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Year: 2013

Additional Commissioner of Sales Tax, VAT III, Mumbai vs. Sehgal Autoriders Pvt. Ltd., [2011] 43 VST 398 (Bom)

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Value Added Tax- Sale Price- Sale of Motor Cycles- Separate Collection of Handling Charges For Registration- Not Forming Part of Sale Price, Section 2 (25) of The Maharashtra Value Added Tax Act, 2002

Facts
Dealer engaged in selling motor cycles collected service charges or handling charges from customer for registration of motor cycles under Motor Vehicles Act, 1988. The vat authorities levied vat on such amount which was contested before The Maharashtra Sales Tax Tribunal. The Tribunal held that such charges did not constitute a part of sale price within the meaning of ‘sale price’ defined in section 2 (25) of the MVAT Act, 2002. The Vat Department filed appeal before the Bombay High Court against the decision of the Tribunal setting aside the levy of vat on such handling charges collected by the dealer from the customer at the time of sale of motor cycles.

Held
The High Court held that the transfer of property in the goods in pursuance of the sale contract took place against the payment of price of the goods. Delivery of the goods was effected by the seller to the buyer. The obligation under the law to obtain registration of the motor vehicle was cast upon the buyer. The service of facilitating the registration of the vehicles which was rendered by the selling dealer was to the buyer and in rendering that service, the seller acted as an agent of the buyer. Therefore, the handling charges which were recovered by the respondent could not be regarded as forming part of the consideration paid or payableto the dealer for the sale. Those charges cannot fall within the extended meaning of the expression “ sale price”, since they did not constitute sum charged for anything anything done by the seller in respect of the goods at the time of or before the delivery thereof. The High Court accordingly dismissed the appeal filed by the Department and confirmed the order of the Tribunal.

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2013 (29) 605 (Tri.- Kolkata) United Enterprises vs. Commissioner of Central Excise & Service Tax

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Whether services of Consignment Agent such as loading and unloading of cargo, stacking, carrying out stock verification during storage at the stock yard etc. be classified under Cargo Handling service?

Facts:
Appellant was described as consignment Agent by M/s. SAIL as per the Agreement dated 30-03- 2001. The appellant registered and paid service tax under the category of “Storage and warehousing services” for the year 2001-2002 and part of 2002-2003. But, later they discontinued payment of service tax. A show cause notice was issued to them alleging that they were the consignment agents of M/s. SAIL and were liable for service tax as “Clearing & Forwarding Agent”. As per the agreement, the appellants were required to render the services of ‘unloading of materials at Danapur/Fatuha or any other nearest operating Public siding, transportation of materials and unloading at consignment yard in the appointed place, stacking (including marking/painting) of materials as per stacking plan/storage guidelines and loading into customers vehicles for delivery. As per the agreement, the appellants provided services of transportation of iron and steel products from Fatuha Rail Goods to Banka Ghat Stockyard, wherefrom, importers of such goods from Nepal could collect the said goods. Appellants raised invoices for unloading, transportation and loading of the export consignment. Appellants were neither clearing the goods from the factory of M/s. SAIL nor forwarded the goods to anybody else. They carried out the activity of transhipment of goods meant for export. Appellant was of the view that his activities were covered under the category of cargo handling service. Appellant also contended that, mere mentioning the appellant as consignment Agent in the Agreement, ipso facto, cannot be the criterion for classifying the activities under the heading C & F Agents for the purpose of service tax. The intention, purpose, and activities rendered by the appellants, were alone relevant. Appellant further contended that, activity of Consignment Agent did not come under the purview of Clearing and Forwarding Agents. Penalty on director was also levied.

Held:
The activities were not limited to just loading and unloading of cargo but also involved stacking, which included marking/painting, loading, into customers’ vehicles for delivery with weighment and necessary documentation, carrying out stock verification during storage at the stock yard clearly indicated that the services fall under the scope of “Clearing and Forwarding Agent Services” as per section 65(25) and 65(105)(j) of the Finance Act, 1994. Service of consignment agent is specifically included in the scope of Clearing and Forwarding Services. Section 65(25) and 65(105)(j) of the Act. As per section 65A of the Act, the sub-clause providing most specific description is to be preferred to sub-clause providing a general description. After reading the Agreement between M/s. SAIL And the appellant, it is clear that appellant was appointed as Consignment Agent, which is specifically included in the definition of Clearing & Forwarding Agent services. In contrast, claim of the appellant that they are rendering cargo handling service to M/s. SAIL and accordingly classifiable under the Heading Cargo Handling service, is more general in nature than the specific service of a consignment agent included in the definition of C & F service. Accordingly, they were C&F Agents. Since the authorities did not record specific involvement of the director in short/non payment of service tax warranting a personal penalty on him, except holding that he was overall in charge of the affairs of the appellant company, the penalty was set aside.

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Precedent – Judgement of Supreme Court – High Court has to accept it and should not in collateral proceedings write contrary judgment: Constitution of India Article 141

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The hierarchy of the Courts requires the High Courts also to accept the decision of Apex Court, and its interpretation of the orders issued by the executive. Any departure therefrom would lead only to indiscipline and anarchy. The High Courts cannot ignore Article 141 of the Constitution which clearly states, that the law declared by this Court is binding on all Courts within the territory of India. As observed by the Court in para 28 of the State of West Bengal and others vs. Shivananda Pathak and others reported in 1998 (5) SCC 513:-

“If a judgment is overruled by the higher court, the judicial discipline requires that the judge whose judgment is overruled must submit to that judgment. He cannot, in the same proceedings or in collateral proceedings between the same parties, rewrite the overruled judgment “

In the same vein, it may stated that when the judgment of a Court is confirmed by the higher court, the judicial discipline requires that Court to accept that judgment, and it should not in collateral proceedings write a judgment contrary to the confirmed judgment. The Court referred to the observations of Krishna Iyer, J. in Fuzlunbi vs. K. Khader Vali and another reported in 1980 (4) SCC 125:-

“………No judge in India, except a larger Bench of the Supreme court, without a departure from judicial discipline can whittle down, wish away or be unbound by the ratio of the judgment of the Supreme Court.”

 Bihar State Govt. Secondary School Teachers Association vs. Bihar Education Service Association AIR 2013 SC 487

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[2013] 33 taxmann.com 200 (Mumbai – Trib.) (SB) Assistant Director of Income-tax (IT) -1(2) vs. Clifford Chance A.Ys.: 1998-99 TO 2001-02 & 2003-04, Dated: 13-05-2013

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Article 7, 15 of India-UK DTAA; section 9(1) – Since professional services are not covered under section 9(1)(vii) of the Act, retrospective amendment impacting special source taxation applicable to FTS etc has no effect; Since Article 7(3) of India- UK DTAA unambiguously explains “indirectly attributable” profits to PE, reference to Article 7(1) of UN Model convention is not warranted.

Facts:
The taxpayer was a partnership firm of Solicitors in UK, engaged in providing international legal services operating through its principal office in UK and branch offices in certain other countries. During the years under consideration, it had provided legal consultancy services in connection with different projects in India. While it did not have an office in India, some part of the work relating to the projects in India was performed in India by its partners and employees during their visits to India. Relying on Article 15 of the India-UK DTAA, the taxpayer claimed exemption from tax on the ground that short duration test in Article 15 was satisfied as its presence in India was of less than 90 days . However, according to AO the said test was not satisfied and hence, taxpayer had constituted a PE in India as per Article 5 and as the services had been rendered in India, the entire income in respect of Indian projects was chargeable to tax in India under Article 7.

Having regard to the retrospective amendment to section 9 of the Act, issues before the special bench were as follows.

(i) Whether insertion of Explanation to section 9 by way of retrospective amendment changes the position in law?

(ii) Whether on interpretation of the term “directly or indirectly attributable to Permanent Establishment” in Article 7(1) of the India-UK DTAA, it is correct in law to hold that the consideration attributable to the services rendered in UK is taxable in India?

Held
(i) Position under the Act

a) In an earlier case of the taxpayer, Bombay High Court [(2009) 318 ITR 237] had held that Article 15 and section 9(1)(i) of the Act was applicable for determination of its taxable income in India.

b) In DIT vs. Ericsson [2012] 343 ITR 470, Delhi High Court has held that the retrospective amendment in section 9 impacts only special source rule provision applicable to interest, royalty and FTS as contemplated in clauses (v), (vi) and (vii) of section 9(1).

c) Accordingly, as the tax department has not been able to substantiate applicability of section 9(1)(vii) and the earlier proceedings have proceeded on the basis that income derived by the taxpayer from professional services in respect of projects in India was covered u/s. 9(1)(i) of the Act, taxation is to be restricted to income in India to the extent attributable to the services performed in India. Retrospective amendment to special source rule has no applicability to taxation u/s 9(1)(i) and the earlier ruling in case of taxpayer holds good despite the amendment

(ii) Position under India-UK DTAA

a) In terms of Article 7(1), profits “directly or indirectly” attributable to the PE in India are chargeable to tax in India. Article 7(2) explains what constitutes “directly attributable” profits and Article 7(3) explains what constitutes “indirectly attributable” profits. In terms of the treaty only that proportion of the profits of the contract in which PE actively participates in negotiating, concluding or fulfilling contracts is to be treated as “indirectly” attributable.

b) In terms of Article 7(3) in India-UK DTAA “indirectly attributable” profits are to be apportioned in proportion to the contribution of PE to that of the enterprise as a whole and hence, profits apportioned to the contribution of other parts of the enterprise cannot be brought to tax in India.

c) Provisions of Article 7(1)(b) and (c) of UN Model convention are materially different from Article 7(3) of India-UK DTAA, which are unambiguous. Hence, reference to Article 7(1) of UN Model convention in Linklaters LLP vs. ITO [2010] 40 SOT 51 (Mum) was misplaced.

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Salary: Perquisites: S/s. 17(2), r.w.s. 10(10CC): Assessees were employees of a foreign company, working in India: Tax arising in India on income of employees was borne by foreign employer: Amounts paid directly by employer to discharge employees’ incometax liability is exempt u/s. 10(10CC): Not a perquisite: Social security, pension and medical insurance contributions paid by employer are not taxable as perquisites: Where tax is deposited in respect of non-monetary perquisite, it is exempt u/s<

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Yoshio Kubo vs. CIT; [2013] 36 taxmann.com 1 (Delhi)

The
assessees were employees of a foreign company who were seconded to
India to serve in the Indian subsidiary. The foreign employers bore the
tax arising in India on the income of the employees. The foreign
employer also made contributions towards social security, pension and
medical insurance in compliance with the legal requirements in the
country of its incorporation. The revenue sought to bring to tax such
contributions as well as the tax paid by the employer as perquisite u/s.
17(2), in the hands of the employees. The revenue also contended that
the tax borne by the employer was a monetary perquisite and further tax
should be added to the salary by a multiple stage grossing up process.
The revenue also included the tax refunds in the income of the assessee
employees, as the tax had been borne by the employer.

In appeals
before the High Court the assessee contended that such perquisites were
exempt u/s. 10(10CC). The Delhi High Court held as under:

”1. Whether income tax paid by employer on behalf of assessee was exempted non-monetary perquisite:

1.1
A plain reading of section 10(10CC) reveals that if the perquisite that
is – ‘not provided for by way of monetary payment’ – u/s. 17 (2), the
tax paid on such income would be excluded from the calculation of income
altogether; it would not be deemed a perquisite.

1.2 Section
17(2) has not undergone any substantial change by the amendment of 2002.
The only change is in the introduction of section 10(10CC) which states
that tax actually paid by the employer to discharge an employee’s
obligation – ‘not amounting to a monetary benefit’ would not be included
as the employees’ income. If seen from the context of section 17(2),
and the previous history to that provision, as well as the pre-existing
provision of section 10(5B) and the interpretation placed on section
17(2), read with other provisions which disallow payments made on behalf
of the employee, by the employer, so long as the benefit is not
expressed in monetary terms in the hands of the employee, in the sense
that it is not funded as part of the salary, but paid in discharge of
the obligation, of any sort, either contractual (i.e., rent, services,
etc . availed of by the employee) or legal (tax) directly by the
employer, it should not be treated as a monetary benefit. The reason for
this is that section 10(10CC) is neutral about the kind of benefit
availed by the employee.

1.3 Parliament was aware of the
pre-existing law, and therefore, stepped in to clarify that only a
monetary benefit directly in the hands of the employee as a payment by
the employer would be excluded from section 10(10CC). This may be in the
form of any benefit to pay rent, or discharge any manner of obligation,
tax not excluded. This intention is manifest from the expression –
‘tax’ on such income actually paid. To construe this newly introduced
provision in any other manner would be to defeat the Parliamentary
intent. Section 40(a)(v) fortifies the interpretation of this court in
providing that while calculating income of the employer, the tax paid by
the employer on non-monetary perquisites is not deductible. This
provision too was introduced in 2002. The logic of excluding, as a
non-monetary perquisite, amounts paid to discharge obligations of the
employee, from the meaning of income, by virtue of section 10(10CC) is
that now, with the introduction of section 40(c)(v), such amounts are
not deductible in the employer’s hands.

1.4 In the light of the
above discussion, it is held that amounts paid directly by the employer
to discharge its employees’ income tax liability do not fall within the
excluded category of monetary benefits payable to the employee; they
fall within the included category, u/s. 10(10CC) as amounts paid
directly as taxes. Correspondingly, they cannot now be claimed as
deductions by virtue of section 40(c)(v ). The revenue’s appeals on this
aspect fail.

2. Whether social security, pension and medical insurance contributions by employer are perquisites:

2.1
The revenue’s contentions are insubstantial and meritless. The assessee
does not get a vested right at the time of contribution to the fund by
the employer. The amount standing to the credit of the pension fund
account, social security or medical or health insurance would continue
to remain invested till the assessee becomes entitled to receive it. In
the case of medical benefit, the revenue could not support its
contentions by citing any provision in any policy or scheme which was
the subject matter of these appeals, where the vesting right to receive
the amount under the scheme or plan occurred. One cannot be said to
allow a perquisite to an employee if the employee has no right to the
same. It cannot apply to contingent payments to which the employee has
no right till the contingency occurs. The employee must have a vested
right in the amount. In the case of CIT vs. Mehar Singh Sampuran Singh
Chawla [1973] 90 ITR 219 (Delhi), it was held that the contribution made
by the employer towards a fund established for the welfare of the
employees would not be deemed to be a perquisite in the hands of the
employees concerned as they do not acquire a vested right in the sum
contributed by the employer.

2.2 When the amount does not result
in a direct present benefit to the employee, who does not enjoy it, but
assures him a future benefit, in the event of contingency, the payment
made by the employer, does not vest in the employee.

2.3 In view
of the above discussion, it is held that the revenue’s appeals have to
fail; amounts paid by employers to pension, or social security funds or
for medical benefits, are not perquisites within the meaning of the
expression, u/s. 17(2)(v), and therefore, the amounts paid by the
employer in that regard are not taxable in the hands of the
employee-assessee.

3. Regarding grossing up:

3.1
It has been discussed and concluded that what is not exempt u/s.
10(10CC), is perquisite in the shape of monetary payment to the
employee. If it is a payment to a third party like payment of taxes to
the government, it would be exempt u/s. 10 (10CC).

3.2 The
Tribunal in the present cases, held that tax paid by the employer on
behalf of the employee is a non-monetary perquisite. In other words,
taxes paid by the employer can be added only once in the salary of the
employee. Thereafter, tax on such perquisites is not to be added again.

3.3
Whenever tax is deposited in respect of a non-monetary perquisite, the
provision of section 10(10CC) applies, thus excluding multiple stage
grossing up. The purpose and intent of introducing the amendment to
section 10(10CC) was to exclude the element of income, which would have
arisen otherwise, as a perquisite, and as part of salary. Once that
stood excluded, and option was given to the employer u/s. 192(1A) to
honour the agreement with the employee, Parliament could not have
intended its inclusion in any other form, even for the purpose of
deduction at source. Doing so would defeat the intent behind section
10(10CC). This court, therefore, answers the question in favour of the
assessee and against the revenue.

4. Regarding assessability of TDS refunds

4.1 In this case, it is clear that the amount was not paid to the employee or due to him, from the employer, according to the terms of the contract governing the relationship. It was paid to the Government, over and above the tax due on the salary. It was not for benefit of the assessee. It never, therefore, bore the characteristic of salary or perquisite. Till assessment was made, the amount could not be refunded to the assessee.

4.2 The revenue’s position overlooks that all receipts are not taxable receipts. Before a receipt is brought to tax, the nature and character of the receipt in the hands of the recipient has to be considered. Every receipt or monetary advantage or benefit in the hands of its recipient is not taxable unless it is established to be due to him. If the amount is not due, the recipient, in this case, the employee is obliged to pay back the sum to the person, to whom it belongs. A perquisite or such amount, to be taxed, should be received under a legal or eq-uitable claim, even contingent.

4.3 The receipt of money or property, which one is obliged to return or repay to the rightful owner, as in the case of a loan or credit, cannot be taken as a benefit or a perquisite. The amounts paid in excess by the employer, and refunded to the employee never belonged to the latter; he cannot be therefore taxed. The question of law is therefore, answered against the revenue, and in favour of the assessees.”

Provisional attachment: Section 281B: A. Y. 2011-12: Provisional attachment should be commensurate with claim of revenue:

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KDH Properties P. Ltd. vs. ACIT; 356 ITR 1 (Mad):

For the A. Y. 2011-12, the assessee company had filed return of income computing loss of Rs. 2,67,00,000. Subsequently, pursuant to survey u/s. 133A of the Income-tax Act, 1961, the Assessing Officer impounded books of account and documents. The Assessing Officer also passed provisional attachments of properties and also the debts and security deposits due from third parties.

The Madras High Court allowed the writ petition filed by the assessee and held as under:

“i) The provisional attachment made in terms of section 281B of the Income-tax Act, 1961, should be commensurate with the claim of Department, more particularly to safeguard the interests of the Revenue. The Assessing Officer should form an opinion as to what extent of property is required to protect the interest of the Revenue. It cannot be an arbitrary claim based on no materials. It should stand the test of reasonableness and avoid arbitrariness.

ii) If the petitioner were able to establish the valuation of the property as stated by cogent and proper materials acceptable to the Department subject to final assessment, the property could continue to be under provisional attachment as per section 281B and all other debts and security deposits due from third parties could be released from the provisional attachment.”

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Housing Project: Income from: Deduction u/s.80-IB(10): Interest on delayed payment by purchasers due from contractors and suppliers: Part of income derived from development of housing project: Entitled to deduction u/s. 80-IB(10):

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CIT vs. Pratham Developers: 355 ITR 507 (Guj):

The assessee was in the business of developing and building housing projects and accordingly was entitled to deduction u/s. 80-IB (10) of the Income-tax Act, 1961. The Assessing Officer made an addition of Rs. 11,05,556 ( Rs. 4.36 lakh – interest received from purchasers on delayed payments and Rs. 8.70 lakh – balances written off in case of contractors and suppliers) by way of disallowance out of the claim for deduction u/s. 80-IB(10). The Assessing Officer held that these sums did not represent the assessee’s income from the development of housing project. The CIT(A) and the Tribunal allowed the assessee’s claim and deleted the addition.

On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:

“i) Interest received on delayed payments by the purchasers was part of income derived from the business of the assessee. It was entitled to special deduction u/s. 80-IB (10) in respect of the amount.

ii) During the course of the business in developing the housing project, the assessee had made payments to suppliers towards various purchases made. On such payments, the assessee would occasionally deduct sum amounts and pay the bill. The difference between the bill amount and the payment actually made would be the amount generated during the course of business. The assessee was entitled to special deduction u/s. 80-IB(10) in respect of such sum.”

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Educational institution: Exemption u/s. 10(23C)(vi); Rule 2CA of I. T. Rules, 1962: Assessee society running a degree college made application for approval u/s. 10(23C) (vi) for A. Y. 2009-10 onwards: Commissioner rejected application on grounds that (i) approval u/s. 10(23C)(vi) was available only to an educational institution existing solely for educational purposes while memorandum of assessee stipulated other objects as well,

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Neeraj Janhitkari Gramin Sewa Sansthan vs. CCIT; [2013] 36 taxmann.com 105 (All):

The assessee, a society, was registered under the Societies Registration Act, 1860. It was running a degree college in Mainpuri. It was also registered with the Income-tax Department. It made an application for approval for exemption u/s. 10(23C)(vi) for assessment year 2009-10 onwards. The Commissioner rejected the said application on the grounds that (i) the approval u/s. 10(23C)(vi) was available only to an educational institution existing solely for educational purposes while the memorandum of the assessee-society stipulated other objects as well, and (ii) the application for approval should have been filed by the educational institution while it had been made by the society.

The Allahabad High Court allowed the writ petition filed by the assessee and held as under:

“i) The first and foremost question which is required to be considered is whether the application for approval u/s. 10(23C)(vi) at the instance of the assessee-society was maintainable or not. The Supreme Court in the case of American Hotel & Lodging Association Educational Institute vs. CBDT [2008] 301 ITR 86/ 170 Taxman 306 had considered the effect of insertion of clause (vi) in section 10(23C) by the Finance (No. 2) Act, 1998, w.e.f. 01-04-1999 and held that the provisions of clause (vi) of section 10(23C) are analogous to provisions of section 10(22). The Punjab and Haryana High Court had the occasion to consider the effect of section 10(23C)(vi) in the case of Pinegrove International Charitable Trust vs. Union of India [2010] 327 ITR 73/ 188 Taxman 402 and while replying to a specific question whether a society registered under the Societies Registration Act, 1860 was eligible to apply for approval u/s. 10(23C)(vi) held that the application for approval u/s. 10(23C)(vi) was maintainable at the instance of a society. Similar view had been taken by the Delhi High Court in the case of Digember Jain Society for Child Welfare vs. DGIT (Exmp.) [2010] 329 ITR 459/185 Taxman 255. Therefore, the application filed by the assessee-society cannot be rejected on the ground that it is not at the instance of ‘educational institution’ as referred to u/s. 10(23C)(vi) and rule 2CA.

ii) The next question which now arises for consideration is whether the assessee’s application for approval u/s. 10(23C)(vi) can be rejected on the ground that the memorandum of association provides for various other objects apart from educational activities. In this regard, the argument of the assessee is that even though under the unamended bye-laws of the society various other aims and objects were mentioned, but according to application for approval the society is only carrying on educational activities. In the application, there is a specific assertion that the only source of income of the society is the nominal fees being charged from students and it has no other source of income. The assessee has placed strong reliance on the judgment of the Allahabad Court in the case of C.P. Vidya Niketan Inter College Shikshan Society vs. Union of India [Writ petition No. 1185 of 2011, dated 16-10-2012].

iii) Perusal of the impugned order shows that the pleading in this regard has not been taken into consideration. Further in the impugned order although there is a finding that the assesseesociety is having many objects other than educational, but there is no application of mind to the assertion made by the society that it is only pursuing the educational activity and no other. Where a society is pursuing only educational objects and no other activity, then the application by such a society for grant of approval u/s. 10(23C)(vi) cannot be rejected on the ground that its aims and objects contain several other objects apart from educational and application by such a society is perfectly maintainable.

iv) Therefore, the impugned order passed by the Commissioner was liable to be quashed. The matter required to be sent back to the Commissioner for a fresh decision in accordance with the observations made above.”

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Capital gains: Section 50C: r.w.ss. 16A and 24 of W. T. Act, 1957: Sale of immovable property for consideration of Rs. 2,06,18,227: Stamp duty value – Rs. 4,04,48,000: Value as per DVO – Rs. 2,83,19,289: Value as per Registered valuer of assessee – Rs. 2,23,41,000: AO adopted value of Rs. 2,83,19,289 as per DVO: Tribunal adopted value of Rs. 2,23,41,000 as per registered valuer without giving opportunity to DVO: Tribunal not justified in doing so:

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CIT vs. Prabhu Steel Industries Ltd.: [2013] 36 taxmann. com 393 (Bom):

The assessee admitted long-term capital gains from sale of immovable property and adopted actual sale consideration of Rs. 2,06,18,227 as basis for computation. The Assessing Officer found that as per concerned Stamp Valuation Authority, the market value of the property was Rs. 4,04,48,000. On reference, the valuation officer estimated the fair market value on the date of transfer to be Rs. 2,83,19,289. Meanwhile, the assessee submitted a report of Registered Valuer disclosing fair market value on the date of transfer to be Rs. 2,23,41,000. The Assessing Officer worked out long-term capital gain on basis of report of valuation officer and made addition. The Tribunal held that the fair market value worked out by the assessee’s registered valuer alone should have been used for computing the longterm capital gain, as it was reasonably arrived at after making allowances for various encumbrances attached to the subject property and rejected the valuation arrived at by the Valuation Officer after noting that the Valuation Officer treated stamp duty valuation as base rate, instead of actual sale instance value. Further, it held that though such report is binding on Revenue Authorities, it is not binding on the Tribunal.

The Bombay High Court allowed the appeal filed by the Revenue and held as under:

“i) It is apparent from section 16A of Wealth Tax Act that these provisions mandate that after the Assessing Officer receives report of Valuation Officer u/s. 50C, he has to act in conformity with the valuation of the capital asset worked out therein. Thus, an order of Valuation Officer determining the market value of the asset on the date of transfer u/s. 50C(2) is made appealable even for the purpose of Income-tax Act, 1961 as per scheme in section 23A of Wealthtax Act. S/s. (6) of section 23A stipulates that when the valuation of any asset is objected to in an appeal, the Commissioner (Appeals) has to extend an opportunity of hearing to the Valuation Officer, who has made order u/s. 16A. It therefore, follows that when in an appeal, such exercise of valuation officer is disputed, the Appellate Authority has to extend an opportunity of hearing to the Valuation Officer.

ii) Section 24 speaks of further appeals to the Appellate Tribunal. As per section 24(5) of the Wealth Tax Act, 1957; the Appellate Tribunal has to extend opportunity of hearing to the Valuation Officer, and this provision is pari materia with section 23(6) above. Therefore, when order of CIT (Appeal), is questioned in further appeal before the Tribunal, the Tribunal has to keep in mind the provisions of section 24(5) of the Wealth Tax Act, 1957 and has to extend an opportunity of hearing to the Valuation Officer.

iii) As per the statutory scheme when the report/order of Valuation Officer u/s. 50C(2) is objected to by assessee, the CIT (Appeals) or Tribunal are obliged to extend an opportunity of hearing to such Valuation Officer.

iv) The Tribunal has found faults with the report/ order of District Valuation Officer. Admittedly, the said Valuation Officer had not been heard and no opportunity was extended to him. This is contrary to obligation cast upon it by the proviso of section 24(5) of the Wealth Tax Act, 1957 as attracted by section 50C(2).

v) In this situation, a mandatory requirement of law has been violated in present matter. Hence, the impugned order of the Tribunal is hereby quashed and set aside and the proceedings are restored back to the file of the Tribunal for taking decision afresh, in accordance with law.”

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Business expenditure: Capital or revenue expenditure: Section 35DDA: A. Y. 2007-08: Payment to employees under voluntary retirement scheme: Compliance with Rule 2BA is for benefit u/s. 10(10C): No such compliance mandatory for deduction in the hands of employer u/s. 35DDA: Deduction allowable:

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CIT vs. State Bank of Mysore; 356 ITR 468 (Kar):

For the A. Y. 2007-08, the assessee, a public sector bank, had claimed deduction of Rs. 7,09,53,323.23 as deductible expenditure incurred to meet the claims of employees who had taken voluntary retirement. The Assessing Officer allowed the deduction as revenue expenditure. Exercising the powers u/s. 263 of the Income-tax Act, 1961, the Commissioner held that the expenditure was in the nature of capital expenditure and disallowed the amount on the ground, inter alia, that even applying the provisions of section 35DDA the voluntary retirement scheme was not in consonance with rule 2BA of the I. T. Rules 1962. The Tribunal held that this was a case where the scheme was covered u/s. 35DDA. The condition imposed in Rule 2BA with reference to the recipient for the purpose of section 10(10C) was not attracted to the provisions of section 35DDA. Since under the provisions u/s. 35DDA the entire amount could not be allowed as deduction, but it could be spread over a period of five years, one-fifth of the expenditure could be allowed and the balance spread over the following four assessment years.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“i) There was no mention of any rule in section 35DDA. On the other hand, in rule 2BA there is a specific reference to section 10(10C). The language of rule 2BA made it clear that the amount received is by the employee and for the purpose of claiming the benefit u/s. 10(10C). This has nothing to do with the employer’s claim, which is a different claim u/s. 35DDA.

ii) The Tribunal rightly took the view that rule 2BA is attracted and applicable only to a circumstance, where the benefit u/s. 10(10C) is sought for and not in a situation where the provisions of section 35DDA are called in aid.”

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2013 (29) S.T.R. 591 (Tri.- Del.) LSE Securities Ltd. vs. Commissioner of Central Excise

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Whether service tax is applicable to a Stock Broker on receipts such as turnover charges, stamp duty, BSE charges, SEBI fees and DEMAT charges paid to various authorities?

Facts:
Appellant filed appeal against the order levying service tax along with interest and penalty on the receipts of stamp duty, BSE charges and SEBI fees, which were deposited by the appellant with the authority under different statutes. Limitation ground was also pleaded.

Held:
Clause (a) of explanation to section 67 of Finance Act,1994 stipulates that aggregate of commission or brokerage charged by broker on sale or purchase of securities including commission or brokerage paid by the stock broker to any sub broker is liable to service tax. It cannot be expanded to levy tax on a receipt by implication or inference. It is an unambiguous charging section, which is to be construed strictly. No receipt other than commission or brokerage made by a stock broker, that being the consideration for taxable service, is intended to be brought to ambit of assessable value of service provided by stock broker, charge on such other items is arbitrary taxation and cannot be taxed in disguise – section 65(101) and 65(105) (a). Scope of section 67 cannot be expanded to have artificial measure for levy bringing a receipt by implication and not in accordance with the charging provision. It is intrinsic value of service provided which is taxed without any hypothetical rule of computation of value of taxable service. Bonafide belief was clear as there was no levy on receipts other than brokerage received by stock broker from investors. In such a case, suppression cannot be charged. Hence, extended period was not invokable. No subject can be made liable without authority of law and based on presumption or assumption. Provisions cannot be imported in statute so as to supply any deficiency. Appeal was thus allowed.

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Eviction – Tenancy – Replacement of Tin roof by concrete slab – Permanent structure – Means structure lasting till end of tenancy. Transfer of property Act., section 108:

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A residential premise comprising two rooms with a gallery situate at Calcutta and owned by Gauri Devi Trust of which the Appellants are trustees was let out to the Respondent-tenant on a monthly rental of Rs. 225/-. One of the conditions that governed the jural relationship between the parties was that the tenant shall not make any additions or alterations in the premises in question without obtaining the prior permission of the landlord in writing. Certain differences arose between the parties with regard to the mode of payment of rent as also with regard to repairs, sanitary and hygiene conditions in the tenanted property, which led the landlord-Appellant to terminate the tenancy of the Respondent in terms of a notice served upon the latter u/s. 106 of the Transfer of Property Act. The ground for termination was that the Respondent-tenant had illegally and unauthorisedly removed the corrugated tin-sheet roof of the kitchen and the store room without the consent of the Appellant-landlord and replaced the same by a cement concrete slab, apart from building a permanent brick and mortar passage which did not exist earlier. The trial Court accordingly held that it was the Defendant-tenant who had made a permanent structural change in the premises in violation of the conditions stipulated in the lease agreement and in breach of the provisions of Section 108 of the Transfer of Property Act. The trial Court further held that the tenant had not, while doing so, obtained the written consent of the landlord.

On appeal, the High Court held that since the replacement of the tin-sheet roof by cement concrete slab did not result in addition of the accommodation available to the tenant, the act of replacement did not tantamount to the construction of a permanent structure. The replacement instead constituted an improvement of the premises in question. On further appeal, the Honourable Supreme Court observed that no hard and fast rule can be prescribed for determining what is permanent or what is not. The use of the word ‘permanent’ in Section 108(p) of the Transfer of Property Act, 1882 is meant to distinguish the structure from what is temporary. The term ‘permanent’ does not mean that the structure must last forever. A structure that lasts till the end of the tenancy can be treated as a permanent structure. The intention of the party putting up the structure is important, for determining whether it is permanent or temporary. The nature and extent of the structure is similarly an important circumstance for deciding whether the structure is permanent or temporary within the meaning of Section 108(p) of the Act. Removability of the structure without causing any damage to the building is yet another test that can be applied while deciding the nature of the structure. So also the durability of the structure and the material used for erection of the same will help in deciding whether the structure is permanent or temporary. Lastly, the purpose for which the structure is intended is also an important factor that cannot be ignored.

Applying the above tests to the instant case, the structure was not a temporary structure by any means. The kitchen and the storage space forming part of the demised premises was meant to be used till the tenancy in favour of the Respondentoccupant subsisted. Removal of the roof and replacement thereof by a concrete slab was also meant to continue till the tenancy subsisted. The intention of the tenant while replacing the tin roof with concrete slab, obviously was not to make a temporary arrangement, but to provide a permanent solution for the alleged failure of the landlord to repair the roof. The construction of the passage was also a permanent provision made by the tenant which too was intended to last till the subsistence of the lease.

The concrete slab was a permanent feature of the demised premises and could not be easily removed without doing extensive damage to the remaining structure. Such being the position, the alteration made by the tenant fell within the mischief of Section 108(p) of the Transfer of Property Act and, therefore, constituted a ground for his eviction in terms of Section 13(1 )(b) of the West Bengal Premises Tenancy Act, 1956.

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Ind AS 40 – Investment Property

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Background

Current Indian GAAP provides limited guidance on accounting for investment properties under AS 13 Accounting for Investments. In order to converge the Indian Accounting Standards (Ind AS) with those under the International Financial Reporting Standards (IFRS), Ind AS 40 has been issued. Ind AS 40 will become applicable as and when Ind AS are notified.

Scope and definitions

Ind AS 40 provides guidance with respect to recognition, measurement and disclosure of investment property. It also provides detailed guidance on transfer to/from and disposals of investment property. Ind AS 40 specifically excludes below mentioned assets from its scope, as the relevant guidance relating to these assets is covered under other accounting standards:

 • Biological assets (Ind AS 41 – Agriculture)

• Mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources. This standard could be applied to measurement in lessee’s or lessor’s financial statements depending on certain specified conditions.

But Ind AS 40 does not deal with matters covered under Ind AS 17 – Leases like classification of leases, recognition of lease income, accounting for sale and leaseback transactions etc. Definitions Investment property is property (land or a building— or part of a building—or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:

(a) use in the production or supply of goods or services or for administrative purposes; or

(b) sale in the ordinary course of business. Thus the classification depends on the use of the property. Owner-occupied property is property held (by the owner or by the lessee under a finance lease) for use in the production or supply of goods or services or for administrative purposes. Recognition Investment property is recognised as an asset only when both the following conditions are met:

• It is probable that the future economic benefits that are associated with the investment property will flow to the entity; and

• the cost of the investment property can be measured reliably. The above criteria are applied to all properties irrespective of whether the costs are incurred towards the property in the initial phase or subsequent phases. Measurement Initial measurement An investment property shall be measured initially at cost. Transaction costs which are directly attributable for preparing the asset for its intended use will form part of its initial cost. For example, property taxes, legal fees etc.

The principles are same as would be applied to determine the cost of asset under Ind AS 16 Property, Plant and Equipment (PPE). Maintaining consistency with Ind AS 16, abnormal amounts of inefficiencies incurred and initial operating losses incurred will not form part of the cost of the asset and will be expensed off as incurred. In case of acquisition of investment property on deferred payment terms, the investment property would be recognised, based on its current cash price equivalent. The difference between the current cash price equivalent and the deferred payment terms would be recognised as finance cost over the term of the deferred payment term.

Borrowing costs directly attributable to the acquisition, construction or development of an investment property that is a qualifying asset shall be capitalised in accordance with Ind AS 23 Borrowing Costs. The initial cost of a property interest held under a lease and classified as an investment property shall be as prescribed for a finance lease under paragraph 20 of Ind AS 17, i.e., the asset shall be recognised at the lower of the fair value of the property and the present value of the minimum lease payments. An equivalent amount shall be recognised as a liability as prescribed under Ind AS 17.

Subsequent measurement

Unlike IAS 40 which permits both cost and fair value model after initial recognition, Ind AS 40 does not provide such an accounting policy choice after initial recognition under Ind AS 40. Ind AS 40 permits application of only the cost model.

The cost model is similar to that prescribed under Ind AS 16 for Property, Plant and Equipment i.e. at cost less accumulated depreciation less accumulated impairment losses. Only if the asset is classified as held for sale, the same would be valued in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations i.e. at fair value. While initial recognition and subsequent measurement is at cost, an entity is required to disclose the fair value of the investment property.

Fair value determination

Fair value is the price at which the investment property could be exchanged between knowledgeable, willing parties in an arm’s length transaction. It should reflect the market conditions at the end of the reporting period and does not consider any transaction costs it may incur on sale or disposal. It also does not reflect future capital expenditure that will improve or enhance the value of the property.

It is best evidenced by current prices in an active market for similar properties in the same location and subject to similar terms of the contract. If information pertaining to similar term contracts is not available, then the value of such properties should be adjusted to reflect the differences in the contracts.

Transfers

Although an entity’s business model plays a key role in the initial classification of property, the subsequent reclassification of property is based on an actual change in use rather than on changes in an entity’s intentions. Transfers to and from investment property can be made only when there is change in use which has to be evidenced by:

• commencement of owner-occupation, for a transfer from investment property to owner-occupied property;

• commencement of development with a view to sell, for a transfer from investment property to inventories;

• end of owner-occupation, for a transfer from owner-occupied property to investment property; or

• commencement of an operating lease to another party, for a transfer from inventories to investment property.

As such, the subsequent reclassification is based on actual change in use and not just the intentions of the entity.

 For example, Company S owns a site that is an investment property. S decides to modernise the site and sell it. The investment property is transferred to inventory at the date of commencement of the redevelopment of the site that evidences the change in use. However, a decision to dispose of an investment property without redevelopment does not result in it being reclassified as inventory. The property continues to be classified as investment property until the time of disposal unless it is classified as held for sale.
Let us take another example where Company G which previously classified a property as an investment property has now decided to use the property as its administrative headquarters due to an expansion of its business, and commences redevelopment for own use in February 2013 (e.g. builders are on site carrying out the construction work on G’s behalf). In this case, the redevelopment of the property for future use for administrative purposes effectively constitutes owner occupation. Therefore, G should reclassify the property to owner occupied property on commencement of the redevelopment in February 2013.

Transfers between investment property, owner-occupied property and inventories do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes. In other words, transfers happen at the carrying amount. For example, if an investment property of Rs. 100,000 depreciated @ 10% SLM is transferred to inventory at the end of 3 years, the same will be transferred to inventory at Rs. 70,000 i.e., the carrying amount of investment property at the end of 3 years.

Disposals
The investment property shall be derecognised i.e. eliminated from the financial statements on disposal, providing an asset under finance lease or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal. The criteria and guidance given in Ind AS 18 Revenue would be applied to determine the date of disposal, whereas Ind AS 17 would be applied in case the disposal is by way of finance lease or sale and leaseback.

Gains or losses resulting from difference in net sales proceeds and the carrying value of investment property will be recognised in profit or loss in the period in which the property is disposed or retired. In case the sales proceeds are deferred, the consideration receivable will have to be discounted to its present value and the difference would be recognised as finance income over the period of credit.

Practical issues

Classification issues
Determining what is or what is not investment property may raise practical issues, some examples of which are given below:

Subsequent cost
Subsequent costs of day-to-day servicing and maintaining a property are expensed as incurred and cannot be capitalised. But where statutory/fregulatory approvals are required to be obtained and any expenses incurred during the period required to get such approvals shall be capitalised as the property cannot be put to intended use till such time that the approvals are obtained.

Equipments and furnishings
Equipments and furniture and fittings that are physically attached to the building will be considered as integral part of the building and will not be accounted for separately. For example, lifts, escalators, air conditioning units etc., will all be considered as part of investment property. In case of movable property, the same would get accounted separately as PPE in accordance with Ind AS 16. In such cases, care must be taken while disclosing the fair value of the investment property, so that it does not include the fair value of moveable property that has been accounted for separately, otherwise it will be misleading.

Inventory vs. Investment Property
The entity’s intention regarding the property is a primary criteria for classification. Property held for short-term sale would be classified as inventory whereas the one held for long-term purposes would generally get classified under investment property. For example, if a builder acquires bare land with intention to construct buildings and sell them, the land would be classified as inventory because it is an asset held in the process of production for sale. However, if the company has brought land with no specific use in mind, then it gets classified as investment property. (Eg: Financial institution acquires a property as full and final settlement of loan given and is uncertain about its intention). In case a developer of the property holds a completed developed property and intends to rent the same, he could classify the same as investment property instead of classifying it as inventory.

Consolidated and separate financial statements
A property may also get classified differently in consolidated and separate financial statements of an entity. For example, when a holding company leases building to its subsidiary which uses the same as its administrative office, the property could be classified as investment property in the books of the holding company but would be classified as PPE in the Consolidated Financial Statements (CFS).

Dual-use property
Wherein a property could be used for dual purposes, say for own use and other for renting out, a portion of dual property can be classified as investment property, only if the portion could be sold separately. When a portion of the property can not be sold separately, the entire property is classified as investment property only if the portion of the property held for own use is insignificant. For example, Company X owns an office block and uses 3 floors as its own office; the remaining 12 floors are leased out to tenants on operating lease. Under the local laws, X could sell legal title to the 12 floors, while retaining legal title to the other 3 floors. In this case, the 12 floors would be classified as investment property.

Ancillary services
In case where the owner of the property provides ancillary services, the key factor in determining whether the same should be classified as investment property is its relative insignificance to the entire arrangement.

But in case of hotels, ancillary services would be considered as significant part and an owner-managed hotel would be regarded as owner-occupied property instead of investment property, as the property is used to a significant extent for the supply of goods and services. In case where the owner of the hotel is just a passive investor and the management function and provision of services is carried out by a third party and the owner is not exposed to variations in cash flow from the operations of the hotel, the same will be treated as investment property. As such, judgment is required in determining the classification of the property in case of different scenarios. An entity should assess on a case-to-case basis whether the arrangement is more like an example of owner-managed hotel (not investment property) or an example of office building with security services provided by the owner (investment property).

Even in case of classification of business centres, some of them which provide high level services such as secretarial support, teleconferencing and other computer facilities and where tenants sign relatively short term leases, the facilities provided are more in the nature of owner-managed hotel and hence should not be classified as investment property. In other cases where the owner provides just the basic furnishing and users are required to sign up for a minimum period, the same could be treated as investment property.

Disclosures
An entity is required to disclose the following:
•    accounting policy for measurement.
•    when classification is difficult, the criteria it uses to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business.
•    the methods and significant assumptions applied in determining the fair value of investment property.
•    the extent to which FV is based on valuation by professional independent valuer; if not, such fact should be disclosed.
•    amounts recognised in profit or loss for rental income, direct operating expenses that generated as well as those that did not generate rental income.
•    the existence and amounts of restrictions on the realisability of investment property or the remittance of income and proceeds of disposal.
•    contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.
•    Depreciation method and useful life or rate of depreciation.
•    Gross carrying amount and accumulated depreciation at beginning and end of reporting period.
•    Reconciliation of carrying amount of investment property at the beginning and end of the period.
•    Impairment losses recognised or reversed.
•    Exchange differences.
•    Transfers to and from inventories and owner-occupied property.
•    Assets classified as held for sale.
•    Other changes.

Conclusion
This accounting standard prescribes accounting for investment property and the related disclosure requirements. It gives detailed guidance on the classification, recognition and measurement of investment properties. The guidance requires the measurement of the investment property using the cost model similar to measurement of PPE under Ind AS 16. It also gives guidance on transfers to and from investment property and states that these can be made only when there has been a change in the use of the property.

Judgment would be required on case to case basis to classify the property as investment property especially in cases of ancillary use or dual-use of the property.

S/s.- 5, 9, 40(a)(i), 195 – Payments made for online advertisement on search engines of Google/Yahoo are neither royalty nor FTS. On facts, no business connection; accordingly, not taxable in India and hence no tax withholding applies; websites do not constitute permanent establishment in India.

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8. TS-137-ITAT-2013(KOL)
ITO vs. right Florists Pvt. Ltd.
A.Ys.: 2005-06, Dated: 12-04-2013

S/s.- 5, 9, 40(a)(i), 195 – Payments made for online advertisement on search engines of Google/Yahoo are neither royalty nor FTS. On facts, no business connection; accordingly, not taxable in India and hence no tax withholding applies; websites do not constitute permanent establishment in India.

Facts
The Taxpayer, an Indian company, used search engines of Google/Yahoo for advertising its business. Payments were made to Google Limited (a company resident of Ireland) and Yahoo (a US based company) for displaying the Taxpayer’s advertisement when certain key terms were used on such search engines. No taxes were withheld as the Taxpayer was of the view that the payment was not taxable in India in the hands of the recipient non-residents.

The Tax Authority disallowed the advertisement expenses u/s. 40(a)(i) on the ground that taxes ought to have been withheld by the Taxpayer. CIT(A) ruled in favour of the Taxpayer as the non-resident recipients did not have any permanent establishment (PE) in India, no portion of the payments can be considered as taxable in India.

Held
The Tribunal based on the following ruled that the payment for online advertisement is not taxable in India and hence no withholding on the same was warranted.

Whether income accrues or arises in India:

The Tribunal drew reference to SC decision in the case of Hyundai Heavy Industries (291 ITR 482) wherein SC observed that in order to attract taxability in India u/s. 5(2)(b), income must relate to such portion of income of the non-resident, as is attributable to business carried out in India, and the business so carried out in India could be through its branches or through some other form of presence such as office, project site, factory, sales outlet etc which was collectively referred to as “PE of the foreign enterprise”

Whether Google/ Yahoo have a PE in India

• Traditional commerce required physical presence to carry out business in a country and the concept of PE had developed at a time when e-commerce was non-existent. • The ITAT concluded that a website per se could not constitute a PE in India under the Act for the search engine companies which was also the view taken by the High Powered Committee (HPC) .

• In a tax treaty context, reliance was placed on the OECD MC Commentary to conclude that a search engine, which has a presence through its website, cannot therefore, constitute a PE under the treaty unless its web servers are located in the same jurisdiction which is in line with the physical presence test.

• India’s reservations on the OECD MC Commentary merely state that the website may constitute a PE in certain circumstances, but it does not specify what those “circumstances” are in which, according to tax administration, a website could constitute a PE. Hence, the reservations do not really constitute “actionable statements” and there is difficulty in understanding somewhat vague and ambiguous stand of the tax administration on this issue.

Thus, conditions of income accrual u/s. 5(2)(b) as laid by the SC in Hyundai Heavy Industries are not satisfied to the extent no profits can be said to accrue or arise in India.

Whether income deemed to accrue or arise in India,

• On business connection, the ITAT held that there was nothing on record to demonstrate or suggest that the receipts were on account of business connection in India.

• Payment in connection with online advertising services is not in the nature of royalty – Reliance placed on earlier rulings in Yahoo India Pvt Ltd (140 TTJ 195) and Pinstorm Technologies Pvt Ltd [TS- 536-ITAT-2012(Mum)].

• Based on SC ruling in Bharti Cellular (330 ITR 239), it was concluded that payment is not fees for technical services (FTS) as “human intervention,” is essential for the service being characterised as FTS. As the whole process of online advertising is automated in which there is no human element, the same cannot constitute FTS.

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DDIT vs. Marriott International Licensing Company BV [2013] 35 taxmann.com 400 (Mumbai-Trib) A.Ys.: 2003-04 Dated: 17-07-2013 Article 12(4) of India-Netherlands DTAA

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Payment can be characterised as “royalties” only if it is consideration for use or right to use any defined property in existence at the time of use—since the payment made was not for pre-existing defined property, it could not be characterised as “royalties”. Contribution linked to percentage of turnover is unlikely to be regarded as reimbursement of expenses.

Facts:
The taxpayer was a company incorporated in, and tax resident of, the Netherlands. The taxpayer had entered into a Franchise Agreement with a hotel in India for providing sales, marketing publicity and promotion services outside India. The Indian hotel was also to participate in the hotel system of the taxpayer. Clause 3.2 of the agreement provided that the hotel was to pay certain proportion of its gross revenue for international marketing activities which were in the nature of advertising and printed media, marketing, promotional, public relations and sales campaigns etc. The issue before the Tribunal was, whether the payment made under clause 3.2 of the agreement was purely reimbursement of expenses on sales promotion and marketing and hence was not “royalties”?

Held:
To cover any amount within the purview of Article 12(4) of India-Netherlands DTAA, the payment should be received as consideration ‘for the use of or right to use’ any defined property (i.e. copyright, patent, trademark, etc). Thus, a payment would be “royalties” if it is made for defined property existing at the time of use and not for creation of defined property. Even if the payment contributed towards brand building, it would not be for use of the brand and hence cannot be characterised as “royalties”.

The contribution, being a percentage of gross revenue, was not reimbursement of actual expenses on itemised basis and no material was placed on record to demonstrate that actual expenses were equal to the reimbursed amount. Therefore, the AO should decide on the taxability of the amounts under Article 7 of India-Netherlands DTAA.

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S/s. 195, 40(a)(i) – Reimbursement of expenses to holding company is not an income under the Act and hence not chargeable to tax; Expenses routed through holding company for payment to third party not in the nature of reimbursement of expenses and liable to withholding by evaluating tax implications in the hands of the third party.

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7. TS-132-ITAT-2013(Mum)
C. U. Inspections (I) Pvt. Ltd. vs. DCIT
A.Y. 2006-07, Dated: 06-03-2013

S/s. 195, 40(a)(i) –  reimbursement of expenses to holding company is not an income under the Act and hence not chargeable to tax;  expenses routed through holding company for payment to third party not in the nature of reimbursement of expenses and liable to withholding by evaluating tax implications in the hands of the third party.


Facts

The Taxpayer, an Indian company, was a subsidiary of a company incorporated in Netherlands (Parent Company). During the relevant AY, the Taxpayer made two types of payments to the Parent Company on which taxes were not withheld on the ground that the same amounted to reimbursement of expenses, viz :

(i) Payment in respect of common expenses borne by the Parent Company for various group companies in respect of accounting services, legal and professional services, communication, R&D etc.

These expenses were incurred by the Parent Company for and on behalf of the Taxpayer and other group companies and the same were recovered/allocated on the basis of arm’s length principle based on agreed parameters. As per the Auditor’s Certificate, allocation of such expenses was done without any income element. (Common expenses)

(ii) Payments in respect of expenses for training services availed by the Taxpayer from independent third party and for which the payment was routed through the Parent Company.

Such training services were arranged by the Parent Company which paid to the third party trainers and later on recovered the amount from the Taxpayer on actual basis. (Training expenses)

The tax authority was of the view that taxes were required to be withheld on the above payments and in the absence of tax withholding, such payments/ expenses were not allowed as deduction while computing taxable income of the Taxpayer under the Act.

The CIT(A) upheld the action of the tax Authority.

Held
• The payments towards common expenses incurred by the Parent company for and on behalf of the Taxpayer and group entities, amounted to reimbursement of expenses. Such reimbursement of expenses was not chargeable to tax in the hands of parent company and, hence, was not subject to withholding of taxes u/s. 195 of the Act.

• In connection with training expenses, it held that the payments were not reimbursement of expenses but remission of amount by the Taxpayer to the Parent company for finally making the payment to third party service provider and, hence, was a payment to third party through the hands of the parent company. Accordingly, provisions of withholding of taxes under Act will apply as if the Taxpayer has made the payment to such independent third party service provider.

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ITO vs. Veeda Clinical Research Pvt Ltd [2013] 35 taxman.com 577 (Ahmedabad-Trib) A.Y. 2008-09, Dated: 28-06-2013 Article 13(4) (c), India-UK DTAA

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Fees paid by Indian company to UK company for general training does not involve transfer of technology and hence, is not covered under ‘make available’ clause.

Facts:
The taxpayer was an Indian company. It had made certain payments to a UK service provider for providing ‘market awareness and development training’ to its employees.

The issue before the Tribunal was whether the training fees paid to the service provider were covered under Article 13(4)(c) of India-UK DTAA and accordingly, were taxable in India?

Held:
The law on the connotation of ‘make available’ clause in definition of FTS is settled and the condition precedent for invoking this clause is that the services should enable the person acquiring the services to apply the technology contained in such services.

Unless the technical services provided by the UK Company resulted in transfer of technology, the ‘make available’ condition was not satisfied. To invoke ‘make available’ clause, the onus is on the tax authority to demonstrate that the training services involved transfer of technology. This onus was not discharged.

The training services provided were general in nature and did not involve transfer of technology. Therefore, the fees paid for the same could not be covered under Article 13(4) of India-UK DTAA.

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Article 7, 11 of India-UAE DTAA – Interest received by an UAE resident from an Indian partnership firm in which he is a partner is not taxable as business income, but as Interest income, owing to specific “Interest” article in the India-UAE DTAA; DTAA rate is not to be further enhanced by surcharge and education cess.

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6. TS-117-ITAT-2013(Mum)
Sunil V. Motiani vs. ITO
A.Ys.: 2008-09, Dated: 27-02-2013

Article 7, 11 of India-UAE DTAA – Interest received by an UAE resident from an Indian partnership firm in which he is a partner is not taxable as business income, but as Interest income, owing to specific “Interest” article in the India-UAE DTAA; DTAA rate is not to be further enhanced by surcharge and education cess.

Facts
The Taxpayer, resident of UAE, received interest income from partnership firms in India in which he was a partner. The Taxpayer offered such interest income to tax in India as per provisions of India-UAE DTAA (UAE DTAA). The tax authority, in addition to taxing the interest income at the rate prescribed in Article 11 of DTAA, also levied education cess and surcharge.

The CIT(A) ruled that as the interest income was in the nature of business income the same was taxable as per normal rates and the concessional rate as provided in the Article 11 was not applicable.

Held
• The specific Articles in DTAA dealing with taxation of income under different heads would govern the taxability of a specific income.

• Income from business is governed by Article 7 whereas interest income is governed by Article 11.

• Article 7(7) of the DTAA provides that in case specific provision deals with a particular type of income, the same has to be dealt with by those provisions.

• Thus, though interest income may be assessed as business income under the Act, in view of specific interest Article i.e. Article 11, interest income should be governed by the said Article 11.

• The term ‘Income Tax’ has been defined in Article 2 of the UAE DTAA to include surcharge. Therefore, tax rate provided in Article 11(2) dealing with interest income also includes surcharge.

• Based on Kolkata Tribunal decision in the case of DIC Asia Pacific Pte Ltd. v. ADIT(IT) [ITA No.1458/ Kol/2011], it can be held that education cess is in the nature of surcharge. Accordingly, both education cess and surcharge can be regarded as included in the treaty rate of 12.5%.

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Varian India (P.) Ltd. vs. ADIT [2013] 33 taxmann.com 249 (Mumbai-Trib) A.Ys.: 2002-03 to 2006-07, Dated: 27-02-2013

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Article 5 and 7 of India-USA DTAA, India-Australia DTAA and India-Italy DTAA

Since no condition under Article 5(4) dealing with dependent agent was fulfilled, the PE was not constituted—in absence of PE, ‘force of attraction rule’ did not apply.

Facts:
The taxpayer was the Indian branch of an American company VIPL, which in turn was a wholly owned subsidiary of Varian USA. Varian USA was engaged in manufacturing and marketing of various kinds of instruments. Varian group had five group entities in USA, Australia, Italy, Switzerland and the Netherlands. The taxpayer had entered into Distribution and Representation agreements with Varian group companies in respect of India. The taxpayer carried out pre-sale activities such as liaisoning and post-sale support activities and received commission for the same. The taxpayer did not have any authority to negotiate or conclude contracts on behalf of the group companies. Further, all the risks like market risk, product liability risk, research and development risk, credit risk, price risk, inventory risk or foreign currency risk were born by the selling entity.

The issues before the Tribunal were as follows.

(i) Whether the Indian branch of the taxpayer constituted PE of the group companies?
(ii) If the taxpayer was considered to constitute the PE, whether ‘force of attraction rule’ could apply?

Held:
(i) Dependent agent PE

The taxpayer did not have any authority to negotiate or conclude contract on behalf of group companies. The group companies directly sold the products to the Indian customers and also undertook all the associated risks.

Under Article 5 (4) of India-USA DTAA, an agent constitutes a PE only if he fulfils one of the three conditions specified therein. On facts, the taxpayer did not fulfil any of the three conditions as it had no authority to conclude contract, nor did it act as delivery agent, nor as order-securing agent. Therefore, the test of dependent agent PE failed and the US affiliate triggered no taxation in India.

The corresponding conditions under India-Australia DTAA and India-Italy DTAA were also similar to Article 5(4) of India-USA DTAA and in those cases too, the PE did not kick in.

(ii) Applicability of ‘force of attraction rule’

For application of ‘force of attraction rule’: the foreign enterprise should have a PE in India for selling goods, and the goods sold by the foreign enterprise should be same or similar to those sold by the PE. As the foreign enterprise did not have a PE in India, question of applicability of ‘force of attraction rule’ did not arise.

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Wellinx Inc vs., ADIT [2013] 35 taxmann.com 420 (Hyderabad-Trib) A.Ys.: 2006-07, Dated: 28-06-2013 Article 7(3), India-USA DTAA

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Article 7(3) of India-USA DTAA distinguishes between commercial and non-commercial services. While the former are taxable, the latter are not taxable. Customer care and medical transcription services provided by BO to HO were commercial services and hence taxable in India.

Facts:
The taxpayer was a company incorporated in USA. It was engaged in the business of medical transcription and software development related to health care. The taxpayer established a Branch Office (“BO”) in India for providing certain services to Head Office (“HO”) in USA after obtaining approval of RBI. BO received payments from HO for these services.

According to taxpayer, as BO was providing services to HO, in terms of Article 7(3) of India-USA DTAA, the resultant income was not chargeable to incometax. However, the AO concluded that the BO was engaged in software development and estimated its income on cost plus basis.

Held:
The taxpayer had a PE in India.

Article 7(3) has two parts. The first part relates to commercial and business activities carried on by a PE whereas second part relates to certain specified non-commercial services performed by PE for its HO. While the commercial and business services are taxable, if HO assigns some non-commercial activities to its BO, income from such activities would not be taxable in terms of Article 7(3) of India-USA DTAA.

In the present case, BO provided customer care and medical transcription services to the HO. These were commercial services outsourced by the HO. Hence, consideration for such services was taxable in India.

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S/s. 9, 10(23G) – Sale of shares of an Indian company by a Netherlands company to a Singapore company not taxable under the Act or India-Netherlands DTAA; Shares in the Indian company engaged in infrastructure activity is not “immovable property” so as to be taxed under Article 13(1) of Netherlands DTAA; Interest received for delay in payment of sale consideration by the Netherlands company which was received outside India, did not accrue or arise in India and cannot be taxed u/s. 9 of the Act.<

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5. TS-120-ITAT-2013(HYD)
Vanenburg Facilities B.V. vs. ADIT
A.Ys.: 2005-06, Dated: 15-03-2013

S/s. 9, 10(23G) – Sale of shares of an Indian company by a Netherlands company to a Singapore company not taxable under the Act or India-Netherlands DTAA; Shares in the Indian company engaged in infrastructure activity is not “immovable property” so as to be taxed under Article 13(1) of Netherlands DTAA; Interest received for delay in payment of sale consideration by the Netherlands company which was received outside India, did not accrue or arise in India and cannot be taxed u/s. 9 of the Act.

Facts
The Taxpayer, a Netherlands Company, made 100% equity investment in an Indian Company (ICo), which was engaged in the business of developing, operating and maintaining infrastructure facilities of an industrial park in India. Further, ICo was an approved infrastructure company u/s. 10(23G) of the Act, which exempts Long Term Capital Gains (LTCG) on investments made in infrastructure projects.

During the relevant AY, the Taxpayer sold its 100% shareholding in ICo to a Singapore Company (BuyCo). BuyCo also paid interest to the Taxpayer for delay in payment of sale consideration. Taxes were withheld by BuyCo both on LTCG and on interest paid. The Taxpayer claimed refund of the taxes withheld on the ground that, under the India-Netherlands Double Taxation Avoidance Agreement (Netherlands DTAA) LTCG was not taxable and the interest income did not accrue or arise in India. Alternatively, the Taxpayer also claimed shelter u/s. 10(23G) of the Act.

The tax authority rejected the claim made by the Taxpayer on the following grounds

• Article 13(1) of the Netherlands DTAA, which permitted taxation of gains arising on alienation of ‘immovable property’ and the same is applicable in the facts of the present case as transfer of 100% shares implied that the rights to enjoy the property of ICo vested with BuyCo.

• Exemption u/s. 10(23G) was not available as the approval to ICo was granted after the investment was made by the Taxpayer.

• Since interest is inextricably linked to base transaction, the same is taxable on the same lines as the base transaction.

The CIT(A) upheld tax authority’s order.

Held
The Tribunal based on the following, ruled that the LTCG and the interest received from FCo is not taxable in India in the hands of the Taxpayer.

On taxability under the Netherlands DTAA:

• Though the Act does not define ‘immovable property’ in section 2, it has been defined in a varied manner under different sections in the Act, which would be applicable specifically in a particular scenario. Therefore, it cannot be considered that ‘immovable property’ as defined for special purpose in sections like 269UA of the Act, 3(26) of General Clauses Act etc. has a general purpose meaning applicable to all provisions of the Act.

• A share held by a company cannot be considered as ‘immovable property’. In terms of Article 6 of the Netherlands DTAA immovable property shall have the meaning which it has under the law of the State in which the property in question is situated. Unless the conditions prescribed in Article 6 of Netherlands DTAA apply, the same cannot be considered as immovable property under Article 13(1) of the DTAA.

• Article 13(1) cannot be made applicable to the transfer of shares, as Taxpayer has not sold the immovable property or any rights directly attached to the immovable property.

• Article 13(5), which provides for taxability in case of alienation of shares (and consequential exclusive right of taxation to country of residence) is applicable to the facts of the present case, as per which the capital gains would be taxable in Netherlands. On exemption u/s. 10(23G):

• Since the Indian Company was already approved as an infrastructure company and was allowed deduction u/s. 80IA and further at the time of sale of shares the conditions as provided u/s. 10(23G) are satisfied, the sale of shares of an infrastructural company, is eligible for exemption as provided u/s. 10(23G).

• The fact that the approval was received post the date of investment is not relevant. On taxability of interest:

• As per Section 9 of the Act, interest is taxable in India if the same is towards a debt incurred or moneys borrowed and used for the purpose of a business or profession carried on by non-resident in India. In the facts, neither the Taxpayer nor BuyCo is carrying on any business in India, nor is the interest payable in respect of any debt incurred or moneys borrowed and used for the purpose of business in India. Therefore, the interest received by the Taxpayer which was paid and received outside India, cannot be taxed u/s. 9 of the Act.

• Even if interest were to be considered as part of consideration it would form part of the sale consideration and will be considered like capital gains.

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Section 2(22)(e) – Share application money is not “loan or advance” for the purpose of section 2(22)(e).

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4. DCIT vs. Vikas Oberoi
ITAT  Mumbai `F’ Bench
Before D. Karunakara rao (AM) and Vivek Verma (JM)
ITA Nos. 4362/M/2011  and 4 other appeals
A.Y.: 2002-03 and 2004-05 to 2007-08.     
Decided on: 20th  March, 2013.
Counsel for assessee/revenue: Murlidhar/A P Singh  

Section 2(22)(e) – Share application money is not “loan or advance” for the purpose of section 2(22)(e).


Facts
The assessee, was a partner/director/shareholder in various Oberoi Group entities. There was a search action on the assessee on 19-07-2007. In response to the notice issued u/s. 153A, the assessee filed return of income with no additional income as compared to return filed u/s. 139.

During the assessment proceedings u/s. 153A, the AO noticed that the assessee was a beneficial shareholder in both M/s Kingston Properties Pvt. Ltd (KPPL) and New Dimensions Consultants P. Ltd. (NDCPL). NDCPL had reserves and had contributed share application money into KPPL. KPPL was not the beneficial shareholder of NDCPL but the assessee was there in both the companies. NDCPL did not allot shares but the share application money was returned after the period of three years. The AO held that the assessee being a beneficial shareholder, had chosen this route to enrich his wealth by increasing net worth of KPPL, where he had beneficial interest. He rejected the book entries of both the companies by mentioning that it was a case of lifting of corporate veil. The AO assessed the sum of Rs. 1,40,03,700 as deemed dividend u/s. 2(22)(e) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who allowed the appeal in favor of the assessee.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held
Share application money or share application advance is distinct from ‘loan or advance’. Although share application money is one kind of advance given with the intention to obtain the allotment of shares/equity/preference shares etc, such advances are innately different form the normal loan or advances specified both in section 269SS or 2(22)(e) of the Act. Unless the mala fide is demonstrated by the AO with evidence, the book entries or resolution of the Board of the assessee become relevant and credible, which should not be dismissed without bringing any adverse material to demonstrate the contrary. It is also evident that share application money when partly returned without any allotment of shares, such refunds should not be classified as ‘loan or advance’ merely because share application advance is returned without allotment of share. In the instant case, the refund of the amount was done for commercial reasons and also in the best interest of the prospective share applicant. Further, it is self explanatory that the assessee being a ‘beneficial share holder’, derives no benefit whatsoever, when the impugned ‘share application money/advance’ is finally returned without any allotment of shares for commercial reasons. In this kind of situations, the books entries become really relevant as they show the initial intentions of the parties into the transactions. It is undisputed that the books entries suggest clearly the ‘share application’ nature of the advance and not the ‘loan or advance’. As such the revenue has merely suspected the transactions without containing any material to support the suspicion. Therefore, the share application money may be an advance but they are not advances which are referred to in section 2(22)(e) of the Act. Such advances, when returned without any allotment or part allotment of shares to the applicant/subscriber, will not take a nature of the loan merely because the same is repaid or returned or refunded in the same year or later years after keeping the money for some time with the company. So long as the original intention of payment of share application money is towards the allotment of shares of any kind, the same cannot be deemed as ‘loan or advance’ unless the mala fide intentions are exposed by the AO with evidence.

The appeal filed by the Revenue was dismissed.

Cases Relied upon :
1 Ardee Finvest (P) Ltd. vs. DCIT ITA No. 218/Del/2000 (AY 1996-97)(Del)
2 Direct Information P. Ltd. ITA No. 2576/M/2011 order dated 31.1.2012 (Mum)
3 CIT vs. Sunil Chopra ITA no. 106/2011 judgment dated 27-04-2011 (Del)(HC)
4 Subhmangal Credit Capital P Ltd. ITA No.7238/ Mum/2008 dtd 19-01-2010 (Mum)
5 Rugmini Ram Gagav Spinners P. Ltd 304 ITR 417 (Mad)(HC)

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T. Manikandan vs. Commercial Tax Officer, [2011] 46 VST 75 (Mad)

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Recovery of Sales Tax-Principle of First Charge– Priority of State over Property–Not Applicable to Assets Taken Over by the Tamil Nadu Industrial Investment Corporation–Before the Attachment of Property by The Commercial Tax Officer- Section 29 of The State Financial Corporation Act, 1951 and Tamil Nadu General Sales Tax Act, 1959

Facts
The petitioner purchased the immovable property in a public auction conducted by the Tamil Nadu Industrial Investment Corporation, which had taken possession of the said property u/s. 29 of the State Financial Corporation Act, 1951 from the defaulter. The petitioner lodged the sale deed executed by the Corporation before the sub-registrar for registration. The sub-registrar refused to register the document on the ground that the property is attached by the Commercial Tax Officer to recover sales tax arrears of the defaulter dealer. The petitioner filed a writ petition before the Madras High Court against the refusal of registration of sale deed by the sub-registrar.

Held
It is trite that when the assets are secured assets and in case by invoking section 29 of the State Financial Corporation Act, 1951, the secured creditor takes possession of the property, the principle of first charge/priority of State over the property will not be applicable. Since possession of the property was already taken over by the Corporation by invoking section 29 of the State Financial Corporations Act, 1951, thereafter, there is no question of the attachment of it by the Commercial Tax Officer. Accordingly the High Court allowed the writ petition and directed the sub-registrar to register the sale deed disregarding the order of attachment made by the Commercial Tax Officer.

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PART A: Decisions of the Supreme Court

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Penalty on Chief State Information Commissioner

One Mr. Anbarasam filed an application u/s. 6(1) of the Right to Information Act, 2005 (Act) and sought certain documents and information from the Public Information Officer – Deputy Registrar (Establishment) of the High Court of Karnataka (hereinafter referred as Respondent No. 1). His prayer was for the supply of certified copies of some information/documents regarding guidelines and rules pertaining to scrutiny and classification of the writ petitions and the procedure followed by the Karnataka High Court in respect of Writ Petition Nos. 26657 of 2004 and 17935 of 2006. Respondent No. 1 disposed of the application of Mr. Anbarasam vide order dated 3-8-2007 and intimated him that the information sought by him is available in the Karnataka High Court Act and the Rules and he can obtain certified copies of the order sheets of the two writ petitions by filing appropriate application under High Court Rules.

Mr. Anbarasam filed complaint dated 17-1-2008 u/s. 18 of the Act before the Karnataka Information Commission (for short, ‘the Commission’) and made a grievance that the certified copies of the documents had not been made available to him despite payment of the requisite fees. The Commission allowed the complaint of Mr. Anbarasam and directed Respondent No. 1 to furnish the High Court Act, Rules and certified copies of order sheets free of cost.

PIO of the High Court of Karnataka challenged the order of Karnataka Information Commission before the High Court of Karnataka which was decided by a single judge. The Single Judge noted:

“Various information as sought by the respondent are available in Karnataka High Court Act and Rules made there under. The said Act and Rules are available in market. If not available, the respondent has to obtain copies of the same from the publishers. It is not open for the respondent to ask for copies of the same from petitioner. But strangely, the Karnataka Information Commission has directed the petitioner to furnish the copies of the Karnataka High Court Act & Rules free of cost under Right to Information Act. The impugned order in respect of the same is illegal and arbitrary.”

“According to the Rules of the High Court, it is open for the respondent to file an application for certified copies of the order sheet or the relevant documents for obtaining the same. (See Chapter-17of Karnataka High Court Rules, 1959). As it is open for the respondent to obtain certified copies of the order sheet pending as well as the disposed of matters, the State Chief Information Commissioner is not justified in directing the petitioner to furnish copies of the same free of costs. If the order of the State Chief Information Commissioner is to be implemented, then, it will lead to illegal demands. Under the Rules, any person who is party or not a party to the proceedings can obtain the orders of the High Court as per the procedure prescribed in the Rules mentioned supra.”

 “The State Chief Information Commissioner has passed the order without applying his mind to the relevant Rules of the High Court. The State Chief Information Commissioner should have adverted to the High Court Rules before proceeding further. Since the impugned order is illegal and arbitrary, the same is liable to be quashed.”

Mr. Anbarasam did not challenge the Order of the Single Judge. However, the Commission filed an appeal along with an application for condonation of 335 days’ delay. The Division Bench dismissed the application for condonation of delay and also held that the Commission cannot be treated as an aggrieved person.

On the said dismal of appeal, the Chief Information Commissioner (instead of the Commission) filed a petition to the Supreme Court. The Supreme Court noted and ruled:

“What has surprised us is that while the writ appeal was filed by the Commission, the special leave petition has been preferred by the Karnataka Information Commissioner. Learned counsel could not explain as to how the petitioner herein, who was not an appellant before the Division Bench of the High Court, can challenge the impugned order. He also could not explain as to what was the locus of the Commission to file appeal against the order of the learned Single Judge whereby its order had been set aside. The entire exercise undertaken by the Commission and the Karnataka Information Commissioner to challenge the orders of the learned Single Judge and the Division Bench of the High Court shows that the concerned officers have wasted public money for satisfying their ego. If Mr. Anbarasam felt aggrieved by the order of the learned Single Judge, nothing prevented him from challenging the same by filing writ appeal. However, the fact of the matter is that he did not question the order of the learned Single Judge. The Commission and the Karnataka Information Commissioner had no legitimate cause to challenge the order passed by the learned Single Judge and the Division Bench of the High Court. Therefore, the writ appeal filed by the Commission was totally unwarranted and misconceived and the Division Bench of the High Court did not commit any error by dismissing the same.”

“This petition filed by Karnataka Information Commissioner for setting aside order dated 15-6-2012 passed by the Division Bench of the Karnataka High Court in Writ Appeal No. 3255/2010 (GM-RES) titled Karnataka Information Commission vs. State Public Information Officer and another cannot but be described as frivolous piece of litigation which deserves to be dismissed at threshold with exemplary costs.”

“With the above observations, the special leave petition is dismissed. For filing a frivolous petition, the petitioner is saddled with cost of Rs.1,00,000/. The amount of cost shall be deposited by the petitioner with the Supreme Court Legal Services Committee within a period of two months from today. If the needful is not done, the Secretary of the Supreme Court Legal Services Committee shall recover the amount of cost from the petitioner as arrears of land revenue.”

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Judicious economics – Time to consider the economic impact of recent SC judgments

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The Supreme Court is amongst India’s most respected and trusted institutions. Its rulings are rarely questioned on legal merits and the only way to get around the ones that cause discomfort to the government is to amend the law. The country can take great comfort from the stature and credibility of this institution when it comes to enforcing the rule of law. However, as desirable as it is that laws should be strictly enforced, there is a flip side to this. Significant decisions by the Supreme Court often have significant economic consequences. At no other time has this been more obvious than the present.

Over the past two years, a number of judgments have, notwithstanding their rectitude, had enormous macroeconomic impacts. The banning of iron ore mining in Karnataka and Goa significantly reduced exports of ore, which declined by over $4 billion over a two-year period. The coal imbroglio led to the Supreme Court cancelling all the licences that were issued to private entities, making the country dependent on imports for the foreseeable future. India, with its enormous thermal coal reserves, is now importing over $8 billion worth of coal – mainly to run power plants, which, ironically, were set up close to domestic coal beds. Likewise, the 2G telecom scandal, which resulted in the cancellation of several licences, disrupted the plans of several major foreign telecom companies, which had seen India as an attractive market for expansion. Potential foreign investors will now be extremely wary of entering the country with the risk that supposedly legitimate agreements and contracts are suddenly declared illegal. All these instances have contributed to an enormous increase in the economy’s external vulnerability, with the first two making a huge dent in the current account deficit and the third likely to make India a less attractive destination for foreign direct investment.

A number of fundamental questions arise here. First, whatever the legal merits of each instance of judicial action, should the Supreme Court not routinely consider the potential economic consequences of its decisions? It is clearly not required to do so now, but it would be reasonable to argue that the rule of law and economic well-being are important determinants of social welfare. If indeed the Supreme Court had considered the economic consequences, would its rulings have been somewhat different – perhaps allowing for a tightly monitored but phased compliance with environmental regulations in the case of iron ore, and an assessment of the genuineness of parties in the licence allocation processes? From a larger perspective, though, there is a particularly troubling question. Did the Indian economy achieve its best ever growth performance during 2003-08 on the basis of widespread violations of various laws and regulations? As compliance is more strictly enforced, is slower growth an inevitability? Only time will answer this question. Meanwhile, while there can be no compromise on regulatory compliance and the rule of law, a balance between this objective and its economic consequences needs to be worked out so that it can be achieved without too high a price being paid. It would be good practice for the Supreme Court to commission a rigorous economic impact analysis on key issues coming up before it while making a final ruling.

(Source: Business Standard dated 23.10.2013)
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Political Funding – Kejriwal gets it Right: Screen all Parties

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A probe ordered into the sources of funding of a political party — whether that order comes from the government itself or is prompted by the judiciary — would seem a move against a primary source of corruption in India. But why should such a probe be limited to one single party? Thus, while the Centre says it will investigate whether the Aam Aadmi Party (AAP) violated rules on its sources of funding, it makes for an utterly skewed situation when other parties are not subject to a similar investigation. Reform of political funding is a key, perhaps the most significant, part of combating the malaise of corruption in India. As long as parties do not disclose their sources of income and how that money is spent, political corruption will continue to facilitate corruption within the wider polity.

Unless the move to investigate the transparency claims of the AAP widens into probing the secretive nature of how other parties — including the Congress and the BJP — collect funds, it would seem to be a bullying tactic against a political opponent. To its credit, AAP has maintained it can account for every donation it receives. The website of the party does have a donors list. And this is a welcome paradigm shift. There is nothing even remotely similar from the BJP and the Congress — the two parties facing the biggest threat from the AAP in the looming Delhi polls. And the AAP is perfectly right when it asks that the BJP and Congress be subjected to similar levels of transparency.

There is no comparison between the declared funds of AAP and that of the Congress and BJP. Add the amounts political parties do not declare, and we will have a humungous amount of money. Reforming such political funding is the larger goal. Targeting only a small, new political party is petty vendetta.

(Source: The Economic Times dated 13.11.2013).

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Fizz has Gone Out of India

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India has gone from a ‘must-invest’ to a ‘mustdeal- with’ country, PepsiCo Chairman and CEO Indra Nooyi said, expressing the ambivalence that many overseas businesses feel about a country that’s been tarnished by allegations of rampant political corruption, retrospective changes in law, policy reforms getting stuck and, to top it all off, an economic slump.

Uncertainties in tax policy, poor infrastructure and lack of clarity are among problems facing investors in India.

“‘Must invest’ means it’s a destination and GDP is growing. ‘Must deal with’ means there are infrastructure issues, the taxation policy is not clear or transparent. So people are saying, ‘Do I have to deal with India?’”

India-born Nooyi, who’s held the top job at PepsiCo for seven years, is still betting on the country as one of the company’s strongest markets.

Issues in India: Nooyi

“You have to fix the whole system,” she said. “Foreign investment can create the push, but the country has to create the pull, and if the country gives the pull, you can get lot of investments.” Nooyi said she asked Chidambaram about the minimum growth rate India needs to remain a healthy economy. “He said we need 8% growth, to stay healthy and come out of chronic unemployment. That’s an attractive growth rate if India can get back to it. That’s the growth rate he would like for India in the long term,” she said.

Nooyi said the fundamental reasons for investing in India haven’t gone away. “The middle class is still growing… You have a thriving striving democracy. Last 15 years, India has seen periods of incredible growth and years of sluggishness here and there,” she said.

“If you look at India, it has a fantastic population base — young, middle class still big and growing, an entrepreneurial culture, thriving democracy, a country that in the long-term still has lots of potential. We have to invest in the long-term fundamentals of the country. Hopefully, if companies keep showing their confidence in India, others will follow and the growth will pick up too.”

(Source: Extracts from an Article in the
Economic Times dated 12.11.2013)
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Giving the Babu a spine

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By asking that braces and struts be provided from all sides, will the Supreme Court be able to buttress the civil service spine so that it stands straight instead of bending over backwards, forward and sideways? Somehow, I doubt it. First, it is not certain that governments will do what the court has ordered. If the legislation asked for is not passed in three months, whom will the court haul up? The chief minister, or the speaker? That could provoke a constitutional crisis.

Second, some of what the court suggests as safeguards are already available to civil servants but have been used rarely. For instance, an officer can record oral instructions and send them to the minister for confirmation. One reason why this does not get done must be the threat of instant transfer to the boondocks, but an equally valid one is that officers have their own agendas and get into patron-client relationships with politicians fairly early in their careers. In a quid pro quo situation, no one is going to ask for written instructions. Third, the court assumes that officials would want a civil service board to decide on postings; this is far from clear, because one of the principal reasons why officials kowtow to ministers is the desire for preferred postings (or out-of-turn house allotments, or junkets). In short, the assumption that politicians are sharks preying upon helpless civil servants is a piece of fiction.

Fourth, no system can prevent a chief minister from choosing his own secretary as well as the chief secretary of the state. Between them, these two gentlemen pretty much have a clear field ahead of them – as the experience with the harassment of two IAS officers in Uttar Pradesh and Haryana should testify. Nor is it a good principle to adopt that all civil servants should have fixed tenures. It is worth following in situations like the one faced by A Raja as telecom minister; when his secretary refused to play ball, he simply got a more pliable man to replace him (with the Cabinet secretary/prime minister acquiescing). But equally, remember that Manmohan Singh as finance minister replaced his finance secretary and chief economic adviser, and put together a cohesive team. Is that flexibility to be always denied to a minister? Imagine a corrupt tax officer who has wangled a lucrative posting and who cannot then be touched for three years.

One must also ask: is the new facility of medical treatment overseas for IAS and IPS officials something that ministers thrust at reluctant officials? Is the utterly wasteful use of land in New Delhi’s New Moti Bagh for fresh government housing a ministerial or bureaucratic boondoggle? Bureaucrats have their private agendas just as ministers do and, let’s face it, a large number are as corrupt as any politician.

This is not to quarrel that the thrust of the court’s reform instinct should be disregarded. Rather, the room for flexibility and judgement should not be done away with, in the search for bulwarks against systemic abuse. Also, while it is necessary to stay the hand of politicians, so is it important to reform the bureaucracy. Hence, rule out mass transfers, not specific cases. Rule out more than one transfer in two or three years, so that there is no harassment. Professionalise the administration by reducing the scope for generalists to stray onto specialist turf, and introduce large-scale mid-level entry on contract. Have staggered retirement ages, as in the army – those who don’t make it to the next level in time are retired. Raise salaries, and fix them as a percentage of private sector pay at equivalent levels (as corruption-free Singapore does), but make government officials live as and among ordinary citizens, not as privileged rulers in special government enclaves.

Source: Weekend Ruminations by T.N. Ninan in Business Standard dated 02.11.2013)

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New global trade pacts may cut out India, China

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A new global trading system is being erected, almost unnoticed in India. One of its unstated aims is to check China’s rise through economic  discrimination. But it could end up discriminatingagainst India too.

Two major new international trade pacts are under negotiation. One is the Trans Pacific Partnership (TPP), creating a free trade area (FTA) of North America and East Asia (including Japan, Australia, New Zealand, Vietnam and some others). For the first time, a once-protectionist Japan plans to join the US in a region of free trade and investment. The unstated but clear Japanese signal is that China must be checked. For this, it is willing to consider dismantling its traditional trade and investment barriers.

The second big FTA under negotiation is the Transatlantic Trade and Investment Partnership (TTIP), covering the US and the European Union. Historically, Europe has felt threatened by US multinationals, technology, and farm produce. The European Common Market came up with a common external tariff, aimed at binding together European members and standing up to competition from the US. But Europe’s recent economic stagnation, plus the rising threat from China, has concentrated minds wonderfully. Europe is now ready to consider a grand bargain with the US, mutually opening up investment, trade and services.

Earlier, the three economic giants — the US, Europe and Japan — saw one another as global rivals. Each sought to conclude FTAs with neighbours and selected developing countries, creating trade blocks within which each had tariff advanges tages. Now, for the first time, the three big players are seeking FTAs with one another.

What has changed? The rise of China, of course. Now, officials in Washington DC, Brussels and Tokyo will deny heatedly that either the TPP or TTIP is aimed against China. They will claim to be  merely carrying forward the logic of globalisationand global integration, a trend that has steadily deepened since World War II. But the strategic anti-China aim is clear.

Thus the world has shifted from multilateral deals (where all members agree to common conditions) to FTAs (where small groups extend mutual preferences, cutting out outsiders). India too has tried cutting deals with neighbours, but with few clear benefits, and some disadvantages. India has held preliminary talks on FTAs with the European Union and US, but these have run into serious headwinds.

Why? India is a more reluctant globaliser than trade rivals. In WTO, India always opposed free capital flows, free foreign bidding for Indian government contracts, untrammelled investment rights for foreign investors, liberal patent laws and lowered protection for agriculture. It is reluctant to give way on these issues in FTAs with the US or Europe.

But rival developing countries with fewer inhibitions have entered into dozens of FTAs with such conditions. This has given them a trade edge over India, one reason why Indian exports have risen so slowly over the last three years despite massive currency depreciation.

The richest countries are now moving to create giant economic agreements of their own. These, along with existing FTAs, will cover most international trade. This will cut out China. It may also cut out India, seriously disadvantaging it.

(Source : The Times of India dated 10.11.2013)

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List of Companies and Directors under Prosecution

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The Ministry of Company Affairs has put up the list of Companies and Directors against which prosecution has been initiated on its portal.

The search can be through the name of the Company/ Company Identification No (CIN) or through the Name of Director/Director Identification No. (DIN). The Details of the Court Name, Violation of Sections, Dates of Hearing, Fine details and the Final Verdict are listed therein.

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Clarification with regard to applicability of provision of section 372A of Companies Act 1956

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The Ministry of Company Affairs has issued a General Circular No 18/2013 dated 19-11-2013 clarifying that section 372A of the Companies Act 1956, pertaining to intercompany loans shall remain in force till section 186 of the Companies Act 2013 is notified.
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Exemption of section 182(1) to Companies incorporated as Electoral Trusts

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Vide Notification dated 7th November 2013, the Ministry of Corporate Affairs has directed that Companies incorporated with the name containing “Electoral Trusts” and approved in accordance with the procedure laid down in the Electoral Trusts Scheme 2013, notified vide S O. 309 (E) dated 31st January 2013 and for which license was granted u/s. 25 of the Companies Act, 1956 shall be exempt from the provisions of section 293 A (1) (b) and (2) which has since been replaced by the provisions u/s. 182 (1) of the Companies Act 2013 now in force.
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Relaxation of last date and additional fee in filing of e-Form 23C for Appointment of Cost Auditor.

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Vide General Circular No. 17/2013, dated 1st November 2013 the Ministry of Corporate Affairs has further relaxed the last date of filing the e-Form 23 C for Appointment of Cost Auditor to 30th November, 2013 or within 30 days of the commencement of the Company’s financial year to which the appointment relates, whichever is later. Earlier the time limit was extended to 31st October 2013.
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A. P. (DIR Series) Circular No. 74 dated 11th November, 2013

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Foreign investment in India – participation by SEBI registered FIIs, QFIs and SEBI registered long term investors in credit enhanced bonds

This circular permits SEBI registered Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFI) and long term investors – Sovereign Wealth Funds (SWF), Multilateral Agencies, Pension/Insurance/ Endowment Funds, foreign Central Banks – to invest in the credit enhanced bonds, as per paragraph 3 and 4 of A.P. (DIR Series) Circular No. 120 dated 26th June, 2013, upto a limit of $5 billion within the overall limit of $51 billion earmarked for corporate debt.

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A. P. (DIR Series) Circular No. 73 dated 11th November, 2013

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Import of Gold by Nominated Banks/Agencies/ Entities

This circular clarifies the following:

1. Any authorisation such as Advance Authorization (AA)/Duty Free Import Authorization (DFIA) have to be utilised for import of gold meant for export purposes only and no diversion for domestic use will be permitted. However, for any AA/DFIA issued prior to 14th August, 2013 the condition of sequencing the imports prior to exports will not be insisted upon.

2. Entities/units in the SEZ and EOU, Premier and Star Trading Houses (irrespective of whether they are nominated agencies or not) can import gold exclusively for the purpose of exports only.

3. Exports towards fulfillment of obligation under AA/DFIA scheme will not qualify as export for the purpose of the scheme of 20:80.

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Court & Tribunal – Distinction – Revenue Tribunal – Is akin to Court – Appointment of its President has to be with Consultation of High Court: Gujarat Revenue Tribunal Rules, 1982

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State of Gujarat & Anr vs. Gujarat Revenue Tribunal Bar Association & Anr AIR 2013 SC 107

The High Court had allowed the writ petition filed by the Respondents striking down Rule 3(1)(iii)(a) of the Gujarat Revenue Tribunal Rules 1982 which conferred power upon the State Government to appoint the Secretary to the Government of Gujarat, as the President of the Revenue Tribunal constituted under the Bombay Revenue Tribunal Act, 1957 (the Act). His appointment was challenged by the Respondents, on the ground that the office of the Chairman, being a “judicial office” could not be usurped by a person who had been an Administrative Officer all his life.

The High Court, vide impugned judgment had held that the Tribunal was in the strict sense, a “court” and that the President, who presides over such a Tribunal could therefore, only be a “Judicial Officer”, a District Judge etc., for which, concurrence of the High Court is necessary under Article 234 of the Constitution of India. The State of Gujarat filed an appeal in the Supreme Court.

The Honourable Supreme Court observed that although the term ‘court’ has not been defined under the Act, it is indisputable that courts belong to the judicial hierarchy and constitute the country’s judiciary as distinct from the executive or legislative branches of the State. Judicial functions involve the decision of rights and liabilities of the parties. An enquiry and investigation into facts is a material part of judicial function. The legislature, in its wisdom, has created the tribunal and transferred the work which was regularly done by the civil courts to them, as it was found necessary to do so in order to provide an efficacious remedy and also to reduce the burden on the civil courts and further, also to save the aggrieved person from bearing the burden of heavy court fees etc. Thus, the system of tribunals was created as a machinery for the speedy disposal of claims arising under a particular Statute/Act.

A Tribunal may not necessarily be a court, in spite of the fact that it may be presided over by a judicial officer, as other qualified persons may also possibly be appointed to perform such duty. One of the tests to determine whether a tribunal is a court or not, is to check whether the High Court has revisional jurisdiction so far as the judgments and orders passed by the Tribunal are concerned. Supervisory or revisional jurisdiction is considered to be a power vesting in any superior court or Tribunal, enabling it to satisfy itself as regards the correctness of the orders of the inferior Tribunal. This is the basic difference between appellate and supervisory jurisdiction. Appellate jurisdiction confers a right upon the aggrieved person to complain in the prescribed manner, to a higher forum whereas, supervisory/revisional power has a different object and purpose altogether, as it confers the right and responsibility upon the higher forum to keep the subordinate Tribunals within the limits of the law. It is for this reason that revisional power can be exercised by the competent authority/court suo motu, in order to see that subordinate Tribunals do not transgress the rules of law and are kept within the framework of powers conferred upon them. In the generic sense, a court is also a Tribunal. However, courts are only such Tribunals as have been created by the concerned statute and belong to the judicial department of the State as opposed to the executive branch of the said State.

Tribunals have primarily been constituted to deal with cases under special laws and to hence provide for specialised adjudication alongside the courts. Therefore, a particular Act/set of Rules will determine whether the functions of a particular Tribunal are akin to those of the courts, which provide for the basic administration of justice. An authority may be described as a quasi-judicial authority when it possesses certain attributes or trappings of a ‘court’, but not all.

The present case is also required to be examined in the context of Article 227 of the Constitution of India, with specific reference to the 42nd Constitutional Amendment Act 1976, where the expression ‘court’ stood by itself, and not in juxtaposition with the other expression used therein, namely, Tribunal’. The power of the High Court of judicial superintendence over the Tribunals, under the amended Article 227 stood obliterated. By way of the amendment in the sub-article, the words, “and Tribunals” stood deleted and the words “subject to its appellate jurisdiction” have been substituted after the words, “all courts”. In other words, this amendment purports to take away the High Court’s power of superintendence over Tribunal. Moreover, the High Court’s power has been restricted to have judicial superintendence only over judgments of inferior courts, i.e. judgments in cases where against the same, appeal or revision lies with the High Court. A question does arise as regards whether the expression ‘courts’ as it appears in the amended Article 227, is confined only to the regular civil or criminal courts that have been constituted under the hierarchy of courts and whether all Tribunals have in fact been excluded from the purview of the High Court’s superintendence. Undoubtedly, all courts are Tribunals but all Tribunal are not courts.

Section 13(1) of the Act, provides that in exercising the jurisdiction conferred upon the Tribunal, the Tribunal shall have all the powers of a civil court as enumerated therein and shall be deemed to be a civil court for the purposes of sections 195, 480 and 482 of the Code of Criminal Procedure, and that its proceedings shall be deemed to be judicial proceedings, within the meaning of sections 193, 219 and 228 of the Indian Penal Code.

Taking into consideration various statutes dealing with not only the revenue matters, but also covering other subjects, make it crystal clear that the Tribunal does not deal only with revenue matters provided under the Schedule I, but has also been conferred appellate/revisional powers under various other statutes. Most of those statutes provide that the Tribunal, while dealing with appeals, references, revisions, etc., would act giving strict adherence to the procedure prescribed in the Code of Civil Procedure, for deciding a matter as followed by the Civil Court and certain powers have also been conferred upon it, as provided in the Code of Criminal Procedure and Indian Penal Code. Thus, it was held that the Tribunal is akin to a court and performs similar functions.

The Apex Court dismissed the appeal.

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Business expenditure: Disallowance u/s. 43B(b) r/w.s. 36(va): Contribution to provident fund: Due date mentioned in section 36(va) is due date mentioned in section 43B(b): Contribution made after due date specified by Provident Fund Authority but before due date for filing return: Amount deductible:

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CIT vs. Kichha Sugar Co. Ltd.: 356 ITR 351 (Uttarakhand):

The assessee employer, had deposited the employees’ contribution towards provident fund before the due date for filing of the return but after the due date specified by the Provident Fund Authority. The Assessing Officer disallowed the claim for deduction and treated the amount as income relying on the provisions of section 36(1)(va) of the Income-tax Act, 1961. The CIT(A) and the Tribunal allowed the assessee’s claim.

On appeal, the Revenue contended that in view of section 36(1)(va) r.w.s. 2(24)(x), such payment though made to the provident fund authorities, should be treated to be income of the assessee. The Gujarat High Court upheld the decision of the Tribunal and held as under:

“i) The due date as mentioned in section 36(1) (va) is the due date as mentioned in section 43B(b), i.e. payment/contribution made to the provident fund authority any time before filing the return for the year in which the liability to pay accrued along with the evidence to establish the payment thereof.

ii) The Assessing Officer proceeded on the basis that “due date” as mentioned in section 36(1) (va) is the due date fixed by the provident fund authority, whereas in the matter of culling out the meaning of the word “due date”, as mentioned in the section, the Assessing Officer was required to take note of section 43B(b) and by not taking the note of the provisions contained therein committed a gross error, which was correctly rectified by the Commissioner (Appeals) and rightly confirmed by the Tribunal.

iii) The appeal fails and the same is dismissed.”

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S/s. 148, 150, 153, 254 – A notice u/s. 148 may be issued at any time for the purpose of making a reassessment in consequence of or to give effect to any finding or direction contained in an order. For the purpose of section 150(2), the “order which was the subject matter of appeal” is the assessment order and not the order of CIT(A). Reassessment may be completed at any time where the reassessment is made in consequence of or to give effect to any finding/direction of an order passed u/s. 254(<

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3. Sandhyaben A. Purohit vs. ITO
ITAT  Ahmedabad `C’ Bench
Before Mukul Kr. Shrawat (JM) and Anil
Chaturvedi (AM)
ITA No. 1536/Ahd/2011
A.Y.: 2004-05.   Decided on: 8th February, 2013.
Counsel for assessee / revenue: M. K. Patel /   D. K. Singh  

S/s. 148, 150, 153, 254 – A notice u/s. 148 may be issued at any time for the purpose of making a reassessment in consequence of or to give effect to any finding or direction contained in an order. For the purpose of section 150(2), the “order which was the subject matter of appeal” is the assessment order and not the order of CIT(A). reassessment may be completed at any time where the reassessment is made in consequence of or to give effect to any finding/direction of an order passed u/s. 254(1) of the Act i.e. an order of the ITAT.


Facts
The assessee sold a piece of land vide sale deed dated 21-05-2001. The consideration of sale was received before execution of the sale deed and possession was given simultaneous with the execution of the sale deed. However, the sale deed was registered on 30-07-2003. The Assessing Officer (AO) on getting information from the records of the purchaser, issued notice u/s. 148 for assessment year 2004-05. The AO collected information from the office of the Registrar and completed the assessment u/s. 144 by adopting the market value of the property sold.

Aggrieved the assessee preferred an appeal to CIT(A) who noted that the assessee had not offered capital gains on sale of property even in AY 2002-03. CIT(A) held that since the property was registered with the Registrar on 30-07-2003, transfer took place in AY 2004-05 and was correctly taxed by the AO.

Aggrieved the assessee preferred an appeal to the Tribunal and contended that the transfer u/s. 2(47) had taken place in the financial year relevant to assessment year 2002-03 and not 2004-05. Reliance was placed on decision in Arundhati Balkrishna & Anr. vs. CIT 138 ITR 245 (Guj) for the proposition that transfer is effective from the date of execution of the document and not from the date of registration. Revenue relied on the decision of the Apex Court in the case of Suraj Lamp & Industries 14 taxmann. com 103 (SC) for the proposition that transfer of an immovable property is enforceable only from the date of registration of the document.

On the possibility of making the assessment for AY 2002-03, it was submitted on behalf of the assessee that provisions of section 150 can only be attracted in respect of an order which is a subject matter of appeal and in this case order which is the subject matter of appeal is the order of cit9a0 which was dated 25-03-2011, hence the period of six years is to be computed considering the date of pronouncement of the order of CIT(A). Revenue contended that the assessment order is the subject matter of appeal which is dated 28-12-2007, hence direction can be given after considering the said date of assessment order.

Held
Considering the provisions of section 2(47)(v) and following the ratio of the decision of Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v CIT 260 ITR 491 (Bom) the tribunal held that transfer had taken place in previous year relevant to assessment year 2002-03. It observed that since the decision of the Apex Court in the case of Suraj Lamps (supra) has been decided in a different context and the income-tax provisions were not adjudicated upon, the reliance placed by the revenue on the said precedent was misplaced.

The Tribunal noted the ratio of the decision of the Gujarat High Court in the case of Kalyan Ala Barot vs. M. H. Rathod 328 ITR 521 (Guj) and also the provisions of section 150 and observed that a notice u/s. 148 may be issued at any time for the purpose of making a reassessment in consequence of or to give effect to any finding or direction contained in an order. Further, in s/s. (v) of section 150, a limitation is prescribed that the clause of re-opening in s/s. (1) of section 150 shall not apply where any such reassessment relates to an assessment year in respect of which an assessment could not have been made at the time of order, which was subject matter of appeal, or as the case may be, was made by reason of any other provision of limiting the time within which any action for reassessment may be taken. The Tribunal held that assessment order is the order which is the subject matter of appeal. It also clarified that a co-joint reading with section 153(3) reveals that a reassessment may be completed at any time where the reassessment is made in consequence or to give effect to any finding / direction of an order passed u/s. 254(1) of the Act i.e. an order of the ITAT.

The appeal filed by the assessee was allowed subject to the direction mentioned above.

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Applicability of Regulation 17(6) in processing the work items.

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Vide Circular No 10/2013 dated 8th May 2013, the Ministry of Corporate Affairs has amended the Regulation 17(6) Of Companies Regulations, 1956 which read as “the Registrar shall not keep any document pending for approval and registration or for taking on record or for rejection or otherwise for more than 120 days from date of filing excluding the cases in which an approval from the Central Government or Regional Director or Company Law Board or any other competent authority is required.”

to

“with the approval of Competent Authority, henceforth under the provisions of Regulation 17(6) of the Companies Act, 1956, ad hoc work items may be created to extend the validity of the work beyond the time limits prescribed under the Regulation by the ROC concerned.

The ROC concerned shall record the specific reasons for creating the ad-hoc item. Details of the adhoc work items, reasons for creation shall be intimated to the RD every fortnight.”

For full version of the circularhttp://www.mca.gov. in/Ministry/pdf/General_Circular_10_2013.pdf

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2013 (31) STR 47 (Tri- Bangalore) Sharavathy Conductors Pvt. Ltd. vs. CCEx, Bangalore –I.

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No interest is payable on reversal of CENVAT credit availed but not utilised. Judgment of Supreme Court in Ind-Swift Laboratories distinguished.

Facts:
The Appellant, a manufacturer, had two units in Bangalore. The credit on input services received by both the units was shown in CENVAT account maintained in UNIT-I. On account of an audit objection, the Appellant reversed the said availment of credit. An SCN was issued demanding interest and proposing penalty on the said reversal. The Original Authority dropped the demands, the order was reviewed and the Commissioner (Appeals) in addition to interest and penalty also disallowed the CENVAT and appropriated the same on which equal penalty was also levied.

The Appellant contended that no issue other than one pertaining to interest on reversal could be examined by the lower appellate authority and further relying on the decision of the Hon. Karnataka High Court in CCE, Bang. vs. Gokaldas Images (P) Ltd. 2012 (28) 214 (Kar) stated that no interest ought to have been levied since no amount was utilised for payment of duty.

The revenue relying on the decision of the Hon. Supreme Court in Ind-Swift Laboratories contended that the term taken ‘or’ utilised cannot be construed to mean ‘and’, and thus interest was liable to be paid.

Held:
The Tribunal while relying on the decision of Gokaldas Images (P) Ltd. (supra) allowed the appeal and observed that duty to pay interest for delayed payment would not arise unless the credit of duty entered into the account books is duly taken to discharge the duty payable. The said credit was not actually utilised for payment of duty as the Appellant only availed the credit and not utilised.

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Whether ‘F’ Forms are Required on Monthly Basis?

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Introduction
When there is inter-state branch transfer or interstate consignment transfer, the transferor branch has to obtain ‘F’ form, under CST Act, 1956, from the transferee branch. The procedural requirements about ‘F’ forms are mentioned in rule 12(5) of CST (Registration & Turnover Rules), 1957. The said rule is reproduced below for ready reference: “

Rule 12. (5) The declaration referred to in s/s. (1) of section 6-A shall be in Form ‘F’:

Provided that a single declaration may cover transfer of goods by a dealer, to any other place of his business or to his agent or principal, as the case may be, effected during a period of one calendar month;

Provided further that if the space provided in Form ‘F’ is not sufficient for making the entries, the particulars specified in Form ‘F’ may be given in separate annexures attached to that form so long as it is indicated in the form that the annexures form part thereof and every such annexure is also signed by the person signing the declaration in Form ‘F’;

Provided also that Form ‘F’ in force before the commencement of the Central Sales Tax (Registration and Turnover) (Second Amendment) Rules, 1973, may continue to be used upto 31st day of December, 1980 with suitable modifications.”

Controversy
As can be seen from the above rule, one single ‘F’ form can cover transfers effected during one calendar month. In other words, if there are transactions of more than one month in one ‘F’ form than the said ‘F’ form may not be effective for transactions exceeding the month.

In most of the judgments, given by Hon’ble Maharashtra Sales Tax Tribunal, the above position is accepted. Reference can be made to the judgment of Hon’ble Tribunal in case of Akay Cosmetics Pvt. Ltd. (A.No.33 of 2008 & SA No.255 of 2009, SA No.610 of 2009 dt. 3.5.2010). In this case, Hon’ble Tribunal has held that if the ‘F’ form is for transactions exceeding one month then it should be allowed only for one month. It is also observed that the dealer can take benefit of month for which there is highest amount. However, it cannot be effective for transactions exceeding one particular month.

In this respect, generally reference is made to the judgment of Hon’ble Supreme Court in case of India Agencies (Regd.) v. Additional Commissioner of Commercial Taxes, Bangalore (139 STC 329)(SC). In this case the issue was about admissibility of ‘C’ form. The Supreme Court has observed that the ‘C’ form should be submitted as per rules. Taking note of this judgment, it is generally interpreted that the declaration forms should be as per rules.

Recent judgment of Calcutta High Court
Recently, the Hon’ble Calcutta High Court had an occasion to deal with the said situation. The ‘F’ form was covering transactions for more than one month and hence, it was disallowed. The assessee, i.e. Cipla Ltd., filed a Writ Petition in the Hon’ble High Court. The Calcutta High Court has delivered judgment in case of Cipla Ltd. vs. Deputy Commissioner, Commercial Tax, Corporate Division & Others which is reported in (61 VST 445)(Cal). In this judgment, Hon’ble High Court has held as under:

“The order has apparently been passed ex parte. Three F forms have been disallowed on the purported ground that the three F forms bearing nos. 37514, 37518 and 37521 covered transactions exceeding a period of one month. It appears that the Additional Commissioner, Commercial Taxes, West Bengal has misconstrued rule 12(5) of the Central Sales Tax (Registration and Turnover) Rules,1957 which provides that the declaration referred to in s/s. (1) of section 6A of the Central Sales Tax Act,1956 shall be in Form F. The proviso to rule 12(5) provides that a single declaration might cover transfer of goods, by a dealer, to any other place of business, or agent, or principal, as the case may be, effected during a period of one calendar month. There is nothing in the rules which can be constructed to vitiate a declaration form only on the ground that it covers transactions exceeding a period of over a month. The assessment has apparently been revised suo motu and ex parte on a misconception of rule 12(5) of the Rules. The impugned order is, thus, set aside and quashed.”

In light of the above, it can safely be inferred that even if the ‘F’ form is for transactions exceeding one month, it still will be valid for all the transactions. In this case, the judgment of Supreme Court in India Agencies is not cited or considered. However, since the High Court judgment is in relation to specific rule 12(5), it will be applicable, so far as ‘F’ forms are concerned.

Situation in other states
An issue can arise, as to whether the above judgment will be effective in other States also. In this respect, reference can be made to the judgment of Hon’ble Bombay High Court in case of Maniklal Chunnilal & Sons Ltd. vs. C.I.T. (24 ITR 375), wherein it is held that the judgment of any High Court under Central Act is binding in other States also except in a case where contrary judgment of the jurisdictional High Court of the respective state is available. The relevant portion of judgment is as under:

“A Special Bench of the Madras High Court has taken the view favourable to the Commissioner and contrary to the view suggested by Mr. Palkhiwala and in conformity with the uniform policy which we have laid down in income-tax matters, whatever our own view may be, we must accept the view taken by another High Court on the interpretation of the section of a statute which is an all-India statute.”

In light of the above, the judgment of the Calcutta High Court will be binding on other States also. It will be binding on Maharashtra also as there is no contrary judgment of the Hon‘ble Bombay High Court on the above issue.

Conclusion
It is a practical experience that getting declaration forms from the department is very difficult, more particularly, when substantial time has elapsed. It is also time consuming. Under the above circumstances, disallowance of claims on technical grounds cannot be justified. The judgment of the Calcutta High Court as such is very positive and practical and will give the much required relief to the dealers.

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S/s. 9(1)(vii), 195 and 201 – Payments made abroad for services in respect of arrangement of logistics for shooting of films outside India does not amount to fees for technical services.

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Facts:

Yash Raj Films (taxpayer) is engaged in the business of production of films, the shooting of which is often done outside India. During the relevant previous year, the taxpayer made payments to overseas service providers (OSPs) for the services availed in connection with the shooting of different films which mainly included arranging for extras, security, locations, accommodation of cast and crew, necessary permissions from local authorities, makeup of the stars, insurance cover, shipping and custom clearances, obtaining visas. The tax authority considered the payments for obtaining the above services to be in the nature of fees for technical services (FTS) and considered the taxpayer as an assessee-in-default for not withholding taxes.

Held:

Considering the nature of the services rendered by OSPs to the taxpayer as spelt out in the relevant agreements, the said services cannot be treated as technical services within the meaning given in Explanation 2 to section 9(1)(vii).
The said services rendered outside India by the OSPs in connection with making logistic arrangement are in the nature of ‘commercial services’ and the amount received by them from the taxpayer for such services constitutes their business profit which is not chargeable to tax in India in the absence of any Permanent Establishment (PE) in India of the said service providers. The taxpayer, therefore, is not liable to withhold taxes on the payments made.

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Taxation of Long Term Capital Gains on Transfer of Unlisted Securities

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Clause (c) of the section 112 (1) of the Income tax Act, 1961 provides for reduced rate of tax on transfer of securities by non-residents. The reduced rate of tax applicable till the F.Y. 2011-12 for all listed securities or units or zero coupon bonds was 10%; whereas, for unlisted securities, e.g. shares of a private limited company, the rate of tax was 20%. In order to bring parity of tax rate on the transfer of unlisted securities, an amendment is made by the Finance Act, 2012, w.e.f. 1-4-2013, whereby it is provided that gains on transfer of unlisted securities also would be subject to 10% tax. This Article analyses the impact of this amendment as certain unwarranted controversies are likely to crop up.

1.0 Introduction and Background

Section 10 (38) of the Income tax Act, 1961 (Act) provides that long term capital gains (LTCG) arising from transfer of equity shares in a company or units of an equity linked units will be exempt from tax provided Security Transaction Tax (STT) is being paid on such transfer. Essentially, all transactions on a recognised stock exchange are subject to STT. In other words, LTCG on transfer of all listed shares will be exempt. This exemption, is applicable equally to residents as well as non-residents.

In this article, we will restrict our discussion to taxability of LTCG on transfer of unlisted securities in the hands of non-residents. Section 112(1)(c) of the Act deals with taxability of the LTCG in the hands of non-residents.

Proviso to section 112(1), inserted w.e.f. 1-4-2000, provided a rate of tax @ 10% in respect of LTCG on transfer of “listed securities, units and zero coupon bonds”. For the meaning of the term “listed securities”, reference has been made to the Securities Contracts (Regulation) Act, 1956 (32 of 1956) (SCRA). As stated earlier, LTCG, on listed securities, being equity shares, on which STT is paid, is exempt u/s 10(38), and it is assumed that this provision would be useful in respect of other listed securities. However, the unlisted securities continued to be taxed @ 20 %.

In order to bring about parity and encourage investment by Private Equity players in Unlisted Shares, an amendment was made to section 112 (1)(c) vide the Finance Act, 2012 w.e.f. 1-4-2013 to provide for a rate of tax @ 10% on the LTCG on transfer of unlisted securities.

The amendment assumes significance for Private Equity Investors (PEI) who invests in India in large numbers through Private Limited Companies. Even the Memorandum explaining amendment to section 112 (1) (c) refers to extending benefit of reduced rate of 10% to the PEI. Let us examine whether this intention is fulfilled by the amendment to section 112 carried out by the Finance Act, 2012.

2.0 Law as amended

Relevant extract of the section 112(1)(c), as amended, is as follows:

The following sub-clauses (ii) and (iii) shall be substituted for sub-clause (ii) of clause (c) of s/s. (1) of section 112 by the Finance Act, 2012, w.e.f. 1-4-2013:

(ii) the amount of income-tax calculated on longterm capital gains [except where such gain arises from transfer of capital asset referred to in sub-clause (iii)] at the rate of twenty %; and

(iii) the amount of income-tax on long-term capital gains arising from the transfer of a capital asset, being unlisted securities, calculated at the rate of ten % on the capital gains in respect of such asset as computed without giving effect to the first and second provisos to section 48; Relevant extract [Clause 43 & First Schedule] of the Supplementary Memorandum Explaining the Official Amendments Moved per the Finance Bill, 2012 is as follows:

Circular No. 3/2012, Dated: June 12, 2012

Concessional rate of taxation on Long Term Capital Gains in case of non-resident investors

“Currently, under the Income-tax Act, a long term capital gain arising from sale of unlisted securities in the case of Foreign Institutional Investors (FIIs) is taxed at the rate of 10 % without giving the benefit of indexation or of currency fluctuation. In the case of other non-resident investors, including Private Equity investors, such capital gains are taxable at the rate of 20% with the benefit of currency fluctuation but without indexation. In order to give parity to such non-resident investors, the Finance Act reduces the rate of tax on LTCG arising from transfer of unlisted securities from 20% to 10% on the gains computed without giving the benefit of currency fluctuations and indexation by amending section 112 of the Income-tax Act.

This amendment is to take effect from 1st April, 2013 and would, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Consequential amendments to provide for tax deduction at source have also been made in the First Schedule and will be effective from 1st April, 2012.” One distinction persisting between taxability of LTCG of listed and unlisted securities @ 10 % u/s. 112 is that, while listed securities (being shares and debentures) will get the benefit of the first proviso of section 48 of the Act (meaning gains shall be computed in the same currency in which the investment was made), such unlisted securities will not get a similar benefit.

 Except for the aforenoted distinction, the intention of the legislature appears to be very clear and that is to give parity in the case of other non-resident investors [other than the FIIs], including Private Equity investors.

However, in fact, the amendment has led to some ambiguity/controversy which is discussed hereunder:

2.0 Meaning of the term “Securities”

Explanation to the section 112 (1), as replaced by the Finance Act, 2012 w.e.f. 1-4-2013, reads as follows:

 (a) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956);

(aa) “listed securities” means the securities which are listed on any recognised stock exchange in India;

(ab) “unlisted securities” means securities other than listed securities;

(b) “unit” shall have the meaning assigned to it in clause (b) of Explanation to section 115AB.

As the Act refers to the SCRA, let us examine the definition of “Securities” as defined in section 2(h) of SCRA as follows:
“2(h) ‘securities’ include –
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (emphasis supplied)

(ii) Government securities; and
(iii) rights or interests in securities”.

2.1 Meaning of the term “Unlisted Securities”:

Unlisted Securities are defined to mean securities other than listed securities. Listed Securities, in turn, are defined to mean the securities which are listed on any recognised stock exchange in India.

A plain reading of the definition of “Securities” under the SCRA would mean:

“shares, scrips, stocks, bonds, debentures, debenture stock in or of any incorporated company or a body corporate” or “other marketable securities of a like nature in or of any incorporated company or other body corporate”. If the above interpretation is adopted, then there is no issue and one can interpret that the benefit of reduced rate of tax would be available to LTCG arising on transfer of any securities of a private limited company as well.

However, there is a strong view that the term “other marketable securities of a like nature” goes with other securities mentioned therein, according to which, the definition of securities as per SCRA covers only shares which are ‘marketable’ i.e. freely transferable in the nature. Thus, since the shares of a private company normally have restrictions on free transferability, they would fail to meet the ‘marketable’ test and hence, may not be covered under the ambit of the definition of unlisted securities and would be liable for the higher rate of tax of 20% instead of concessional rate of tax of 10%, as provided in the newly inserted clause (iii) u/s. 112 (1) (c) of the Act.

The above interpretation derives strength from two old decisions of the Bombay High Court and one decision of Kolkata High Court as discussed in the subsequent paragraphs:

2.2    Judicial Interpretation

In the case of Dahiben Umedbhai Patel And Others vs Norman James Hamilton and Others [(1983) 85 BOMLR 275, 1985 57 CompCas 700 Bom.], the Division Bench of the Honourable High Court interpreted “marketable securities” as appearing in SCRA as follows:

“Now, it is difficult for us to accept the argument of the appellants that the definition of “securities” must be so read that the words “other marketable securities of a like nature” were not intended to indicate an element of marketability in so far as the preceding categories were concerned. A reading of the inclusive part of the definition shows that the Legislature has enumerated different kinds of securities and by way of a residuary clause used the words “or other marketable securities of a like nature”. The use of these words was clearly intended to mean that the earlier categories of securities had to be marketable and any other securities of “like nature”, that is to say, like those which were categorised or enumerated earlier were also to be marketable before they could be held to fall within the definition of “securities”.

In Webster’s Third New International Dictionary, “marketable” is stated to mean “fit to be offered for sale in a market; being such as may be justly or lawfully sold or bought”. In order that securities may be marketable in the market, namely, the stock exchange, the shares of a company must be capable of being sold and purchased without any restrictions. In other words, the transfer of a share in a company must vest title in the purchaser and this vesting of title in the purchaser should not be made to depend on any other circumstance except the circumstance of sale and purchase. A market, therefore, contemplates a free transaction where shares can be sold and purchased without any restriction as to title. The shares which are sold in a market must, therefore, have a high degree of liquidity by virtue of their character of free transferability. Such character of free transferability is to be found in the shares of a public company. The definition of a “private company” in section 3 of the Companies Act, 1956, speaks of the restrictions for which the articles of the private company must provide. The articles of a private company must :

“3(1)(iii)(a) restricts the right to transfer its shares, if any;

(b)    limits the number of its members to 50, not including –

(i)    persons who are in the employment of the company, and

(ii)    persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and

c)    prohibits any invitation to the public to subscribe for any shares in or debentures of, a company.”

“It is thus clear that the shares of a private company do not possess the character of liquidity, which means that the purchaser of shares cannot be guaranteed that he will be registered as a member of the company. Such shares cannot be sold in the market or in other words, they cannot be said to be marketable and cannot, therefore, be said to fall within the definition of “securities” as a “marketable security”. On the other hand, in the case of a sale of share of a public company, the transfer is completed and even if the transfer is not registered, the transferor holds the shares for the benefit of the transferee”.

Based on the above observations, the Court Ruled that “it is thus clear to us that the definition of “securities” will only take in shares of a public limited company notwithstanding the use of the words “any incorporated company or other body corporate” in the definition.”

In the case of Norman J. Hamilton vs. Umedbhai S. Patel and Ors. [(1979) 81 BOMLR 340, (1979) 49 CompCas 1 Bom], also the single bench judge held a similar view that “the definition of “securities” would exclude from its purview shares which are not marketable, such as shares in a private limited company.”

In yet another case of B. K. Holdings (P.) Ltd. v. Prem Chand Jute Mills [1983] 53 Comp. Cas. 367 (Cal.), the Kolkata High Court held as follows:

“Whatever is capable of being bought and sold in a market is marketable. There is no reason whatsoever for limiting the expression “marketable securities” only to those securities which are quoted in the stock exchange.” Therefore, transaction of purchase and sale of shares of public limited company would be covered by the provisions of the Act even if the shares are not quoted in stock exchange.

2.3 Summary of Judicial Pronouncements

The rationale or the principles laid down by the above judicial pronouncements can be summarised as follows:

i)    The term “Marketable” when used in conjunction with the word “securities”, connotes that the securities which are to be termed as marketable possess a high degree of liquidity;

ii)    A private limited company by its very definition restricts the right to transfer its shares. Hence, its shares cannot be said to be “marketable”, as normally interpreted or understood.

iii)    The words “other marketable securities of a like nature” are words of a general character which would apply to all the preceding words, namely, “shares, scrips, stocks, bonds and debentures, applying the principle of “Noscitur a sociis”, which means that “the meaning of a word to be judge by the company it keeps”.

The sum and substance of the above interpretations could be that the amendment carried out by the Finance Act, 2012 has little or no effect as far as securities of the Private Limited Companies are concerned. However, the restrictions on transfer of shares of Private Limited Companies as provided in section 3 of the Companies Act, 1956 are not applicable to an unlisted public company and therefore, one can take a view that the reduced rate of 10 % will be applicable only in respect of LTCG on transfer shares of unlisted public company.
 
Table: Summary of Tax Implication under Different Situations


3.0    Conclusion

The moot point dealt with herein is : What is the intention of amending the expression “unlisted securities”. If we apply the restrictive meanings applied by the Bombay and Kolkata High Courts as discussed above, then it would not include securities of a private limited company. In that scenario, the amendment to section 112 would be meaningful only to the extent of unlisted securities of a public limited company. This does not seem to be the intention of the legislature as flowing from the Explanatory Memorandum explaining amendment of section 112 by the Finance Bill, 2012 wherein it is clearly mentioned that the intention of amendment is to bring about parity in taxability of LTCG in the hands of NRs other than FIs, including Private Equity Investors @ 10% who also invest heavily in private limited companies.

In the light of the foregoing, a suitable retrospective amendment is imperative to remove doubts, if any, and obviate avoidable litigations. After all, the intent of the legislative and the words conveying the said intent need to be synchronised.

Protocol to India-UK Tax Treaty – Impact Analysis

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Introduction

During the calendar year 2012, the Indian Government put a lot of focus on improving bilateral relationships with countries across the globe. In this regard, it entered into some new Double Tax Avoidance Agreements (‘Tax Treaty’) by extending its treaty network and entered into Protocols with countries with whom it already had Tax Treaties. Last in this list (but a significant one) is the Protocol entered into with the UK. This Protocol due to Articles on Exchange of Information and Collection of Taxes dealing with procedural aspects, apart from some changes in the aspects of taxation as well is important. In this article, we have tried to broadly capture impact of the Protocol on tax payers from both the countries.

Treaty Benefits to UK Partnerships:

The India-UK Tax Treaty (prior to insertion of the Protocol) specifically excluded ‘partnership’ from the definition of ‘person’ under Article 3(1) (f). However, an Indian partnership, which is a taxable unit under the Indian Income-tax Act, 1961 (‘the Act’), was considered as ‘person’ as per Article 3(2).

Under the UK domestic law, a UK partnership is not treated as an entity separate and distinct from the partners. Hence, the UK partnership is considered as tax transparent or a pass-through entity, and the income of the partnership is directly taxed in the hands of the partners based on their residential status and their share in the partnership income.

Due to the tax transparent status of the partnership in the UK, a UK partnership was specifically excluded from the definition of ‘person’ under Article 3(1)(f) of the India-UK Tax Treaty. The effect of such specific exclusion suggested that in case a UK partnership earns income from India, it was not eligible to have access to the India-UK Tax Treaty, even though such income was taxed in the UK (in the hands of its partners).

In this regard, contrary to the literal interpretation, Mumbai Income-tax Appellate Tribunal (‘Tribunal’) in the case of Linklaters LLP vs. ITO (132 TTJ 20) extended the benefits under the India-UK Tax Treaty to a UK Limited Liability Partnership (‘LLP’). The Hon’ble Tribunal observed that where a partnership is taxable in respect of its profits, not in its own right but in the hands of partners, as long as the entire income of the partnership firm is taxed in the country of residence (i.e. UK), treaty benefits could not be denied. The Article 3(1)(f) of India-UK Tax Treaty clearly excluded a UK partnership from the definition of ‘person’, and hence, the Tribunal had to analyse this aspect in greater detail. By applying legal analogy based on past judicial precedents, it granted the Treaty benefit to a UK LLP. Thus, this aspect was highly debatable and involved an extensive legal analysis of interpretation of the international tax framework.

Similarly, the Mumbai Tribunal in the case of Clifford Chance vs. DCIT (82 ITD 106) [which was subsequently affirmed by the Bombay High Court (318 ITR 237)] also granted benefits of the India-UK Tax Treaty to a UK partnership firm comprising lawyers. However, a detailed evaluation of the eligibility of the UK partnership claiming benefits under the India- UK Tax Treaty was not done in the said decision.

This controversy has now been put to rest by the Protocol, which has proposed to amend the definition of ‘person’ under the India-UK Tax Treaty by deleting the specific exclusion of partnership from the definition.

 Further, an amendment is also proposed in Article 4(1), which defines the term ‘resident of a Contracting State’, to provide that, in case of a partnership, only so much of income as derived by such partnership, which is subject to tax in a Contracting State as the income of the resident of such Contracting State either in its hands or in the hands of its partners, would be eligible for claiming benefits under the India-UK Tax Treaty. Hence, in the case of a UK partnership earning income from India, only so much of income which is subject to tax in the UK as the income of the UK resident partner would be eligible for India-UK Tax Treaty benefits.

It is interesting to note that similar to the UK, US partnerships are also treated as tax transparent entities under the US domestic tax law, and their income is taxed in the hands of partners directly. The definition of the term ‘resident of a Contracting State’ is pari-materia to the India-USA Tax Treaty. In this context, it would be noteworthy to refer to the definition of the term ‘person’ provided under Article 4(1)(b) of the India-USA Tax Treaty and the Technical Explanation thereof issued by the Treasury Department, which acts as guidance for the interpretation of the terms referred in the India-USA Tax Treaty. The Technical Explanation clarifies that to the extent the partners of a US partnership are subject to tax in US as US residents, the income received by such US partnership will be eligible for India-USA Tax Treaty benefit. Hence, the eligibility of a US partnership to access the India- USA Tax Treaty depends upon the residential status of the partners in such partnership.

Considering the Technical Explanation to the India- USA Tax Treaty and the wordings of the proposed amendment to the definition of ‘resident of Contracting State’ under the India-UK Tax Treaty, an analogy may be drawn that a UK partnership may not be granted benefits under the India-UK Tax Treaty in respect of income that belongs to a person who is not a tax resident of the UK. In other words, if, a UK partnership firm has a Canadian individual as a partner who is not a tax resident of UK (as his income is not taxable in the UK on account of his residence or similar criteria) then, the income earned by the UK partnership (from India), to the extent of such Canadian partner’s share would not be eligible for the India-UK Tax Treaty benefit.

It is pertinent to note that the Technical Explanation issued with reference to the India-USA Tax Treaty though, not binding while interpretating of the terms under India-UK Tax Treaty, it would be of relevance since, the Indian Government had agreed to such interpretation in the past while signing the Technical Explanation to the India-USA Tax Treaty. Hence, it will have a persuasive value on the application of India-UK Tax Treaty as well.

In light of the above, once the Protocol to India-UK Tax Treaty comes into force, an Indian entity will have to consider the tax residence of the partners of the UK partnership at the withholding stage, while granting Treaty benefits to the UK partnership. In this context, attention is invited to the recently introduced section 90(4) of the Act, which requires a non-resident claiming Treaty benefits in India to obtain a certificate containing prescribed particulars (i.e. Tax Residency Certificate or TRC) from the Government of the home country. It would be interesting to observe how a TRC would be issued by the UK Government to a UK partnership earning income from India (specifically, where one of the partners therein is a non-resident).

Treaty benefits to Trusts and Other Entities

Under the current India-UK Tax Treaty, a ‘trust’ or an ‘estate’ may qualify as a ‘person’ under Article 3(1) (f) of India-UK Tax Treaty, only if they are treated as a separate taxable unit under the taxation laws in force of the concerned country. Hence, in a scenario, where a UK trust is treated as a pass-through entity (and not a separate taxable unit) for taxation purposes in the UK and its income is taxable in the hands of its beneficiaries, then the income derived by such a trust from India may not be eligible for the India-UK Tax Treaty benefits.

The Protocol has proposed to amend the definition of the ‘resident of the Contracting State’ in Article 4(1) to provide that in case of an income derived by a ‘trust’ or an ‘estate’, if such income is subject to tax in tge resident country in the hands of its beneficiaries as tax resident of that country, then to that extent it would be eligible for benefits under the India-UK Tax Treaty. Hence, even if the UK trust is not treated as a separate taxable unit under the UK domestic tax laws, if certain portion of the income of the UK trust is taxable in the UK in the hands of beneficiaries who are residents of the UK, then to that extent, income of the UK trust would be eligible for benefits under the India-UK Tax Treaty.

Tax Withholding on Dividend:

One of the much discussed benefits proposed to be granted under the Protocol is the reduced rate of tax withholding on payment of dividend by replacing the existing Article 11 of the India UK Tax Treaty. The Protocol has provided for revised withholding tax rate as follows –

a.    15% of the gross amount of dividends where such dividend is paid out of income derived directly or indirectly from immovable property by an investment vehicle which distributes most of its income annually and whose income from such immovable property is exempted from tax;

b.    10% of gross amount of dividends in all other cases.

Dividend by Investment Vehicle Earning Income from Immovable Property
The new Article 11(2)(a) proposed to be introduced by the Protocol provides 15% withholding rate on declaration of dividend by an investment vehicle earning income from immovable property where such income is exempt in its hands. It seems to cover investment vehicle like Real-Estate Investment Trusts (REITs) registered in India, even though the income earned by such REITs are not currently exempted in India. Hence, it does not seem to have any significant impact from the Indian perspective. However, an investment vehicle in the UK (like UK REITs) earning income from immovable property, which is exempt in its hands in UK, may fall within the ambit of this provision.

Dividend in Other Cases
The Protocol proposes to amend the withholding tax on dividend (other than the dividends covered above) to 10% vide Article 11(2)(b) in line with the withholding tax rate applicable for other OECD countries.

This amendment does not appear to bring any impact on the investors from either country (except in certain cases)n due to the current tax regime under the domestic tax laws of India and the UK.

UK Shareholder Earning Dividend from Indian Company
Under the Income-tax Act, 1961, an Indian company declaring dividend has to pay Dividend Distribution Tax (DDT) . Such dividend is tax exempt in India in the hands of resident as well as non-resident share-holder and there is no withholding tax. Hence, under the current domestic tax law, the reduction in with-holding tax rate will not have any impact, though it would be critical if in the future, the DDT regime is withdrawn from the domestic tax law in India.

Interestingly, the Protocol does not throw any light on tax credit to UK shareholder in the UK with respect to DDT suffered on distribution of dividend by an Indian company. It has been over a decade now since the concept of DDT has been in place under the Income-tax Act. Issue of credit for the DDT paid in India in the hands of foreign investor in their home country is unclear and has been a matter of debate. In the past, while entering into a Protocol with Hungary, some clarity has been provided to this effect.

It is pertinent to note that the UK domestic tax law provides for the underlying tax credit for taxes paid on income earned in overseas country (i.e. corporate tax). Hence, the UK shareholder earning dividend from an Indian company would be entitled to tax credit for corporate tax paid by the Indian company on its profits from which dividends are distributed. Hence, uncertainty on the tax credit for DDT practically does not have a serious bearing.

Indian Shareholder Earning Dividend from a UK Company
Under the current UK domestic tax laws; in most of the cases, there is no tax withholding on distribution of dividend by a UK Company (subject to satisfaction of certain conditions).

In a scenario, where the Indian shareholder does not satisfy any of the prescribed conditions and is unable to claim exemption under the UK domestic tax laws, he suffers tax withholding in the UK. Only in such case, the UK company will have to withhold tax on distribution of dividend to Indian shareholder. Currently, the tax withholding rate on dividend as per the India-UK Tax Treaty is 15% which is proposed to be reduced to 10% by the Protocol.

Article on Limitation of Benefits (LOB):

UK government as well as the Indian government intend to introduce General Anti-Avoidance Rules (GAAR) under their respective domestic tax laws. UK is intending to implement the same from the next fiscal year and the Indian gvernment has recently deferred the implementation of GAAR by two years and is proposed to be introduced with effect from 1st April, 2016. Pending this, GAAR provisions have been introduced under the Protocol. Article 28C on LOB clause proposes to deny the Treaty benefits with respect to a transaction if the main purpose or one of the main purposes of the transaction was to obtain benefits under the India-UK Tax Treaty. Further, it is also provided, that the treaty benefits may also be denied if the main purpose or one of the main purpose of creation or existence of any entity in either of the country was to obtain benefits under the India-UK Tax Treaty.

This type of LOB clause is also inserted in many recently concluded Indian Tax Treaties, for example, treaties with Georgia, Uzbekistan, Nepal, Iceland, Finland, etc. The effect of the LOB clause can be far-reaching and its implementation would depend largely upon the implementation of GAAR provisions by both the countries in their domestic tax laws.

Exchange of Information and Assistance in Collection of Taxes:

The Protocol also proposes to introduce certain other measures to curb tax evasion practices by introducing Article 28 on Exchange of Information, Article 28A on Tax Examinations Abroad and Article 28B on Assistance in Collection of Taxes in the India-UK Tax Treaty.

As one of the purposes of double tax avoidance agreements is to enable and facilitate the exchange of information between the tax authorities, Article 28 on Exchange of Information gives a statutory recognition to the formal process of information exchange between the competent authorities. The information that can be exchanged under this Article is that which enables the carrying out the provisions of the Treaty or enforcement of domestic law of the Contracting States effectively. However, inspite of exchange of information, under the principle of procedural autonomy, collection of taxes by one Contracting State from the residents of the other Contracting state remains a difficult task. Thus, to overcome this, Protocol proposes to introduce Article 28B on Assistance in Collection of Taxes in the Treaty for smoothing the process of recovery of taxes. This Article is also found in tax treaties entered into by India with countries like Norway, Denmark, Sweden, Ukraine, South Africa, etc.

Entry into force:

The provisions of this Protocol will take effect only when both the governments complete the necessary implementing measures by notification to this effect.

Conclusion:

The clarity on allowability of Treaty benefits to the UK partnerships and other tax transparent entities (like trust, estates, etc.) is a welcome step; though the Indian Judicial Authorities have evaluated this aspect in the past. The reduced withholding rate on dividend seems to suggest very limited applicability. However, the implementation of LOB clause with respect to invocation of GAAR may have a far reaching impact and guidelines under the domestic tax laws on this aspect would bring in more clarity.

The procedural amendments like Article on exchange of information and assistance in collection of taxes would help to bring more transparency for the Governments of both the countries.

Last date for physical submission of audit report in Form 704 for FY 2011-2012 Trade Cir. No 2T of 2013 dated 15-1-2013

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It is clarified that besides e filing of the audit report in form 704 on or before 15-1-2013, dealer should also submit physical copy of Part-I of Form 704 along with certification duly signed by the auditor, signed copy of acknowledgement of e filing of Form 704 and the statement of submission of audit report on or before 28th January, 2013.

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Non levy of penalty for filing delayed audit reports by developers

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Trade Cir. No 1T of 2013 dated 4-1-2013 It has been clarified that the developers who have obtained registrations up to 15th October 2012, filed returns and paid taxes due up to 31st October 2012 and who file the audit reports in Form 704 on or before 15th January 2013 for all the past periods i.e. from 2006-07 to 31-3-2012 shall not be subjected to penalty u/s 61(2) of MVAT Act, 2002. It has also been clarified that the audit report u/s. 61 in Form no. 704 for all periods up to 2011-12 is to be filed electronically.

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Notification No. VAT/AMD-1012/1B/Adm-8 dated 20.11.2012

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By this Notification, amendments are made in the Maharashtra Value Added Tax Rules, 2005 making various insertions and substitutions in VAT return forms numbered 231, 232, 233, 234, & 235.

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Mega Exemption Notification amended Notification No. 49/2012 – Service Tax dated 24th December, 2012

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Notification no.25/2012-Service Tax, dated the 20th June, 2012, regarding mega exemption has been amended by adding that services of life insurance business provided under the schemes of Janashree Bima Yojana (JBY) and Aam Aadmi Bima Yojana (AABY) are exempted u/s. 66B.

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Notices/Reminder letters for renewal premium to life insurance policyholders are not invoices

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Circular No.166/1 /2013 –

ST It is clarified that reminder letters/notices being issued to the life insurance policyholders to pay renewal premiums are not invoices within the meaning of Rule 4A of the Service Tax Rules, 1994 and consequently, no tax point arises on account of issuance of such reminders and hence, it would not invite levy of Service Tax.

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No service tax on transportation of milk within India by rail or a vessel. Circular No.167/2 /2013 – ST dated 1st January, 2013

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The expression ‘foodstuff’ specified in the exemption Notification No. 25/2012-ST dated 20-6-2012 would cover ‘milk’ and hence, no service tax will be applicable on transportation within India of milk by rail or vessel .

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Exports – Special deduction – Leasing right are ‘goods’ and transfer of such rights constitute ‘sale’ of merchandise / goods and the profits thereon are eligible for deduction u/s. 80HHC.

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Commissioner of Income-tax vs. Romesh Sharma [2013] 354 ITR 229 (SC).

 The High Court had dismissed the appeal of the revenue following its decision in Abdulgafar A. Nadiadwala (2004) 267 ITR 488 (Bom). 

On appeal, the Supreme Court noted that issue involved was whether leasing rights could be considered to be ‘goods’ and whether transfer of such rights would constitute ‘sale’. The Supreme Court dismissed the appeal of the revenue following its decisions in CIT vs. B. Suresh (2009) 319 ITR 149

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Chafer VI-A – Special Deduction – Duty drawbacks is not derived from industrial undertaking and thus is not eligible for deduction u/s. 80 IA.

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Commissioner of Income-tax vs. Orchev Pharma P. Ltd. [2013] 354 ITR 227 (SC)

The High Court dismissed the appeal of the revenue on the following question of law following its decision in CIT vs. India Gelatin and Chemicals Ltd. (2005) 275 ITR 284 (Guj).

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in allowing the deduction u/s. 80-IA of the Income-tax Act, 1961, by including the amount of duty drawback?”

The Supreme Court allowed the appeal of the Department in view of its decision in Liberty India vs. CIT (2009) 317 ITR 218 (SC).

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Assessment – Supreme Court dismissed the Special Leave Petition arising from the order of the High Court in view of concurrent finding of facts where the High Court had held that statements recorded during survey operation do not have any evidentiary value when the same are subsequently retracted and no addition could be made solely on the basis of such statement.

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Commissioner of Income-tax vs. S.Khader Khan Son [2013] 352 ITR 480 (SC)

A survey action was conducted u/s. 133A of the Act on 24th July, 2001, in the premises of the assessee at 90, Syed Mada Street, Shevapet Salem, and one of the partners of the firm, by name Asif Khan. In his sworn statement Asif Khan offered an additional income of Rs. 20,00,000 for the assessment year 2001-02 and Rs. 30,00,000 for the assessment year 2002-03. However, the said statement was retracted by the assessee through its letter dated 3rd August 3, 2001, stating that the partner Asif Khan, from whom a statement was recorded during the survey operation u/s. 133A, was new to the management and he could not answer the enquiries made and as such, he agreed to an ad hoc addition, which could never be achieved by the business owing to the competition and to the legislation by the Government prohibiting smoking in public places.

The assessee filed its return of income for assessment year 2001-02 on 29th October, 2001, disclosing an income of Rs. 12,640/-.

The Assessing Officer found that certain books were not produced during the course of survey action and that certain entries in the books were made subsequent to the survey action and at the time of survey action, the assessee had come forward with the admission. The Assessing Officer rejected the book, viz., “branch contractors’ agent book” produced after the survey to support the claim of manufacturing process and based on the admission made by the assessee, which according to him were directly relatable to the defects noticed during the action u/s. 133A of the Act, recomputed the assessment by his assessment order dated 30th March, 2004.

Aggrieved by the said assessment order dated 30th March, 2004 the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who, by order dated 30th November,2006, held the issue in favour of the assessee. On appeal, at the instance of the Revenue, the Appellant Tribunal holding that there was no infirmity in the order of the Commissioner, dismissed the Revenue’s appeal.

The High Court dismissed the appeal of the revenue holding that no substantial question of law arose since the Commissioner and Tribunal had followed Circular of CBDT dated 10th March, 2003 for arriving at the conclusions that the material collected and the statement obtained u/s. 133A would not automatically bind upon the assessee.

The Supreme Court dismissed the SLP in view of concurrent findings of fact.
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Business expenditure- Amount lying credited in the Modvat account at the end of the accounting year was expenditure allowable u/s. 37 read with section 43B.

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CIT vs. Shri Ram Honda Power Equipment Ltd. [2013] 352 ITR 481 (SC)

The Delhi High Court answered the following question of law in favour of the assessee and against the department in view of its decision in CIT vs. Modipon Ltd. (2002) 303 ITR 438(Del).

“Whether the Income-tax Appellate Tribunal was right in holding that the amount lying credited in the Modvat account at the end of the accounting year is expenditure allowable u/s. 37 read with section 43B of the Income-tax Act, 1961?”

The appeal pertained to the assessment year 1995-96.

On further appeal by the revenue, the Supreme Court observed that the judgment of the Bombay High Court in CIT vs. Indo Nippon Chemicals Co. Ltd. (2000) 245 ITR 384 (Bom) squarely applied to this case and the said decision was affirmed by the Supreme Court in (2003) 261 ITR 275(SC). The Supreme Court held that since the assessee followed net method of valuation of closing stock, the authorities below were right in coming to the conclusion that Modvat credit is excise duty paid.

Note: The above decision was followed in Asst. CIT vs. Torrent Cables Ltd. (2013) 354 ITR 163(SC) which also pertained to the assessment year 1995-96.

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Substantial Question of Laws – Whether gains on forward currency contract is not to be excluded from the profits eligible for deduction u/s. 80HHC, is a substantial question of law.

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CIT vs. Mitsu Pvt. Ltd. [2013] 354 ITR 89 (SC)

In the appeal filed to the High Court the Revenue inter alia had raised following two questions.

1. Whether, on the facts of the case and in law, the Appellate Tribunal was justified in granting relief u/s. 80HHC of the Act to the assessee on the issue of gain on forward currency contract without appreciating the fact that the gain on exchange difference is nothing but speculation profit and not related to the business of the assessee?

2. Whether, on the facts of the case and in law, the Appellate Tribunal was justified in directing the Assessing Officer not to exclude this income from the profits eligible for deduction u/s. 80HHC without appreciating the fact that when the assessee enters into a forward contract, as in this case, the assessee stands to benefit by the fluctuations in foreign exchange irrespective of the fact whether the trade agreement exist or not?

The High Court held that no question of law arose in view of finding given by the Tribunal that the foreign exchange contract was entered into by the assessee only with a view to realise the amount due on sale of goods and was related to the business of the assessee.

On an appeal, the Supreme Court was of the opinion that the above question required consideration and decision by the High Court. The Supreme Court therefore without expressing any opinion on the merits of the aforesaid questions, remanded the matter to the High Court for examination.

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Industrial undertaking: Deduction u/s. 80-IA/80-IB: Computation: A.Ys. 1997-98 to 1999-00, 2003-04 and 2004-05: Assessee printing and publishing magazines: Four units: One unit doing job work of printing for publishing unit: Expenses attributable to publishing unit not to be allocated to printing unit for computation of the amount deductible u/s. 80-IA/80-IB:

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CIT vs. Delhi Press Patra Prakashan Ltd. (No. 1); 355 ITR 1 (Del):

The assessee was engaged in the business of printing and publishing magazines. It had four units. One unit was doing the job work of printing for the publishing unit. The assessee had maintained separate accounts in respect of which deduction u/s. 80-IA/80-IB was claimed. Relying on sections 80-IA(8), (9) and (10), the Assessing Officer held that profits of the printing unit are required to be recomputed by allocating to the printing unit the expenses relating to the cost of paper and other expenses of the publishing unit inasmuch as section 80-IA(7) requires that the profits from the eligible business must be computed as if the eligible business was the only source of income for the assessee. Accordingly, he recomputed the profits of the printing unit and the amount deductible u/s. 80-IA/80-IB. The Commissioner (Appeals) and 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) There was no material to support the view that the job work charges charged by the printing units from the publishing unit were not at market rates. In the absence of any defect or manipulation found by the Assessing Officer in the books maintained for the printing unit and in the absence of any material to indicate that the amounts charged by the printing unit from the publishing unit was not at comparable market rates, it would not be open for the Revenue to disregard the profits of the printing unit as disclosed by the assessee only on the basis that the profits were significantly higher than the profits earned by the assessee from other undertakings.

ii) The printing unit carried on job work of printing only and the expenses attributable to the publishing unit which relate to the publishing business could not be allocated to the printing unit. Only those expenses which related to the printing work carried on by the assessee in the printing unit were liable to be deducted from the job charges to arrive at the profits eligible for deduction u/s. 80-IA/80-IB, as the case may be.”

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Income: Accrual: Retention money: Sections 4 and 5: A. Y. 2003-04: Amount retained to ensure satisfactory performance of contract does not accrue: Not income of that year:

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DIT vs. Ballast Nedam International; 355 ITR 300 (Guj):

The assessee executed contracts. In terms of the contracts, the amounts at the rate of 10% on the onshore activities, and at the rate of 15% on the construction and erection activities, were withheld by the principal towards retention money. For the A. Y. 2003-04, the assessee claimed that the retention money of Rs. 14.31 crore did not accrue and accordingly cannot be assessed as income. However, the Assessing Officer held that the amount is the accrued income and made addition. The Commissioner and the Tribunal allowed the assessee’s claim.

On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:

“i) Unless and until a debt is created in favour of the assessee, which is due by somebody, it cannot be said that the assessee has acquired a right to receive the income or that the income has accrued to him.
ii) The amount retained had not accrued to the assessee in the accounting year relevant to the A.Y. 2003-04.”

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Depreciation: Actual cost: Subsidy: Section 43(1), Expln. 10: A.Ys. 2001-02 and 2002-03: Assessee a Government Company took over the telecommunication business from Government Department: Assets transferred at book value: Consideration in form of shares, debts and reserves: Reserve not a subsidy, grant or reimbursement for meeting cost of assets transferred: Reserves not to be reduced from fixed assets to arrive at actual cost: Reopening of the assessment for reducing the actual cost by reserve<

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BSNL vs. Dy. CIT; 355 ITR 188 (Del):

The assessee company was incorporated to provide the telecommunication services which were being provided earlier by the Department of Telecommunications of the Government of India. The assets were transferred at book value. Consideration was paid in the form of shares, debts and reserves. The Assessing Officer found that the consideration included reserves. He held that the cost of assets was being met by the reserves and therefore held that the reserve is required to be reduced from the cost of the assets in terms of Explanation 10 to section 43(1). He therefore reopened the assessments for the A.Ys. 2001-02 and 2002-03 and recomputed the depreciation by reducing the reserve from the cost of assets.

On a writ petition filed by the assessee, the Delhi High Court accepted the assessee’s claim and held as under:

“i) There was no basis for the Assessing Officer’s assumption that whereas value of share capital issued to the Government as part consideration for transfer of business to the assessee was limited only to the face value of the shares, reserves represented a subsidy, grant or reimbursement for meeting the cost of assets transferred.
ii) Free reserves and surpluses of a company could not be considered anything but part of shareholders’ funds. The book value of equity share consists of not only the paid up capital but also the reserves and surpluses of the company. The scheme of hiving off the business of telecommunication services by the Government of India to a corporate entity entailed incorporation of a wholly owned Government company (i.e., the assessee) and the transfer of the business as a going concern along with all its assets and liabilities to the company. Reserves was an integral part of the shareholders funds.
iii) The Government of India had transferred the assets to the assessee company at their book value and the book value of the Government of India’s holding on the assessee company as shareholder and a creditor aggregated the book value of the assets transferred. The configuration of the capital structure of the assessee had no impact on the value of the Government’s holding in the assessee as reserve(s) of a company are subsumed in the book value of its capital.
iv) There is no plausible reason to assume that the value of shareholders’ holding in a company is limited to the face value of the issued and paid up share capital and the reserves represent subsidy or a grant or reimbursement by the shareholders from which directly or indirectly the cost of the assets in the hands of the company are met.

v) We are thus of the view that the reasons as furnished by the Assessing Officer for reopening the assessments could not possibly give rise to any belief that income of the petitioner had escaped assessment and the proceedings initiated on the basis of such reasons are liable to be quashed.”

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Charitable institution: Exemption u/s. 10(23C) (iv): Sections 2(15) and 10(23C)(iv): A.Ys. 2006- 07 to 2011-12: Charitable purpose: Applicability of proviso to section 2(15): Assessee’s activities fall in section 2(15) as existed prior to 01-04-2009 under the category of advancement of any other object of general public utility: Activity of assessee in conducting coaching classes is integral to its activity of conducting course in accountancy: Cannot be equated with private coaching classes:

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Assessee entitled to exemption u/s. 10(23C)(iv): ICAI Vs. DGIT; 260 CTR 1 (Del):

The petitioner Institute was constituted under the Institute of Chartered Accountants Act, 1949, with the object to regulate the profession of Chartered Accountants in India and to ensure that the standards of professional knowledge and skill are met and maintained. Up to the

A.Y. 2005-06, the petitioner was granted approval for exemption u/s. 10(23C)(iv). Subsequent applications for approval were rejected on the ground that the Petitioner was holding coaching classes for preparing students for the examinations conducted by the Petitioner and was charging fees for the same.
The Delhi High Court allowed the writ petition filed by the petitioner against the said denial and held as under:

“i) Assessee’s activities fall within the definition of ‘charitable purpose’ in section 2(15) as it existed prior to 01-04-2009, under the category of ‘advancement of any object of general public utility’.
ii) The activity of the assessee in conducting coaching classes is integral to its activity of conducting the course in accountancy and the same cannot be equated with private coaching classes being conducted by organisations on commercial basis for preparing students to take entrance or other examinations in various professional courses.
iii) The reasoning of the DGIT that conducting interviews for a fee for the purposes of placement of its students by the assessee amounts to carrying on of a business is not sustainable. Campus interview is only a small incidental activity carried on by the assessee Institute like Universities for the placement of their students in gainful employment. This too is an activity ancillary to the educational programme being conducted by the assessee and cannot be considered as a business.
iv) The reasoning of the DGIT that since the assessee institute charges a uniform fee from all students it cannot be said to be carrying on a charitable activity is also erroneous. It is well settled that eleemosynary is not an essential element of ‘charitable purpose’ as defined under the Act. If the object or purpose of an institution is charitable, the fact that it collects certain charges does not alter the character of the institution.
v) Expression “trade”, “commerce” and “business” as occurring in the first proviso to section 2(15) must be read in the context of the intent and purport of section 2(15) and cannot be interpreted to mean any activity which is carried on in an organised manner. Purport of the first proviso is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. Thus, where the dominant object of an organisation is of charitable nature, any incidental activity for furtherance of the object would not fall within the expression “business”, “trade” or “commerce”.
vi) Impugned orders passed by the DGIT refusing to grant exemption u/s. 10(23C)(iv) are set aside and he is directed to recognise the assessee as eligible for exemption u/s. 10(23C)(iv) as an institution established for charitable purposes.”

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Plots for sale with assurance of subsequent development on such plots is not mere transfer of immovable property – it is a ‘service’ as per the provisions of Consumer Protection Act, 1986.

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Facts

Appellants were offering plots of land for sale with assurance of layout approvals of development of infrastructure/amenities, etc. as a package. The question for consideration before the Apex Court was, can such activities be regarded as a ‘service’ within the meaning of clause (o) of section 2(1) of the Consumer Protection Act, 1986 (the Act) and, therefore, can the buyer of such plots be regarded as a “consumer of service” and consequently be eligible for relief/s under the Act?

Held

 The Honourable Supreme Court, relying upon its own decisions viz. Lucknow Development Authority (1994) 1 SCC 243 and Bangalore Development Authority (2007) 6 SCC 711, held that activities of offering plots of land for sale with assurance of layout approvals of development of infrastructure/ amenities etc. as a package would be regarded as a ‘service’ within the meaning of clause (o) of section 2(1) of the Consumer Protection Act, 1986 and consequently buyers of such plot would be eligible for relief/s under the said Act.

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Business expenditure: Payment to related person: Disallowance u/s. 40A(2)(b): A.Y. 1995-96: Payment to subsidiary company: Section 40A(2)(b) not applicable:

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CIT vs. Raman Boards Ltd.: 355 ITR 305 (Kar):

The assessee, a manufacturer of insulation paper boards, entered into an agreement with its subsidiary company for manufacture of footwear soles. Under the agreement, the assessee was to pay to the subsidiary management fees of Rs. 4 lakh per month. In the A. Y. 1995-96, the assessee claimed deduction of Rs. 48 lakh so paid to the subsidiary. The Assessing Officer allowed 50% of the claim and disallowed Rs. 24 lakh u/s. 40A(2)(b). The Tribunal held that the genuineness of the agreement and the services rendered by the subsidiary company were not doubted and there being no finding that the payment made by the assessee was excessive u/s. 40A(2)(b) the Tribunal deleted the disallowance.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“i) To attract the provisions of section 40A(2), the assessee has to incur an expenditure by making payment to the person referred to in clause (b). The assessee was a company. The person to whom it had to make the payment in order to attract the provision was any director of the company or any relative of director.

ii) Admittedly, the payment was made to the subsidiary company and not to any director or any relative of director. Therefore, the requirement of section 40A(2)(b) was not fulfilled. The Tribunal was justified in directing the deletion of the disallowance.”

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Maintenance and repairs of runways to receive same treatment as that of roads and thus exempt from the levy of service tax.

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Facts

Appellant was engaged in the maintenance and repairing of roads and runways and was registered under the category of “management, maintenance or repairs”. SCN was issued proposing to levy service tax on repairs and maintenance of roads and runways. The adjudicating authority as well as CCE Appeals confirmed the levy. The Honourable Tribunal, while partly dispensing with the pre-deposit requirement, held that maintenance and repairs of roads are exempt and not runways and hence ordered proportionate pre-deposit of Rs. 3 crore.

Held

The Honourable High Court observed that runways at the airport are species of the genus ‘road’ and hence, should receive the same treatment as roads for service tax purpose and hence, directed the Tribunal to hear the appeal afresh on the merits of the case at the earliest, without insisting on pre-deposit, and the Tribu

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Business expenditure: Disallowance u/s. 14A: A. Y. 2005-06 and 2006-07: Investment in subsidiaries: In respect of part of investment dividends were taxable: In respect of balance, assessee had sufficient interest free funds: No disallowance could be made u/s. 14A:

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CIT vs. Suzlon Energy Ltd: 354 ITR 630 (Guj):

The assessee had made investments in subsidiaries. The Assessing Officer made disallowance of interest expenditure and administrative expenditure u/s. 14A in respect of such investment. The Commissioner (Appeals) deleted the disallowance. The Tribunal found that in respect of part of investment, dividends were taxable and in respect of the balance the assessee had sufficient interest free funds of its own. The Tribunal confirmed the decision of the Commissioner (Appeal).

On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:

“The Tribunal was right in law and on facts in deleting disallowance u/s. 14A in respect of interest expenses incurred for investment in subsidiaries and administrative expenses such as staff salary of corporate office, audit fees, building rent and communication expenses.”

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Business expenditure: Disallowance u/s. 40(a) (ia) : Deduction of tax at a lesser rate due to difference of opinion: Disallowance u/s. 40(a)(ia) not justified:

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CIT vs. S. K. Tekriwal; 260 CTR 73 (Cal):

The assessee deducted tax @ 1% u/s. 194C(2) from the payments made to sub-contractors. The Assessing Officer held that the payments are in the nature of machinery hire charges falling under the head ‘Rent’ and the provisions of section 194-I are applicable as per which tax was deductible @ 10%. The assessing Officer, therefore, disallowed the payment proportionately by invoking the provisions of section 40(a)(ia). The Tribunal deleted the disallowance holding that no disallowance can be made by invoking the provisions of section 40(a)(ia), if there is any shortfall in deduction of tax at source due to any difference of opinion as to the taxability of any item or the nature of payment falling under various TDS provisions.

On appeal by the Revenue, the Calcutta High Court upheld the decision of the Tribunal and held as under:

“We find no substantial question of law involved in this case and therefore, we refuse to admit the appeal. Accordingly, the appeal is dismissed.”

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Pre-determined Sale vis-à-vis Exempted Sale u/s.6(2) of CST Act – Controversy Settled

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Introduction

As per the scheme of Central Sales Tax Act (CST) when subsequent sale is effected in the course of the same movement, then it is exempted from tax as per section 6(2) of the CST Act, subject to production of C form and E1/E-II form as the case may be. There are a number of judgments throwing light on the various aspects of exempted sale u/s. 6(2). Reference can be made from important judgments like, State of Gujarat vs. Haridas Mulji Thakker (84 STC 317)(Guj), M/s.Fatechand Chaturbhujdas vs. State of Maharashtra (S.A.894 of 1990 dated.12-8-1991) (M.S.T. Tribunal), M/s.Duvent Fans P. Ltd. vs. State of Tamil Nadu (113 STC 431)(Mad.) and M/s. G. A. Galiakotwala & Co. (37 STC 536) (SC).

However, a controversy developed after the judgment of Hon. Supreme Court in case of A & G Projects & Technologies (19 VST 239)(SC).

Issue in A & G Projects & Technologies (19 VST 239) (SC)

The issue before the Supreme Court was from the judgment of Karnataka High Court. The accepted position in the Karnataka High Court judgment was that the Karnataka Sales Tax Assessing Authority considered the sale of A & G Projects as effected under section 3(a) of the CST Act in Tamil Nadu. Inspite of holding so, the tax was levied in Karnataka under CST Act. Before the Supreme Court the issue was whether tax can be levied in Karnataka inspite of holding the transaction as covered by section 3(a) in Tamil Nadu? In effect, the Supreme Court considered the application of section 9(1) of the CST Act. There was no issue about interpretation of section 6(2) of CST Act which is about “sale by transfer of documents of title to goods”, also popularly known as “in transit sale”. However, Hon. Supreme Court has made certain observations in the above judgment regarding “In transit sale”, because of which there was confusion. The relevant observations can be reproduced as under for ready reference:

“Within section 3(b) fall sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto whereas section 3(a) covers sales, other than those included in clause (b), in which the movement of goods from one State to another is under the contract of sale and property in the goods passes in either States [SEE: Tata Iron & Steel Co. Ltd. vs. S.R. Sarkar – (1960) 11 STC 655 (SC) at page 667]. The dividing line between sales or purchases u/s. 3(a) and those falling u/s. 3(b) is that in the former case the movement is under the contract whereas in the latter case the contract comes into existence only after the commencement and before termination of the inter-State movement of the goods.” (Underlining ours)

Due to the above observations the sales tax authorities were taking a view that if the customer to whom sale by transfer of documents is to be effected was known prior to movement then it will be a pre determined sale and will not fall in the exempted category of section 6(2) of CST Act. This created a number of difficulties for the trading community.

Recent judgment of Hon. M. S. T. Tribunal in case of Ajay Trading Company (S A No.111 of 2010 dated12- 12-2012).

Facts of this case

The appellant is a trader and reseller of machinery in Maharashtra. The outside state buyers, herein after referred to as ‘ultimate buyers’ placed an order for purchase of machinery from the appellant. The ultimate buyers were from the state of Gujarat and Rajasthan. The appellant, in turn placed order on local manufacturers in Maharashtra for manufacture of those machineries. The appellant has instructed the manufacturers to dispatch the goods to the ultimate buyers. As per the instructions of the appellant, the manufacturers manufactured the machineries and dispatched them to the ultimate buyers in respective states. The invoices, delivery Challan and the lorry receipts i.e. dispatch proof was sent to the appellant. The appellant signed the lorry receipts and delivered the same to the ultimate buyers. In invoice, the local manufacturer levied CST @ 4%. The appellant raised invoice on the ultimate buyers without levying CST. Turnover of such sales to the tune of Rs. 58,26,750/- was claimed by the appellant in his returns for the period 2005-06 as a subsequent sale u/s. 6(2) of CST Act, as such exempted from central sales tax.

The appellant issued C form to the local manufacturers, who in turn issued an E1 form to the appellant. The ultimate buyers, on receiving the machinery, issued ‘C’ form to the appellant

The assessing officer assessed the appellant for the year 2005-06 and disallowed the claim of subsequent sale u/s. 6(2) holding that both the sales were interstate sales u/s. 3(a) of the CST Act. According to him, property in the machineries was transferred to the outside buyers before the movement of machineries outside the state. As such there is no subsequent sale u/s 6(2) by transfer of documents of the title. Hence, the turnover of the subsequent sale claimed by the appellant was held as not exempt. He levied sales tax on the same, considering it as sales u/s 3(a), on the basis of the decision of the Karnataka High Court in case of State of Karnataka vs. M/s A & G Projects and Technologies Ltd (13 VST 177) and Supreme Court in case of A & G Projects & Technologies vs. State of Karnataka (19 VST 239)(SC).

Arguments

The appellant contended that the local manufacturers have moved the machinery outside the state of Maharashtra as per the instructions of the appellant and sent the dispatch proof i.e. lorry receipt along with the invoice to the appellant. He submitted that the appellant signed the lorry receipts and delivered it to the ultimate buyers. He submitted that the first sale is an interstate sale u/s. 3(a) of the CST Act, and the sale by the appellant to the ultimate buyer is effected by the transfer of documents of title to goods during interstate movement and it is a subsequent sale u/s 3(b) r.w.s 6(2) of CST Act and as such it is exempted from central sales tax. It was submitted that both the authorities below committed an error in relying on the decision of Karnataka High Court and Supreme Court in case of M/s A & G Projects and Technologies Ltd. (cited supra).

Judgment

The Tribunal held that the facts of the present case are similar to the cases of Bayyana Bhimayya & Sukhdevi Rathi vs. Govt. of A.P. (12 STC 147), Onkaral Nandlal vs. State of Rajasthan (60 STC 314) and Haridas Mulji Thakker vs. State of Gujarat (84 STC 319).

The Tribunal observed that the appellant agreed to supply future goods to ultimate buyers outside the state. Delivery to them was on a future date. The appellant in turn placed an order on local manufacturers to manufacture those goods as required by the ultimate buyers and incorporated the term of delivery in the contract to deliver the goods to its ultimate purchasers on its behalf. The local manufacturer manufactured the goods and delivered the goods to the transporter for delivery to ultimate buyers. The local manufacturers moved the goods outside the state of Maharashtra. The contract of sale among them and appellant occasioned the movement of goods outside the state of Maharashtra. It fulfills the requirement of section 3(a) of CST Act and section 3(a) is attracted.

The Tribunal further observed that the law permits two sales simultaneously. Referring to Omkarlal Nandlal’s case Tribunal observed that the same sale may be both a sale in course of inter-state trade or commerce u/s. 3 of CST Act as also a sale inside state. Applying these observations to the facts of the present case, the sale among the local manufacturer and appellant was held as first inter state sale u/s. 3(a) of CST Act, and not a local sale. The subsequent sale by appellant to the ultimate buyer was held as exempt u/s.6(2) r.w.s. 3(b) of CST Act, 1956.

Conclusion

From above judgment the theory of subsequent exempted sale gets reiterated and also shows that A & G Projects judgment has not made any difference in interpretation of section 6(2) of CST Act. It is also expected that the assumed theory of predetermined sale will also get settled now and the trade community will have sigh of relief.

Important High Court Ruling: Recovery Proceedings Pending Stay Application

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Background

The Central Board of Excise and Customs (“CBEC”) in supersession of seven previous circulars on the same subject issued Circular No. 967/01/2013 CX on 1st January, 2013, directing the departmental officers to initiate recovery actions in cases where 30 days have expired after the filing of appeal by an assessee before an appellate authority. This action by CBEC is most unprecedented and totally unjust and unfair inasmuch as it has resulted in penal consequences for reasons beyond the control of an assessee and has rendered the statutory right of appeal nugatory. The said CBEC Circular is unjust and unfair for various reasons and in particular due to the fact that in large number of cases, stay applications are not disposed of due to inaction at the end of the concerned appellate authority and for no fault of the assessee.

In this regard, significant observations made by the Honourable Supreme Court of India (reproduced hereafter) in Commissioner of Cus & CE vs. Kumar Cotton Mills Pvt. Ltd. (2005) 180 ELT 434 (SC), have been totally ignored by CBEC:

“Para 6

The sub-section which was introduced in terrorem cannot be construed as punishing the assessees for matters which may be completely beyond their control For example, many of the Tribunals are not constituted and it is not possible for such Tribunals to dispose of matters. Occasionally by reason of other administrative exigencies for which the assessee cannot be held liable, the stay applications are not disposed within the time specified. ….”

Bombay High Court Ruling in Larsen & Toubro Ltd. vs. UOI (2013) 288 ELT 481 (Bom) – Automatic Stay of recovery after filing of Stay Application – No coercive actions unless assessee resorts to dilatory tactics.

A Writ Petition was filed under Article 226 of the Constitution challenging the CBEC Circular dated 1-1-2013. The Petitioners pleaded that when the stay application remains to be disposed of due to inability of the appellate authority to take up the application for hearing and disposal without any default on the part of the assessee, it would be arbitrary to penalise the assessee by enforcing the recovery, despite the pendency of the application for stay. The Honourable High Court noted the ruling in Collector vs. Krishna Sales (P) Ltd. (1994) 73 ELT 519 (SC) and relied on the rulings in CCE vs. Kumar Cotton Mills Pvt. Ltd. (2005) 180 ELT 434 (SC); Mark Auto Industries Ltd. vs. UOI (1998) 102 ELT 542 (DEL) and Nedumparambil P George vs. UOI (2009) 242 ELT 523 (BOM), while making important observations set out hereafter. As regards CBEC’s directive that even though stay application was filed before Commissioner (Appeals)/CESTAT which is pending, recovery could be initiated upon completion of 30 days after filing of appeal if no stay is granted, the following was observed:

 • If on failure of Appellate Authority to dispose of appeal or stay is not due to default of assessee or their dilatory tactics, to initiate recovery by coercive measures in the meantime, is unjustified, arbitrary, travesty of justice and violative of Article 14 of Constitution of India.

• It is unjust to penalise the assessee for inability of judicial/quasi judicial authority to dispose stay application within thirty days. The fact that a period of thirty days is allowed to lapse after filing of appeal is immaterial as Commissioner (Appeals)/CESTAT may not have heard the stay application within these thirty days.

• Lack of adequate infrastructure, unavailability of officer before whom stay application had been filed, absence of bench of CESTAT or sheer volume of work, are some causes due to which applications for stay remain pending, which are beyond control of assessee.

• Protection of revenue has to be balanced with fairness to assessee. That is why even though Section 35C(2A) of Central Excise Act, 1944 prescribes that stay order stands vacated where appeal before Tribunal is not disposed of within 180 days, it is not applicable where appeal remains pending for reasons not attributable to assessee. In such a scenario, Revenue’s plea that when there is no stay and thus there is no prohibition of recovery of confirmed demand immediately, and it is a matter of government policy to how long it should wait before initiating recovery is rejected.

• The fact that Revenue officers initiating recovery are independent of adjudicating/appellate forum, and have no means of verifying status of stay application and it is for assessee to inform them when recovery action is initiated, is not a valid justification for penalising assessee whose conduct is otherwise free from blame with modern technology, this can be overcome. However, if a stay application remains pending for more than reasonable period, due to default/improper conduct of assessee, recovery proceedings can be initiated. As regards CBEC’s directive that in cases where Commissioner (Appeals)/CESTAT or the High Court confirms the demand, recovery has to be initiated immediately, the Court observed as under:

• This directive ‘deprives’ the assessee even a reasonable time to exercise the remedy provided to them under the law of filing an appeal with CESTAT, High Court or Supreme Court as the case may be along with an application of stay.

• Further, there is no justification to commence recovery immediately following the order–in– appeal where period of limitation has been laid down for challenging it under the law. As regards adoption of modern information technology in regard to appeal and adjudication processes, the following important observations, were made by the Court at Para 16:

• Union Ministry of Finance should take steps to ensure that proceedings before the adjudicating authorities as well as the Appellate Authorities including the Commissioner (Appeals) and the CESTAT are recorded in the electronic form.

• Once an appeal is filed before the Commissioner (Appeals), the filing of the appeal must be recorded through an entry made in the electronic form. Every appellant, including the assessee, must indicate, when an appeal is filed, an email ID for service of summons and intimation of dates of hearing.

• The Commissioner (Appeals) must schedule the hearing of stay applications and provide dates for the hearing of those applications which must be published in the electronic form on the website. The order sheets or roznamas of every case must be duly uploaded on the website to enable both the officers of the Revenue and assessees to have access to the orders that have been passed and to the scheduled dates of hearing.

• We would also recommend to the Union Ministry of Finance the urgent need to introduce electronic software that would ensure that the orders and proceedings of the CESTAT are duly compiled, collated and published in the electronic form.

• Matters involving Revenue have large financial implications for the Union Government. The incorporation of electronic technology in the functioning of judicial and quasi-judicial authorities constituted under the Central Excise Act, 1944, the Customs Act, 1962 and cognate legislation would provide a measure of transparency and accountability in the functioning of the adjudicating officers, the appellate Commissioners as well as the Tribunal. But equally significant is the need to protect the interest of the Revenue which the adoption of electronic technology would also achieve.

•    The fact that an application for stay may be kept pending for an indefinitely long period of time at the behest of an unscrupulous assessee and a willing administrative or quasi judicial authority. This would be obviated by incorporating the requirement of disseminating and uploading the proceedings of judicial and quasi-judicial authorities under the Central Excise Act 1944 as well as the Customs Act 1962 in an electronic form. This would ensure that a measure of administrative control can be retained with a view to safeguarding the position of the Revenue as well as in ensuring fairness to the assessees.

The Court finally at Para 17 held as follows:

“For these reasons, we have come to the conclusion that the provisions contained in the impugned circular dated 1st January, 2013 mandating the initiation of recovery proceedings thirty days after the filing of an appeal, if no stay is granted, cannot be applied to an assessee who has filed an application for stay, which has remained pending for reasons beyond the control of the assessee. Where however, an application for stay has remained pending for more than a reasonable period, for reasons having a bearing on the default or the improper conduct of an assessee, recovery proceedings can well be initiated as explained in the earlier part of the judgment”

Stay by other Courts

In addition to Bombay High Court, interim stay has been granted against operation of CBEC Circular dated 1-1-2013 by the High Courts of Andhra Pradesh, Delhi, Karnataka and Rajasthan. [Reference can be made to Bharat Hotels Ltd. vs. UOI (2013) 288 ELT 509 (DEL); Texonic Instruments vs. UOI (2013) 288 ELT 510 (KAR) and R.S.W. M Ltd vs. UOI (2013) 288 ELT 511 (RAJ)

Directions given by the Bombay High Court in Patel Engineering Limited 2013-TIOL-150-HC -MUM-ST The assessee had filed a writ petition in the Bombay High Court against the Circular dated 1-0-2013. The assessee’s facts are similar to those of Larsen & Toubro case (supra). The Honourable High Court after considering the decision in Larsen & Toubro (supra ) held that recovery proceedings be stalled and further issued directions for the authorities to issue a circular to follow the directions as stated in the Larsen & Toubro case (supra) before initiating recovery proceedings. Further, the Honourable High Court also held that the law laid by the Court is applicable to all the authorities under the jurisdiction of this Court.

Conclusion

The above assumes greater importance for the simple reason that despite the Court Rulings of Larsen & Toubro (supra), it is understood that at practical level, field formations are initiating recovery actions based on CBEC Circular insisting that Court Ruling is applicable to the concerned petitioner only. It is high time that the Supreme Court intervenes in the matter and issues appropriate directions or alternatively, the Union Ministry of Finance urgently acts upon the directions given by the Honourable High Court and move towards establishing accountability and reforming tax administration in the country.

DTAA between India and Malaysia – Notification no. 7 dated 29th January, 2013

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1: DTAA between India and Malaysia – Notification no. 7 dated 29th January, 2013 –

DTAA between India and Malaysia signed on 9th May, 2012 shall enter into force on 26th December, 2012

2: Income tax (First amendment) Rules, 2013 Notification No- 8 dated 31st January, 2013–

New Rule 17CA has been inserted to enumerate the functions of an electoral trust. Form 10BC has been prescribed as an Audit Report for such electoral trusts.

3: Electoral Trusts Scheme 2013 notified under Section 10(22AAA) – Notification No- 9 dated 31st January, 2013

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Section 50C and Tolerance Band

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Issue for consideration

Section 50 C has been introduced by the Finance Act, 2002, with effect from 01-04-2003, to provide for substitution of the full value of consideration with the stamp duty valuation, in cases where such valuation happens to be more than the agreed value. As a result in computing the capital gains, on transfer of land or building or both, as per section 48, the assessee, in ascertaining the full value of consideration, is required to adopt the higher of the agreed value or the stamp duty valuation. The objective behind the introduction of section 50C is to eliminate or reduce the possibility of unaccounted element in the real estate transactions and it is on this account that the provision has been found to be constitutional by a number of high courts.

The provision contains an in-built safeguard, for authorising the assessee to seek a reference to the Valuation Officer, in a case where he is of the opinion that the stamp duty value does not represent the fair market value of the asset transferred by him. In spite of this statutory safeguard , it is usual to come across numerous cases where the assessee genuinely is aggrieved on the valuation put forth by the Valuation Officer.

It is also usual to come across instances, where the assessee is subjected to the additional taxes and interest in cases involving a marginal or insignificant difference. This difference, howsoever insignificant, arises mainly on account of the inherent element of estimation in valuation that is unavoidable. Realising this handicap in the past, while dealing with the similar provisions, the Supreme court held that a tolerance band of 15% be read in to such provisions by the authorities while applying such provisions, with the idea that no taxpayer is unjustly punished for the difference.

It is on this touchstone of avoiding unjust outcome of the literal reading of a statutory provision, one has to test the provisions of section 50C to ascertain,

whether it is possible to read therein, the existence of a tolerance band, to save the tax payers in cases of marginal differences form the noose of additional taxation. The Pune bench of the tribunal is in favour of reading such a tolerance band in the provisions of section 50C while the Kolkata bench holds a contrary view.

Rahul Constructions’ case
The issue first came up for consideration of the Pune bench of the tribunal, in the case of Rahul Constructions vs. DCIT, reported in 38 DTR at page 19, for assessment year 2004-05. In that case, the assessee firm had sold two units in the basement for the total sale consideration of Rs. 19 lakh. The stamp valuation authorities had adopted the value of Rs. 28.73 lakh for the said units. The AO invoking the provisions of section 50C, made a reference to the DVO, u/s. 50C(2), for valuation as per the law. The DVO valued the said units at Rs. 20.55 lakh. The AO adopting the said value of Rs. 20.55 lakh, substituted the full value of consideration and computed the capital gains at a higher amount than the one returned by the assesssee firm.

The explanations advanced by the firm to the AO and the DVO to the effect that the basement in rear building had no “commercial” value, the height was 8-1/2’ only, the units got waterlogged during the rainy season, they were old premises and were used by tenant/lessee and were sold on as is where is basis and the booking was in February, 2001, so valuation of 2001 be considered, were all rejected by them.

The said contentions were reiterated before the CIT(A) and in addition he was asked to apply the tolerance band due to insignificant difference between the agreed value and the DVO’s valuation. It was submitted that there was a marginal difference of Rs. 1,55,000 only, which was 8.5 per cent of the estimated sale value which was within the tolerance limit of 15 per cent for variation as was held by the Supreme Court in the case of C.B. Gautam vs. UOI, 199 ITR 530 (SC) under Chapter XX-C of the Act. The CIT(A) rejected the contentions of the firm to dismiss the appeal by observing that

the provisions of section 50C(1) of the Act were unambiguous and the AO was bound to take the rate as per the stamp valuation authorities and he was not empowered to go beyond the valuation made by the DVO. He distinguished the decision in the case of C.B. Gautam (supra) on the ground that the said decision concerned itself with the case of a purchase of property under Chapter XX-C of the Act. He upheld the action of the AO.

The firm aggrieved with such order of the CIT(A), appealed to the tribunal, inter alia, on the ground that on the facts and in law the learned CIT(A) erred in not appreciating that the difference between the sale consideration shown by the assessee and the value determined by the DVO was marginal and therefore, no addition was justified on account of the valuation determined by the DVO.

The counsel for the assessee reiterated the submissions as were made before the AO and the CIT(A). Referring to the DVO’s report he submitted that the difference between the value adopted by the DVO and the sale consideration received by the firm was less than 10 per cent and submitted that the consideration received by the firm should be considered as representing the fair market valuation and no addition was justified on account of the valuation by the DVO.

In reply the Departmental Representative submitted, that once the matter was referred to the DVO and the valuation adopted by the DVO was found to be less than the value determined by the stamp valuation authorities, the AO was bound to substitute the value determined by the DVO as the deemed sale consideration and the assessee could not challenge the same.

On due consideration of the rival submissions made by both the sides, the tribunal held that the valuation adopted by the DVO was subject to appeal and the same was not final. The value adopted by the DVO was also based on some estimate and that the difference between the sale consideration shown by the assessee at Rs. 19,00,000 and the FMV determined by the DVO at Rs. 20,55,000 was only Rs. 1,55,000 which was less than 10 per cent. It observed that the courts and the tribunals were consistently taking a liberal approach in favour of the assessee where the difference between the value adopted by the assessee and the value adopted by the DVO was less than 10 per cent.

The tribunal noted that the Pune bench of the tribunal in the case of ACIT vs. Harpreet Hotels (P) Ltd. vide ITA Nos. 1156-1160/Pn/2000 had dismissed the appeal filed by the Revenue, where the CIT(A) had deleted the addition made on account of the unexplained investment in house construction on the ground that the difference between the figure shown by the assessee and the figure of the DVO was hardly 10 per cent. Similarly, the Pune bench of the tribunal in the case of ITO vs. Kaaddu Jayghosh Appasaheb, vide ITA No. 441/Pn/2004, for the asst. yr. 1992-93, following the decision in the case of Honest Group of Hotels (P) Ltd. vs. CIT 177 CTR (J&K) 232 had held that when the margin between the value as given by the assessee and the Departmental valuer was less than 10 per cent, the difference was liable to be ignored. In the result, the appeal of the assessee was allowed by the tribunal.

Heilgers’ case

The issue again came up recently, for consideration of the Kolkata tribunal, in the case of Heilgers De-velopment & Construction Co. (P) Ltd. vs. DCIT, 32 taxmann.com 147 by way of appeal by the assessee, for the assessment year 2008-09, on the ground that the ld. CIT(A) erred in confirming the addition made on account of capital gains based on the value determined by the Stamp Valuation Authority that was higher than the sale consideration declared by the assessee which was wrong and needed to be deleted.

In that case, the assessee had sold two commercial premises admeasuring 3265 sq.ft. in aggregate, for the stated aggregate consideration of Rs. 2.12 crore against the stamp duty valuation of about Rs. 2.23 crore, in aggregate. The difference was attributed by the assessee to the long gap of 7 to 9 months between the date of agreement and the date of conveyance. It was argued that considering the difference in market value when compared with the consideration received by the assessee was less than 10%. And therefore the net difference of Rs. 10,98,980 should be ignored in computing the long term capital gains. None of these submissions found favour with the AO and the CIT(A).

In the further appeal before the tribunal, the assesssee’s counsel’s first and basic contention was that the provisions of section 50C could not be invoked at all where the difference in stamp duty valuation vis-a-vis stated sales consideration was less than 15% of the stamp duty valuation; that every valuation was at best an estimate and therefore under valuation could not be presumed when there was only a marginal difference between such an estimate and the apparent consideration declared in the sale document; that the Honourable Supreme Court, in the case of C.B. Gautam vs. Union of India, 199 ITR 530, had recognised a tolerance limit for pre-emptive purchase of property under Chapter XXC, at 15% of variation, mainly for a similar reason, even though no such tolerance band was prescribed in the statute.

Quoting from certain observations in “Sampat Iyen-gar’s Law of Income Tax” (Volume 3; 10th Edition) at page 4362, it was submitted that by the same logic that was employed by the Honourable Supreme Court in Gautam’s case (supra), section 50C was also subject to similar tolerance for the cases with the marginal difference. It was pleaded that the difference in valuation as per the sale deed vis-a-vis the stamp duty valuation being much less than 15% in the present case, the provisions of section 50C did not come into play at all.

The submissions of the assesssee failed to con-vince the tribunal. It noted that the submissions, howsoever attractive as they seemed at the first blush, were lacking in legally sustainable merits. The tribunal observed that ; when a provision for tolerance band was not prescribed in the statute, it could not be open to tribunal to read the same into the statutory provisions of section 50 C- no matter howsoever desirable such an interpretation was; what the provisions of section 50C clearly required was that when stated sales consideration was less than the stamp duty valuation for the purposes of transfer, the stamp duty value, subject to the safeguards built in the provision itself, should be taken as the sales consideration for the purposes of computing capital gains; casus omissus, which broadly referred to the principle that a matter which had not been provided in the statue but should have been there, could not be supplied by the tribunal as laid down in the case of Smt. Tarulata Shyam vs. CIT, 108 ITR 345(SC); the tribunal was itself a creature of the Income-tax Act and it could not, therefore, be open to it to deal with the question of correctness or otherwise of the provisions of the Act.

The tribunal also did not find any merits in the assessee’s claim of undue hardship being caused to the taxpayers and to avoid that a tolerance band be read into the provisions of the section 50C. The safeguard built in section 50C, the tribunal noted, did envisage a situation that whenever an assessee claimed that the fair market value of the property was less than the stamp duty valuation of the property and allowed for a reference to the DVO and at which point all the issues relating to valuation of the property – either on the issue of allowing a reasonable margin for market variations, or on the issue of time gap , could be taken up, before the DVO and, therefore, before subsequent appellate forums as well. This inherent flexibility, the tribunal held might rescue the assessee particularly in the case of marginal differences however, challenging the very application of section 50C was something which tribunal found to be devoid of legally sustainable merits.

Observations

The avowed legislative intention behind the introduction of section 50C is to bring to tax the unaccounted funds, used in the real estate transactions, involving land and/or building. There is no dispute about this aspect. The objective is certainly not to tax a tax payer in respect of the sterile transactions. In this background, any attempt to tax a clean transaction amounts to penalising the person for having entered in to a transaction and such attempt becomes punishing in a case where the difference is marginal.

The valuation, including the valuation by the stamp duty authorities, without doubt involves an element of estimation and can never be precise. Such a valuation, as has been repetitively held by the courts, is, at the most, a guiding factor and cannot be conclusive of the fact of the use of unaccounted funds. Interestingly, the ready reckoner rate, so famously applied by the authorities and blindly relied upon by the AOs, are nothing but the standard and generic rates annually prescribed by the stamp authorities. The prescribed rate is not even the ‘valuation’ of a specific asset. This rate is prescribed for an entire locality or an area and does not take in to consideration several factors that have a direct bearing on the price and therefore the valuation. Hardly does one come across a case where the transaction value exactly matches with the prescribed rates; it is either less or more and in most of the cases more. The values do match only in those transactions where it is so designed to match to avoid the attending issues.

It is therefore essential for the revenue to appreciate and concede that the stamp duty valuation or the DVO’s valuation is essentially an estimation that requires to be adjusted by some tolerance band. Once this wisdom, based on the ground reality, is allowed to percolate, resulting litigation or the fear or the threat thereof shall rest at least in half the cases.

One of the main reasons advanced by the Kolkata bench, for not allowing the case of the assessee, was the inability of the tribunal, as a body, to read down the provisions of the law. The bench stated in clear terms that their powers are circumscribed and the tribunal as a creature of the Income-tax Act cannot read down the provisions of the law so as to permit the application of a tolerance band. The bench expressed its helplessness and explained that such powers were vested with the courts. This also confirms that the last word on the possibility of applying the tolerance band is yet to be said.

The better course, with respect, in our considered view, for the tribunal should have been to accept that the agreed value, considering the insignificant difference, represented the fair market value.

On a careful reading of the provisions of section 50C, one gathers that a reference to the DVO is possible on the primary assumption that the stamp duty valuation exceeds the fair market value. It is also gathered that the job of the DVO is to ascertain the fair market value. The fair market value, so ascertained by the DVO, is subject to the scrutiny of the appellate authorities whose word about the correctness of the fair market value is the final word. In this background of the facts, we are of the considered view that the tribunal, in all such cases involving the marginal difference, shall accept the agreed value as the fair market value, independent of the statutory tolerance band.

Section 28 – Merely by initiating the compensation suit, the amount claimed therein cannot be treated as assessee’s income unless the other party admits the liability to pay compensation or there is a decree in favour of the assessee.

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17. ACIT v. Trident Textile Mills Limited
ITAT Chennai `A’ Bench
Before Abraham P. George (AM)  
and S. S. Godara (JM)
ITA No. 1169/Mds/2012
A.Y.: 2008-09. Dated: 17-12-2012.
Counsel for revenue/assessee: Shaji P. Jacob /M. Karunakaran

Section 28 – Merely by initiating the compensation suit, the amount claimed therein cannot be treated as assessee’s income unless the other party admits the liability to pay compensation or there is a decree in favour of the assessee.


Facts

The assessee, manufacturer and domestic seller of grey fabric, filed its return of income for the AY 2008-09 declaring a loss of Rs. 31,31,568. In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had acquired a 1250 MW windmill, from M/s Suzlon Energy, for captive consumption. The purchase order contained compensation clause, which provided that the assessee was entitled to compensation in case of any loss of generation on account of non-availability of the machine below 95% @ 3.67/ KWH or as per the TNEB tariff during the warranty period. He also noticed that the generation of power unit did not touch the assured level of 37 lakh units. The assessee had filed a compensation case before the Jurisdictional High Court raising claim of Rs. 17,58,014 upto 15-9-2007 for shortfall in generation of power. Since the other party had not accepted the assessee’s claim for compensation and also the case was pending before the Court, the assessee had not declared the amount claimed as its income. The AO held that, since the assessee was entitled to compensation as per the agreement, he taxed the sum of Rs. 17,58,014 as the income of the assessee. Aggrieved, the assessee preferred an appeal to the CIT(A) who deleted the addition made by the AO. Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held

The Tribunal noted that the capacity assured was never achieved and the assessee had initiated compensation proceedings before the Honourable High Court. The High Court had referred the case to the Sole Arbitrator, who expired during the pendency of the arbitration proceedings. The Tribunal held that it is unable to concur with the stand of the Revenue that merely by initiating the compensation suit, the amount claimed therein is liable to be assessed as assessee’s income. It also noted that the other party has not admitted any compensation or its part as payable to the assessee nor there any decree in favour of the assessee so as to realise the amount. It held that once the arbitration proceedings are pending, the outcome of the assessee’s claim involved still hangs in balance. It observed that when there is no actual receipt of any amount or accrual, the same cannot be taken as income of the assessee. It held that the amount claimed by the assessee as compensation cannot be taken to be its income. The Tribunal upheld the order of CIT(A). The appeal filed by the Revenue was dismissed.

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A. P. (DIR Series) Circular No. 72 dated 11th November, 2013

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Foreign Direct Investment in Financial Sector –Transfer of Shares

Presently, a No Objection Certificate (NOC) is required from the respective financial sector regulator/ regulators of the investee company (if it is in the financial services sector) as well as transferor and transferee entities at the time of transfer of shares from Residents to Non-Residents. The NOC is to be filed along with Form FC-TRS with the bank.

This circular has done away with the requirement of obtaining NOC. As a result, no NOC needs to be filed along with Form FC-TRS. However, any ‘fit and proper/due diligence’ requirement as regards the non-resident investor as stipulated by the respective financial sector regulator will have to be complied with.

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Alleppy Company Ltd. vs. State of Kerala, [2011] 46 VST 24 (Ker)

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Sale in Course of Export-Purchase of Tags and Labels-Exporting After Attaching to Products Manufactured-Deemed Export-Exempt From Payment of Purchase Tax-Section 5(3) of The Central Sales Tax Act, 1956

Facts
As per the requirement of foreign buyers and in terms of the export orders, the company purchased tags and labels from printing presses and attached to each and every coir product exported giving product description in terms of buyer’s norms. The assessing authorities held that the purchase of tags and labels by the company were consumed in manufacturing of coir products as such liable to purchase tax u/s. 5A of the Kerala General Sales Tax Act, 1963, which was confirmed by the Tribunal. The company filed revision petition before the Kerala High Court against the levy of purchase tax by the assessing authorities.

Held
The High court, allowing the revision petition filed by the company, held that admittedly tags and labels were printed by the supplier printing press in terms of the company’s orders, which were in conformity with export orders. So much so, the commodity, even at the time of printing or manufacture, was earmarked for export, after purchase and they were attached to the products exported. Therefore the commodity purchased was for export by attachment to the coir products without any change and exempt from payment of purchase tax being deemed export u/s. 5(3) of the CST Act.

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Surety/Guarantor – State Financial Corporation – Taking possession of property mortgaged by guarantor – SFC Act 1951 section 29

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Shanti Sarap Sharma vs. State of Punjab & Ors AIR 2013 Punjab & Haryana 13

The case of the petitioner as pleaded was that the son of the petitioner Rupinder Kumar Sharma was the sole proprietor of industrial concern M/s Aditi Agro Mills, which had obtained a term loan of Rs. 40 lakh from the Corporation vide mortgage deed dated 31-3-1993. The house in question was the absolute ownership of Ved Parkash Sharma, father-in-law of the present petitioner and said Ved Parkash Sharma being the maternal grandfather of Rupinder Kumar Sharma in his capacity as surety/guarantor offered the said house as collateral security with respondent No. 2 for the purpose of raising loan and the same was, thus, mortgaged with the Corporation as per mortgage deed dated 31-3-1993. The properties belonging to the industrial concern as well as the factory building alongwith the machinery was also mortgaged. The said industrial concern M/s Aditi Agro Mills, started committing default from 15-3-1994 and accordingly, the Corporation took over the property u/s. 29 of the Act. The father-in-law of the petitioner Ved Parkash Sharma passed away on 4-2-2008 executing a will dated 13-11-2006 whereby he bequeathed the said residential house in favour of his son-in-law, on the basis of which the present petitioner has become owner of the property. The Corporation purportedly exercising its powers u/s. 29 of the Act has taken over the deemed possession of the house on 17-10-2002 in order to enforce the liability of the guarantor/surety.

It was further pleaded that proceedings u/s. 29 of the Act could not be invoked against the guarantor and the Corporation had a right u/s. 31(aa) for enforcing the liability of any surety and the claim of the Corporation was also time barred as default in repayment of loan was on 15-3-1994 and the last payment was due against the industrial concern on 15-3-2001.

On behalf of the respondents, it was pleaded that the liability of the principal debtor and the surety was co-extensive and the value of the property was highly insufficient to discharge the liability and since the principal debtor has committed default in not paying the amount so advanced with stipulated interest, the Corporation was justified in taking action u/s. 29 of the Act for recovery of the loan with interest by taking over possession of the residential house.

The court observed that section 29 of the Act specifically provides that whenever an industrial concern which is under liability to the Financial Corporation in pursuance to an agreement, makes any default in repayment of any loan or advance in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Corporation shall have the right to take over the management or possession or both of the industrial concern and realise the property pledged, mortgaged, hypothecated or assigned to the Corporation. Similar matter came up for consideration before the Honourable Apex Court in Karnataka State Financial Corporation’s vs. N. Narasimahaiah & Ors AIR 2008 SC 1797, where while upholding the judgment of the Karnataka High Court, it was held that Section 29 confers an extraordinary power upon the Corporation and it is expected to exercise its statutory powers reasonably and bona fide. The powers of the Corporation u/s. 31 & 32G of the Act were also taken into consideration and it was observed that there would not be any default as envisaged in Section 29 of the Act by a surety or a guarantor and the power was granted to the Corporation against the surety only in terms of Section 31 of the Act and not u/s. 29 of the Act.

The Full Bench decision of this Court in Shiv Charan Singh v. Haryana State Industrial & Infrastructure AIR 2012 P & H 50. The question which was referred to the Full Bench was as under:-

Whether the parties can agree to confer jurisdiction to the financial Institution to proceed against the guarantor in exercise of the powers conferred u/s. 29 of the Act?

 After taking into consideration the provisions of the bond of guarantee and the judgment of the Apex Court in Karnataka State Financial Corporation’s case (supra), the Full Bench came to the conclusion that the parties could not confer jurisdiction under the statute which was not provided and accordingly, held that the Corporation has no right to proceed against the guarantor u/s. 29 of the Act and can only proceed against him u/s. 31 and 32G of the Act.

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Section 80 HHE – Deduction respect of profits from export of computer software – For the purpose of computation of deduction only the total turnover and export turnover of the eligible business is to be considered.

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2. Datamatics Technologies Ltd. vs. DCIT
ITAT Mumbai benches “D”, Mumbai
Before D. Manmohan (V.P.) and Sanjay Arora (A.M.)
ITA No. 5557 / Mum / 2011
Asst Year 2003-04.  Decided on 08-03-2013
Counsel for Assessee/revenue:  J. P. Bairagra /rupinder Brar

Section 80 HHE – Deduction respect of profits from export of computer software –  For the purpose of computation of deduction only the total turnover and export turnover of the eligible business is to be considered.


Facts
The assessee had claimed deduction of Rs. 55.99 lakh u/s. 80 HHE. The AO restricted the assessee’s claim to Rs. 8.02 lakh by taking into account the turnover of all the units of the assessee instead of the turnover of only the eligible units u/s. 80 HHE as claimed by the assessee. On appeal, the CIT(A) confirmed the AO’s order.

Before the tribunal, the revenue justified the orders of the lower authorities on the ground that if the contentions of the assessee were to be accepted, the whole premise or basis of the allocation of profits as prescribed per s/s. (3) of section 80 HHE would stand defeated inasmuch as the turnover of the assessee’s export unit would be its total turnover, rendering the apportionment as of no consequence. It also relied on the decisions of Kerala high court in the case of CIT vs. Parry Agro Industries Ltd. (257 ITR 41) and Mumbai tribunal decision in the case of Ashco Industries Ltd. vs. JCIT (ITA no. 2447 /Mum/2000 dt. 14-01-2003). The decisions in the above two decisions were rendered in the context of the provisions of section 80HHC. However, the revenue justified its reliance on the said two decisions on the ground that the two sections viz., 80 HHC and 80 HHE, are para material prescribing the same computational formula to compute profit attributable to the eligible export business.

Held
According to the tribunal, the issue to be decided was whether the ‘total turnover’ for the purpose of deduction u/s. 80 HHE would be the total turnover of only the eligible units or the total turnover of all the units.

The tribunal noted that unlike the provisions in section 10A, 10B, 80 IA, 80 IB, 80HH, etc. the deduction u/s. 80 HHE is not unit specific but is business specific, i.e. the business of export of computer software. Further, it referred to a decision of the Mumbai tribunal in the case of Tessitura Monti India Pvt. Ltd. (ITA No. 7127/Mum/2010 dt. 11- 01-2013 which decision was rendered in the context of section 10B. Relying on the said decision, the tribunal observed that the qualifying profit for the purpose of computing ‘profits and gains of business or profession’ as per Explanation (d) to the section would be the profits of the computer software business and correspondingly, it would be the export and the total turnover of the said business only that would stand to be considered for apportionment u/s. 80 HHE(3).

As regards the revenue’s contention that the formula to compute profit of the business should be given the same meaning as is given u/s. 80 HHC, the tribunal noted that the provisions of section 80 HHC also requires the adjustment of sales turnover of mineral resources from the total turnover or the adjusted total turnover, in case the assessee is also engaged in the said business. Further, referring to the various legislative amendments carried out in section 80 HHC, the tribunal observed that the same were only to neutralise the anomalies that arose in the wide variety of business situations.

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Section 40(A)(3) – Once the addition has been made by increasing the gross profit rate then there is no further scope of making separate additions.

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14. ITO vs. Nardev Kumar Gupta
ITAT Jaipur Bench ‘A’ Jaipur
Before B. R. Mittal (J. M.) and B. R. Jani (A. M.)
ITA No. 829/JP/2012
A. Y.: 2009-10.
Dated: 23-01-2013
Counsel  for  Revenue/Assessee:  Roshanta
Meena/Mahendra Gargieya

Section 40(A)(3) – Once the addition has been made by increasing the gross profit rate then there is no further scope of making separate additions.


Facts

The assesse derives income from newspaper agency. During the assessment, the AO rejected the books of accounts u/s. 145(3). While making the best judgment, the AO accepted the sales as declared by the assesse but applied the higher gross profit rate and made addition of Rs. 3.19 lakh. Besides, the addition of Rs. 21.6 lakh was also made u/s. 40A(3) on account of payments made in cash for purchase of newspaper. On appeal, the CIT(A) deleted the addition made u/s. 40A(3) and the addition of Rs. 3.19 lakh made by the AO was restricted to Rs. 1 lakh.

Before the tribunal, the revenue justified the order of the AO and placed reliance on the Gujarat high court decision in the case of CIT vs. Hynoup Food & Oil Ind. Pvt. Ltd. (290 ITR 702) and justified the disallowance made by the AO for the payments made in cash exceeding the prescribed limit u/s. 40A(3).

Held

The tribunal noted the ratio laid down in the decisions listed below, viz. that, once the addition has been made by increasing the gross profit rate then there is no further scope of making separate additions under different provisions. Based thereon, the tribunal upheld the decision of the CIT(A).
The decisions relied on by the tribunal were as under:
1. CIT vs. G. K. Contractor (19 DTR 305)(Raj);
2. CIT vs. Pravin & Co. 274 ITR 534 (Guj);
3. Choudhary Bros. (ITA No. 1177/JP/2010 dt. 31-5- 2010;
4. CIT vs. Banwari Lal Banshidhar 229 ITR 229 (All)

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S/s. 40(a)(ia), 80IB(10), – In case of an undertaking qualifying for deduction u/s. 80IB(10), amount disallowed u/s. 40(a)(ia) is allowable as deduction u/s. 80IB(10).

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34. 2013-TIOL-146-ITAT-MUM
ITO vs. Dharti Enterprises
A. Y.: 2007-08, Dated: 18- 1-2012

S/s. 40(a)(ia), 80IB(10), – In case of an undertaking qualifying for deduction u/s. 80IB(10), amount disallowed u/s. 40(a)(ia) is allowable as deduction u/s. 80IB(10).


Facts

The assessee was in the business of construction. It filed return of income declaring total income at Rs. Nil after claiming deduction u/s. 80IB(10) of the Act. In the course of assessment proceedings, the AO noticed that the profit as per P & L Account was Rs. 51,34,648 and to this, the assessee had added the amount of Rs. 13,35,990 being the amount of expenditure on which TDS was deposited later than the due date and Rs. 81,81,030 being amount of expenditure on which TDS was not deposited as per tax audit report. Thus, on a gross total income of Rs. 1,46,51,668, the assessee claimed deduction u/s. 80IB(10) of Rs. 1,46,51,668.

On being asked as to why deduction u/s. 80IB(10) should not be disallowed on Rs. 95,17,020 the assessee submitted that no disallowance u/s. 40(a)(ia) was called for and even if the amount is disallowed the assessee is eligible for deduction u/s. 80IB(10) on the entire amount of profit derived from the housing project as computed under the Act, which is included in the gross total income of the assessee.

The AO after considering the decision of the Apex Court in Liberty India vs. CIT 317 ITR 218 (SC) held that the assessee has wrongly claimed the deduction u/s. 80IB(10) on the amount of Rs. 95,17,020 which is not a profit of the eligible enterprise, but has to be taxed because of the violation of the provisions of section 40(a)(ia) of the Act. He disallowed the claim of deduction u/s .80IB(10) on the amount of Rs. 95,17,020.

Aggrieved the assessee preferred an appeal to the CIT(A) who allowed the appeal of the assessee.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held

The Tribunal noted the ratio of the following decisions –

(i) S B Builders & Developers vs. ITO (ITA No. 1245/ Mum/2009)(AY 2006-07) order dated 14-5-2010;

(ii) ITO vs. Shri Ganesh Developers and Builders (ITA No. 4328/Del/2009)(AY 2006-07) order dated 11-3-2011; and

(iii) ACIT vs. Sri Lakshmi Builders and vice versa in ITA No. 244/Vizag/2008 and in ITA No. 323/Vizag/2010 (AY 2005-06) order dated 22-11-2010.

It noted that in the case of Sri Lakshmi Builders (supra) on the issue of disallowance of deduction u/s. 80IB(10) on the amount disallowed u/s. 40(a)(ia) it has been held by the Tribunal that the disallowance so made can only be treated as income derived from the impugned business activity, when the income after making the said disallowance is subjected to tax as the business profit.

Applying the ratio of the abovementioned decisions to the facts of the assessee’s case, the Tribunal held that since the AO had treated the disallowance u/s. 40(a) (ia) of Rs. 95,17,020 as income from business and it is not the case of the Revenue that the income derived by the assessee is other than the business income from developing and building housing project, the assessee is entitled to deduction u/s. 80IB(10) in respect of total profits including the profits of Rs. 95,17,020 computed as business profits of the housing project for the year under appeal. The Tribunal upheld the order of the CIT(A).

The appeal filed by the Revenue was dismissed.

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Financial Sector Reforms

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The last 45 days have witnessed several events that may have been of interest to the world of finance and have received considerable news coverage across the country. After years of political wrangling and months of rumours, India finally received its first tranche of FDI into the aviation sector when Jet Airways and Etihad announced their strategic partnership. The West Bengal based Saradha Group turned out to be yet another elaborate ponzi scheme that recycled deposits of vulnerable sections of the public. Worse, the financial institution went bust and cannot now return its investors’ money.

But one event of significance that went relatively unnoticed was the release of the report of the Financial Sector Legislative Reforms Commission (FSLRC). The Report recommends a paradigm shift in the regulation of our country’s financial system and is bound to evoke diverse reactions from different stakeholders. The FSLRC was headed by Justice B.N. Srikrishna (Retd.), who is a veteran of several key reports, and included several noted persons like Mr. Y. H. Malegam.

The present regulatory system has gaps, overlaps, inconsistencies and opportunity for regulatory arbitrage. The Report calls for several fundamental changes in the way financial sector is regulated in India. While some of these changes were long overdue, others are innovative and will require some debate before their acceptance. As noted by the FSLRC, financial regulators are unique in the sense that three functions – legislative, executive and judicial – are placed in the single agency. This concentration of power needs to go along with strong accountability mechanisms.

Unlike most commissions, the FSLRC’s Report includes a draft ‘Indian Financial Code’ that is the first step towards the consolidation of all existing regulations into a single piece of legislation. The Code proposes an equal regulatory environment that is non-sectoral and ownership neutral. This means that the same regulations would apply to all firms, irrespective of what sector they operate in, be it banking, securities or insurance. Further, all firms would be treated on par without regard to their ownership structure. So the regulator would not discriminate between private and public, Indian and foreign, private and government undertakings, or companies and cooperatives.

The Report recommends an overhaul of the existing regulatory agencies. This overhaul, though characterised only as “a modest step away from present practice” includes modifying the mandate for the RBI, setting up of a Unified Financial Agency (replacing SEBI, IRDA, Forward Market Commission and Pension Fund Regulatory and Development Authority), a Financial Sector Appellate Tribunal (replacing SAT), Resolution Corporation (replacing Deposit Insurance and Credit Guarantee Corporation of India), a Public Debt Management Agency, instituting a single unified consumer redressal mechanism comprising of a Financial Redressal Agency and giving statutory recognition to Financial Stability and Development Council. Other note-worthy recommendations in the Draft Code proposed by the Commission include legalisation of and bringing clarity to validity of non-exchange traded derivative contracts between sophisticated counterparties and an internal control system for all regulated firms that may involve compulsory reporting of some findings to the concerned regulator. FSLRC recommends setting up of Resolution editorial Financial Sector Reforms Bombay Chartered Acountant Journal, may 2013 7 editorial 139 (2013) 45-A BCAJ BCAJ Corporation to keep a check on the health and stability of financial firms and resolve swiftly problems arising out of the instability of one or more firms.

While the implementation of these path-breaking changes will no doubt address many of the problems and shortcomings of the existing regulatory regime, it will also have a cost. A large number of businesses have already been set up and transactions executed keeping in mind the existing regulations. Many of these may need to be reworked. Secondly, setting up of institutions staffed with qualified professionals is expensive. The present day RBI, SEBI and consumer fora are a result of evolution and years of institution building that required intensive investment into infrastructure and human resource development. This will have to be repeated all over again for the new institutions to be set up under the draft Code. Other non-monetary costs include the cost of developing new precedents and case-law on the new Code. The present legislations and regulations have been the subject of substantial litigation and it has taken years for the tribunals and Courts to clarify the scope, intent and interpretation of the various provisions of the existing laws. New laws will mean several rounds of long drawn litigation before the meaning of the laws become reasonably final.

The Commission recognises that its recommendations are ambitious and will require many of the Acts to be repealed or amended. There are also issues of jurisdiction, e.g. co-operative sector, chit funds come within the purview of the States. But these will also have to be regulated, being part of the financial sector.

The Commission has emphasised that piecemeal modifications to the existing system will not work and will not have the desired effect. The Finance Minister has indicated that no time limit can be set for taking action on the report. It is a mammoth work and a big exercise. If experience is any guide, change of such nature will take at least a few years before it sees the light of the day.

“The foundations of modern financial legal regulatory structures should be erected during peaceful times rather than wait for a crisis to unfold and then embark on a fire-fighting mode of institution building, which would be muddled and fragile”. – Report of FSLRC

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Block assessment: Limitation: Special audit: Sections 142(2A) and 158BC: Direction for special audit without giving opportunity to assessee: Direction given to extend period of limitation: Assessment barred by limitation:

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CIT vs. Subboji Rao C. H.; 355 ITR 320 (Kar):

Pursuant to a search, block assessment proceedings were initiated by issuing a notice u/s. 158BC of the Income-tax Act, 1961 on 15-05-1998. The assessee computed the undisclosed income at Rs. 24,18,360 and the Assessing Officer computed the undisclosed income at Rs. 70,00,246. The Commissioner (Appeals) reduced the addition. He rejected the contention of the assessee that the assessment was barred by limitation since the direction for special audit u/s. 142(2A) was not valid. The Tribunal held that there was no complexity in the accounts requiring an audit u/s. 142(2A). It further held that invoking the provisions u/s. 142(2A) was bad in law and the assessment was barred by limitation.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“The assessee was not heard before the order passed u/s. 142(2A). Such a procedure was resorted to extend the period of limitation. Therefore, the assessment order was void as being barred by limitation.”

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S/s. 50C, 271(1)(c) – The mere fact that the AO had invoked section 50C(2) and adopted guideline value for computing capital gains ignoring what was disclosed by the assessee ipso facto cannot be the sole basis for imposing penalty.

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33. 2013-TIOL-39-ITAT-MAD
C Basker vs. ACIT
A. Y.: 2007-08, Dated: 12-10-2012

S/s. 50C, 271(1)(c) – The mere fact that the AO had invoked section 50C(2) and adopted guideline value for computing capital gains ignoring what was disclosed by the assessee ipso facto cannot be the sole basis for imposing penalty.


Facts

The assessee filed its return of income which return of income was subsequently revised. In the original return of income as also in the revised return of income, the assessee had computed and offered for taxation capital gains arising on sale of land. The capital gains were computed by adopting the consideration as per sale agreement to be full value of consideration. In the course of assessment proceedings, the AO noticed that the sale consideration as per agreement was Rs. 28,54,200, whereas the value of the property as per guideline value was Rs. 95,40,000. He assessed total income by computing capital gains by adopting the guideline value to be full value of consideration. He also initiated penalty proceedings. The assessee did not file any appeal against the application of guideline value by the AO. The AO levied penalty u/s. 271(1)(c) of the Act inter alia on the ground that but for information obtained by him from AIR data, correct capital gains would have escaped assessment as the assessee failed to disclose the same either in original return of income or in the revised return of income filed subsequently.

Aggrieved by the levy of penalty, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO. Aggrieved, the assessee preferred an appeal to the Tribunal.

Held

The Tribunal noted that it was not the case of the AO that the assessee has received consideration in excess of the amount stated in the sale deed. The mere fact that the AO had invoked section 50C(2) of the Act and adopted guideline value for computing capital gains ignoring what was disclosed by the assessee ipso facto cannot be the sole basis for the purpose of computing capital gains. The Tribunal noticed that the Mumbai Bench of the Tribunal in the case of Renu Hingorani vs. ACIT has held that penalty merely on the basis of invoking section 50C(2) of the Act cannot be sustained. It further observed that the same law has been reiterated in the case of Shri Chimanlal Manilal Patel vs. ACIT (ITA No. 508/Ahd/2010) and DCIT vs. Japfa Comfeed India Private Limited (2011-TIOL-703-ITAT-DEL). The Tribunal held that section 50C(2) is only a deeming provision which cannot be taken as to be an understatement for the purpose of imposing penalty. In order to attract imposition of penalty, the assessee must be held to have concealed particulars of income or furnished inaccurate particulars. In the instant case, there were no such allegations against the assessee. The Tribunal held that the CIT(A) erred in confirming the penalty imposed by the AO. The Tribunal decided the appeal in favour of the assessee.

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S/s. 139(1), 139(5), 142(1), 143(2), 145 – Even in cash method of accounting, every receipt is not income but the receipt which is in the nature of income is liable to be assessed as income. Even in the case of an assessee following cash system of accounting, return of income can be revised and the amount received and offered as income can be eliminated to give effect to the decision of the High Court, rendered after the end of the financial year, holding that the said amount is not taxable.

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32. 2013-TIOL-141-ITAT-DEL
ACIT vs. Dexterity Developers A. Y. : 2008-09, Dated: 18-1-2013

S/s. 139(1), 139(5), 142(1), 143(2), 145 – Even in cash method of accounting, every receipt is not income but the receipt which is in the nature of income is liable to be assessed as income. Even in the case of an assessee following cash system of accounting, return of income can be revised and the amount received and offered as income can be eliminated to give effect to the decision of the High Court, rendered after the end of the financial year, holding that the said amount is not taxable.


Facts

The assessee firm, following cash system of accounting, had filed its return of income, declaring the total income to be Rs. 5,36,83,629. In the original return filed, the assessee had disclosed profit of Rs. 9,73,36,034 on sale of land for a total consideration of Rs. 20,55,78,119 on 11-2-2008. contention of the DR that since the The plot of land under consideration originally belonged to Ambika Mills Ltd., a company under liquidation. The Gujrat High Court constituted a committee, headed by the Official Liquidator as the Chairman, for disposal of the assets of the company in liquidation. On the basis of the report of the Official Liquidator and the open bid in the Court, the highest bid of Rs. 14.30 crore made by M/s Bheruji Estate, was accepted by the Court by order dated 23-12-2003. As the auction purchaser subsequently could not make the full payment, he requested that the freehold land be registered in the name of his nominee, Mr. Manubhai M. Patel, who would make the balance payment. However, M/s Bheruji Estate subsequently went back on this request. On 8-8-2005, the Honourable Court directed the Official Liquidator to execute sale deed in favour of Manubhai Patel, subject to the outcome of the appeal filed by M/s Bheruji Estate. On 19-10-2007, the assessee entered into an MoU with Shri Manubhai Patel for sale of freehold land, and also acted as a mediator between the two parties i.e. M/s Bheruji Estate and Shri Manubhai M. Patel. The consent terms between the disputing parties were taken on record by the Appellate Court, and the final order was passed on 23-1-2008 disposing of the appeal by M/s Bheruji Estate. In the meantime, on 29-10-2007, the Official Liquidator executed the sale deed of the freehold land in favor of Shri Manubhai M. Patel. On 11-2-2008, a registered sale deed was executed by Shri Manubhai Patel, as vendor, the assessee as confirming party and M/s Sential Infrastructures Ltd., as purchaser for a consideration of Rs. 55,67,78,119, out of which Rs. 21,60,28,119 was to be received by the assessee.

Subsequently, one of the original bidders of the auction sale of 2003, Shri Jayesbhai Patel filed an appeal against the original sale made by the Official Liquidator in favour of M/s Bheruji Estate, and on his appeal, the Gujrat High Court vide order dated 9-3-2009 held that the sale effected on 11-2-2008 should be treated to have been made by the Official Liquidator in favour of M/s Sential Infrastructure Ltd., and the intervening parties, i.e. M/s Bheruji Estate, Shri Manubhai Patel and the assessee were only entitled to their expenditure to the extent of actual investments, services rendered and cost of litigation. It was directed that the assessee was liable to return the amount of Rs. 20 crore to the Official Liquidator within one month from the date of the order, retaining only Rs. 1,60,28,119. On the basis of this High Court order dated 9-3-2009, the assessee firm filed its revised return of income showing nil income, enclosing a profit & loss account in which no sale of land was disclosed and the liability of Rs 20 crore was disclosed in its balance sheet.

The Assessing Officer held that the assessee was not entitled to revise its return on the basis of events which had occurred after the close of the previous year as it followed cash system of accounting. He held that the effect of the Court order dated 9-3-2009 could only be reflected in AY 2009-10.

Aggrieved, the assessee preferred an appeal to CIT(A) who accepted the assessee’s contention and directed the AO to accept the revised return which was filed within time and was within four corners of law.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held

The Tribunal noted that the only dispute of the Revenue was that there was no omission or wrong statement in the original return which may be revised. The Tribunal noted that the High Court had held that the assessee was not entitled to the profit on sale of land, but was entitled only to the expenditure to the extent of actual investment and the cost of litigation. Therefore, the assessee was not entitled to the amount credited to its profit & loss account towards profit on sale of land. The Tribunal held that there was certainly an omission in the original return of income. Though the order of the High Court was subsequent to the end of the relevant previous year, it effected the transaction entered into during the previous year which was liable to be taxed in the assessment year under consideration. Since the assessment of the said year was still pending, the Tribunal held that the assessee was fully justified in revising its return in the light of the decision of the Honourable Jurisdictional High Court.

As regards the AO’s reliance on the method of accounting followed by the assessee being cash, the Tribunal held that after the order of the High Court, when the assessee is not entitled to any profit from the sale of land, the nature of the amount received from the buyer of the land cannot be considered as sale proceed or profit in the hands of the assessee, but its nature would be only an amount received in trust which the assessee is liable to refund as per the direction of the Court. Even in the cash method of accounting, every receipt is not income but the receipt which is in the nature of income is liable to be assessed as income.

As regards the contention of the DR that since the assessee had preferred an appeal against the order of the High Court, in the event of the decision being reversed in appeal, how would the Department be able to recover the tax on such income from sale of land, the Tribunal held that if any such event happens, the Revenue would be at liberty to take appropriate action in accordance with law. The Tribunal noted that as on date of its decision, the decision of the Jurisdictional High Court holds good and is binding on the parties. The assessment of the income of the assessee cannot be made, ignoring the above decision of the Honourable Jurisdictional High Court.

The Tribunal held that the CIT(A) was justified in directing the AO to consider the revised return. It upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue.

The appeal filed by the revenue was dismissed.

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Amount received on transfer of carbon credits is a capital receipt

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31. (2013) 81 DTR 173 (Hyd)
My Home Power Ltd. vs. DCIT A.Y.: 2007-08, Dated: 2-11-2012

Amount received on transfer of carbon credits is a capital receipt


Facts

The company, engaged in the business of power generation, received carbon emission reduction certificates (CERs) popularly known as ‘carbon credits’ for the project activity of switching off fossil fuel from naphtha and diesel to biomass. The part of CERs was sold and sale proceeds of Rs. 12.87 crore were treated as capital in nature and not taxable. The Assessing Officer held the same to be a revenue receipt, since the CERs are a tradable commodity and even quoted in stock exchange. The CIT(A) confirmed the order of the Assessing Officer.

Held

The carbon credit is in the nature of “an entitlement” received to improve world atmosphere and environment by reducing carbon, heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business, but it accrues due to “world concern”. It has been made available assuming character of transferable right or entitlement only due to world concern. The source of carbon credit is world concern and environment. Due to that, the assessee gets a privilege in the nature of transfer of carbon credits. Thus, the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income. It is not liable for tax for the assessment year under consideration in terms of sections 2(24), 28, 45 and 56. Carbon credits are made available to the assessee on account of saving of energy consumption and not because of its business. Further, carbon credits cannot be considered as a by-product. It is a credit given to the assessee under the Kyoto Protocol and because of international understanding. Thus, the assessees who have surplus carbon credits can sell them to other assessees to have capped emission commitment under the Kyoto Protocol. Transferable carbon credit is not a result or incidence of one’s business and it is a credit for reducing emissions.

The persons having carbon credits get benefit by selling the same to a person who needs carbon credits to overcome one’s negative point carbon credit. The amount received is not received for producing and/or selling any product, by-product or for rendering any service for carrying on the business. Carbon credit is entitlement or accretion of capital and hence, income earned on sale of these credits is capital receipt. The carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business, but it is generated due to environmental concerns. It does not increase profit in any manner and does not need any expenses. It is a nature of entitlement to reduce carbon emission. However, there is no cost of acquisition or cost of production to get this entitlement. Carbon credit is not in the nature of profit or in the nature of income.

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Assessment giving effect to the order of revision: Scope: Sections 143(3) and 263: A. Y. 2006-07: Assessee carrying on two businesses; i) Mentha business and ii) Cattle feed and green vegetable business: Separate accounts maintained: Assessment set aside u/s. 263 by finding errors in cattle feed and green vegetable business: Pursuant assessment is restricted to Cattle feed and green vegetable business: Queries concerning mentha business are beyond the scope and power:

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Smt. Shobha Govil vs. Add. CIT: 354 ITR 668 (All):

The assessee was carrying on two businesses; i) Mentha business and ii) Cattle feed and green vegetable business. Separate accounts were maintained for the two businesses. The accounts of mentha business were audited. For the A. Y. 2006-07, the assessment was completed u/s. 143(3). The Commissioner found mistakes as regards the cattle feed and green vegetable business and accordingly, exercising the powers u/s. 263 set aside the assessment order and restored the matter back to the Assessing Officer. The Commissioner had not found any mistake as regards the mentha business. After remand, the Assessing Officer served a questionnaire making inquiries with regard both the businesses. The assessee resisted the questionnaire on the ground that the remand order passed by the Commissioner u/s. 263 was confined to the determination of income of the cattle feed and green vegetable business and the income from mentha business has become final as it has not been interfered with u/s. 263 of the Act. The Assessing Officer rejected the contention of the assessee.

The Allahabad High Court allowed the writ petition filed by the assessee challenging the said stand of the Assessing Officer and held as under:

“i) The entire discussion in the order u/s. 263 was confined to the question of determination of income and expenditure of the cattle feed and green vegetable business. The discussion, paragraph after paragraph, was with regard to the cattle feed and green vegetable business, viz. its sales, sale bills, absence of addresses of the purchasers of bhusa, truck expenses and freight outward expenses, salary of the staff, all related to the cattle feed and green vegetable business.

ii) There was nothing in the order of the Commissioner suggesting that the entire assessment order was being set aside. The Assessing Officer was not justified in coming to the conclusion that he was also required to pass a fresh assessment order for the mentha business.

iii) To this extent, the order cannot be allowed to stand and was liable to be set aside.”

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High Court—Matter remanded for de novo consideration as no reasons were given for dismissal of the writ petition.

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Parvez Nazir Hussein Jafri vs. CIT (2013) 354 ITR 235 (SC)

The High Court dismissed the writ petition filed by the assessee challenging the validity of the notice dated 26th July, 2010 issued u/s. 148 for reopening the assessment for the assessment year 2006-07 holding that there was no error in issuing notice u/s. 148 and noting that the income-tax return submitted by the Petitioner was processed u/s. 143(1) on 10th March, 2007.

On appeal, the Supreme Court set aside the order of the High Court and remitted the matter back to the High Court for de novo consideration in accordance with law since the High Court had not given any reasons for not setting aside the reopening of the assessment.

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Settlement of cases: Chapter XIXA: A. Ys. 2001- 02 to 2006-07: Order passed by Settlement Commission is final: No Income Tax Authority can initiate proceedings in respect of period and income covered by such order: Settlement Commission cannot delegate its power

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CIT vs. Smt. Diksha Singh; 350 ITR 157 (All)

The Settlement Commission passed an order u/s. 245D(4), whereby the undisclosed income of the assessee was settled at Rs. 43 lakh for the assessment years under consideration. While passing the order, the Settlement Commission observed in paragraph 7 as follows:

“The Commissioner of Income-tax/Assessing Officer may take such action as appropriate in respect of the matter not placed before the Commission by the applicant, as per the provisions of section 245F(4) of the Income Tax Act, 1961”

The Assessing Officer issued notice and finally estimated the income at Rs. 75,84,900/- in addition to the agricultural income of Rs. 1,75,000 and made the additions accordingly. The CIT(A) and the Tribunal deleted the addition.

On appeal by the Revenue, the Allahabad High Court upheld the decision of the Tribunal and held as under:

“i) A plain reading of section 245D r.w.s. 245F makes it clear that once a matter falls within the domain of the Settlement Commission, no authority of the Income-tax Department will have jurisdiction to asses tax for the same financial year and the finding of the Settlement Commission shall be conclusive and final u/s. 245-I.

ii) A mere observation of the Settlement Commission will not empower the assessing or appellate authority to reassess on any ground, whatsoever, for the same financial year with regard to which the Settlement Commission had exercised jurisdiction and given a finding.

iii) The Legislature in its wisdom had conferred power on the Settlement Commission to reopen the proceedings in certain circumstances and to deal with the situation in the event of commission of fraud. Once power has been conferred on the Settlement Commission itself to deal with the contingency, such power cannot be delegated directly or indirectly to any authority of the Income-tax Department. The discretionary administrative power entrusted by the statute to a particular authority cannot be further delegated except as otherwise provided in the statute. In other words, when the Act prescribes a particular body or officer to exercise a power, it must be exercised by that body or officer and none else unless the Act by express words or necessary implication permits delegation, in which event, it may also be exercised by the delegate if delegation is made in accordance with the terms of the Act but not otherwise.

iv) The Settlement Commission cannot make an observation delegating its power to the assessing authority to reopen the case in certain circumstances for the same financial year, when it had been conferred wide power to deal with the situation under the statutory provisions.

v) The Tribunal has rightly decided the appeal on the sound principles of law. The appeal being devoid of merit is hereby dismissed.”

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Co-operative Society—Deduction u/s. 80P(2) (a)(iii)—Matter remanded to the Commissioner of Income-tax (Appeals) to determine whether the activity of obtaining sugar from the sugar cane constituted manufacture?

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Morinda Co-operative Sugar Mills Ltd. vs. CIT (2013) 354 ITR 230 (SC)

The
assessee, a co-operative sugar mill, bought sugarcane grown by its
members. It undertook a particular operation whose outcome was a final
product in the form of sugar. The question before the Supreme Court was
whether the final product (sugar) would make the assessee entitled to
claim to benefit of section 80P(2)(a)(iii) in respect of marketing of
the agricultural produce grown by its members?

According to the
Supreme Court, the crucial issue was, whether at the time of marketing
of sugar, the same could be said to have retained the character of
agricultural produce (sugarcane) grown by members of the society or did
it represent an independent commercial commodity which no longer had the
character of agricultural produce? In short, the controversy was,
whether the operation undertaken by the assessee constituted
“manufacture”?

According to the assessee, the process undertaken
was not a “manufacture”. Broadly, according to the assessee, sugar
(also called “sucrose”) is synthesised by the sugarcane plant from water
and atmospheric carbon dioxide by the method of photosynthesis.
Sugarcane, according to the assessee, is produced in the agriculture
fields. In the sugar factory, after juice is extracted from the
sugarcane, it is boiled. Microscopic crystals coalesce together to form
macroscopic crystals and molasses.

This, according to the
assessee, did not constitute “manufacture”. In this connection, reliance
was placed by the assessee on the opinion given by the technical
advisor at the request of the National Federation of Co-operative Sugar
Factories Ltd.

According to the Department, the above operation/
activity constituted “manufacture”. In this connection, the Department
placed reliance on paragraph 10 of the judgment in the case of CIT vs .
Oracle Software India Limited reported in (2010) 320 ITR 546 (SC), where
it was observed as follows (page 551):

“The term ‘manufacture’
implies a change, but every change is not a manufacture, despite the
fact that every change in an article is the result of a treatment of
labour and manipulation. However, this test of manufacture needs to be
seen in the context of the above process. If an operation/process
renders a commodity or article fit for use for which it is otherwise not
fit, the operation/process falls within the meaning of the word
‘manufacture’.”

According to the Supreme Court, the above test
had to be applied and adjudicated on a case-tocase basis. It depended on
the type of product which ultimately emerged from a given operation. In
its view, this aspect had not been examined by the courts below.

For
the above reasons, the Supreme Court remitted the case back to the
Commissioner of Income-tax (Appeals) to re-examine the matter, directing
that (i) Commissioner of Income-tax (Appeals) would give an opportunity
to the assessee to put forth the opinion of an independent expert who
shall not be from the society or federation; (ii) A copy of the written
opinion shall be given to the Department; (iii) The Department would be
free to engage its own expert who, in turn, will give his opinion; (iv)
The parties be given liberty to cross-examine the experts. The
Commissioner of Income-tax (Appeals) would thereafter decide the case
and ascertain whether the operation undertaken by the assessee is or is
not “manufacture”. The Supreme Court disposed of the civil appeals
accordingly.

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Vasanthi Automobiles v. Commercial Tax Officer II, Puducherry, [2011] 43 VST 142 (Mad)

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Sales Tax- Inter-State Stock Transfer-Time – Limit Prescribed for Furnishing “F” Form – Forms obtained after time-limit – Can be accepted- Section 16 of The Pondicherry General Sales Tax Act, 1967 and The Central Sales Tax ( Registration and Turnover) Rules,1957.

Facts

The Pondicherry General Sales Tax Rules provides that if the assesse claimed any concessional rate of tax based on any declaration in form C or D, as the case may be and fails to furnish the declaration with returns then the dealer shall be assessed at the higher rate of tax on the turnover declared in the returns filed by him. However, if the dealer filed required declaration within a period of 90 days from the date of receipt of the assessment order, the assessment order stands suitably modified under the Act to the extent of the declaration filed. Since in the case of a dealer, necessary declaration in F form was not filed at the time of filing of the return, the assessment was made at higher rate of tax. The dealer filed application u/s. 16 of the Act with the production of necessary F form which was rejected on the ground that the application was not made within the prescribed period of 90 days. The dealer filed writ petition before the High Court against the order.

Held

It may be noted that the furnishing of the statutory forms is not within the control of the petitioner and is dependent on the other State dealer’s co-operation. If on a sufficient cause the petitioner satisfies the requirements of law, the claim cannot be rejected unjustifiably merely on the score of time limit prescribed under the Act. The High Court accordingly allowed the writ petition filed by the dealer with a direction to the department to accept Form F filed by the dealer and grant necessary relief.

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2012 TIOL 993 (Tri.-Mumbai) Life Care Medical System vs. CST, Mumbai – II

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Promotion/marketing of goods for a foreign principal in India, can it be termed as export of services as the user of the service is located outside India? Held, it is not export of services.

Facts:

The appellants were engaged in promoting, marketing and distributing (installation and warranty) of various medical equipments for M/s. Viasys International Corporation, Pennsylvania, USA. The appellants discharged the service tax liability in respect of the installation and warranty services but did not pay service tax on advertising, promoting and marketing services under the category of business auxiliary as it was export of services. The appellants submitted that all the conditions as stipulated from time to time in relation to export of services were satisfied. The appellants relied on the CBEC Circular No. 111/5/2009-ST dated 24th February, 2009 which stated that in respect of service recipient based services, the relevant factor is the location of the service recipient and not the place of performance. The appellants also relied on a) Em Jay Engineers vs. CCE, Mumbai 2010 (20) STR 821 (Tri – Mum), (b) Lenovo (India) Pvt. Ltd. vs. CCE, Bangalore 2010 (20) STR 66 (Tri – Bang) and (c) SGS India Pvt. Ltd. vs. CST, Mumbai 2011 (24) STR 60 (Tri – Mumbai).

Held:

The Tribunal held that the appellants satisfied the conditions laid down for export of services for the period 1st July, 2003 to 19th November, 2003 as service tax is a destination based tax and the service recipient being located outside India, no service tax was leviable. For the period 15th March, 2005 till 18th April 2006, the Export of Services Rules, 2005 inserted the conditions that (a) service should be delivered outside India and (b) there should be receipt in foreign exchange. The condition of delivery outside India was not satisfied as the services were rendered in India and thus consumed in India. For the period from 19th April, 2006 to 5th December, 2007, the condition in relation to export of services was amended stating that (a) the services should be provided from India and used outside India; and (b) there should be receipt in foreign exchange. During the said period also, the services were not used outside India as the sales took place in India and thus, the services were provided and consumed without reverting to foreign principals for consumption abroad meant to have exhausted in India and hence not exported. The Tribunal also observed that since the appellants discharged the liability on installation and warranty services, they were aware of the levy of service tax. Moreover, the relevant clause of the agreement also stipulated the condition of reimbursement of tax from the foreign principal. Hence, plea of limitation was also disallowed and pre-deposit of Rs. 25 lakh was ordered.

Note: in the above case, the Tribunal distinguished the following cases:

• Em Jay Engineers vs. CCE, Mumbai 2010 (20) STR 821 (Tri – Mum)
• Lenovo (India) Pvt. Ltd. vs. CCE, Bangalore 2010 (20) STR 66 (Tri – Bang)
• SGS India Pvt. Ltd. vs. CST, Mumbai 2011 (24) STR 60 (Tri – Mumbai) and relied on:
• Microsoft Corporation (India) Pvt. Ltd. vs. CST, Delhi 2009-TIOL-601-HC-DEL-ST
• All India Federation of Tax practitioners 2007-TIOL-149-SC-ST

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2012 (28) STR 391 (Tri.-Mumbai) Skoda Auto India Pvt. Ltd. vs. Commissioner of C. Ex., Aurangabad

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If CENVAT Credit is claimed for service tax paid under reverse charge mechanism, it implies that the service tax liability was accepted.

Facts:

The appellants, a manufacturer of motor vehicles also rendered technical assistance, training with respect to supply, assembly, manufacture, testing and quality assurance of products and to use their trademark, to Skoda Auto A. S. The appellants paid service tax with interest during the pendency of SCN. In view of decision of Indian National Ship Owners Association vs. Union of India 2009 (13) STR 235 (Bom.), the appellants filed refund claim of interest for delayed payment of Service tax paid in pursuance of the SCN. The authorities rejected the refund claim on the grounds of limitation and that the order-in-original was not challenged. However, the appellants contested that the issue was well settled in view of judgment of Indian National Ship Owners Association (Supra) which was confirmed by the Supreme Court that import of services were not taxable prior to 18/04/2006 and therefore they were eligible for refund of service tax with interest from 11/12/2008 when the Hon’ble High Court decided the issue. Further, since the appellants took CENVAT credit of service tax paid, the refund claim was with respect to interest paid which was filed within 1 year from the date of decision of the Hon’ble High Court.

Held:

The appellants paid service tax with interest in the year 2006 which was appropriated by way of adjudication and the appellants took CENVAT Credit of Service tax paid and filed refund claim of interest paid. Though in view of the decision in the case of Indian National Ship Owners Association (Supra) Service tax was not leviable, the appellants did not claim refund of Service tax which implied that the appellants had admitted their Service tax liability. Since the liability was admitted, it should be paid with interest as held by Hon’ble Supreme Court in case of CCE vs. SKF India Ltd. 2009 (239) ELT 385 (SC) and therefore, the appeal was rejected.

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2012 (28) STR 380 (Tri.-Mumbai) Jyoti Structures Ltd. vs. Commissioner of Central Excise, Nasik

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One to one co-relation not required for utilisation of CENVAT credit for payment of excise duty or service tax.

Facts:

The appellants, a manufacturer of transmission towers also provides erection, commissioning and installation, management, maintenance or repairs, testing, inspection of these towers services. For discharging Central Excise Duty and Service tax liability, the appellants utilised CENVAT Credit. The department denied utilisation of CENVAT Credit for payment of Central Excise Duty on the dutiable final product and output services on the grounds that the appellants did not maintain separate books of accounts for inputs and input services utilised in the manufacture of final products and used in providing output services.

Held:

Following Tribunal’s decision in case of Forbes Marshall Pvt. Ltd. vs. Commissioner of Central Excise, Pune 2010 (258) ELT 571 (Tri.), the Tribunal held that there was no provision under CENVAT Credit Rules, 2004 for segregation of CENVAT Credit for payment of Central Excise Duty and Service tax liability.

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2012 (28) STR 364 (Tri.-Del.) C.C.E., Chandigarh vs. Amar Nath Aggarwal Builders Pvt. Ltd.

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The builders constructing residential complexes on their own land and selling to prospective customers, were not leviable to service tax prior to 01/07/2010.

Facts:

The respondents constructed residential complexes on their land and made agreements for sale of flats and received advance from prospective buyers. As per CBEC Circular, the builders provided no service to any prospective buyers. The activity was covered only after introduction of Explanation to section 65 (105) (zzzh) of the Finance Act, 1994 i.e. with effect from 01/07/2010. The said explanation was prospective and such activity was not chargeable to service tax prior to 01/07/2010 as depicted in the case of Skynet Builders Developers Colonizers and others 2012 (27) STR 388 (Tri.-Del.) The revenue relying on Punjab & Haryana High Court in case of G. S. Promoters vs. UOI 2011 (21) STR 100 (P & H) contended the activities as chargeable to service tax even prior to 01/07/2010 and considered the explanation to be clarificatory.

Held:

The G. S. Promoter’s case (Supra) dealt with the issue of constitutional validity of the Explanation inserted u/s. 65(105)(zzzh) of the Finance Act, 1994 with effect from 01/07/2010 and the case did not examine whether the explanation could have retrospective effect. Following the decision of Skynet Builders (Supra), revenue’s appeal was dismissed.

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2012 (28) STR 362 (Tri.-Del.) Ashok Agarwal vs. Commissioner Of Central Excise, Jaipur – I

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If the assessee did tax planning, extended period of limitation cannot be invoked.

Facts:

The appellant, a clearing and forwarding agent for M/s. Chambal Fertilisers & Chemicals Ltd. (‘CFCL’) also had separate contract with CFCL for giving their godown on rent for the goods for which they acted as clearing and forwarding agent. Service tax was demanded on godown rent under “storage and warehousing services”. According to the appellant, the godown rent was in the form of reimbursements and as per CBEC clarification, it was not leviable to service tax. Further, the nature of services of the appellants was “clearing and forwarding agent” as against “storage and warehousing services” and that the department issued SCN under the category of storage and warehousing services and the demand was confirmed under “clearing and forwarding agent” and therefore, the order travelled beyond the scope of SCN. According to revenue, the services of clearing and forwarding could not have been performed without storage space and the cost of storage space was integral part of value of services provided. Further, the separate contract for rent was for the purpose of reduction of tax incidence. Since the contract was hidden, there was suppression of facts and therefore, extended period was invoked.

Held:

There was a legal infirmity that tax was demanded under a different category from the one mentioned in SCN. Viewing the case as one of tax planning rather than tax evasion, extended period of limitation was held not justified and appeal was dismissed.

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2012 (28) STR 291 (Tri.-Mumbai) Commissioner of C. Ex. & Service Tax (LTU) vs. Lupin Ltd.

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Definition of “input services” is very wide and covers not only services which are directly or indirectly used in or in relation to the manufacture of final product but also after manufacturing of the final product

Facts:

The department denied CENVAT Credit on input services; viz. tour operator’s services, garden maintenance services, waste management services and repair of fan services on the grounds that these services were not integrally connected to the manufacture of final product and therefore, these were not eligible input services under Rule 2(l) of the CENVAT Credit Rules, 2004.

The respondents contended these to be eligible for the manufacturing process as the tour operator’s services were used for transporting their staff from residence to factory and back. Waste management services were a statutory requirement. So also garden maintenance was essential to keep the factory premises neat and clean and fans were installed in the factory and therefore, their maintenance was integral to manufacturing. Further, CENVAT Credit on waste management services and tour operator services was allowed by Tribunal in their own case.

Held

Relying on Ultratech Cement Ltd. 2010 (20) STR 577 (Bom.) and various other relevant decisions, CENVAT credit in respect of above services as well as in respect of services of photography, dry cleaning of uniforms of staff, construction for premises of manufacture, brokerage paid for selling products were held as input services eligible for credit.

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2012 (28) STR 270 (Tri.-Del.) Commissioner of S. T., New Delhi vs. Fankaar Interiors Pvt. Ltd.

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Completion and finishing services are taxable with effect from 16/06/2005 under commercial or industrial construction services and the same were not covered under earlier definition of construction services.

Facts:

The respondents were engaged in the execution of interior, civil, electrical and various other miscellaneous work. The Commissioner (Appeals) passed an order in favour of the respondents stating that the definition of construction services was provided u/s. 65(30a) of the Finance Act, 1994 till 15/06/2005 and thereafter, the definition of commercial or industrial construction services was introduced u/s. 65(25b) of the Finance Act, 1994 which expanded the scope of the services to include completion and finishing services. Further, even renovation services were inserted under service tax levy with effect from 16/06/2005. The revenue contested that the amendment with effect from 16/06/2005 was only to define the scope of services specifically and that the completion and finishing services were taxable even prior to 16/06/2005.

Held:

Relying on the Tribunal’s judgment in the case of Spandrel vs. CCE, Hyderabad 2010 (20) STR 129 (Tri.-Bang.), it was held that the completion and finishing services were taxable only with effect from 16/06/2005.

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2012 (28) STR 268 (Tri.-Del.) Bhawana Motors vs. Commissioner of Central Excise, Jaipur – II

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Extended period of limitation cannot be invoked in a case where the department had issued a SCN on the same grounds for previous period.

Facts:

The appellants engaged in providing vehicles on hire were not paying service tax and were not filing service tax returns. Therefore, the department issued a Show Cause Notice (SCN) considering the said services to be “rent-a-cab services” for the period from February, 2004 to March 2005 demanding service tax with interest and penalty u/s. 76, 77 and 78 of the Finance Act, 1994. Relying on the Hon’ble Apex Court’s decision in case of Nizam Sugar Factory vs. CCE, A.P. 2008 (9) STR 314 (SC), the appellants argued that the SCN was time barred since on the same grounds, the department had issued SCN previously for the period from 01/04/2002 to 31/12/2003.

Therefore, the department was aware of the facts and accordingly, there cannot be any allegation with respect to suppression of facts from the department and thereby, invoking extended period of limitation was not justified. Further, relying on Tribunal’s decision in the case of P. Sugumar vs. CCE, Pondicherry 2010 (17) STR 524 (Tri.-Chennai), the activity of the appellants, being transportation of employees at a pre-determined rate, were not covered under “rent-a-cab services”. The department argued that the said activity was taxable in view of Punjab & Harayana High Court’s decision in the case of CCE, Chandigarh vs. Kuldeep Singh Gill 2010 (18) STR 708 (P & H). Further, since the appellants did not submit ST-3 returns, it amounted to suppression of facts and therefore, invoking of extended period was justified.

Held:

Though the appellants wilfully ignored the payment of service tax and submission of returns even after issuance of SCN for the previous period, the activities of the appellants were fully known to the department. The department could have further searched the premises of the appellants in such a case to obtain any requisite information. Accordingly, following the ratio laid down by the Hon’ble Apex Court in case of Nizam Sugar Factory vs. CCE, A. P. (Supra), the demand was not sustainable on the grounds of limitation and therefore, the issue was not discussed with respect to its merits.

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2012 (28) STR 264 (Tri.-Mumbai) Commissioner of Service Tax, Mumbai vs. P. N. Writer & Co. Ltd.

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Condition of saleability should be satisfied to consider something as ‘goods’.

Facts:

The respondents were engaged in storage and retrieval of records of banks and corporate houses and the records consisted of discharged cheques, vouchers, agreements, books of accounts etc. not intended for sale, but to comply with a statutory requirement. The department contended that the services were classifiable under storage and warehousing and therefore, leviable to service tax. The respondents contested that storage and warehousing of goods were leviable to service tax. As per Finance Act, 1994, the definition of ‘goods’ is adopted from the Sale of Goods Act, 1930. In case of R. D. Saxena vs. Balram Prasad Sharma (AIR 2000 SC 912), the Hon’ble Supreme Court has held that to constitute goods, the same should be marketable. Since files, records etc. were not saleable, it could not be considered as goods. However, the adepartment pleaded that in view of express definition of “goods” under Sale of Goods Act, 1930, every movable property is considered to be goods. Since files, records etc. were movable property, the same should essentially be considered as ‘goods’ and condition of sale was not necessary for levy of service tax.

Held:

As per section 2(7) of the Sale of Goods Act, 1930, to constitute goods, saleability was an essential criteria. If the intention was not to consider the saleability, the service tax laws would not have referred to the definition of goods under the Sale of Goods Act, 1930. Further, the Hon’ble Supreme Court has passed numerous judgments holding that the goods are something which can come into the market for being bought and sold. Therefore, following the judgment delivered in case of R. D. Saxena vs. Balram Prasad Sharma (Supra), it was held that the files, records etc. cannot be considered as goods in the absence of its feature of saleability and therefore, the activity cannot be covered under the storage and warehousing services leviable to service tax.

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2012 (28) STR 248 (Tri.-Del.) Max India Ltd. vs. Commissioner of Central Excise, Chandigarh.

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Liberal interpretation to be given to notification no. 41/2007-ST dated 06/10/2007 which grants refund of CENVAT Credit on input services used while exporting goods. The revenue authorities cannot be allowed to approbate and reprobate on the same issue with reference to different assessees.

Facts:

The department rejected refund claim of CENVAT credit in respect of input services; viz. inland haulage charges, terminal handling charges, bill of lading charges, processing fee, terminal services, movement charges in port etc. used for export of goods vide Notification No.41/2007-ST dated 06/10/2007. The appellants contended that the service recipient cannot change the classification of the service provided by the service provider. Further, as long as the description of service is covered within the said notification, refund should be available. Further, the appellants referred to the Larger Bench decision in case of Western Agencies 2011 (22) STR 305 (Tri.-LB) and contended that all services rendered within the port area would be considered as port services. The department contested that though the opening paragraph expressly did not mention about classification under the Finance Act, 1994, it is obvious that the description should match with classification of service and that in the present case, the services were not port services since prior to amendment made by the Finance Act, 2010, only services which were performed in the port area by a person authorised by port authorities, were classifiable as port services. Further, the decision of the Larger Bench in case of Western Agencies (supra) is stayed by the Madras High Court and therefore, the judgment could not be relied upon.

Held:

The classification of services cannot be changed by service recipient. There is a serious lacuna in the said notification and missing words cannot be supplied by anyone interpreting the provisions.

The expression “port services”, though was available, the draftman did not insert such expression in the notification and therefore, the expression actually used should be interpreted. The Government intended to include all services rendered in port area as “port services” as is evident from amendment through the Finance Act, 2010. Though the amendment was prospective, the Notification No.41/2007-ST dated 06/10/2007 being beneficial notification for granting refund of tax when the goods are exported, liberal interpretation should be given. Revenue advanced arguments with respect to interpretation of “port services” prior to the introduction of the Finance Act, 2010, which were exactly opposite to the arguments canvassed in case of Western Agencies Pvt. Ltd. which cannot be allowed and therefore, the appeals were allowed.

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Commissioner of Central Excise, Raipur (C.G) vs. Simplex Casting Ltd. 2012 (285) ELT 365 (Tri.-Del)

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Wrong classification not challenged when approved by the department does not attain finality.

Facts:

Wrong classification was made by department which the assessee did not challenge. The department issued Show Cause Notice demanding tax under wrong classification. The assessee contested such classification in the reply to the Show Cause Notice. The Commissioner (Appeals) held in favour of assessee. The revenue’s contention revolved only around non-challenge at the time of approval by the Assistant Commissioner.

Held:

The Tribunal dismissed the appeal stating that, only because the jurisdictional Assistant Commissioner classified and approved some goods under wrong heading without any challenge by the assessee, it would not mean that for future also, wrong classification shall continue in respect of such goods. Also, on the receipt of demand of duty vide Show Cause Notice, the assessee challenged the erroneous classification. Therefore, it cannot be said that the assessee had accepted the classification and that the approval attained finality.

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Internal Circular No.1A OF 2013 dated 11-01- 2013

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By this Circular, the Commissioner has given instructions to all the departmental officers regarding procedure for cross check for 2008-09 period.
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Clarification on service tax on restaurant services – Circular No. 173/8/2013-ST dtd. 7th October 2013

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Vide this Circular, the CBEC has provided clarifications on various doubts and questions raised pertaining to Restaurant Services as amended w.e.f. 01-04-2013.

With reference to a complex where air -onditioned as well as non-air conditioned restaurants are operational but food is sourced from the common kitchen, it is clarified that services provided in relation to serving of food or beverages by a restaurant, eating joint or mess, having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year attracts service tax. In a complex, if there is more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in the specified restaurant is liable to service tax and service provided in a non air-conditioned or non-centrally air- heated restaurant will not be liable to service tax. In such cases, service provided in the non air-conditioned /non-centrally air-heated restaurant will be treated as exempted service and credit entitlement will be as per the Cenvat Credit Rules.

With reference to a hotel, if services are provided by a specified restaurant in other areas e.g. swimming pool or an open area attached to the restaurant, it is clarified that services provided by specified (i.e. only which are covered as taxable) restaurant in other areas of the hotel are liable to service tax.

With reference to whether service tax is leviable on goods sold on MRP basis across the counter as part of the bill/invoice, it is clarified that if goods are sold on MRP basis (fixed under the Legal Metrology Act), they have to be excluded from total amount for the determination of value of service portion.

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Clarification regarding service tax on educational services

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Circular No. 172/7/2013-ST Dtd. 19th September 2013

Tax Research Unit of CBEC has issued clarification circular in respect of taxability of services provided to educational institutions. The Circular is broadly based on the clause (I) of section 66D of the Finance Act and the Mega Exemption Notification No.25/2012-ST dated 20th June, 2012. Circular notes that there are many services provided to an educational institution which are described as auxiliary education services and they have been defined in the exemption itself. It is clarified that such services provided to an educational institution are exempt from service tax. For example, if a school or a college hires a bus from a transport operator in order to ferry students to and from school or college, the transport services provided by the transport operator to the school are exempt by virtue of the specific notification. Similarly, services in relation to hostels, house–keeping, security services, canteen etc shall be exempt from levy of service tax.

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Temporary exemption to some services in Uttarakhand

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Ad-hoc Exemption Order No. 1/1/2013 dtd. 17th September, 2013

Exemption for Uttarakhand Viewing recent natural calamities occurred in the State of Uttarakhand, the Central Govt. vide this Exemption Order has exempted the taxable services namely (a) Renting of a rooms in a hotel, inn, guest house, club, camp site or other commercial place meant for residential or lodging purposes ; and (b) Services provided in relation to serving of food or beverages by a restaurant, eating joint or mess from the whole of the Service Tax leviable thereon during the period from 17th September, 2013 to 31st March, 2014.

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