Category: Glimpses Of Supreme Court Rulings

44. CIT vs. Prakash Chand Lunia
(2023) 454 ITR 61 (SC)

Business Loss — Loss of confiscation — Search was conducted by Directorate of Revenue Intelligence (DRI) officers at premises of Assessee — Recovered slabs of silver and two silver ingots were confiscated — The decision of the High Court holding that the loss on confiscation of silver by DRI official of Customs Department was business loss relying upon decision of Supreme Court in case Piara Singh is reversed as the assessee was carrying on an otherwise legitimate silver business and his business could not be said to be smuggling of the silver bars as was the case in the case of Piara Singh (supra) — Also, any loss incurred by way of an expenditure by an Assessee for any purpose which is an offence or which is prohibited by law is not deductible in terms of Explanation 1 to Section 37 of the Act.

A search was conducted by the Directorate of Revenue Intelligence (DRI) officers at the premises situated at NOIDA taken on rent by the Assessee, Shri Prakash Chand Lunia. The DRI recovered 144 slabs of silver from the premises and two silver ingots from the business premises of the Assessee at Delhi. The Assessee was arrested under section 104 of the Customs Act for committing offence punishable under Section 135 of the Customs Act. The Collector, Customs held that the Assessee Shri Prakash Chand Lunia was the owner of silver/bullion and the transaction, thereof, was not recorded in the books of accounts. The Collector of Customs, New Delhi ordered confiscation of the said 146 slabs of silver weighing 4641.962 Kilograms, valued at Rs. 3.06 Crores. The Collector Customs further imposed a personal penalty of Rs. 25 Lakhs on Shri Prakash Chand Lunia under Section 112 of the Customs Act. The Collector held that the silver under reference was of smuggled nature.

During the course of the assessment proceedings for the A.Y. 1989–90, the AO observed that the Assessee was not able to explain the nature and source of acquisition of silver of which he was held to be the owner; therefore, the deeming provisions of Section 69A of the Income-tax Act, 1961 (hereinafter, referred to as ‘the Act’) would be applicable. The investment in this regard was not found recorded in the books of accounts of the Assessee that were produced before the then AO. Accordingly, the AO passed an assessment Order and made an addition of Rs. 3,06,36,909 under section 69A of the Act.

In appeals preferred by the Assessee against the assessment order, the CIT(A) dismissed the appeal of the Assessee.

Feeling aggrieved, the Assessee preferred the appeal before the ITAT. The ITAT, Jaipur also upheld the order of the CIT(A) so far as Section 69A is concerned. However, the ITAT partly allowed the appeal of the Assessee. As regards some other minor additions, the ITAT set aside some minor other additions and remanded the matter to the AO for fresh examination.

The AO re-examined the issue and addition was made. The CIT(A) also upheld the order of the AO. The Assessee preferred the appeal against the fresh order passed by the CIT(A) before the ITAT. The ITAT, in the second round as well, upheld the order of the authorities below.

A reference was made by the ITAT to the High Court with the following questions of law:

(i)    “Whether on the facts and in the circumstances of the case, the Tribunal after construing and interpreting the provisions contained in Section 69A of the Income-tax Act, 1961 was right in law, in holding that the Assessee was the owner of the 144 silver bars found at premises No. A 11 & 12, Sector – VII, Noida and two silver bars found at premises of M/s Lunia & Co. Delhi and in sustaining addition of Rs. 3,06,36,909 being unexplained investment in the hands of the Assessee under Section 69A of the Act?

(ii)    If the answer to the above question is in affirmative then, whether, on the facts and in the circumstances of the case, the Tribunal was right in law in distinguishing the ratio laid down by their Lordships of the Supreme Court in the case of Piara Singh vs. CIT, 124 ITR 41 and thereby not allowing the loss on account of confiscation of silver bars?

While the reference was pending before the High Court, penalty proceedings were initiated against the Assessee. An order under Section 271(1)(c) of the Act came to be confirmed by both the CIT(A) and the ITAT. Accordingly, the Assessee filed an appeal under Section 260A of the Act against the Penalty order, before the High Court. The High Court while deciding both the cases together, qua the first question, decided in favour of the Revenue, and the same was to be added to his income as a natural consequence. However, with regard to the second question, the High Court held that loss of confiscation by the DRI official of Customs Department was business loss. While holding, the High Court relied upon the decision of the Supreme Court in the case of CIT, Patiala vs. Piara Singh reported in 124 ITR 41.

An appeal was filed before the Supreme Court against the judgment and order passed by the High Court.

According to the Supreme Court, the short question which was posed for consideration before it was whether the High Court has erred in law in allowing the Respondent – Assessee the loss of confiscation of silver bars by DRI officials as a business loss, relying upon the decision of this Court in the case of CIT Patiala vs. Piara Singh, [(1980) 124 ITR 40 – SC].

On going through the judgment and order passed by the High Court, it appeared to the Supreme Court that the High Court had simply relied upon the decision of the Supreme Court in the case of Piara Singh (supra). After going through the decision in the case of Piara Singh (supra), the Supreme Court was of the opinion that the High Court had materially erred in relying upon the decision in the case of Piara Singh (supra).

The Supreme Court noted that in the case of Piara Singh (supra), the Assessee was found to be in the business of smuggling of currency notes and to that it was found that confiscation of currency notes was a loss occasioned in pursuing his business, i.e., a loss which sprung directly from carrying on of his business and was incidental to it. Due to this, the Assessee in the said case was held to be entitled to deduction under Section 10(1) of the Income Tax Act, 1922. In view of the above fact, the Supreme Court in the case of Piara Singh (supra) distinguished its decisions in the case of Haji Aziz & Abdul Shakoor Bros. [(1961) 41 ITR 350 –SC] and the decision in the case of Soni Hinduji Kushalji & Co. [(1973) 89 ITR 112 (AP)] and did not agree with the decision of the Bombay High Court in the case of J S Parkar vs. V B Palekar, [(1974) 94 ITR 616 (Bom)]. The Supreme Court observed that in all the aforesaid three cases which were relied upon by the Revenue in the case of Piara Singh (supra), the assessees were found to be involved in legitimate businesses and not smuggling business. However, they were found to have smuggled goods contrary to law, which resulted in an infraction of law and resultant confiscation by customs authorities.

The Supreme Court noted that in the case of Haji Aziz (supra), the Assessee claimed deduction of fine paid by him for release of his dates confiscated by customs authorities, which was rejected on the ground that the amount paid by way of penalty for breach of law was not a normal business carried out by it. In the case of Soni Hinduji Kushalji (supra) and J S Parkar (supra), the customs authorities had confiscated gold from Assessees otherwise engaged in legitimate businesses. In the aforesaid two cases, the Assessee claimed the value of gold seized as a trading / business loss. It was held that the Assessees were not entitled to the deductions claimed as business loss.

In the case of Soni Hinduji (supra), the Andhra Pradesh High Court held that when a claim for deduction is made, the loss must be one that springs directly from or is incidental to the business which the Assessee carries on and not every sort or kind of loss which has absolutely no nexus or connection with his business. It was observed that confiscation of contraband gold was an action in rem and not a proceeding in personam. Thus, a proceeding in rem in the strict sense of the term is an action taken directly against the property (i.e., smuggled gold); and even if the offender is not known, the customs authorities have the power to confiscate the contraband gold.

In the case of J S Parkar (supra), the Assessee not only claimed the value of the gold confiscated as a trading loss, but also set off of the said loss against his assumed and assessed income from undisclosed sources. The value of gold was sought to be taxed under section 69/69A of the Act by the tax authorities. However, the Bombay High Court held the Assessee to be the owner of the smuggled confiscated gold and not entitled to claim value of such gold as a trading loss.

The Supreme Court noted that in the present case, the ownership of the confiscated silver bars of the Assessee was not disputed. Even on that, there were concurrent findings by all the authorities below and including the customs authorities. Therefore, the question that required consideration was as to whether the Assessee could claim the business loss of the value of the silver bar confiscated and whether the decision of this Court in the case of Piara Singh (supra) would be applicable?

To answer the aforesaid question, the Supreme Court noted that in the present case, the main business of the Assessee was dealing in silver. His business could not be said to be smuggling of the silver bars as was the case in the case of Piara Singh (supra). He was carrying on an otherwise legitimate silver business and in attempt to make larger profits, he indulged into smuggling of silver, which was an infraction of law. In that view of the matter, the decision of the Supreme Court in the case of Piara Singh (supra), which had been relied upon by the High Court while passing the impugned judgment and order, would not be applicable to the facts of the case. On the other hand, the decision of the Supreme Court in the case of Haji Aziz (1961) 41 ITR 350 (SC) and the decisions of the Andhra Pradesh High Court and the Bombay High Court, which were pressed into service by the Revenue in Piara Singh (supra), would be applicable with full force.

In view of the above, the impugned judgment and order passed by the High Court quashing and setting aside the order passed by the AO, CIT(A) and the ITAT, which rejected the claim of the Assessee to treat the silver bars confiscated by the customs authorities as business loss, and consequently allowing the same as business loss, were unsustainable and the same were quashed and set aside by the Supreme Court.

By a separate order, Justice Shri M M Sundresh, while concurring with the ultimate conclusion arrived at in overturning the decision of the High Court by Justice Shri M R Shah, gave his own reasoning on the aforesaid aspect. After considering the provisions of Section 37(1), including Explanation 1 thereto and that of Section 115BBE of the Act and after referring to the plethora of judgements on the subject, he concluded as follows:

I.    The word “any expenditure” mentioned in Section 37 of the Act takes in its sweep loss occasioned in the course of business, being incidental to it.

II.    As a consequence, any loss incurred by way of an expenditure by an Assessee for any purpose which is an offence or which is prohibited by law is not deductible in terms of Explanation 1 to Section 37 of the Act.
III.    Such an expenditure / loss incurred for any purpose which is an offence shall not be deemed to have been incurred for the purpose of business or profession or incidental to it, and hence, no deduction can be made.

IV.    A penalty or a confiscation is a proceeding in rem, and therefore, a loss in pursuance to the same is not available for deduction, regardless of the nature of business, as a penalty or confiscation cannot be said to be incidental to any business.

V.    The decisions of this Court in Piara Singh (supra) and Dr T A Quereshi [(2006) 287 ITR 547- SC] do not lay down correct law in light of the decision of this Court in Haji Aziz (supra) and the insertion of Explanation 1 to Section 37.

The appeal of the Revenue, therefore, deserves to be allowed, though conscious of the fact that Section 115BBE of the Act may not have an application to the case on hand being prospective in nature.

Note:
The detailed discussion by Justice Shri M M Sundresh on subject with reference to English and Indian cases makes it a good read.
 
45. D N Singh vs. CIT
(2023) 454 ITR 595 (SC)

Unexplained money, etc. — Section 69A — Assessee must be found to be the owner, and he must be the owner of any money, bullion, jewellery or other valuable articles — Short delivery of bitumen by carrier — A carrier who clings on to possession not only without having a shadow of a right, but what is more, both contrary to the contract as also the law cannot be found to be the owner — No material to show that the goods short delivered were sold — Bitumen not a valuable article — Addition could not be made.

The Appellant–Assessee carried on business as carriage contractor for bitumen loaded from oil companies namely HPCL, IOCL and BPCL from Haldia. The goods were to be delivered to various divisions of the Road Construction Department of the Government of Bihar. According to the Appellant, it has been in the business for roughly three decades.

A scam was reported in the media. The scam consisted of transporters of bitumen, lifted from oil companies, misappropriating the bitumen and not delivering the quantity lifted to the various Divisions of the Road Construction Department of the Government of Bihar. The scam had its repercussion in the assessments under the Act.

By an Assessment Order dated 27th March, 1998 being passed for A.Y. 1995–96, the AO, taking note of the scam, issued ShowCause Notice dated 23rd January, 1998, alleging that the Appellant had lifted 14,507.81 metric tonnes of bitumen but delivered only 10,064.1 metric tonnes. This meant that the Appellant had not delivered 4,443 metric tonnes. The Appellant produced photocopies of challans to establish that the bitumen had been delivered. Summons was issued by the AO to the Executive Engineers and Junior Engineers. It is the case of the Appellant that all Junior Engineers, except Shri Madan Prasad and Ahia Ansari, accepted the factum of delivery of bitumen. The AO, in fact, noticed that only those Junior Engineers accepted receipt of bitumen, where the Engineer in-charge or the Executive Engineer accepted the delivery. Shri Madan Prasad denied that the signature alleged to be his, was not his signature. The AO found that the Junior Engineers denied putting stamp and took the position that if there was stamp, then, it must indicate the name of the section. The AO added a sum of Rs. 2,19,85,700 being the figure arrived at, by finding that 4,443 metric tonnes of bitumen had not been delivered. This was done by invoking Section 69A of the Act.

For the A.Y. 1996–97, the AO passed Order dated 31st March, 1999. The Appellant, in its Return, disclosed a net profit of Rs. 6,76,133. On scrutiny, the AO, again, noticing the scam and finding that while 10,300.77 metric tonnes had been lifted by the Appellant, only 8,206.25 metric tonnes had been delivered. Accordingly, it was found that 2,094.52 metric tonnes had not been delivered. On the said basis and again invoking Section 69A of the Act, a sum of Rs. 1,04,71,720.30 was added as income of the Appellant.

The Commissioner Appeals found that all Junior Engineers, except two, had accepted delivery. After finding that the addition made by the AO in respect of quantity, where Junior Engineers had accepted delivery, was untenable, the Appellate Authority ordered deletion of a sum of Rs. 2,01,14,659. This amount represented the value of 4,064.28 metric tonnes. In regard to the disputed quantity, viz., the dispute raised by Shri Madan Prasad and Ahia Ansari, Junior Engineers, the matter was remanded back for affording an opportunity for cross-examination. This Order related to the A.Y. 1995–96.

Also, for A.Y. 1996–97, the Appellate Authority found merit in the case of the Appellant that except two Junior Engineers, the others had accepted the delivery. The addition of Rs. 1,04,71,720 was ordered to be deleted.

The Revenue filed appeals before the Income-Tax Appellate Tribunal (hereinafter referred to as, ‘the ITAT’, for short) for both the Assessment Years, viz., 1995–96 and 1996–97.

In regard to the order passed by the Appellate Authority for the A.Y. 1995–96, another development took place during the pendency of the Appeal before the ITAT. By rectification Order dated 31st May, 2001, the CIT(A) set aside the addition of Rs. 2,01,14,659 with the direction to the AO that he shall issue summons to the concerned Jr. Engineers, who have received 4,064.28 metric tonnes of bitumen as per challans furnished by the Appellant, record their statement, allow the Appellant an opportunity to cross-examine them and, if necessary, refer their signatures to the handwriting experts to establish the genuineness or otherwise of such signatures. Only after carrying out these directions, any addition shall be made.

The Revenue had filed an Appeal before the ITAT for the A.Y. 1995–96. The Appellant had filed cross-objection in the said Appeal. The Appellant also filed appeal before the ITAT against the Order of Rectification passed under Section 154 of the Act. The ITAT dismissed the Appeals filed by the Revenue and the Appellant taking note of the Order of the CIT(A), passed under Section 154 of the Act, by which, the matter stood remitted back. The cross-objection came to be disposed of accordingly.

For the A.Y. 1996–97, the ITAT disposed of the Appeal filed by the Revenue and also the cross-objection filed. The Appeal filed by the Revenue was allowed. The Tribunal found that the Appellant had not disputed the lifting of the bitumen. The claim made by the Appellant that full supply was made, stood demolished, when photocopies of delivery challans were found to be false and fabricated. The Executive Engineers, it was further found, had confirmed non-delivery to the tune of 2,090.40 metric tonnes. The Commissioner Appeals, it was found, reached a wrong conclusion, as he did not address himself to the explanation offered by the Junior Engineers. It was found that all Executive Engineers of the Consignee Divisions presented a case of non-delivery before the AO. Thus, the ITAT allowed the Appeal filed by the Revenue and sustained the Order of the AO relating to addition on account of short supply of bitumen for the A.Y. 1996–97.

On an appeal to the High Court by the Appellant–Assessee for the A.Y. 1996–97, the Court, after referring to the submissions, focussed on the scope of Section 69A of the Act. The High Court found that the word “owner” has different meaning in different contexts, and when a transporter sells the goods and receives money for that not on behalf of the real owner, it became the owner for the purpose of tax. Having lifted bitumen and not supplied to the Road Construction Department to which it was to be supplied, the Appellant would be liable to pay tax on the bitumen lifted and not delivered. The High Court distinguished the judgment in Dhirajlal Haridas vs. CIT (Central), Bombay (1982) 138 ITR 570 by noting that for determining the person liable to pay tax, the test laid down by this Court was to find out the person entitled to that income. The Court also went on to distinguish the judgment in CIT vs. Amritlal Chunilal (1984) 40 CTR Bombay 387. It was found that in the said case, the Assessee, therein, was not found to be the owner whereas the ITAT found the Appellant to be the owner. The High Court agreed with the said finding. Thereafter, the High Court went on to deal with the argument that the words “other valuable articles” in Section 69A could not include “bitumen”. The argument of the Appellant which is noted is that for applying Section 69A bitumen should have some nexus with money, bullion or jewellery. It was found that any Article which has value would come under the expression “valuable article” under Article 69A and the value of such Article can be deemed to be the income of the Assessee, should the Assessee fail to offer any explanation or the explanation offered be unsatisfactory. The argument that Section 69A would not apply as the Appellant had offered an explanation was not accepted as it was found that an explanation though offered, being not accepted, would lead to the invocation of Section 69A if the explanation was not satisfactory. In other words, Section 69A applied. Lastly, in regard to the argument of the Appellant that the cost of the bitumen and not the value, thereof, was added as income, the High Court found that the Appellant did not have a case that it had sold the bitumen at the price lower than the cost. The Appellant was found to be the owner of the bitumen and the addition was sustained.

The Supreme Court noted that Section 69A may be broken down into the following essential parts:

a.    The Assessee must be found to be the owner;

b.    He must be the owner of any money, bullion, jewellery or other valuable articles;
c.    The said articles must not be recorded in the Books of Account, if any maintained;

d.    The Assessee is unable to offer an explanation regarding the nature and the source of acquiring the articles in question; or the explanation, which is offered, is found to be, in the opinion of the Officer, not satisfactory;

e.    If the aforesaid conditions are satisfied, then, the value of the bullion, jewellery or other valuable Article may be deemed as the income of the financial year in which the Assessee is found to be the owner;

f.    In the case of money, the money can be deemed to be the income of the financial year.

Applying the provision to the facts of the case, the Supreme Court noted that the points that arise were as follows:

I.    The question would arise, as to whether the Appellant could be treated as the owner of the bitumen;

II.    The further question would arise, as to whether bitumen could be treated as other valuable articles;

III.    Thirdly, the question arises, as to how the value of the bitumen is to be ascertained.

As regards the first question, viz., whether the Appellant could be treated as the owner of the bitumen is concerned, it was indisputable that the Appellant was engaged as a carrier to deliver the bitumen, after having lifted the same from the Oil Companies to the various Divisions of the Road Construction Department of the Government of Bihar.

Under Section 15 of the Carriage by Road Act, 2007, which repealed the Carriers Act, 1865, if the consignee fails to take delivery of any consignment of goods within 30 days, the consignment is to be treated as unclaimed. The period of 30 days is declared inapplicable to perishable consignments, in which case, a period of 24 hours’ notice or any lesser period, as may be agreed between the consignor and the common carrier, suffices. In the case of perishable consignment, following such notice, the consignment can be sold. In a case where the goods are not perishable, if there is failure by the consignee to remove the goods after the receipt of a notice of 15 days from the carrier, the common carrier is given a right to sell the consignment without further notice. Section 15(3) enables the carrier to retain a sum equal to the freights, storage and other charges, due, including expenses incurred for the sale. The surplus from the sale proceeds is to be returned to the consigner or the consignee. Section 15(4) clothes the carrier with a right to sell in the event of failure by the consignee to make payment of the freight and other charges, at the time of taking delivery. In such cases, if the other ingredients of Section 69A are satisfied, there may be no fallacy involved if an Assessee is found to be the owner of the goods which he disposes of under the authority of law.

The Supreme Court noted that in this case, it is not the case of either party that the Appellant had become the owner of the bitumen in question in a manner authorised by law. On the other hand, the specific case of the Appellant is that the Appellant never became the owner and it remained only a carrier. However, as noticed, if it is found that there has been short delivery, this would mean that the Appellant continued in possession contrary to the terms of contract of carriage.

The Supreme Court further observed that when goods are entrusted to a common carrier, the entrustment would amount to a contract of bailment within the meaning of Section 148 of the Contract Act, 1872 when it is for being carried by road, as in this case.

According to the Supreme Court, to apply Section 69A of the Act, it is indispensable that the Officer must find that the other valuable article, inter alia, is owned by the Assessee. A bailee, who is a common carrier, is not an owner of the goods. A bailee who is a common carrier would necessarily be entrusted with the possession of the goods. The purpose of the bailment is the delivery of the goods by the common carrier to the consignee or as per the directions of the consignor. During the subsistence of the contract of carriage of goods, the bailee would not become the owner of the goods. In the case of an entrustment to the carrier otherwise than under a contract of sale of goods also, the possession of the carrier would not convert it into the owner of the goods.

The Supreme Court further noted that Section 405 of the Indian Penal Code, 1860 reads as follows:

“Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits ‘criminal breach of trust’.

Illustration (f) Under Section 405 is apposite, and it reads as follows:

Illustration f. A, a carrier, is entrusted by Z with property to be carried by land or by water. A dishonestly misappropriates the property. A has committed a criminal breach of trust.”

The Supreme Court noted the provisions of Sections 27 and 39 of the Sale of Goods Act, 1930, and observed that sale by a carrier does not pass title except when it is immunised by the conduct of the owner of the good, which would in turn estop the owner from impugning the title of the buyer.

The Supreme Court noted that in the commentary in the context of Section 69A on Sampath Iyengar’s, Law of Income Tax, it was observed it cannot be said in the case of stolen property that the thief is the owner thereof.

The Supreme Court observed that the question would arise pointedly, as to, when a common carrier refuses to deliver the consignment, and continues to possess it contrary to contract and law, and converts it into his use and presumably sells the same, as to whether he could be found to be the owner of the goods. Would he be any different from a person who commits theft and sells it claiming to be the owner. Can a thief become the owner? It would be straining the law beyond justification if the Court were to recognise a thief as the owner of the property within the meaning of Section 69A. Recognising a thief as the owner of the property would also mean that the owner of the property would cease to be recognised as the owner, which would indeed be the most startling result. While possession of a person may in appropriate cases, when there is no explanation forthcoming about the source and quality of his possession, justify an
AO finding him to be the owner, when the facts are known that the carrier is not the owner and somebody else is the owner, then to describe him as the owner may produce results which are most illegal apart from being unjust.

After considering the other relevant laws and various judgment of the Supreme Court dealing with the meaning of “owner” in the context of different provisions of the Income-tax Act, 1961 and applying various test considered therein, the Supreme Court, in this context, summarised its findings as under: 

1.    Appellant as a carrier was entrusted with the goods.

2.    The possession of the Appellant began as a bailee.
 
3.    Proceeding further on the basis that instead of delivering the goods, the Appellant did not deliver the goods to the concerned divisions of the department in the State of Bihar.

4.    Ownership of the goods in question by no stretch of imagination stood vested at any point of time in the Appellant.

5.    Property would pass from the consignor to the consignee on the basis of the principles which are declared in the Sale of Goods Act. It is inconceivable that any of those provisions would countenance passing of property in the goods to the Appellant who was a mere carrier of the goods.

6.    Section 405 of the Indian Penal Code makes it an offence for a person entrusted with property, which includes goods entrusted to a carrier, being misappropriated or dishonestly being converted to the use of the carrier. A specific illustration under Section 405 makes it abundantly clear that any such act by a carrier attracts the offence under Section 405. The Supreme Court in other words would have to allow the commission of an offence by the Appellant in the process of finding that the Appellant is the owner of the goods. In other words, proceeding on the basis that there was short delivery of the goods by the Appellant, inevitably, the Supreme Court must find that the act was not a mere omission or a mistake but a deliberate act by a carrier involving it in the commission of an offence Under Section 405. In other words, the Court must necessarily find that the Appellant continued to possess the bitumen and misappropriated. It is in this state that the AO would have to find that the Appellant by the deliberate act of short delivering the goods and continuing with the possession of the goods not only contrary to the contract but also to the law of the land, both in the Carriers Act 1865 and breaking the penal law as well, the Appellant must be treated as the owner.

7.    Under Section 54 of Transfer of Property Act, a carrier who clings on to possession not only without having a shadow of a right, but what is more, both contrary to the contract as also the law cannot be found to be the owner.
 
8.    The possession of the carrier who deliberately refuses to act under the contract but contrary to it, is not only wrongful, but more importantly, makes it a case where the possession itself is without any right with the carrier to justify his possession.

9.    Recognising any right with the carrier in law would involve negation of the right of the actual owner, which if the property in the goods under the contract has passed on to the consignee is the consignee and if not the consignor.

The Supreme Court found that the Appellant was bereft of any of the rights or powers associated with ownership of property.

Approaching the issue from another angle, the Supreme Court observed that the rationale of the Revenue involves ownership of the bitumen being ascribed to the Appellant based on possession of the bitumen contrary to the contract of carriage and with the intention to misappropriate the same, which further involves the sale of the bitumen for which there is no material as such. But proceeding on the basis that such a sale also took place, even than what is important is, the requirement in Section 69A that the AO must find that the Assessee is the owner of the bitumen. According to the Supreme Court, in the facts, the Appellant could not be found to be the owner. The Appellant could not be said to be in possession in his own right, accepting the case of the Revenue that there was short delivery. The Appellant did not possess the power of alienation. The right over the bitumen as an owner at no point of time could have been claimed by the Appellant. The possession of the Appellant at best was a shade better than that of a thief as the possession had its origin under a contract of bailment. Hence, the Supreme Court held that the AO acted illegally in holding that one Appellant was the ‘owner’ and on the said basis made the addition.

The Supreme Court, thereafter, referred to the Principles of Ejusdem Generis and Noscitur a Sociis, which are Rules of construction and observed that when it comes to value, it is noticed that in the definition of the word “valuable” in Black’s Law Dictionary, it is defined as “worth a good price; having a financial or market value”. The word “valuable” has been defined again as an adjective and as meaning worth a great deal of money in the Concise Oxford Dictionary. Valuable, therefore, cannot be understood as anything which has any value. The intention of the law-giver in introducing Section 69A was to get at income which has not been reflected in the books of account but found to belong to the Assessee. Not only it must belong to the Assessee, but it must be other valuable articles. The Supreme Court considered few examples to illustrate the point. Let us take the case of an Assessee who is found to be the owner of 50 mobile phones, each having a market value of Rs. 2 Lakhs each. The value of such articles each having a price of Rs. 2 Lakhs would amount to a sum of Rs. 1 Crore. Let us take another example where the Assessee is found to be the owner of 25 highly expensive cameras. Could it be said that despite having a good price or worth a great deal of money, they would stand excluded from the purview of Section 69A. On the other hand, let us take an example where a person is found to be in possession of 500 tender coconuts. They would have a value and even be marketable but it may be wholly inapposite to describe the 500 tender coconuts as valuable articles. It goes both to the marketability, as also the fact that it may not be described as worth a ‘good’ price. Each case must be decided with reference to the facts to find out that while articles or movables worth a great deal of money or worth a good price are comprehended articles which may not command any such price must stand excluded from the ambit of the words “other valuable articles”. The concept of ‘other valuable articles’ may evolve with the arrival in the market of articles, which can be treated as other valuable articles on satisfying the other tests.

Bitumen is defined in the Concise Oxford English Dictionary as “a black viscous mixture of hydrocarbons obtained naturally or as a residue from petroleum distillation, used for road surfacing and roofing”. Bitumen appears to be a residual product in the petroleum refineries, and it is usually used in road construction, which is also probabalised by the fact that the Appellant was to deliver the bitumen to the Road Construction Department of the State. Bitumen is sold in bulk ordinarily. The Supreme Court noted that in the Assessment Order, the Officer has proceeded to take R4,999.58 per metric ton as taken in the AG Report on bitumen scam. Thus, it is that the cost of bitumen for 2,094.52 metric ton has been arrived at as Rs. 1,04,71,720.30. This would mean that for a kilogram of bitumen, the price would be only Rs 5 in 1995–96 (F.Y.).

Bitumen may be found in small quantities or large quantities. If the ‘article’ is to be found ‘valuable’, then in small quantity, it must not just have some value but it must be ‘worth a good price’ {See Black’s Law Dictionary (supra)} or ‘worth a great deal of money’ {See Concise Oxford Dictionary (supra)} and not that it has ‘value’. Section 69A would then stand attracted. But if to treat it as ‘valuable article’, it requires ownership in large quantity, in the sense that by multiplying the value in large quantity, a ‘good price’ or ‘great deal of money’ is arrived at then it would not be valuable article. Thus, the Supreme Court concluded that ‘bitumen’ as such could not be treated as a ‘valuable article’.

In view of these findings, the Supreme Court did not deal with other points. The appeals were allowed. The impugned judgment was stand set aside and though on different grounds, the order by the Commissioner Appeals deleting the addition made on the aforesaid basis was restored.

Shri Hrishikesh Roy, J. agreed with judgement of Shri K M Joseph J. that for the purposes of Section 69A, –the deeming effect of the provision will only apply if the Assessee is the owner of the impugned goods. Secondly, for any Article to be considered as ‘valuable article’ Under Section 69A, it must be intrinsically costly, and it will not be regarded as valuable if huge mass of a non-precious and common place Article is taken into account, for imputing high value and added his reasoning to justify his opinion.

Section 69A provides as a Rule of evidence that for the deeming effect to apply, the Assessee must be the owner of money, bullion, jewellery and other valuable articles on which he is unable to offer a satisfactory explanation. Someone having mere possession and without legal ownership or title over the goods will not be covered within the ambit of Section 69A. In the present case, the Assessee was certainly not the owner of the bitumen — but was the carrier who was supplying goods from the consignor – oil marketing companies to the consignee – Road Construction Department. Notably, due to short delivery of goods, the possession of the Assessee was unlawful. The inevitable conclusion, therefore, is that the Assessee is not the owner, for the purposes of Section 69A.

For purpose of Section 69A of Income-tax Act, 1961, an ‘article’ shall be considered ‘valuable’ if the concerned Article is a high-priced Article commanding a premium price. As a corollary, an ordinary ‘article’ cannot be bracketed in the same category as the other high-priced articles like bullion, gold, jewellery mentioned in Section 69A by attributing high value to the run-of-the-mill article, only on the strength of its bulk quantity. To put it in another way, it is not the ownership of huge volume of some low cost ordinary Article but precious gold and the likes that would attract the implication of deemed income under Section 69A.

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Chief CIT vs. ST. Peter’s Educational Society [2016] 385 ITR 66 (SC)

The petitioner Society registered under the Societies Registration Act, 1860 as well as under the provisions of the Bombay Public Trusts Act, 1950, was engaged in imparting higher and specialised education. It is specialised in imparting education in the field of communication including advertising and its related subjects. The petitioner had also been granted the registration u/s. 12A of the Act. The Director of Income Tax (Exemption) had issued a notice u/s. 12AA(3) of the Act and called upon the petitioner to explain as to why its registration u/s. 12A of the Act should not be withdrawn. The said notice came to be challenged by the petitioner before the Gujarat High Court by filing a writ petition, which was withdrawn at a later stage in view of the fact that only show-cause notice was under challenge. However, the procedure initiated by the Director of income tax (Exemption) u/s. 12AA(3) of the Act were dropped by an order dated March 3, 2014 and accordingly the registration granted in favour of the petitioner u/s. 12A of the Act, remained intact. The petitioner submitted an application for getting an exemption certification u/s. 10 (23C)(vi) of the Act, for the assessment year 2013- 14 and onwards on September 30, 2013. The petitioner was called upon to make submissions. By two letters dated February 28, 2014 and August 13, 2014 detailed submissions were made before the Commissioner with whom the application was pending for adjudication. By the order dated September 29, 2014 the Commissioner refused to issue the certificate u/s. 10(23C)(vi) of the Act on various grounds.

By way of a writ petition under articles 14, 19(1)(g) and 226 of the Constitution of India the petitioner challenged the order dated September 29, 2014 passed by the Commissioner by which the application submitted by the by the petitioner to issue exemption certificate in its favour u/s. 10(23C)(vi) of the Act. had been refused.

The High Court noted that it was an admitted position that a certificate u/s. 12A of the Act had already been issued in favour of the petitioner and the same had continued till date. Therefore, according to the High Court it was established that the petitioner-institution was a charitable trust as far as applicability of the Income-tax Act was concerned.

The High Court held that the sole object of the institution was to impart education. By providing latest information and thereafter training to those people who were already in the field of advertising communication, etc. and in such process if certain persons became super-specialists in a particular field, and for which the institution was charging fee, such a case would not fall under proviso to section 2(15).

The High Court concluded that the petitioner institution was established for the sole purpose of imparting education in a specialized field.

Before the Supreme Court, the learned Solicitor General appearing for the Income-tax Department and the counsel appearing for the respondent-assessee in the appeal did not dispute that the issue involved in these appeals was squarely covered by the judgment of the Supreme Court in Queen’s Educational Society vs. CIT [2015] 372 ITR 699 (SC). The Supreme Court noted that the matter pertained to the exemption to the educational institutions u/s.10(23C) of the Income-tax Act, 1961. In the said judgment, the court summarized the legal position as under:

“11. Thus, the law common to section 10(23C) (iiiad) and (vi) may be summed up as follow:

(1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes as intuition for the purpose of making profits.

(2) The predominant object test be applied- the purpose of education should not be submerged by a profit making motive. .

(3) A distinction must be drawn between the making of the surplus and an institution being carried on ‘for profit’. No inference arises that merely because imparting education result in making a profit, it becomes an activity for profit.

(4) If after meeting the expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes.

(5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons.”

The Supreme Court noted that there was a difference of opinion amongst various High Courts on the aforesaid issue. While summarizing the law, it approved the judgments of Punjab and Haryana High Court, Delhi and Bombay High Courts and reversed the view taken by the Uttarakhand High Court. In so far as the judgment of the Punjab and Haryana High Court was concerned, it was given in the case of Pinegrove International Charitable Trust vs. Union of India [2010] 327 ITR 73 (P&H). The relevant para in this behalf which also stated as to how such cases were to be dealt with reads as under:

“25. We approve the judgment of the Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside the judgment the Uttarakhand High Court and since the Chief Commissioner of Income-tax’s orders cancelling exemption which were set aside by the Punjab and Haryana High Court were passed almost solely upon the law declared by the Uttarakhand High Court, it is clear that these orders cannot stand. Consequently, the Revenue’s appeal from the Punjab and Haryana High Court’s judgment dated January 29, 2010, and the judgments following it are dismissed. We reiterate that the correct tests which have been culled out in the three Supreme Court judgment stated above, namely, Surat Art Silk Cloth, Aditanar and American Hotel and Lodging, would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profits. In addition, we hasten to add that the 13th proviso to section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institution be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that the Revenue is at liberty to pass fresh order if such necessity is felt after taking into consideration the various provisions of law contained in section 10(23C) read with section 11 of the Income-tax Act.”

The Supreme Court dismissed the appeal clarifying that the observations made in para. 25 in Queen’s Educational Society (supra) shall be followed

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P.G. And W Sawoo Pvt. Ltd. vs. ACIT (SC) [2016] 385 ITR 60 (SC)

The premises belonging to the appellant were let out on rent to the Government of India. The rent was enhanced from Rs.4.00 to Rs. 8.11 per sq. ft. per month effective from September 1, 1987. The said enhancement of rent was made by a letter dated March 29, 1994 of the Estate Manager of the Government of India. The enhancement was subject to conditions including execution of a fresh lease agreement and communication of acceptance of the conditions incorporated therein. Such acceptance was communicated by the appellant by letter dated March 30, 1994.

A notice was issued u/s. 148 of the Income-tax Act, 1961 (“the Act”) seeking to reopen the concluded assessment of the appellant-assessee for the assessment year 1989- 90 (for the period of 21 month commencing on July 1, 1987 and ending on March 31, 1989).

The contention of the assessee before the Supreme Court was that having regard to the provisions of sections 5, 22 and 23 of the Act and the decision of the Supreme Court in E. D. Sassoon and Co. Ltd. v. CIT [1954] 26 ITR 27 (SC), no income accrued or arose and no annual value which is taxable under sections 22 and 23 of the Act was received or receivable by the assessee at any point of time during the previous year corresponding to the assessment year 1989-90. Hence, the impugned notice seeking to reopen the assessment in question was without jurisdiction or authority of law.

The Respondent –Revenue contended that the enhancement of rent was retrospective, i.e. from September 1, 1987 and, therefore, the income must have to be understood to have been received in the said assessment year, i.e. 1989-90.

The Supreme Court held that no such right to receive the rent accrued to the assessee at any point of time during the assessment year in question, inasmuch as such enhancement though with retrospective effect, was made only in the year 1994. The contention of Revenue that the enhancement was with retrospective effect did not alter the situation as retrospectivity was with regard to the right to receive rent with effect from an anterior date. The right, however, came to be vested only in the year 1994.

The Supreme Court therefore concluded that the notice seeking to reopen the assessment for the assessment year 1989-90 was without jurisdiction and authority of law. The said notice, therefore, was liable to be interfered with and the order of the High Court set aside. The Supreme Court ordered accordingly and consequently, the appeal was allowed.

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UOI vs. Star Television News Ltd. (2015) 373 ITR 528 (SC)

In all
the special leave petitions filed by the Union of India, before the
Supreme Court, the correctness of judgment dated 07.08.2009 rendered by
the Bombay High Court in a batch of writ petitions was questioned. In
those writ petitions filed by various assessees, the validity of
Sections 245 HA(1)(iv) and 245HA(3) of the Income-tax Act, 1961, as
amended by Finance Act, 2007 was challenged. The High Court, by a
detailed judgment, found the aforesaid provisions to be violative of
Article 14, etc., but at the same time, it did not invalidate these
provisions as the High Court was of the opinion that it was possible to
read down the provisions of Section 245HA(1)(iv) in particular to avoid
holding the provisions as unconstitutional. The conclusion so arrived at
was summed up in paragraph 54 of the impugned judgment, which read as
under:

“54. From the above discussion having arrived at a
conclusion that fixing the cut-off date as 31st March, 2008 was
arbitrary the provisions of Section 245HA(1)(iv) to that extent will be
also arbitrary. We have also held that it is possible to read down the
provisions of Section 245HA(1)(iv) in the manner set out earlier. This
recourse has been taken in order to avoid holding the provisions as
unconstitutional. Having so read, we would have to read section
245HA(1)(iv) to mean that in the event the application could not be
disposed of for any reasons attributable on the part of the applicant
who has made an application u/s. 245C. Consequently only such
proceedings would abate u/s. 245HA(1)(iv). Considering the above, the
Settlement Commission to consider whether the proceedings had been
delayed on account of any reasons attributable on the part of the
Applicant. If it comes to the conclusion that it was not so, then to
proceed with the application as if not abated. Respondent No.1 if
desirous of early disposal of the pending applications, to consider the
appointment of more Benches of the Settlement Commission, more so as the
Benches where there is heavy pendency like Delhi and Mumbai.”

The
Supreme Court was of the opinion that a well-considered judgment of the
High Court did not call for any interference. All these special leave
petitions and the appeals were accordingly dismissed by the Supreme
Court.

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DCIT vs. Zuari Estate Development and Investment Co. Ltd. (2015) 373 ITR 661 (SC)

The income-tax return filed by the respondent-assessee for the assessment year 1991-92 was accepted u/s. 143(1) of the Income-tax Act, 1961. After sometime, the Assessing Officer came to know that there was a sale agreement dated June 19,1984, entered into between the respondent and Bank of Maharashtra to sell a building for Rs.85,40,800 on the condition that the sale would be completed only after the five years of the agreement but before the expiration of the sixth year at the option of the purchaser and the purchaser can rescind the same at certain consideration. After the bank had paid to the assessee-company on June 20, 1984, the sum of Rs.84,47,111 being 90 % of the consideration agreed upon, the assessee put and handed over possession in part performance of the agreement of sale to the bank on June 20, 1984, itself. By letter dated June 12, 1990, in terms of clause 5 of the agreement of sale dated June 19, 1984, the bank called upon the assessee to complete the transactions and convey the property to the bank by June 18, 1990. By a letter dated June 16, 1993, the assessee confirmed that the assessee-company had put the premises in possession of the bank and that the assessee company would take all necessary steps for transfer of the said premises on or before September 30, 1993. Even after the said date, the assessee was unable to complete the transaction on the pretext that certain dispute had arisen owing to which the assessee did not complete the transaction. The assessee’s accounts for the year 1991 had disclosed the amount of Rs.84,47,112 by it as a current liability under the heading “advance against deferred sale of building”. In the course of assessment proceedings for the assessment year 1994- 95, the Assessing Officer raised a query as to why the capital gains arising on the sale of the premises should not be taxed in the assessment year 1991-92. On this basis, notice dated December 4, 1996, u/s. 143 read with section 147 of the Income-tax Act was served upon the assessee on the ground that the assessee had escaped tax chargeable on its income in the assessment year 1991-92. Challenging the validity of this notice, the respondent preferred a writ petition in the High Court of Bombay. The High Court had allowed the writ petition:

On appeal by the Revenue, the Supreme Court after going through the detailed order passed by the High Court found that the main issue which was involved in this case was not at all addressed by the High Court. A contention was taken by the appellant-Department to the effect that since the assessee’s return was accepted u/s. 143(1) of the Income-tax Act, there was no question of “change of opinion” inasmuch as while accepting the return under the aforesaid provision no opinion was formed and, therefore, on this basis, the notice issued was valid. According to the Supreme Court, this aspect was squarely covered by its judgment in Asst. CIT vs. Rajesh Jhaveri Stock Brokers Private Ltd.[2007] 291 ITR 500 (SC).

The Supreme Court thus held that the judgment of the High Court was erroneous. The Supreme Court allowed the appeal setting aside the impugned judgment of the High Court.

The Supreme Court further found that pursuant to the notice issued u/s. 143 of the Income-tax Act, the Assessing Officer had computed the income by passing the assessment order on the merits and rejecting the contention of the respondent that the aforesaid transaction did not amount to a sale in the assessment year in question. Against the assessment order, the respondent had preferred the appeal before the Commissioner of Income-tax (Appeals) which was also dismissed. Further appeal was preferred before the Income-tax Appellate Tribunal. This appeal, however, had been allowed by the Tribunal, vide order dated January 29, 2004, simply following the impugned judgment of the High Court, whereby the assessment proceedings itself were quashed. Since the Supreme Court had set aside the judgment of the High Court, as a result, the order dated January 29, 2004, passed by the Income-tax Appellate Tribunal also was set aside. The Supreme Court remitted the matter back to the Income-tax Appellate Tribunal to decide the appeal of the respondent on the merits.

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Jeyar Consultant and Investment Pvt. Ltd. vs. CIT (2015) 373 ITR 87 (SC).

The appellant company was engaged in the business of export of marine products and also financial consultancy and trading in equity shares. Its total business did not consist purely of exports but included business within the country.

The Assessing Officer, while dealing with the assessment of the appellant in respect of the assessment year 1989- 90 took the view that the deduction was not allowable on the ground that there was no relationship between the assessee-company and the processors. The appellant carried the said order in appeal. The appeal against the assessment order was dismissed by the Commissioner of Income-tax (Appeals). The Appellant filed an appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal set aside the order of the Assessing Officer and came to a conclusion that the appellant was entitled to full relief u/s. 80HHC and directed the Assessing Officer to grant relief to the assessee.

On remand, the Assessing Officer passed a fresh order giving effect to the orders of the Income-tax Appellate Tribunal. While giving the effect, the Assessing Officer found that the appellate had not earned any profits from the export of marine products and in fact, from the said export business, it had suffered a loss. Therefore, according to the Assessing Officer, as per section 80AB, the deduction u/s. 80HHC could not exceed the amount of income included in the total income. He found that as the income from export of marine products business was in the negative, i.e. there was a loss, the deduction u/s. 80HHC would be nil, even when the assessee was entitled to deduction under the said provision. With this order, the second round of litigation started. The assessee challenged the order passed by the Assessing Officer before the Commissioner (Appeals) contending that the formula which was applied by the Assessing Officer was different from the formula prescribed u/s. 80HHC of the Act and it was also in direct violation of the Central Board of Direct Taxes Circular dated July 5, 1990. The Commissioner (Appeals), however, dismissed the appeal of the assessee principally on the ground that u/s. 246 of the Income-tax Act, an order of the Assessing Officer giving effect to the order of the Incometax Appellate Tribunal is not an appealable order. The assessee approached the Income-tax Appellate Tribunal questioning the validity of the orders passed by the Assessing Officer and the Commissioner (Appeals). The Income-tax Appellate Tribunal also dismissed the appeal of the assessee, and upheld the order of the Assessing Officer. Challenging the order of the Income-tax Appellate Tribunal, the assessee approached the High Court u/s. 256(2) of the Act seeking reference to it. The High Court directed the Income-tax Appellate Tribunal to frame the reference and place the same before the High Court. On this direction of the High Court, the Income-tax Appellate Tribunal referred the following question to the High Court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deduction admissible to the assessee u/s. 80HHC is nil?”

The High Court answered this question against the assessee holding that the assessee admittedly had not earned any profits from the export of the marine products. On the other hand, it had suffered a loss. The deduction permissible u/s. 80HHC is only a deduction of the profits of the assessee from the export of the goods or merchandise. By the very terms of section 80HHC, it was clear that the assessee was not entitled to any benefit thereunder in the absence of any profits.

On further appeal by the appellant, the Supreme Court observed that there were two facets of this case which needed to be looked into. In the first instance, it had to consider as to whether the view of the High Court that the deduction was permissible u/s. 80HHC only when there are profits from the exports of the goods or merchandise was correct or it would be open to the assessee to club the income from export business as well as domestic business and even if there were losses in the export business but after setting off those against the income/ profits from the business in India, still there was net profit of the business, the benefit u/s. 80HHC would be available? The second question that would arise was as to whether the formula applied by the fora below was correct? In other words, while applying the formula, what would comprise “total turnover”?

The Supreme Court after considering its decisions in IPCA Laboratories Ltd. vs. DCIT [(2004) 260 ITR 521 (SC)] and A.M. Moosa vs. CIT [(2007) 294 ITR 1 (SC)] held that it stood settled, on the co-joint reading of the above judgments, that where there are losses in the export of one type of good (for example, self-manufactured goods) and profits from the export of other type of goods (for example trading goods) then both are to be clubbed together to arrive at net profits or losses for the purpose of applying the provisions of section 80HHC of the Act. If the net result was loss from the export business, then the deduction under the aforesaid Act is not permissible. As a fortiori, if there is net profit from the export business, after adjusting the losses from one type of export business from other type of export business, the benefit of the said provision would be granted.

The Supreme Court however noted that in both the aforesaid cases, namely, IPCA and A.M. Moosa, the Court was concerned with two business activities, both of which related to export, one from export of self manufactured goods and other in respect of trading goods, i.e., those which are manufactured by others. In other words, the court was concerned only with the income from exports.

The Supreme Court observed that in the present case, however, the fact situation was somewhat different. Here, in so far as the export business was concerned, there were losses. However, the appellate-assessee relied upon section 80HHC(3)(b), as existed at the relevant time, to contend that the profits of the business as a whole, i.e., including profits earned from the goods or merchandise within India should also be taken into consideration. In this manner, even if there were losses in the export business, but profits of indigenous business outweigh those losses and the net result was that there was profit of the business, then the deduction u/s. 80HHC should be given. The Supreme Court held that having regard to the law laid down in IPCA and A.M. Moosa, it could not agree with the appellant. From the scheme of section 80HHC, it was clear that deduction was to be provided under subsection (1) thereof which was “in respect of profits retained for export business”. Therefore, in the first instance, it had to be satisfied that there were profits from the export business. That was the prerequisite as held in IPCA and A.M. Moosa as well. S/s. (3) came into the picture only for the purpose of computation of deduction. For such an eventuality, while computing the “total turnover”, one may apply the formula stated in clause (b) of sub-section (3) of section 80HHC. However, that would not mean that even if there were losses in the export business but the profits in respect of business carried out within India were more than the export losses the benefit u/s. 80HHC would still be available. In the present case, since there were losses in the export business, the question of providing deduction u/s. 80HHC did not arise and as a consequence, there was no question of computation of any such deduction in the manner provided under s/s. (3). The Supreme Court therefore held that the view taken by the High Court was correct on the facts of this case.

With this, according to the Supreme Court there was no need to answer the second facet of the problem as the questi

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Ashish Plastic Industries vs. ACIT [2015] 373 ITR 45(SC)

During the course of survey operation on the assessee, a manufacturer of PVC, excess stock of Rs.13,92,000 was found. On this basis, an addition was made in the assessment order. Before the Commissioner of Incometax (Appeals), the assessee sought to explain this difference by pointing out that sales of 32,809 kgs. of finished products made by one of the sister concerns, namely, Ashish Agro Plast P. Ltd. was wrongly shown as to be that of the assessee. On remand it was found that sales of finished product of 32,809 kgs. as shown is sales register of the sister concern tallied with impounded stock register and that the sister concern had received sales proceeds of the same through the bank accounts prior to the date of survey. It was however further found that sale of 33,682 kgs. of finished goods was nothing but unaccounted sales out of which 32,809 kgs. was made to the aforesaid sister concern. Taking this into consideration, the Commissioner of Income-tax (Appeals) upheld the addition. This order was upheld by the Tribunal and the High Court. The Supreme Court issued a notice on a Special Leave Petition being filed by the assessee limiting to the question as to whether in respect of sales of 32,809 kgs. which were shown in the stock register of Ashish Agro Plast P. Ltd., there had been double taxation. The Supreme Court remanded the case back to the Assessing Officer authority for enabling the assessee to demonstrate as to whether the sister concern had already paid tax on the aforesaid income from the aforesaid sales and directing that, if that was shown, to the extent of tax that was paid, benefit should be accorded to the assessee.

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Kapri International (P) Ltd. vs.CWT [2015] 373 ITR 50(SC)

The assessee company manufactured bed sheets on a property situated at Plot No.39, Site IV, Sahibabad. It’s own subsidiary company, namely, M/s. Dior International Pvt. Ltd., a company under the same management was doing processing work, namely, dyeing, for the assesseecompany in a part of the factory building situated at the aforesaid property. M/s Dior International Pvt. Ltd. installed its own machinery for the said job work of dyeing and that the assessee charged a sum of Rs.20,000 per month as licence fee from M/s. Dior International Pvt. Ltd. The said sum of Rs.20,000 per month charged as licence fee had been claimed by the assessee to be business income. Further, the job work undertaken by M/s. Dior International Pvt. Ltd., though done wholly for the assessee, was nonetheless charged to the assessee’s account and paid for by the assessee. The question that arose on the facts in this case was whether u/s. 40(3)(vi) of the Finance Act, 1983, “the building” was used by the assessee as a factory for the purpose of its business.

The assessing authority for the assessment year 1984- 85 held that the part of the building given to M/s. Dior International Pvt. Ltd., on licence was not being used for the assessee’s own business and, therefore, the assessee was not entitled to exemption in respect of the said part of the Sahibabad building property. On an appeal to the Commissioner of Income Tax (Appeals), agreed with the assessing authority and dismissed the appeal. In a further appeal to the Income-tax Appellate Tribunal, the Tribunal agreed with the view of the authorities below and dismissed the appeal. The High Court of Delhi agreed with the reasoning of the Tribunal.

On further appeal, the Supreme Court held that not only the property must be used by the assessee but it must also be “for the purpose of its business”. According to the Supreme Court on the property, it was clear on the facts that the assessee and M/s. Dior International Pvt. Ltd. were doing their own business and were separately assessed as such. The charging of Rs.20,000 per month as licence fee by the assessee from M/s. Dior International Pvt. Ltd. changed the complexion of the case. Once this was done, the two companies, though under the same management, were treating each other as separate entities. Also, for the job work done by M/s. Dior International Pvt. Ltd., M/s. Dior International Pvt. Ltd. was charging the assessee company and this again established that two companies preserved their individual corporate personalities so far as the present transaction was concerned. The Supreme Court dismissed the appeal, agreeing with the reasoning of the Tribunal, which had found favour with the High Court.

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Om Prakash Shiksha Prasar Samiti & Anr. vs. CCIT & Ors. [2014] 364 ITR 329 (SC)

The appellants had applied for grant of a certificate u/s. 10(23C)(vi) of the Income-tax Act, 1961, inter alia, requesting the authorities to grant certificate to claim exemption under the provisions of the Act. The said certificate was not granted by the authorities primarily on the ground that the appellants were not using the entire income for the educational purposes for which purpose the trust was established.

Being aggrieved by the order passed by the Chief Commissioner of Income-tax, the appellants approached the High Court. The writ petitions were dismissed by the High Court.

During the course of hearing before the Supreme Court the learned counsel for the appellants stated that the appellants had amended the objects of the society, with effect from 31st March, 2008. The Supreme Court was of the view that if that was so, the appellants should make an appropriate application before the authorities for grant of certificate u/s. 10(23C)(vi) of the Act for the assessment years 2002-03 to 2007-08 along with the amended objects of the society.

In view of this subsequent development and keeping in view of the peculiar facts and circumstances of the case, the Supreme Court set aside the order passed by the High Court and the authorities concerned and permitted the appellants to file a fresh application within a month’s time from the date of the order. The Supreme Court directed that if such application is filed within the time granted the authority would consider the same in accordance with law, keeping in view the amended objects of the society, with effect from 31st March, 2008. All the contentions of both the parties were left open by the Supreme Court.

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CIT vs. Engineers India Ltd. [2014] 364 ITR 686 (SC)

The Supreme Court noted that the appeal filed by the Revenue u/s. 260A of the Income-tax Act, 1961 had been admitted by the High Court and two substantial questions of law were framed for consideration of the appeal.

The grievance of the Revenue before the Supreme Court was that by necessary implication, the other questions raised in the memo of appeal before the High Court stood rejected.

The Supreme Court held that the Revenue was under some misconception. The proviso following the main provision of section 260A(4) of the Act states that nothing stated in s/s. (4), i.e., “The appeal shall be heard only on the question so formulated” shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

According to Supreme Court, therefore, the High Court’s power to frame substantial questions of law at the time of hearing of the appeal other than the questions on which appeal had been admitted remains u/s. 260A(4). This power is subject, however, to two conditions, (one) the court must be satisfied that appeal involves such questions, and (two) the court has to record reasons therefore.

In view of the above legal position, the Supreme Court did not find any justifiable reason to entertain the special leave petitions. Accordingly, the special leave petitions were dismissed.

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[Coca Cola India Inc. v. ACIT & Ors., (2011) 336 ITR 1 (SC)]

The petitioner, a company incorporated under the laws of the United States of America and thus a foreign company u/s. 2(23A) of the Act, had a branch office in India. It was a part of the International Coca Cola corporate group. The said group had other companies operating in India incorporated under the Companies Act, 1956. The petitioner obtained permission u/s. 29(1)(a) of the Foreign Exchange Regulation Act, 1973, (FERA) to operate a branch office in India to render a services to the Coca Cola group companies, as per conditions mentioned in the application for the said permission. There is a service agreement between the petitioner on the one hand and Britco Foods Company Private Limited (Britco) on the other.

As per the said agreement, the petitioner provides advisory services to Britco to advise, monitor and co-ordinate the activities of bottlers, in consideration of which the petitioner receives fee calculated on the basis of actual cost plus 5%. The petitioner was assessed under the Act for the A.Y. 1998-99 on 31st March, 2004. The Assessing Officer, however, formed an opinion that income of the petitioner, chargeable to tax for the said year, had escaped assessment within the meaning of section 147 of the Act. A notice dated 30th March, 2005, was issued u/s. 148 of the Act, requiring the petitioner to file a return and thereafter, some further information was sought from the petitioner for the purpose of assessment. The petitioner filed reply to the said notice, seeking reasons for the proposed reassessment.

The reasons indicated that the Assessing Officer referred to section 92 of the Act, which enables the Assessing Officer to determine profits which may reasonably deemed to have been derived, when less than ordinary profits are shown to have been derived by a resident. It was further stated in the said reasons that as per the order dated 7th February, 2005, u/s. 92CA(3) for the A.Y. 2002- 03, passed by the Transfer Pricing Officer-1, the profit declared by the petitioner was abnormally low, on account of which arm’s-length price had been fixed. On that account, the income of the assessee had escaped assessment. Similar notices were issued for the A.Ys. 1999-2000, 2000-01 and 2001-02. On 14th July, 2005, notice u/s. 92CA(3) of the Act was issued by the Additional Commissioner of Income-tax acting as Transfer Pricing Officer, on a reference made by the Assessing Officer u/s. 92CA(1) of the Act for the A.Y. 2003-04, to determine arm’s-length price. Identical notices were issued for the A.Ys. 2004-05, 2005-06 and 2006-07.

The Assesssing Officer made assessment in respect of income of the petitioner for the A.Y. 2002-03, vide order dated 24th March, 2005, after getting determined arm’s-length price of services rendered by the petitioner to its associated company, thereby enhancing the income of the assessee. Against the said order, the petitioner preferred an appeal which is pending before the appropriate authority. The petitioner filed a writ petition before the Punjab & Haryana High Court on 19th October, 2005. On 21st October, 2005, notice was issued to the respondents and, vide order dated 18th November, 2005, stay of passing of final order for the A.Ys. 2003-04, 2004-05, 1998-99 to 2001-02 was granted. Similarly, on 15th December, 2006, stay of passing final order for the A.Y. 2005-06 was granted and permission to amend the petition was also granted to challenge the notice in respect of the said year.

Similarly, on 26th May, 2008, stay of passing of final order for the A.Y. 2006-07 was granted. The petitioner further amended the petition to challenge the notice in respect of the A.Y. 2006-07, which amendment had been allowed by a separate order. The main contention raised in the writ petition was that the provisions of Chapter X, i.e., section 92 to 92F of the Act have been enacted with a view to prevent diversion of profits in intra-group transactions leading to erosion of tax revenue. The said provisions have been incorporated, vide Finance Act, 2001, and further amended, vide Finance Act, 2002. Having regard to the object for which the provisions have been enacted, applicability of the said provisions has to be limited to situations where there is diversion of profits out of India or where there may be erosion of tax revenue in intra-group transaction. In the present case, there was neither any material to show diversion of profits outside India, nor of erosion of tax revenue. If the price charged was less and profit of the petitioner was less, there was corresponding lesser claim for deduction by Britco.

Question of diversion of profits out of India would arise only if price charged is higher and that too if the higher profit was not subject to tax in India, which was not the situation in the present case. Further contention was that there was no occasion for determining arm’s-length price as the price determined by the petitioner itself was as per section 92(1) and (2) of the Act, i.e., cost plus 5%. In such a situation, there was no occasion to make reference to the Transfer Pricing Officer. Even if the reference was sought to be made, the petitioner was entitled to be heard before such a decision is taken, so that it could show that reference to the Transfer Pricing Officer was not called for. In objecting to the notices for reassessment, contention raised was that the provisions of Chapter X having been introduced only from 1st April, 2002, there could be no reassessment for the period from April 1, 1997, to 31st March, 2001. It was pointed out that prior to the amendment with effect from April 1, 2002, u/s. 92 of the Act, there was a provision for determination of reasonable profits deemed to have been derived by a resident and not a ‘non-resident’.

The amended provision could not be applied to the petitioner for the period prior to 31st March, 2001. In the reply filed on behalf of the respondents, the impugned notices and orders were defended. As regards the period prior to the A.Y. 2002-03, when the amended provisions of Chapter X were not operative, the stand of the respondents was that the petitioner suppressed its profit in its transactions with its associated companies, which was clear from the proportion of amount of working capital employed to the declared profit and this resulted in escapement of income within the meaning of section 147 of the Act. As regards the period for and after the A.Y. 2002- 03, it was submitted that the said Chapter was applicable to the petitioner as the petitioner had entered into ‘international transaction’ within the meaning of the said provisions with its ‘associated enterprises’. There was no condition that the said Chapter could apply only if the parties were not subject to the tax jurisdiction in India. The only requirement is that at least one of the parties should be non-resident, apart from other requirements in the said Chapter.

According to the High Court the following questions arose for its consideration: “

(i) Whether inapplicability of the unamended provisions of section 92 of the Act (as it stood prior to 1st April 1, 2002) to the petitioner created a bar to reassessment of escaped income of the petitioner?

(ii) Whether the order passed by the Transfer Pricing Officer under Chapter X after 1st April, 2002, could be one of the reasons for reassessment for period prior to introduction of the amended Chapter X in the Act?

(iii) Whether the provisions of Chapter X are attracted when both the parties to a transaction are subject to tax in India, in the absence of allegation of transfer of profits out of India or evasion of tax?

(iv) Whether opportunity of being heard is required before referring the matter of determination of arm’s-length price to the Transfer Pricing Officer?”
The above questions framed by the High Court were dealt by it as under:

Re: Question No. (i)

The High Court noted that the objection of the petitioner was twofold: (a) Reference to inapplicable provisions of section 92 of the Act, as it stood prior to the amended with effect from 1st April, 2002, and (b) irrelevance of the order of the Transfer Pricing Officer under Chapter X passed in respect of a subsequent assessment year.

The High Court held that section 147 of the Act requires formation of opinion that income has escaped assessment. The said provision is not in any manner controlled by section 92 of the Act, nor is there any limit to consideration of any material having nexus with the opinion on the issue of escapement of assessment of income. Interference with the notice for reassessment is called for only where extraneous or absurd reasons are made the basis for opinion proposing to reassess. Apart from the fact that the Assessing Officer had given other reasons, it cannot be held that the material relied upon by the Assessing Officer for proposing reassessment was irrelevant. Whether or not the said material should be finally taken into account for reassessment was a matter which had to be left open to be decided by the Assessing Officer after considering the explanation of the assessee. The High Court was of the view that having regard to the relationship of the petitioner to its associate company, it could not be claimed that the price mentioned by it must be accepted as final and may not be looked at by the Assessing Officer.

Reg: Question No. (ii)

As regards the question whether order of the Transfer Pricing Officer could be taken into account, the High Court was of the view that there could not be any objection to the same being done. Requirement of section 147 of the Act is fulfilled if the Assessing Officer can legitimately form an opinion that income chargeable to tax has escaped assessment. For forming such opinion, any relevant material can be considered. The order of Transfer Pricing Officer can certainly have nexus for reaching the conclusion that income has been incorrectly assessed or has escaped assessment. The High Court observed that in the present case, the said material came to the notice of the Assessing Officer subsequent to the assessment. There was no grievance that the provisions of section 148 to 153 of the Act had not been followed. In such a situation, it could not be held that the notice proposing reassessment was vitiated merely because one of the reasons referred to the order of the Transfer Pricing Officer.

Reg: Question No. (iii)

The High Court did not find any ambiguity or absurd consequence of application of Chapter X to persons who were subject to jurisdiction of taxing authorities in India, nor could find any statutory requirement of establishing that there was transfer of profits outside India or there was evasion of tax. The only condition precedent for invoking provisions of Chapter X was that there should be income arising from international transaction and such income had to be computed having regard to arm’s-length price. ‘International transaction’ as defined u/s. 92B of the Act, stood on different footing than any other transaction. Arm’s -length price was nothing but a fair price which would have been normal price. There was always a possibility of transaction between a non-resident and its associates being undervalued and having regard to such tendency, a provision that income arising out of the said transaction could be computed having regard to arm’s-length price, would not be open to question and was within the legislative competence to effectuate the charge of taxing real income in India.

The High Court did not find any merit whatsoever in the contention that provisions of Chapter X could not be made applicable to parties which were subject to jurisdiction of taxing authorities in India, without there being any material to show transfer of profits outside India or evasion of tax between the two parties. The contention that according to the permission granted by the Reserve Bank of India under the Foreign Exchange Regulation Act, the assessee could not charge more than particular price, could also not control the provisions of the Act, which provides for taxing the income as per the said provision or computation of income, having regard to arm’s-length price in any international transaction, as defined.

Reg: Question No. (iv)

The High Court held that when it is a matter of assessment by one or other officer and the assessee is to be provided opportunity, in the course of the assessment, there was no merit for inferring further opportunity at the stage of decision of the question, whether the Assessing Officer himself is to compute the arm’s-length price or to make a reference to the Transfer Pricing Officer for the said purpose.

On an appeal, the Supreme Court observed that the issue in the Special Leave Petition concerned the
 

application of the principle of transfer pricing. In this case a notice was issued u/s. 148 of the Act for some of the assessment years. On the question of jurisdiction, a writ petition was filed by the assessee, which was disposed of by the High Court in the writ jurisdiction. The Supreme Court, however, on going through the papers, found that foundational facts were required to be established, which could not have been done by way of writ petition. For the aforestated reasons, the Supreme Court was of the view that the assessee should be relegated to adopt proceedings, which were pending, as of date, before various authorities under the Act.

The Supreme Court accordingly, directed the authorities to expeditiously hear and dispose of pending proceedings as early as possible. If the petitioner- assessee was aggrieved by the orders passed by any of these authorities, it would have to exhaust the statutory remedy provided under the Act. It was made clear that each of the authorities would decide the matter uninfluenced by any of the observations made by the High Court.

The special leave petition was disposed of accordingly.

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[Maruti Suzuki India Ltd. v. ACIT, (2011) 335 ITR 121 (SC)]

The petitioner before the Delhi High Court, formerly known as Maruti Udyog Limited (hereinafter referred to as ‘Maruti’), was engaged in the business of manufacture and sale of automobiles, besides trading in spares and components of automotive vehicles. The petitioner launched ‘Maruti 800’ car in the year 1983 and thereafter launched a number of other models, including Omni in the year 1984 and Esteem in the year 1994. The trade mark/logo ‘M’ was the registered trade mark of the petitioner-company.

Since Maturi wanted a licence from Suzuki for its SH model and Suzuki had granted licence to it, for the manufacture and sale of certain other models of Suzuki four-wheel motor vehicles, Maruti, on 4th December, 1992, entered into a licence agreement, with Suzuki Motor Corporation (thereinafter referred to as ‘Suzuki’) with the approval of the Government of India.

Prior to 1993, the petitioner was using the logo ‘M’ on the front of the cars manufactured and sold by it. From 1993 onwards, the petitioner started using the logo ‘S’, which is the logo of Suzuki, in the front of new models of the cars manufactured and sold by it, though it continued to use the mark ‘Maruti’ along with the word ‘Suzuki’ on the rear side of the vehicles manufactured and sold by it.

A reference u/s. 92CA(1) was made by the Assessing Officer of the petitioner, to the Transfer Pricing Officer (hereinafter referred to as ‘TPO’) for determination of the arm’s-length price for the international transactions undertaken by Maruti with Suzuki in the financial year 2004-05. A notice dated 27th August, 2008, was then issued by the TPO, to the petitioner with respect to replacement of the front logo ‘M’, by the logo ‘S’, in respect of three models, namely, ‘Maruti’ 800, Esteem and Omni in the year 2004-05, which, according to the TPO, symbolised that the brand logo of Maruti had changed to the brand logo of Suzuki. It was stated in the notice that Maruti having undertaken substantial work towards making the Indian public aware of the brand ‘Maruti’, that brand had become a premier car brand of the country. According to the TPO, the change of brand logo from ‘Maruti’ to ‘Suzuki’, during the year 2004-05, amounted to sale of the brand ‘Maruti’ to ‘Suzuki’. He noticed that Suzuki had taken a substantial amount of royalty from Maruti, without contributing anything towards brand development and penetration in Indian Market. It was further noted that Maruti had incurred expenditure amounting to Rs.4,092 crore on advertisement, marketing and distribution activity, which had helped in creation of ‘Maruti’ brand logo and due to which Maruti had become the number one car company in India. Computing the value of the brand at cost plus 8% method, he assessed the value of the brand at Rs.4,420 crore. Maruti was asked to show cause as to why the value of Maruti brand be not taken at Rs.4,420 crore and why the international transaction be not adjusted on the basis of its deemed sale to Suzuki.

Maruti, in its reply dated 8th September, 2008, stated that at no point of time had there been any transfer of the ‘Maruti’ brand or logo by it to Suzuki, which did not have any right at all to use that logo or trade mark. It was submitted by Maruti that a registered trade mark could be transferred only by a written instrument of assignment, to be registered with the Registrar of Trade Marks, and no such instrument had been executed by it, at any point of time. It was also brought to the notice of the TPO that Maruti continued to use its brand and logo ‘Maruti’ on its products and even on the rear side of the models Esteem, ‘Maruti 800’ and ‘Omni’ , the ‘Maruti’ trade mark was being used along with the word ‘Suzuki.’ It was further submitted that Maruti continued to use the trade mark/logo ‘Maruti’ in all its advertisements, wrappers, letterheads, etc. It was also submitted by Maruti that Suzuki, on account of its large shareholding in the company and because of strong competition from the cars introduced by multinationals in India, had permitted them to use the ‘Suzuki’ name and logo, so that it could face the competition and sustain its market share, which was under severe attack. It was also submitted that Suzuki had not charged any additional consideration for use of their logo on the vehicles manufactured by Maruti and there was no question of any amount of revenue being transferred from the tax net of the Indian exchequer to any foreign tax jurisdiction. It was submitted that Maruti had, in fact, earned significantly larger revenue on account of the co-operation extended by Suzuki and that larger revenue was being offered to tax in India.

The jurisdiction of the TPO was thus disputed by ‘Maruti’ in the reply submitted to him. He was requested to withdraw the notice and drop the proceedings initiated by him.

Since Maruti did not get any response to the jurisdictional challenge and the TPO continued to hear the matter on the basis of the notice issued by him, without first giving a ruling on the jurisdiction issue raised by it, a writ petition was filed before the High Court seeking stay of the proceedings before the TPO. Vide interim order dated 19th September, 2008, the High Court directed that the proceedings pursuant to the show-cause notice may go on, but, in case any order is passed, that shall not be given effect to.

Since the TPO passed a final order on 30th October, 2008, during the pendency of the writ petition and also forwarded it to the Assessing Officer of the petitioner, the writ petition was amended so as to challenge the final order passed by the TPO.

In the final order passed by him, the TPO came to the conclusion that the trade mark ‘Suzuki’, which was owned by Suzuki Motor Corporation, had piggy-backed on the Maruti trade mark, without payment of any compensation by Suzuki to ‘Maruti’. He also came to the conclusion that the trade mark ‘Maruti’ had acquired the value of super brand, whereas the trade mark ‘Suzuki’ was a relatively weak brand in the Indian market and promotion of the co-branded trade mark ‘Maruti Suzuki’ had resulted in: “
(a) Use of ‘Suzuki’ — trade mark of the AE.
(b) Use of ‘Maruti’ — trade mark of the assessee.
(c) Reinforcement of ‘Suzuki’ trade mark which was a weak brand as compared to ‘Maruti’ in India.
(d) Impairment of the value of ‘Maruti’ trade mark due to branding process.”

The TPO noted that Maruti had paid royalty of Rs.198.6 crore to Suzuki in the year 2004-05, whereas no compensation had been paid to it by Suzuki, on account of its trade mark having piggy-backed on the trade mark of Maruti. Since Maruti did not give any bifurcation of the royalty paid to Suzuki towards licence for manufacture and use of trade mark, the TPO apportioned 50% of the royalty paid in the year 2004-05, to the use of the trade mark, on the basis of findings of piggy-backing of ‘Maruti’ trade mark, use of ‘Maruti’ trade mark on co-branded trade mark ‘Maruti Suzuki’, impairment of ‘Maruti’ trade mark and reinforcement of ‘Suzuki’ trade mark, through co-branding process. The arm’s-length price of royalty paid by Maruti to Suzuki was held as nil, using the CUP method. He also held, on the basis of the terms and conditions of the agreement between Maruti and Suzuki, that Maruti had developed marketing intangibles for Suzuki in India, at its costs, and it had not been compensated for developing those marketing intangibles for Suzuki. He also concluded that non-routine advertisement expenditure, amounting to Rs.107.22 crore, was also to be adjusted. He, thus, made a total adjustment of Rs.2,06,52,26,920 and also directed that the Assessing Officer of Maruti shall enhance its total income by that amount, for the A.Y. 2005-06.

The High Court set aside the order dated 30th October, 2008 of TPO and the TPO was directed to determine the appropriate arm’s-length price in respect of the international transactions entered into by the petitioner Maruti Suzuki India Limited with Suzuki Motor Corporation, Japan, in terms of the provisions contained in section 92C of the Income-tax Act and in the light of the observations made in the judgment and the view taken by it therein. The TPO was to determine the arm’s-length price within three months of the passing of this order [(2010) 328 ITR 210 (Del.)].

On an appeal by Maruti Suzuki India Ltd., the Supreme Court noted that the High Court had remitted the matter to the TPO with liberty to issue fresh show-cause notice. The High Court had further directed the TPO to decide the matter in accordance with the law. The Supreme Court observed that the High Court had not merely set aside the original show-cause notice but it had made certain observations on the merits of the case and had given directions to the Transfer Pricing Officer, which virtually concluded the matter. In the circumstances, on that limited issue, the Supreme Court directed the TPO, who, in the meantime, had already issued a show-cause notice on 16th September, 2010, to proceed with the matter in accordance with law uninfluenced by the observations/directions given by the High Court in its judgment dated 1st July, 2010.

The Supreme Court further directed that the Transfer Pricing Officer would decide this matter on or before 31st December, 2010.