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2005 (7) TMI 357
Issues Involved:
1. Jurisdiction of authorities under the Andhra Pradesh Co-operative Societies Act, 1964 (the 1964 Act) versus the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the 1993 Act).
2. Interpretation of legislative entries and the constitutionality of state versus union legislative powers.
3. Applicability of the 1993 Act to co-operative banks.
4. Validity of proceedings initiated under the 1964 Act for recovery of debts due to co-operative banks.
5. Legislative competence of the state under entry 32, List II versus entry 45, List I of the Seventh Schedule of the Constitution.
Detailed Analysis:
1. Jurisdiction of Authorities under the 1964 Act versus the 1993 Act:
The judgment addresses the jurisdictional conflict between the authorities under the 1964 Act and the Tribunals constituted under the 1993 Act. It was held that the Tribunals under the 1993 Act have exclusive jurisdiction to entertain and decide applications from co-operative banks for recovery of debts due to them. The jurisdiction of the Registrar under the 1964 Act is excluded by the provisions of the 1993 Act, particularly sections 17, 18, and 34, which confer exclusive jurisdiction on the Tribunals for recovery of debts due to banks and financial institutions.
2. Interpretation of Legislative Entries and Constitutionality:
The judgment extensively discusses the interpretation of legislative entries in the Seventh Schedule of the Constitution. It emphasizes the principle that legislative entries must be given a broad and liberal interpretation to avoid conflicts. The court applied the doctrine of "pith and substance" to determine the true nature and character of the legislation, concluding that the recovery of debts due to banks falls within the core area of "banking" under entry 45, List I, and is thus within the exclusive legislative competence of the Union.
3. Applicability of the 1993 Act to Co-operative Banks:
The court held that co-operative banks are "banks" and "banking companies" within the meaning of the 1993 Act. This conclusion was based on the interpretation of the definitions provided in the 1993 Act and the Banking Regulation Act, 1949 (the 1949 Act). The court rejected the contention that co-operative banks are excluded from the purview of the 1993 Act, affirming that the provisions of the 1993 Act apply to co-operative banks as well.
4. Validity of Proceedings Initiated under the 1964 Act:
The judgment invalidates the proceedings initiated under the 1964 Act for recovery of debts due to co-operative banks. It was held that any awards, certificates, or execution proceedings initiated by the Registrar under the 1964 Act are null, void, and inoperative if they pertain to the recovery of debts due to co-operative banks. The court emphasized that such matters fall exclusively within the jurisdiction of the Tribunals under the 1993 Act.
5. Legislative Competence of the State under Entry 32, List II versus Entry 45, List I:
The court concluded that the legislative field of "banking" under entry 45, List I, includes all aspects of banking, including the recovery of debts due to banks. Consequently, the state legislature is incompetent to legislate on matters related to the recovery of debts due to co-operative banks, as these fall within the exclusive domain of the Union. The court held that sections 61 and 71 of the 1964 Act, to the extent they confer jurisdiction on the Registrar to recover debts due to co-operative banks, are beyond the legislative competence of the state and invalid.
Conclusions:
- Recovery of debts due to banking institutions, including co-operative banks, is within the exclusive legislative field of "banking" under entry 45, List I.
- Co-operative banks are "banks" and "banking companies" under the 1993 Act.
- The Tribunals under the 1993 Act have exclusive jurisdiction to adjudicate claims for recovery of debts due to co-operative banks.
- Sections 61 and 71 of the 1964 Act, insofar as they confer jurisdiction on the Registrar to recover debts due to co-operative banks, are invalid.
- The proceedings initiated under the 1964 Act for recovery of debts due to co-operative banks are null, void, and inoperative.
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2005 (7) TMI 356
Issues Involved:
1. Allegations of oppression and mismanagement.
2. Disputes about membership.
3. Amendments to the Articles of Association, specifically Article 24.
4. Conduct of free and fair elections.
5. Appointment of an interim Board.
6. Representation of minority members on the Board of Directors.
Detailed Analysis:
1. Allegations of Oppression and Mismanagement:
The petitioners alleged oppression and mismanagement by the majority members of the Motion Picture Association. These allegations were initially filed under sections 397, 398, and 155 of the Companies Act, 1956. However, due to various orders passed by the Court over time, most grievances were redressed, leaving only the issue regarding Article 24 unresolved.
2. Disputes About Membership:
The petition included disputes about the membership of certain individuals. The Court's interventions over time addressed these disputes, leading to the resolution of most membership-related issues.
3. Amendments to the Articles of Association, Specifically Article 24:
The primary unresolved issue was the proposed amendment to Article 24 of the Articles of Association. The original Article 24 mandated that all office bearers and executive committee members retire at every AGM but were eligible for re-election. The proposed amendment sought to introduce a gap of one year after two consecutive years of service. The company argued that the proposed amendment was rejected by more than 75% of the members present at the EGM, and thus, the amendment should not be allowed. The Court noted that the majority's decision to retain the existing Article 24 should prevail as the proposed amendment would not effectively address the alleged mala fide in the election process.
4. Conduct of Free and Fair Elections:
The petitioners sought directions for free and fair elections under the supervision of the Court. The Court had previously intervened to ensure the proper conduct of elections, addressing the petitioners' grievances about election malpractices.
5. Appointment of an Interim Board:
The petitioners requested the appointment of an interim Board to manage the company's affairs until the elections were held. The Court's previous orders had already addressed the management issues, making this request redundant.
6. Representation of Minority Members on the Board of Directors:
The petitioners sought adequate representation of minority members on the Board to safeguard their interests. The Court acknowledged the importance of protecting minority interests but emphasized that the proposed amendment to Article 24 was not the appropriate solution. Instead, the Court suggested that other remedies could be pursued under sections 397 and 398 of the Act if oppression and mismanagement continued.
Conclusion:
The Court concluded that the proposed amendment to Article 24 was not necessary and would not serve the intended purpose of preventing oppression and mismanagement. The majority's decision to retain the existing Article 24 was upheld. The petition was disposed of, and all pending applications were also disposed of. There were no orders as to costs.
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2005 (7) TMI 355
Issues Involved:
1. Sanction of the scheme of amalgamation.
2. Compliance with statutory requirements under the Companies Act, 1956.
3. Objections raised by the Regional Director of Company Affairs.
4. Retention of the name of the transferor-company by the new company.
5. Interests of shareholders, creditors, and employees.
Issue-wise Detailed Analysis:
1. Sanction of the Scheme of Amalgamation:
The petitioners sought the sanction of the scheme of amalgamation, Annexure A, where the transferee-company, Hindhivac Private Limited, proposed to merge with the transferor-company, Hind High Vacuum Company Private Limited. The scheme was approved by the board of directors of both companies and was subject to confirmation by the Court. The Court reviewed the scheme and found that it was unanimously approved by the shareholders and creditors of both companies in meetings convened as per the Court's orders. Therefore, the statutory requirement under section 391(2) of the Companies Act, 1956, was complied with.
2. Compliance with Statutory Requirements:
Both companies had convened meetings of their shareholders and creditors in accordance with section 391 of the Act and the Court's orders. The auditor's report for the transferor-company indicated that the company's affairs were not conducted in a manner prejudicial to the interests of shareholders or creditors. The Official Liquidator also had no objections to the scheme. The Court noted that despite the publication of the hearing, no objections were raised by shareholders, creditors, employees, or any other person.
3. Objections Raised by the Regional Director of Company Affairs:
The Regional Director of Company Affairs objected that the objects of the transferor-company did not contain any enabling provisions for amalgamation and suggested that the memorandum of association needed to be amended accordingly. The Court, however, found that clause 32 of the memorandum of association of the transferor-company, though not explicitly mentioning "amalgamation," provided for the disposal of undertakings, which included amalgamation. Additionally, the Court referenced section 394(1)(iv) of the Act, which empowers the Court to order the dissolution of the transferor-company without winding up at the time of sanctioning a scheme of amalgamation.
4. Retention of the Name of the Transferor-Company:
The scheme proposed that the name of the transferor-company be retained by the new company. The Court ordered that this retention would be subject to compliance with the provisions of the Companies Act.
5. Interests of Shareholders, Creditors, and Employees:
The scheme provided that all assets, properties, rights, and liabilities of the transferor-company would be transferred to the transferee-company. The shareholders of the transferor-company would receive five equity shares of the transferee-company for every six equity shares held. The Court found this exchange ratio to be fair and noted that the interests of the shareholders were fully taken care of. The scheme also ensured that all employees of the transferor-company would become employees of the transferee-company without any break or interruption in service and on terms not less favorable than those with the transferor-company. The Court observed that no employees had opposed the scheme, indicating their interests were also protected.
Order:
(i) The scheme of amalgamation, Annexure A, is sanctioned and binding on the petitioner-companies, their shareholders, and creditors.
(ii) The transferor-company shall stand dissolved without an order of winding up.
(iii) The retention of the name of the transferor-company by the new company is subject to compliance with the Act.
(iv) The office is directed to draw up a decree in Form No. 42.
(v) The petitioners are directed to serve a copy of this order on the Registrar of Companies within 30 days.
Conclusion:
The petitions were allowed, and the scheme of amalgamation was sanctioned by the Court.
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2005 (7) TMI 354
Seeking review of the Company Law Board's order - Opression and mismanagement - Transfer to shares - Power to refuse registration and appeal against refusal - HELD THAT:- it was not a case where the outsiders were going to be inducted for the first time. In any case, due to financial crisis the company was unable to repay the borrowings of the financial institutions with the result even notice under section 29 of the State Financial Corporations Act were issued. Sisters were also not having cordial relations among them. The two sisters (respondents Nos. 2 and 3), in these circumstances, decided to part with their shareholdings and in view of the family arrangement, they offered to sell their shares to the appellant and respondent No. 4 way back in the year 1997, although under the provisions of the Companies Act they were under no such obligation. The fact remains that till February 2000, the appellant could not respond to this offer by taking any positive steps. The appellant has herself admitted the same, although she has tried to explain away by giving her own reasons and stating that she got involved in the illness of her daughter-in-law, which was of serious nature and, therefore, she could not arrange the funds. Be that as it may, fact remains that shares were offered to her in the first instance before selling it to the outsiders after waiting for three years and these shares were ultimately sold to respondents Nos. 5 to 9 in February 2000. Even respondent No. 4 joined other two sisters in selling her shareholding. This significant shift in the attitude of respondent No. 4 would signify that offer of respondents Nos. 2 and 3 to the appellant and respondent No. 4 had fizzled out. Therefore, I am of the view that sale of shares by respondents Nos. 2 to 4 to outsiders is perfectly valid and is not an act of oppression.
The grievance about induction of three new directors in the board meeting held on February 10, 2000 also does not hold any water. Once new management took over the control, recast of the board was inevitable. The controlling group had the requisite power and authority to appoint its own directors. Non-interference by the Company Law Board is, therefore, justified.
I do not find any infirmity in the aforesaid approach of the Company Law Board. As noted above, the basic premise of the entire petition was the transfer of shares by respondents Nos. 2 to 4 to outsiders which was unpalatable to the appellants who wanted right to pre-emption. This challenge of the appellant failed before the Company Law Board and I also do not find any merit therein. Once the majority shareholding has come to respondents Nos. 5 to 9, who have the control of the company, they would naturally appoint their directors as well. The Company Law Board has, none the less adopted a fair approach in not only maintaining the same shareholding pattern qua appellant by directing that she be given offer to buy further shares so as to restore shareholding worth 14.7 per cent. Even she is allowed to remain director so long as she continues to be the shareholder, although she could be retired by rotation as per the articles. Therefore, the Company Law Board has passed necessary directions to secure the interest of the appellant.
It is a different matter that the company had offered additional equity shares to the appellant on January 25, 2001 as per the directive of the Company Law Board, but till date she has not chosen to accept the same. I, therefore, do not find any merit in this appeal. An objection was taken to the maintainability of the appeal against order dated January 12, 2001 on the ground that this order was challenged earlier and as the said appeal was withdrawn, no fresh appeal is permissible to impugn the same order. However, as the appeal is dismissed on merits, I do not propose to go into this question.
The appeal is accordingly dismissed. However, as the appellant has not given any option for purchase of further equity as offered to her presumably because of the pendency of this appeal, I give further four weeks’ time to the appellant to signify her intention in this behalf failing which the said offer shall be treated as lapsed.
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2005 (7) TMI 353
Liability to pay purchase tax on the royalty paid by the respondents
Whether the exemptions claimed were available in the factual background needed factual adjudication and, therefore, the High Court should not have entertained the writ petition?
Held that:- Appeal dismissed.
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2005 (7) TMI 351
Whether a unit undergoing expansion is entitled under the notification dated July 27, 1991 to the benefit of exemption on the additional fixed capital investment as a result of such expansion, or the total fixed capital investment (being the aggregate of the original as well as the additional fixed capital investment)?
Whether the respondents' claim of one integrated expansion from 12,000 TPA to 60,000 TPA during the period August 12, 1988 to March 28, 1994 is sustainable in fact or in law?
Whether or not certain pre-operative expenses form part of "fixed capital investment" for the purpose of section 4-A of the U.P. Trade Tax Act and the notification dated July 27, 1991?
Whether the respondents (allegedly) not having collected or realised any tax on the strength of the eligibility certificate, granted pursuant to the High Court's judgment, and which was not stayed by this honourable Court, are entitled to any relief?
Held that:- Appeal allowed. The High Court has found that the respondent had taken the benefit of the increased capacity of the unit which came about by reason of the first two expansions in the sense that the exemption on entire sales turnover relatable to such increased capacity had been enjoyed by the respondent under the 1985 notification. The DLC had also granted tax benefit to the respondent only in respect of the third expansion excluding the pre-operative expenses. Albeit for other reasons, in our opinion, having regard to our decision on the various issues against the respondent, this is the highest relief that the respondent could claim and which the appellants concede would be the most equitable.
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2005 (7) TMI 344
Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act.
2. Voluntariness of the assessee's disclosure of additional income.
3. Validity of the assessee's explanation for the source of income.
4. Assurance or immunity from penalty by the Income Tax Department.
5. Mens rea requirement for imposing penalty.
Detailed Analysis:
1. Imposition of Penalty under Section 271(1)(c):
The assessee appealed against the CIT(A)'s order confirming the penalty of Rs. 1,51,940 imposed under section 271(1)(c) for the assessment year 1987-88. The AO initiated penalty proceedings after the assessee filed a return declaring additional income of Rs. 3,26,970 on 30th March 1989, following an investigation that revealed unaccounted demand drafts.
2. Voluntariness of the Assessee's Disclosure:
The assessee contended that the additional income was disclosed voluntarily to buy peace and avoid penalty and interest. However, the AO and CIT(A) held that the disclosure was not voluntary but made after the Department's investigation detected concealed transactions. The Tribunal agreed, noting that the additional income was declared only after the Department's enquiry and survey, indicating that the disclosure was not voluntary.
3. Validity of the Assessee's Explanation for the Source of Income:
The assessee claimed that the unexplained money used to purchase the demand drafts came from weavers for whom the assessee acted as a commission agent. This explanation was found unsubstantiated as the assessee could not provide names, addresses, or confirmations from the weavers. The Tribunal found the explanation to be implausible and unsupported by any evidence.
4. Assurance or Immunity from Penalty by the Income Tax Department:
The assessee argued that the additional income was declared based on an assurance from the Department that no penalty would be imposed. The Tribunal found no evidence of such an assurance. The assessee's self-serving letter to the ITO was not considered sufficient proof of any agreement from the Department.
5. Mens Rea Requirement for Imposing Penalty:
The CIT(A) and the Tribunal held that it is no longer necessary to establish mens rea (guilty mind) for imposing a penalty under section 271(1)(c). The Tribunal cited the Supreme Court's decision in K.P. Madhusudhanan vs. CIT, which upheld the validity of penalty imposition even when the assessee offered additional income after being unable to substantiate their explanation.
Conclusion:
The Tribunal upheld the CIT(A)'s order confirming the penalty under section 271(1)(c). It concluded that the assessee concealed income and furnished inaccurate particulars in the original return. The additional income declared on 30th March 1989 was not voluntary but a result of the Department's investigation. The assessee's explanation regarding the source of funds was found to be unsubstantiated and implausible. No valid assurance was given by the Department to exempt the assessee from penalty. The appeal filed by the assessee was dismissed.
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2005 (7) TMI 342
Issues Involved:
1. Taxation of Rs. 1,84,517 under section 41(1) for technical know-how.
2. Taxation status of the assessee as Body of Individuals (BOI).
3. Initiation of proceedings under section 147.
4. Liability to pay interest under sections 234A and 234B.
5. Taxation of technical know-how under capital gains.
6. Treatment of profit on transaction as long-term or short-term capital gains.
7. Allowance of cost of technical know-how and other expenses.
8. Deletion of short-term capital gains on the conversion of the firm to a limited company.
9. Classification of the sale as slump sale or itemized sale.
Detailed Analysis:
1. Taxation of Rs. 1,84,517 under section 41(1) for technical know-how:
The assessee argued that section 41(1) provisions were not applicable, and the impugned amount was not taxable under "Capital gains" due to the cost of acquisition of the asset. The CIT(A) concluded that the technical know-how was developed over years with incurred costs, thus taxable as long-term capital gains after allowing indexation of cost and improvement.
2. Taxation status of the assessee as Body of Individuals (BOI):
The CIT(A) concluded that the status of the assessee should be taken as BOI, based on the Supreme Court's decision in CIT v. Artex Mfg. Co. The appellate tribunal remanded this issue back to the Assessing Officer for fresh determination, considering the Supreme Court's decision.
3. Initiation of proceedings under section 147:
This ground was not pressed by the assessee during the hearing and thus was not adjudicated.
4. Liability to pay interest under sections 234A and 234B:
These grounds were not pressed by the assessee and were dismissed for statistical purposes.
5. Taxation of technical know-how under capital gains:
The assessee argued that the technical know-how was a self-generated asset, and its cost was nil, relying on the Supreme Court's decision in CIT v. B.C. Srinivasa Setty. The appellate tribunal concluded that the technical know-how was part of a slump sale, thus not taxable as an individual item under capital gains.
6. Treatment of profit on transaction as long-term or short-term capital gains:
The revenue contended that the profit should be taxed as short-term capital gains. The CIT(A) treated it as long-term capital gains, allowing the benefit of indexation. The appellate tribunal held that the transaction was a slump sale, not subject to capital gains tax as itemized assets.
7. Allowance of cost of technical know-how and other expenses:
The CIT(A) allowed the cost of technical know-how and other expenses incurred over the years. The appellate tribunal agreed that these costs were part of the slump sale and not taxable as individual items.
8. Deletion of short-term capital gains on the conversion of the firm to a limited company:
The CIT(A) deleted the short-term capital gains, concluding there was no dissolution of the firm, and the business was transferred as a going concern. The appellate tribunal upheld that it was a slump sale, not subject to short-term capital gains tax.
9. Classification of the sale as slump sale or itemized sale:
The appellate tribunal concluded that the entire business was transferred as a going concern, constituting a slump sale. The sale was not of individual items, and thus, the machinery for computation of capital gains failed. The matter was remanded to the Assessing Officer for fresh computation considering it as a slump sale.
Conclusion:
The appellate tribunal treated the assessee's appeal as partly allowed, remanding the issue of slump sale computation to the Assessing Officer. The revenue's appeal was dismissed, affirming that the sale was a slump sale and not subject to itemized capital gains tax. The status of the assessee was also remanded for fresh determination.
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2005 (7) TMI 341
Issues Involved:
1. Deletion of addition made under Section 69C of the IT Act for unexplained investment in the building for the assessment year 1991-92.
2. Deletion of addition made under Section 69 of the IT Act for unexplained investment in the building for the assessment year 1992-93.
3. Justification of reference to the Valuation Officer under Section 131(1)(d).
4. Rejection of books of account under Section 145.
5. Allowing deduction for unexplained expenditure under Section 69C.
Detailed Analysis:
1. Deletion of Addition under Section 69C for AY 1991-92:
The Revenue appealed against the CIT(A)'s deletion of Rs. 25,51,227 added under Section 69C as unexplained investment in the building. The assessee, a construction company, did not maintain a stock register for materials consumed, making it challenging to verify the authenticity of book results. The AO rejected the books of account under Section 145 due to the absence of quantitative details and other supporting documents. The DVO assessed the cost of construction at Rs. 64,85,006, against the declared Rs. 39,33,779, leading to the addition. The CIT(A) deleted the addition, but the Tribunal partly upheld the AO's decision, sustaining an addition of Rs. 5.90 lakhs.
2. Deletion of Addition under Section 69 for AY 1992-93:
The Revenue challenged the CIT(A)'s deletion of Rs. 50,71,505 added under Section 69 as unexplained investment. The AO found discrepancies in the cost of construction declared by the assessee and that assessed by the DVO. The CIT(A) deleted the addition, arguing the AO did not follow proper procedures. The Tribunal, however, sustained an addition of Rs. 12.71 lakhs, recognizing the need for adjustments in the cost of construction recorded in the books.
3. Justification of Reference to the Valuation Officer:
The AO made a reference to the DVO under Section 131(1)(d) after rejecting the books of account. The Tribunal upheld the AO's action, noting the assessee's failure to maintain and furnish quantitative details of materials used. The Tribunal found the reference justified under the amended Section 142A, which allows for valuation estimates by the DVO for making assessments.
4. Rejection of Books of Account under Section 145:
The AO rejected the books of account under Section 145 due to the absence of quantitative details and other supporting documents. The Tribunal supported this rejection, noting significant defects, including the non-maintenance of stock registers and non-furnishing of structural drawings. These defects justified the AO's decision to reject the books and rely on the DVO's valuation.
5. Allowing Deduction for Unexplained Expenditure under Section 69C:
The Tribunal addressed the issue of allowing deductions for unexplained expenditure added under Section 69C. It recognized that for a builder, such unexplained expenditures are revenue in nature and should be allowed as deductions when computing profits from the sale of the building. The Tribunal directed the AO to increase the work-in-progress for AY 1991-92 and allow deductions in AY 1992-93, the year of sale.
Conclusion:
The Tribunal partly allowed the Revenue's appeals, sustaining additions of Rs. 5.90 lakhs for AY 1991-92 and Rs. 12.71 lakhs for AY 1992-93. It directed adjustments in the work-in-progress and allowed deductions for unexplained expenditures, ensuring a fair computation of the assessee's income.
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2005 (7) TMI 339
Issues:
Interpretation of provisions of law regarding interest on refunds under section 244A in relation to tax deducted at source (TDS) and payment to Central Government.
Analysis:
The case involved two appeals by the revenue against the order of the Commissioner of Income-tax (Appeals) for the assessment years 2000-01 and 2001-02. The returns for these years declared NIL income with refund claims. The Assessing Officer granted the refunds along with interest, but the assessee found the interest under section 244A to be insufficient. The dispute arose when the Assessing Officer denied interest on certain TDS amounts not credited to the Central Government Account in the relevant financial year. The CIT(A) directed the Assessing Officer to grant interest under section 244A from 1st April of the assessment year on the entire TDS amount. The Tribunal analyzed the provisions of section 244A, section 199, and section 206C(4) to determine the applicability of interest on refunds. It was established that for interest under section 244A to apply, the TDS must be paid to the Central Government in the relevant financial year.
The Tribunal found that the CIT(A) misinterpreted the law by directing interest under section 244A on TDS amounts not credited to the Central Government Account in the relevant financial year. Section 199 clarifies that TDS should be paid to the Central Government to be treated as tax payment on behalf of the deductee. The Tribunal emphasized that mere deduction of TDS does not discharge the tax liability unless the amount is deposited with the Central Government. Referring to a decision of the Gauhati High Court, the Tribunal reinforced the requirement of depositing the TDS amount with the Central Government for it to be considered as tax payment. As the TDS amounts in question were not deposited with the Central Government, the Tribunal reversed the CIT(A) order and upheld the Assessing Officer's decision to deny interest under section 244A.
In conclusion, the Tribunal allowed the revenue's appeals, holding that interest under section 244A is not applicable to TDS amounts not paid to the Central Government. The decision was based on the statutory obligation to deposit TDS with the Central Government for it to be considered as tax payment.
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2005 (7) TMI 336
Capital Gains - Transfer - rearrangement of shareholdings in the companies - whether, in view of family arrangement as arrived at by the assessees to rearrange their shareholdings to avoid possible litigation among themselves will attract capital gain or not and whether it is a transfer or not ? - HELD THAT:- The expression 'family' had a very wide connotation and it is not as held by the learned departmental representative that there is no family as such but the word 'family' in the context of a family arrangement is not to be understood in a narrow sense of being a group of persons who are recognized in law as having a right of succession or having a claim to a share in the property in dispute. If it is settled in one between near relations then the settlement of such a dispute can be considered as a family arrangement.
It is also to be noted that a family arrangement by which the property is equitably divided between the various contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of a few is undoubtedly a milestone in the administration of social justice. That is why the term 'family' has to be understood in a wider sense so as to include within its fold not only close relations or legal heirs but even those persons who may have some sort of antecedent title, a semblance of a claim or even if they have a spes successionis so that future disputes are sealed for ever and the family instead of fighting claims inter se and wasting time, money and energy on such fruitless or futile litigation is able to devote its attention to more constructive work in the larger interest of the country.
The Courts have, therefore, leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds. Where the Courts find that the family arrangement suffers from a legal lacuna or a formal defect the rule of estoppel is pressed into service and is applied to shut out plea of the person who being a party to family arrangement seeks to unsettle a settled dispute and claims to revoke the family arrangement under which he has himself enjoyed some material benefits.
Admission of this transaction as a transfer and, accordingly, paid capital gain, it is well-settled in law that admission is best evidence of a point in issue and though not conclusive, is decisive of the matter unless successfully withdrawn or proved erroneous. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is always open to the person who made the admission to show that it is incorrect. In the present case, the admission is not made by the assessee rather the other party has accepted the transaction as a transfer and; accordingly, paid capital gains tax that will not debar the assessee from contesting the issue from the facts and circumstances of the case. It is clear that this is an admission of other party which will not bind the present assessees. Accordingly, we reject this argument of the Revenue.
We are of the view that the rearrangement of shareholdings in the companies to avoid possible litigation among family members seems to be a prudent arrangement which is necessary to control the companies effectively by the major shareholders to produce better prospects and active supervision. Accordingly, the same cannot be held as a transfer of shares which is exigible to capital gain tax. No doubt this family arrangement is not reduced into writing and there is no need to reduce this family arrangement in writing compulsorily and it need not be registered in view of the ratio of the decision of the Hon'ble Supreme Court in Kales case[1976 (1) TMI 172 - SUPREME COURT]. Thus, it is clear that these two families are part of bigger families which is very clear from the family tree produced above. Accordingly, we hold that these transactions are not exigible to capital gain tax. Accordingly, the orders of the authorities below are reversed.
In the result, the appeals of the assesses are allowed.
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2005 (7) TMI 334
Deduction u/s 10B - 100% Export Oriented Undertaking - manufacture and export of pharmaceuticals - Whether the Interest income earned on letter of credit for import of raw material, margin money deposit set apart and earmarked by the Bankers from the overdraft account is essential part of the business activity or not - HELD THAT:- The business of the present assessee in the export-oriented undertaking did not include making deposit with banks and the interest earned from the deposits on account of letter of credit for purchase of raw materials has no link with the profits and gains of export business of the assessee and as to how it could be claimed as interest income derived from 100 per cent export-oriented undertaking.
There is no nexus to show that the profits and gains are derived from hundred per cent export-oriented undertaking to which this section applies that the deposits has nothing to do with the manufacture or production of any article or thing. The interest income earned from deposits with the bank is not connected with profits and gains which are derived from hundred per cent export-oriented undertaking or from manufacturing any article or thing. The expression 'any profits and gains' derived by the assessee from a hundred per cent export-oriented undertaking to which this section applies as used in section 10B of the Act has a distinct but narrow meaning and it cannot receive a flexible or wider concept. The assessee is entitled to claim deduction of the amount which it derives as direct profit by export of manufactured goods in its newly established hundred per cent export-oriented undertaking. Any indirect or incidental profit cannot be regarded as profit earned out of the main business activity.
The ratio of the decision of the Hon'ble Apex Court in the cases of Pandian Chemicals Ltd.[2003 (4) TMI 3 - SUPREME COURT] and Cambay Electric Supply Industrial Co. Ltd.[1978 (4) TMI 1 - SUPREME COURT] has finally settled this issue. It is clear from the provision itself that deduction of such profits and gains deprived from hundred per cent export oriented undertaking must be understood as something which direct and inextricably linked to the assessee's industrial undertaking. But in this case, the interest is earned on margin money deposited for letter of credit for import of raw materials which has no connection with the profits and gains derived from hundred per cent export-oriented undertaking.
Respectfully following the decisions of the Hon'ble Apex Court in the cases of Pandian Chemicals, Sterling Foods, Cambay Electric Supply Industrial Co. Ltd., etc. we confirm the orders of the lower authorities.
In the result, the appeal of the assessee is dismissed.
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2005 (7) TMI 333
Issues:
Reopening of assessment after the expiry of four years for adopting a different method for share valuation.
Analysis:
The appeal pertains to the assessment year 1985-86, with the assessee being deceased during the appeal's pendency. The legal representatives sought to continue the appeal. The primary issue was the reopening of assessment for share valuation after the prescribed period. The assessee's counsel argued that the Assessing Officer's decision to reopen the assessment, despite previous orders valuing shares on a yield basis, was unwarranted. The Departmental Representative cited a Supreme Court ruling mandating valuation under rule 1D of Wealth-tax Rules.
The Tribunal reviewed the submissions and records. It noted that previous orders directed share valuation on a yield basis, confirmed by the Tribunal. Despite this, the Assessing Officer reopened the assessment, citing a pending Reference Application. The Tribunal emphasized that the Assessing Officer's action was unjustified, as the order of the CWT (Appeals) and Tribunal had merged. The Tribunal highlighted the necessity for the Assessing Officer to seek rectification through proper channels rather than unilaterally reopening the assessment.
The Tribunal acknowledged the Supreme Court's ruling on share valuation but stressed that the Assessing Officer should have followed proper procedures to challenge the existing orders. Referring to a similar case, the Tribunal emphasized the finality of tribunal orders unless legally overturned. Consequently, the Tribunal set aside the lower authority's decision and annulled the addition made, allowing the appeal filed by the assessee without costs.
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2005 (7) TMI 328
Issues Involved:
1. Legitimacy of the CIT's order under Section 263 of the Income Tax Act.
2. Enquiry into the personal element of foreign travel expenses.
3. Enquiry into the disallowance of expenses related to the residential use of the nursing home premises.
4. Enquiry into the legitimacy of interest payments on partners' capital accounts in light of tax payments.
Detailed Analysis:
1. Legitimacy of the CIT's Order under Section 263 of the Income Tax Act:
The assessee contested the legality of the CIT's order dated 25th February 2005, arguing that the status was incorrectly mentioned as "individual" instead of a partnership firm. This was rectified by a corrigendum dated 27th June 2005, and the ground was rejected as the mistake was covered under Section 292B of the Act.
2. Enquiry into the Personal Element of Foreign Travel Expenses:
The CIT's objection was based on the unusually long duration of foreign trips undertaken by Dr. D.C. Srivastava and Dr. (Mrs.) Saroj Srivastava, suggesting a personal element. However, the assessee demonstrated that the expenses claimed were solely for air tickets and did not include stay expenses, which were sponsored by their son in the USA. The Tribunal found that the AO had made detailed enquiries and verified the expenses, concluding that the foreign trips were for business purposes. Hence, no disallowance was warranted.
3. Enquiry into the Disallowance of Expenses Related to the Residential Use of the Nursing Home Premises:
The CIT argued that no enquiry was made regarding the disallowance of expenses like electricity, generator expenses, repairs, and taxes related to the residential use by the partners. The Tribunal found that the AO had made extensive enquiries and verified the details, concluding that no personal expenses were claimed. The Tribunal also noted that the presence of the doctors at the nursing home premises was essential for business purposes, enhancing the goodwill of the nursing home. Therefore, the expenses were legitimate business outgoings, and no disallowance was necessary.
4. Enquiry into the Legitimacy of Interest Payments on Partners' Capital Accounts in Light of Tax Payments:
The CIT contended that the AO failed to make necessary enquiries into the legitimacy of interest payments on partners' capital accounts, given the substantial tax payments made by the firm. The Tribunal held that the capital contributions by the partners are not borrowings and that the payment of interest to partners is governed by Section 40(b) of the Act, not Section 36(1)(iii). The Tribunal also noted that the tax payments were necessary to preserve the business and were for business purposes. Therefore, the interest payments on partners' capital accounts were legitimate and no disallowance was warranted.
Conclusion:
The Tribunal concluded that the CIT's order under Section 263 was not tenable. The AO had made all necessary enquiries and verifications, and the expenses claimed were legitimate business expenses. The Tribunal allowed the appeal in favor of the assessee, quashing the CIT's order.
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2005 (7) TMI 327
Unexplained Investments - construction of flats - addition made on the basis of valuation report of a technical expert namely valuation office - difference of opinion between the Members of the Bench - Third Member Order -
Judicial Member - HELD THAT:- Since the Assessing Officer merely made the above addition of Rs. 1,43,094 based on the DVO's report, which, in view of the above decision could not be relied upon, we hold that there is no material on record to sustain the addition made by the Assessing Officer. Moreover, we observe that the ld. CIT(A) has considered the cost of investment in the property in question, in the light of the DVO's report and has found that the difference in the cost declared by the assessee and the cost estimated based on DVO's report is less than 10 per cent after considering the objection of the assessee and as such the same is to be ignored. The ld. D.R. has not brought any material even to dispute the above finding of the ld. CIT(A). Thus, we uphold the order of the ld. CIT(A) in deleting the said addition of Rs. 1,43,098 made by the Assessing Officer.
We agree with the ld. AR of the assessee that if the Assessing Officer has made the addition which is not based on sufficient material, the said addition could not be sustained and it would not be prudent for the Tribunal to direct the income-tax authorities to make an inquiry in a particular manner, as the Tribunal is an appellate authority and is required to decide the issue on the basis of the material before it.
Therefore, we reject the ground of appeal taken by the Department by confirming the deletion made by the ld. CIT(A) - In the result, the appeal filed by the Department is dismissed.
Accountant Member - It is evident that for making assessment, the Assessing Officer is vested with widest power to obtain material for making assessment. If the Assessing Officer relied on such material which was not admissible in law then that would not vitiate the proceedings as this will amount to only irregular exercise of jurisdiction. It is a settled law that under such circumstances the proceedings have to be corrected from the stage at which irregularities have been committed.
Respectfully following the decision of the Hon'ble Supreme Court in case of Kapurchand Shrimal v. CIT [1981 (8) TMI 2 - SUPREME COURT], I direct the matter to be restored back to the file of the Assessing Officer for fresh examination of the case of investment in building without taking into consideration the D.V.O.'s report.
In the result, the appeal is allowed for statistical purposes.
Third Member - Admittedly, no defect has been pointed out in the books of account and cost of construction returned by the assessee was found duly supported by relevant vouchers and documentary evidence. Apart from it, the assessee has also filed report of the Registered Valuer who has also given cost of construction which is approximately same as returned by the assessee-company. It is to be noted that report of the Registered Valuer is also an important piece of evidence and in this connection I may refer the decision of ITAT, Patna Bench in the case of Shanti Complex v. ITO [1997 (5) TMI 105 - ITAT PATNA] in which the importance of Registered Valuer was also discussed and it was opined that report of an expert only acts as an opinion before a judicial or quasi-judicial authority to whom it is submitted. That report is open to judicial scrutiny by higher judicial forum and in case there are two experts' opinion before the judicial forum, it cannot be said that DVO's report carries more weight or DVO is superior to other. Both are statutory creations and expected to perform functions provided by the relevant statute. The Assessing Officer has to consider the report of the Registered Valuer also effectively and arrive at his own conclusion.
In this case in hand, the report of the Registered Valuer has been ignored by the Assessing Officer on flimsy ground and that was not the correct way to appreciate the same. In view of this also, the entries in the books of account duly get support from the report of the Valuer also. In such circumstances, no fruitful purpose would have been served in remanding the matter back to the file of the Assessing Officer.
The cumulative result of the findings of the above, the view taken by the ld. Judicial Member is just and addition was liable to be deleted without remanding the matter back to the file of the Assessing Officer. Accordingly, I am in agreement with the view taken by the ld. Judicial Member.
The Hon'ble Vice President, Shri Phool Singh sitting as Third Member, by his opinion dated 6th July, 2005, has concurred with the view of the ld. Judicial Member, who has deleted the addition made by the Assessing Officer in the construction of the flats on the basis of the DVO's report.
Therefore, in accordance with the majority view, the issue stands decided in favour of the assessee. Accordingly, the appeal filed by the Department is dismissed.
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2005 (7) TMI 324
Issues Involved:
1. Classification of income from leasing out property as business income or income from house property.
2. Disallowance of depreciation.
3. Disallowance of expenses for maintaining lift and generator.
4. Disallowance of director's remuneration.
Issue-wise Detailed Analysis:
1. Classification of Income from Leasing Out Property:
The primary issue was whether the income received by the assessee from leasing out its building to Deva Nursing Home (P.) Ltd. should be classified as business income or income from house property. The assessee argued that the income should be treated as business income, citing the commercial use of the property and the intention to exploit the asset for gainful purposes due to the infeasibility of running a hotel. The Assessing Officer initially treated the income as income from other sources, while the CIT(A) classified it as income from house property, referencing the Supreme Court decision in Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353. The Tribunal, after considering the facts and circumstances, held that the income was indeed business income, as the property was leased out as a commercial asset for running a nursing home, which was a substituted commercial use of the asset. The Tribunal emphasized that the company remained in business and temporarily leased out the property to avoid losses, thus the income should be treated as business income.
2. Disallowance of Depreciation:
The Tribunal noted that the Assessing Officer had allowed unabsorbed depreciation to be carried forward for set-off against profits of subsequent years in the assessment year 1998-99. Given that the income was classified as business income, the Tribunal concluded that the appellant-assessee was entitled to deductions, including depreciation, while computing business income.
3. Disallowance of Expenses for Maintaining Lift and Generator:
The Tribunal upheld the CIT(A)'s decision to disallow Rs. 5,000 out of the expenses claimed for maintaining the lift and generator, citing unverifiable expenses. The Tribunal found no infirmity in this part of the CIT(A)'s order and rejected the ground against the disallowance.
4. Disallowance of Director's Remuneration:
The Tribunal addressed the disallowance of director's remuneration, noting that the business was being carried on by its Directors, who were responsible for the upkeep and maintenance of the assets. Given that the company continued to enjoy substantial income and the directors devoted sufficient time to the business, the Tribunal found the remuneration of Rs. 36,000 to be reasonable and directed it to be allowed as a deduction.
Separate Judgments:
The Tribunal's decision included a dissenting opinion by the Judicial Member, who believed that the income should be classified as income from house property, emphasizing that the building was let out as a simple property and not as a commercial asset. The Judicial Member referenced the decision in Shambhu Investment (P.) Ltd. v. CIT [2001] 249 ITR 47, which was upheld by the Supreme Court, and the criteria laid down in Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353. The Judicial Member concluded that the intention was to lease out the building, and thus, the income should be assessed as income from house property.
The matter was referred to a Third Member, who agreed with the Judicial Member's view, concluding that the income was derived from the ownership of the building and should be assessed under the head 'House property'. The Third Member emphasized that at the relevant time, the building was let out as a simple property and not as a commercial asset, and thus, the rental income was attributable to the ownership rights of the assessee.
Conclusion:
The appeal was treated as partly allowed, with the income from leasing out the property being classified as business income, allowing depreciation and director's remuneration, but upholding the disallowance of unverifiable expenses for maintaining the lift and generator. The dissenting opinion and the Third Member's agreement highlighted the complexity and differing interpretations of the classification of income from leasing out property.
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2005 (7) TMI 322
Issues involved:
- Disobedience of directions by AO from Hon'ble High Court regarding issuance of certified copies of documents
- Alleged assessment orders passed in violation of court order
- Adequate opportunity not granted to assessee leading to miscarriage of justice
Analysis:
Issue 1: Disobedience of directions by AO from Hon'ble High Court regarding issuance of certified copies of documents
The case involved the AO not complying with the specific directions of the Hon'ble High Court to provide certified copies of documents to the assessee during the assessment proceedings. Despite repeated requests and court orders, certain crucial documents were not supplied to the assessee in a timely manner, impacting the assessee's ability to effectively cross-examine and defend against the allegations. The failure to provide these documents was considered a serious matter, amounting to contempt of court and depriving the assessee of a fair opportunity to present their case.
Issue 2: Alleged assessment orders passed in violation of court order
The learned counsel for the assessee argued that the assessment orders passed by the AO were in disobedience of the order of the Hon'ble High Court. The AO was supposed to adhere to the directions given by the court, including providing certified copies of relevant documents and allowing the assessee to cross-examine individuals whose statements were used against them. The failure to follow these directives led to a situation where the assessee was not granted adequate opportunity to defend themselves, resulting in a miscarriage of justice.
Issue 3: Adequate opportunity not granted to assessee leading to miscarriage of justice
The Tribunal acknowledged that the assessee was not given a fair chance to present their case due to the AO's failure to provide necessary documents and comply with the court's directions. This lack of opportunity for the assessee to effectively rebut the allegations and cross-examine witnesses led to high assessments being made against them. In light of these shortcomings, the Tribunal set aside the impugned orders and directed the AO to conduct fresh assessments in all three years, ensuring that the assessee is provided with all relevant materials and a reasonable opportunity to be heard. The Tribunal emphasized the importance of adhering to court directives in future proceedings to prevent similar injustices.
In conclusion, the Tribunal allowed all the appeals for statistical purposes, highlighting the significance of upholding the principles of natural justice and ensuring that parties are given a fair chance to present their case in tax matters.
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2005 (7) TMI 320
Issues: Penalty under section 271B for failure to produce audit report under section 44AB within specified time
In this case, the appellate tribunal considered an appeal against the order of the CIT(A) regarding the levy of a penalty under section 271B of the IT Act, 1961 for the assessment year 1997-98. The sole issue raised was whether the failure to produce an audit report under section 44AB, obtained within the deadline but not submitted to the AO on time, would lead to a penalty. The tribunal examined the circumstances where the audit report was obtained before the due date but submitted late along with the return of income due to the assessee's belief that filing a declaration under VDIS exempted them from filing a return. The tribunal referred to Circular No. 755, which clarified that no penalty could be levied for the assessment year related to the disclosure of income. The tribunal emphasized that penalty provisions should not be imposed for pedantic reasons and should consider the intention and purpose of the law. It concluded that the reason provided by the assessee was reasonable and sufficient to justify the delay in filing the report, as it was obtained within the deadline. Therefore, the tribunal held that a mitigating circumstance existed, and the penalty was canceled, allowing the appeal in favor of the assessee.
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2005 (7) TMI 319
Issues:
1. Confirmation of addition of Rs. 1,500 out of vehicle and travelling expenses.
2. Addition of Rs. 1,000 out of tea expenses.
3. Confirmation of addition of interest of Rs. 1,21,652.
4. Sustenance of addition of Rs. 20,500 on account of low household withdrawals.
5. Charging of interest under s. 234B.
Confirmation of Addition of Vehicle and Travelling Expenses:
The appeal concerned the confirmation of an addition of Rs. 1,500 out of total vehicle and travelling expenses claimed by the assessee. The AO added the amount due to lack of proper vouchers and potential personal use. The CIT(A) upheld the addition. The tribunal considered reducing the addition to Rs. 1,000, given the total claimed expenses of Rs. 7,000, providing relief of Rs. 500 to the assessee.
Addition of Tea Expenses:
The second issue involved the addition of Rs. 1,000 out of tea expenses totaling Rs. 2,808, which the CIT(A) confirmed. The tribunal found the monthly tea expense of around Rs. 200 reasonable and allowed this ground of appeal.
Confirmation of Interest Addition:
Regarding the addition of interest amounting to Rs. 1,21,652, the AO disallowed interest on overdrawn capital, leading to the addition. The CIT(A) sustained this addition after allowing nominal relief. The tribunal, after considering submissions, noted that the property in question was acquired two years prior, and relying on precedent, held that no addition for disallowance of interest was warranted. The tribunal ordered the deletion of this addition.
Sustenance of Household Withdrawals Addition:
The next issue revolved around the addition of Rs. 20,500 due to low household withdrawals. The AO estimated total household expenses higher than declared, resulting in the addition. The CIT(A) reduced the addition to Rs. 20,500. The tribunal, considering the estimate nature of the expenses, reduced the addition by 50% to Rs. 10,250.
Charging of Interest under s. 234B:
The final issue pertained to the charging of interest under section 234B, which was considered consequential and disposed of accordingly. The tribunal partly allowed the appeal, making adjustments to the additions in favor of the assessee.
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2005 (7) TMI 318
Issues Involved:
1. Cash credits in the accounts of the assessee.
2. Capacity of cash creditors to advance loans.
3. Genuineness of transactions.
4. Selection of the case for scrutiny.
Issue-wise Detailed Analysis:
1. Cash Credits in the Accounts of the Assessee:
The primary issue revolves around cash credits noticed by the Assessing Officer (AO) in the balance sheet. The assessee, a partnership firm, had shown credits of Rs. 9,84,237 in the head office and Rs. 65,37,101 in the branch office. The AO required the assessee to produce the cash creditors, and despite some appearing, others evaded. The AO issued summons under section 131 of the Act, but some creditors still did not respond. The AO added the sums to the total income of the assessee, doubting the genuineness of the credits.
2. Capacity of Cash Creditors to Advance Loans:
The AO questioned the capacity of the creditors to advance the sums. For instance, Sh. Ajay Murdiya, who deposited Rs. 1,00,000, explained the source as IVPs inherited from his mother, but could not provide detailed evidence. The AO doubted his capacity, considering him a person of petty means. The assessee argued that the identity and transaction were established through account payee cheques and confirmations.
3. Genuineness of Transactions:
The Tribunal discussed the legal principles under section 68, emphasizing the need to prove the identity, creditworthiness, and genuineness of transactions. It highlighted that the AO's satisfaction must be based on valid reasons, and the enquiry should be reasonable and just. The Tribunal noted that even if payments were made through cheques and confirmations were provided, further investigation was required to establish genuineness.
4. Selection of the Case for Scrutiny:
The assessee also challenged the selection of the case for scrutiny. Initially, the assessee did not press this ground, but later requested its restoration for consideration. The Tribunal found this request justified and restored the ground to the AO for examination.
Conclusion:
The Tribunal restored the issue of cash credits and the selection of the case for scrutiny to the AO for fresh examination. The AO was directed to decide the issues afresh after giving the assessee an opportunity to present additional evidence. The appeal was allowed for statistical purposes, with general grounds dismissed.
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