AO on the ground that the work was not awarded to the assessee.
Held:
The joint venture and consortium was formed to obtain contract from Government Bodies. As per the joint venture, the project awarded to the joint venture was to be executed by the joint venturers or the constituents. Once the project was awarded to the joint venture or consortium it was to be executed by venturers or constituents in the ratio agreed upon by them. It was the assessee who executed the work contract or project given to the joint venture. Whatever bills were raised by the assessee for the work executed on JV and consortium, the joint venture and consortium in turn raised the further bill of the same amount to the Government. Whatever payment was received by the joint venture, it was accordingly transferred to their constituents. The joint venture is an independent identity and has filed the return of income and was also assessed to tax but neither offered any profit/ income earned nor claimed any exemption/deduction u/s. 80 IA. The joint venture was contractor only as per law, in factual terms the assessee was the contractor. All other conditions u/s. 80IA have been fulfilled. The dispute arose only with the fact of the contract being awarded only to the joint venture and not the assessee and therefore the assessee was not allowed the deduction. U/s. 80-IA the legislature has also used the word consortium of such companies meaning thereby the legislature was aware about the object of formation of consortium and joint venture. Therefore, the mere formation of the consortium or joint venture for obtaining a contract cannot debar the venture from claiming exemption.
Software Technology Park: Exemption u/s. 10A: A. Y. 2003-04: Approval by Director of Software Parks of India is valid: Approval by Inter-Ministerial Standing Committee not necessary:
CIT vs. Technovate E Solutions P. Ltd.; 354 ITR 110 (Del):
For the A. Y. 2003-04, the assessee claimed exemption u/s. 10A and furnished a registration issued by a director of the Software Technology Parks of India in support of the claim. The Assessing Officer rejected the claim on the ground that the approval of the director of the Software Technology Parks of India was not a valid approval from a specified authority. He held that only the Inter-Ministerial Standing Committee was competent to grant approval to units functioning within the Software Technology Park for the purposes of exemption u/s. 10A. The Tribunal allowed the assessee’s claim.
On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:
i) The CBDT in Instruction No. 1 of 2006, dated 31-03- 2006, clarified that the claim of deduction u/s. 10A should not be denied to the software technology park units only on the ground that the approval/ registration to such units had been granted by the Director of Software Technology Parks of India. In the Instruction, the Board also made a reference to the Inter-Ministerial communication dated 23-03-2006, issued by the Secretary, Minister of Communications and Technologies to the effect that the approvals issued by the director of the Software Technology Parks of India had the authority of the Inter-Ministerial Standing Committee and that all approvals granted by director of the Software Technology Parks of India were, therefore, deemed to be valid.
ii) The position was also clear from a letter dated 6th May, 2009, issued by the Board to the Joint Secretary, Minister of Commerce and Industry wherein a distinction had been drawn between the provisions of sections 10A and 10B and in which it had been clarified that a unit approved by a director under the Software Technology Park Scheme would be allowed exemption only u/s. 10A as a software technology park unit and not u/s. 10B as 100% export oriented unit.
iii) Therefore, approval granted by the director of the Software Technology Parks of India would be deemed to be valid in as much as the directors were functioning under the delegated authority of the Inter-Ministerial Standing Committee.
iv) Thus the Tribunal was right in coming to the conclusion that the approval granted by the director of the Software Technology Parks of India was sufficient approval so as to satisfy the conditions relating to approvals u/s. 10A.”
Reassessment: Reason to believe: Change of opinion: S/s. 147 and 148: A. Y. 2007-08: Information regarding bogus companies engaged in providing accommodation entries to which assessee was allegedly a beneficiary was in possession of AO while making assessment u/s. 143(3): In response to query raised by AO the assessee furnished all information including alleged accommodation entry providers with their confirmations: Subsequent notice u/s. 148 and the consequent reassessment are not valid:
Pardesi Developers & Infrastructure (P) Ltd. vs. CIT: 258 CTR 411 (Del):
For the A. Y. 2007-08, the assessment was originally completed by an order u/s. 143(3) dated 30-12-2009. Subsequently, a notice u/s. 148 dated 30-08-2011 was issued for reopening the assessment. The Delhi High Court allowed the writ petition challenging the notice and held as under:
“i) It is an admitted position that the information regarding the alleged accommodation entry providers had been circulated to all the AOs on 30-04-2009 which included the AO of the assessee. In other words, the AO of the assessee had received the said information with regard to the alleged accommodation- entry providing companies. Thereafter, on 09-11-2009, the assessee furnished a reply to the questioner which had been issued on 18-02-2009. In that reply, the assessee gave details of share capital raised by the assessee. These details included the sums received from the alleged accommodationentry providers. Along with the said reply dated 09-11-2009, confirmations from the said parties were also furnished. A similar reply was again furnished on 27-11-2009. Despite the furnishing of these details, the AO, in order to further verify and confirm the said facts, issued notices u/s. 133(6) to the said companies directly, on 27-30th November 2009. All the concerned parties responded to those notices and affirmed their respective confirmations, which they had earlier provided to the AO. It is only subsequent thereto that the assessment was framed.
ii) In the backdrop of these facts, it is difficult to believe the plea taken in the purported reasons that the said information was “neither available with the Department nor did the assessee disclose the same at the time of assessment proceedings”. From the aforesaid facts it is clear that the information was available with the Department and it had been circulated to all the AOs. There is nothing to show that the AO did not receive the said information. And, there is nothing to show that the AO had not applied his mind to the information received by him. On the contrary, it is apparent because he was mindful of the said information that he issued notices u/s. 133(6) directly to the parties to confirm the factum of application of shares and the source of funds of such shares.
iii) Therefore, the very foundation of the notice u/s. 148 is not established even ex facie. Consequently, it cannot be said that the AO had the requisite belief u/s.147 and, as a consequence, the impugned notice dated 30-08-2011 and the order on objections dated 03-08-2012 are liable to be quashed.”
Reassessment: S/s. 147 and 148: A. Y. 2000-01: Notice u/s. 148 at the instance of the audit party: Not valid:
Gujarat Fluorochemicals Ltd. vs. ACIT; 353 ITR 398 (Guj):
For the A. Y. 2000-01, the assessment was originally completed u/s. 143(3). Subsequently, a notice u/s. 148 was issued at the instance of the audit party.
The Gujarat High Court allowed the writ petition filed by the assessee challenging the validity of the notice and held as under:
“i) Though an audit objection may serve as information, on the basis of which the Income-tax Officer can act, ultimate action must depend directly and solely on the formation of belief by the Income-tax Officer on his own.
ii) It was contended on behalf of the assessee that the Assessing Officer held no independent belief that income chargeable to tax had escaped assessment. He submitted that the Assessing Officer was under compulsion by the audit party to issue for reopening of assessment though she herself held a firm belief that no income had escaped assessment. The assessing Officer in her affidavit did not deny this.
iii) In the affidavit what was vaguely stated was that the Department was apprehensive about the source of information on the basis of which such averments were made. Inter-departmental correspondence was strictly confidential. On a direction from the Court the Revenue made a candid statement that the file containing exchanges between the Assessing Officer and the audit party was not traceable.
iv) The Revenue not having either denied the clear averments of the asessee made in the petition on oath nor having produced the original files to demonstrate the independent formation of the opinion by the Assessing Officer though sufficient time was made available, the issue stood firmly concluded in favour of the assessee. The reassessment notice was not valid.”
Income: Lottery: Sections 2(24)(ix) and 115BB : Assessee was allotted a Contessa car as the first prize under the National Savings Scheme: Not a lottery: Not income liable to tax:
CIT vs. Dr. S. P. Suguna Seelan; 353 ITR 391 (Mad):
The assessee was allotted a Contessa car as the first prize under the National Savings Scheme. The Assessing Officer treated the prize as winnings from lotteries within the meaning of section 2(24) (ix), 1961, and subjected to the special rate u/s. 115BB. The Tribunal held that the prize won by the assessee was not covered by section 2(24)(ix) and allowed the assessee’s appeal.
On appeal by the Revenue, the Madras High Court upheld the decision of the Tribunal and held as under:
“The car won by the assessee on draw of lots under the incentive scheme of the National Savings Scheme was not a lottery and was not liable to tax.”
Clarifications w.r.t. goods specified in registration certificate vis-à-vis in declaration/ certificate under CST Act, 1956: Trade Cir. No.22T of 2012. Dated 26.11.2012
It is clarified that the application for declaration under CST Act should not to be rejected only because nomenclature of the goods stated in such application does not exactly match with nomenclature of the goods mentioned in the registration record. If the goods mentioned in such application match with the class or classes of goods as mentioned in the certificate of registration, then declaration can be issued without any need to carry out the amendments to CST registration certificate.
Cancellation of assessment order u/s. 23(11): Trade Circular No.21T of 2012 dated 26.11.2012
It has been clarified that the application u/s. 23 (11) for cancellation of assessment order cannot be rejected if the order has been passed u/ss. (3A) of section 23, because even though the order has been passed within the extended time period, it is required to be made u/ss. (2) and (3).
Refund through Electronic Clearance Service (ECS) Trade Cir.No.-20T of 2012 dated 19.11.2012
It is clarified that ECS facility for remittance of refund will be optional for dealers in Greater Mumbai & that to avail the benefits of ECS, it would be mandatory to submit the mandate form physically.
Clarification w.r.t. occurrence of due date on Sunday or public holiday: Trade Circular No.19T of 2012 dated 9.11.2012
It is clarified that, if the due date for any payments or submissions falls on Sunday or a public holiday, then such payments or submissions can be done on the next working day immediately following the due date and the same will be considered as within due date and consequently no penal actions would be taken and no interest would be levied.
Restoration of old service specific accounting codes for service tax payment: Circular No.165/16/2012 –ST dtd. 20.11.2012
To avoid practical difficulties and for the purpose of Statistical Analysis, CBEC has restored Service Specific Accounting codes for payment of service tax and for obtaining service tax registration. Accordingly, a list of 120 descriptions of services for the purpose of registration and accounting codes corresponding to each description of service for payment of tax is provided in the annexure to this Circular. A specific sub-head has been created for payment of “penalty” under various descriptions of services and the sub-head “other receipts” is meant only for payment of interest payable on delayed payment of service tax.
It is also provided that where registrations have already been obtained under the description ‘All Taxable Services’, the taxpayer is required to file amendment application online in ACES and opt for relevant description/s from the list of 120 descriptions of services given in the Annexure.
[2013] 32 taxmann.com 132 (Mumbai – Trib.) IHI Corporation vs. ADIT A.Y.: 2009-10, Dated: 13-03-2013
Article 7 of India-Japan DTAA; Section 9(1)(vii) – While pursuant to the retrospective amendment to section 9(1)(vii) of the Act, income from offshore services will be taxable in India, it will not be taxable in terms of Article 7 of India-Japan DTAA.
Facts:
The taxpayer was a company incorporated in, and tax resident of Japan. The taxpayer had executed contracts with an Indian company for engineering, procurement, construction and commissioning of certain equipment. The consideration under the contract was segregated into offshore portion and onshore portion. As regards the offshore portion, the taxpayer contended that no income had accrued in India as all activities were undertaken outside India and that the project office in India had no role to play in respect of the offshore services. Further, since the transfer of property in goods and the payments had taken place outside India, no income was taxable in India.
Held:
(i) Position under the Act
Facts:
The taxpayer was a company incorporated in, and tax resident of Japan. The taxpayer had executed contracts with an Indian company for engineering, procurement, construction and commissioning of certain equipment. The consideration under the contract was segregated into offshore portion and onshore portion. As regards the offshore portion, the taxpayer contended that no income had accrued in India as all activities were undertaken outside India and that the project office in India had no role to play in respect of the offshore services. Further, since the transfer of property in goods and the payments had taken place outside India, no income was taxable in India.
Held:
(i) Position under the Act
a) In an earlier case of the taxpayer, the Supreme Court [Ishikawajima-Harima Heavy Industries Ltd vs. DIT (2007) 288 ITR 408 (SC)] had held that section 9(1)(vii) of the Act envisages fulfillment of two conditions, namely, the services must be utilised in India and they must be rendered in India.
b) Pursuant to the retrospective amendment to section 9, even if the services are rendered outside India, the consideration will be taxable in India if services are utilised in India. As there was no dispute that the payment received by the taxpayer was in the nature of fees for technical services and further that though the services were rendered outside India, they were utilised in India, the rendition of such services outside India could not now take the income out of the ambit of section 9(1)(vii). Therefore, income from offshore services rendered outside India will be taxable in India u/s. 9(1)(vii) of the Act.
(ii) Position under India-Japan DTAA
a) In an earlier case of the taxpayer, the Supreme Court [Ishikawajima-Harima Heavy Industries Ltd vs. DIT (2007) 288 ITR 408 (SC)] had held that Article 7 of India-Japan DTAA is applicable and it limits the taxability to profits arising from the operation of the PE. Since the services were rendered outside India and since they had nothing to do with the PE in India, no income can be attributable to PE in India.
b) As there was no change in this position, income arising from offshore services was not taxable in India.
State of Jharkhand And Others v. Shivam Coke Industries, [2011] 43 VST 279 (SC)
Revision – Suo Motu Revision by Joint Commissioner – By forming his own opinion and satisfaction – On the basis of material on record- Does not become invalid merely because it was exercised pursuant to a letter by another Deputy Commissioner,
Limitation – No provision prescribing time limit – Provision of limitation act prescribing period of three years – Not applicable – However, such power to be exercised within reasonable period of time – Exercise of such power within period of three years or soon thereafter – On facts – Reasonable, Section 46 (2), (3), and (4) of The Bihar Finance Act, 1981 and Art. 137 of The Limitation Act, 1963.
Facts
The Deputy Commissioner of Commercial Taxes, Dhanbad Circle, on the basis of guidelines issued by Joint Commissioner (appeals) passed a revised assessment order. The dealer filed writ petition before the High Court of Jharkhand praying for a direction to quash the order passed by the Joint Commissioner by which he had set aside the revised assessment order. The High Court allowed the writ petition filed by the dealer against which the department filed appeal before the Supreme Court.
Held
In all these appeals the Joint Commissioner has exercised the Suo Motu power vested in him under the Act within a period of three years in some cases and in some cases soon thereafter. The revision order was passed by him by forming his own opinion and satisfaction on the basis of the material on the record. Therefore, the revision order by him is valid. When the language of the legislature is clear and unambiguous, nothing could be read or added to the language, the High Court wrongly read application of section 137 of the Limitation Act to section 46 (4 ) of the BFT Act. In absence of any specific provision in the act, the provision of the Limitation Act cannot apply to section 46(4) of the Act. However, such a power cannot be exercised by the authority indefinitely. Such power has to be exercised within a reasonable period of time and what is a reasonable period of time would depend on the facts and circumstances of each case. When such powers have been exercised within three years of time in some cases and in some cases soon after the expiry of three years period it cannot be said to be unreasonable.
Pandals, Shamiana liable to tax-clarification Circular No. 168/3 /2013 – ST dated 15 04 2013
The CBEC clarified that the activity by way of erection of pandal or shamiana is a declared service under Section 66E 8(f) of the Finance Act, 1994.
It is further clarified that for a transaction to be regarded as “transfer of right to use goods”, the transfer has to be coupled with possession. Court rulings have upheld that when the effective control and possession is with the supplier, there is no transfer of right to use. It is a service of preparation of a place to hold a function or event & effective possession and control over the pandal or shamiana remains with the service provider, even after the erection is complete. Accordingly, services provided by way of erection of pandal or shamiana would attract the levy of service tax.
ST-3 for July to September 2012 -due date extended Order No. 02/2013 –ST dated 12-04-213
By this Order, due date for submission of the Service Tax Return in Form ST-3 for the period 1st July 2012 to 30th September 2012 has been extended from 15th April, 2013 to 30th April, 2013.
State of Tamil Nadu vs. Marble Palace, [2011] 43 VST 519 (Mad)
Sales Tax- Best Judgment Assessment- Addition of Sales – Based on Quotations Against Which No Sale Bills Raised-Not Justified, Tamil Nadu General Sales Tax Act,1959.
Facts
The dealer was assessed for the period 1991-92 under The Tamil Nadu General Sales Tax act, 1959 wherein the assessing authority levied tax on estimation of turnover of sales based on quotations raised against which no sale bills were issued. The Tribunal in appeal, observing that there was no material to prove that the assesse had sold any goods to any individual or contractor, passed the order deleting the levy of tax on estimated turnover of sales. The Department filed appeal petition before the Madras High Court against the impugned order of the Tribunal.
Held
As observed by the Tribunal, there was no material for treating the quotations as sale bills and estimating turnover on the basis of the quotation. As rightly held by the Tribunal, the assessing authority had not probed the matter beyond treating quotation book as sale bill. Accordingly, the High Court confirmed the order of the Tribunal and dismissed the appeal filed by the Department.
DOW Chemical International P. Ltd., vs. State of Haryana and Others, [2011] 43 VST 507 (P& H)
Central Sales Tax- C Forms – Failure to Produce at The Time of Assessment- Forms Obtained Subsequently- Can Be Produced Before The Authority, Rule 12 (7) of The Central Sales Tax (Registration and Turnover) Rules, 1957
Facts
In the assessment for the period 2004-05, the claim of the dealer for concessional rate of tax against form ‘C’ was disallowed for want of required ‘C’ forms but the Tribunal permitted production of ‘C’ forms received subsequently and the matter was remanded back to the assessing authority for verification of the forms. Subsequently, the dealer received four more ‘C’ forms and produced before the assessing authority with a request to consider those forms also. This prayer was rejected by the assessing authority on the ground that there was no evidence of those forms having been produced before the Tribunal at the time of hearing of the appeal. The dealer filed writ petition before the Punjab and Haryana High Court, against the refusal by the assessing authority to consider the claim of concessional rate of tax for production of additional ‘C’ Forms before him on the ground that forms can be produced at any stage.
Held
The explanation of the dealer was that the forms were issued by the purchasing dealers in question after the decision of the appellate authority and on that ground the same could not be produced earlier. As noted in the quoted part of the order of the Tribunal, during the hearing, the forms were sought to be produced, which was not allowed. In view of explanation given by the petitioner that the forms were received late, it could be held that there was sufficient cause for the petitioner for not producing the same before the assessing and appellate authority which was no bar to the same being produced before the Tribunal. Accordingly, the writ petition filed by the dealer was allowed by the High Court to allow the petitioner to produce the Forms in accordance with law.