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1979 (2) TMI 110
Issues Involved:
1. Refund of duty paid under Rules 1960.
2. Payment made under a mistake of law.
3. Discretionary relief under Article 226 of the Constitution of India.
4. Voluntary payment of excise duty and its implications.
5. Delay in seeking relief.
Detailed Analysis:
1. Refund of Duty Paid Under Rules 1960:
The petitioners sought a writ of Mandamus directing the respondents to refund the duty paid under the Rules 1960. The court considered multiple writ petitions together as they raised the same issue.
2. Payment Made Under a Mistake of Law:
The court examined whether the payments made by the petitioners could be considered as payments made under a mistake of law. The court referenced the Supreme Court decision in *Kalyani Stores v. State of Orissa, AIR 1966 S.C. 1686*, which declared the levy of excise duty on Indian-made foreign liquor and beer as unauthorized and illegal. The court noted that the petitioners paid the duty after the Supreme Court's decision and thus could not claim ignorance of the law. The court emphasized that under Article 141 of the Constitution of India, the law declared by the Supreme Court is binding on all courts within India. Therefore, the petitioners were deemed to have known the law when they made the payments, negating the claim of a mistake of law.
3. Discretionary Relief Under Article 226 of the Constitution of India:
The court discussed the discretionary nature of relief under Article 226. It referenced the Supreme Court's decision in *Dhayalakshmi Rice Mills v. Commissioner of Civil Supplies, AIR 1976 S.C. 2243*, which upheld the High Court's discretion in denying relief when payments were made voluntarily and benefits were derived from such payments. The court concluded that the petitioners, having paid the duty voluntarily and gained permits for their trade, were not entitled to the discretionary remedy of a writ of Mandamus.
4. Voluntary Payment of Excise Duty and Its Implications:
The court noted that the petitioners paid the excise duty voluntarily to obtain permits for importing Indian-made foreign liquor into the State. The petitioners derived considerable profit from this trade. The court cited the Supreme Court's observation that where payments are made voluntarily and benefits are derived, a writ of Mandamus for a refund is not warranted. The court also considered that the duty paid was passed on to the petitioners' customers, further weakening their claim for a refund.
5. Delay in Seeking Relief:
The court addressed the issue of delay in seeking relief. It referenced the Supreme Court's decision in *State of Madhya Pradesh v. Bhailal Bhai, AIR 1964 S.C. 1006*, which emphasized that undue delay and the nature of the controversy are significant factors in deciding whether to grant relief under Article 226. The court found that the petitioners approached the court only when prohibition was reintroduced, affecting their business, and not immediately after the Supreme Court's decision. This delay was a crucial factor in denying the writ of Mandamus.
Conclusion:
The court dismissed the writ petitions, concluding that the petitioners were not entitled to the discretionary relief of a writ of Mandamus for the refund of excise duty. The court emphasized that the payments were made voluntarily, the petitioners derived benefits from the payments, and there was undue delay in seeking relief. The petitioners were advised that they might still have a remedy by filing a suit in a civil court. There was no order as to costs.
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1979 (2) TMI 109
Issues Involved:
1. Constitutionality of Section 4 (as amended) of the Central Excises and Salt Act, 1944.
2. Authority of the Assistant Collector of Central Excise to review an approved price-list.
3. Retrospective review of the price-list by the Assistant Collector.
4. Determination of whether the petitioner-company and its buyers are "related persons."
5. Normal price charged by the petitioner-company.
6. Application of mind by the Assistant Collector of Central Excise.
7. Application of mind by the Appellate Commissioner.
8. Legality of orders at Annexures "H" and "N."
Issue-Wise Detailed Analysis:
1. Constitutionality of Section 4 (as amended) of the Central Excises and Salt Act, 1944:
The court declared that the concept of "related person" in amended Section 4 is ultra vires the legislative competence of Parliament under Article 246 read with Entry 84 in the Union List and Entry 54 in the State List. The expression "the buyer is not a related person and......." and proviso (iii) to clause (a) in sub-section (1) of Section 4 were struck down.
2. Authority of the Assistant Collector of Central Excise to review an approved price-list:
The court did not express any opinion on this issue because the petitioner-company succeeded on the ground that they and their buyers were not "related persons."
3. Retrospective review of the price-list by the Assistant Collector:
Similar to the second issue, the court did not express any opinion on this matter due to the success of the petitioner on the "related persons" ground.
4. Determination of whether the petitioner-company and its buyers are "related persons":
The court held that the Central Excise authorities erred in applying the norm of "inter-connected undertakings" from the Monopolies and Restrictive Trade Practices Act to determine "related persons." The definition of "related person" in Section 4 of the Central Excises and Salt Act was examined, and it was concluded that the petitioner-company and its buyers, Messrs Atul Products Limited and Messrs Imperial Chemical Industries (India) Private Limited, did not have mutual business interests and were not "related persons."
5. Normal price charged by the petitioner-company:
The court did not find it necessary to decide this issue due to the conclusion on the "related persons" matter.
6. Application of mind by the Assistant Collector of Central Excise:
The court did not address this issue because the primary issue of "related persons" was resolved in favor of the petitioner.
7. Application of mind by the Appellate Commissioner:
Similarly, this issue was not addressed due to the resolution of the "related persons" matter.
8. Legality of orders at Annexures "H" and "N":
The court quashed the orders of the Assistant Collector of Central Excise and the Appellate Collector of Central Excise and Customs, and directed the Central Excise authorities to cancel the demands made on December 31, 1976, and January 19, 1977.
Additional Points:
- The court directed the respondents to refund any excess amount recovered from the petitioner-company with interest at the rate of six percent per annum.
- The respondents were also directed to pay the costs incurred by the petitioner in connection with the Bank Guarantee furnished.
- The court granted a certificate of fitness under Articles 132 and 133(1) of the Constitution for appeal to the Supreme Court and stayed the operation of the order for two months to allow the respondents to obtain an interim order from the Supreme Court.
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1979 (2) TMI 108
Issues Involved:
1. Legislative competence of Parliament to introduce the concept of "related person" in Section 4 of the Excise Act.
2. Determination of whether the manufacturer and the buyer are "related persons" under the Excise Act.
Issue-wise Detailed Analysis:
I. Legislative Competence of Parliament to Introduce the Concept of "Related Person" in Section 4 of the Excise Act
Contention: The petitioner contended that the concept of "related person" introduced by Parliament in amended Section 4 of the Excise Act is ultra vires the legislative competence of Parliament under Article 246 read with Entry 84 in List I (Union List) of the Seventh Schedule to the Constitution of India.
Analysis:
1. Scope of Entry 84: Entry 84 in the Union List pertains to "Duties of excise on tobacco and other goods manufactured or produced in India." The Court examined the width and amplitude of the expression "Duties of excise" and referred to several decisions of the Federal Court and the Supreme Court which have consistently held that excise duty is a tax on the manufacture or production of goods and not on their sale.
2. Relevant Precedents:
- Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938: The Federal Court held that excise duties are levied upon the manufacturer or producer of excisable articles at the stage of or in connection with manufacture or production.
- Province of Madras v. Messrs Boddu Paidanna & Sons: The Federal Court reiterated that excise duties are duties leviable upon the manufacturer or producer.
- Governor General in Council v. Province of Madras: The Privy Council observed that excise duty is a tax upon goods, not upon sales or the proceeds of sale of goods.
- M/s. Chhotabhai Jethabhai Patel & Co. v. Union of India: The Supreme Court held that the taxable event for excise duty is the manufacture or production of goods.
- R.C. Jall Parsi v. Union of India: The Supreme Court emphasized that excise duty is a tax on articles produced or manufactured in the taxing country.
- Union of India v. Delhi Cloth and General Mills Co. Ltd.: The Supreme Court reiterated that excise duty is a tax on the manufacture of goods and not on their sale.
- In Re: Sea Customs Act: The Supreme Court observed that excise duty is an indirect duty passed on to the ultimate consumer.
- M/s. Shinde Brothers v. Deputy Commissioner, Raichur: The Supreme Court laid down principles for determining whether a levy is an excise duty.
- South Bihar Sugar Mills Ltd. v. Union of India: The Supreme Court held that excise duty is a tax on the manufacture or production of goods.
- A.K. Roy v. Voltas Ltd.: The Supreme Court held that excise duty is levied on the amount representing the manufacturing cost plus the manufacturing profit.
- Atic Industries Ltd. v. H.H. Dave: The Supreme Court held that excise duty should be levied on the amount of manufacturing costs and manufacturing profits, excluding post-manufacturing costs and profits.
3. Amended Section 4: The Court analyzed the amended Section 4 of the Excise Act, which provides for the determination of the value of excisable goods with reference to the "normal price" and includes provisions for sales to or through "related persons."
4. Concept of "Related Person": The Court found that the concept of "related person" in the amended Section 4 requires the price charged by the related person to be taken into account for assessing excise duty, even if the manufacturer charges a fully commercial price. This inclusion of post-manufacturing costs and profits in the assessable value was found to be inconsistent with the nature of excise duty as defined by the Supreme Court.
5. Constitutional Violation: The Court concluded that the concept of "related person" in the amended Section 4 is ultra vires the legislative competence of Parliament under Article 246 read with Entry 84 in the Union List, as it encroaches upon Entry 54 in the State List, which pertains to sales tax.
II. Determination of Whether the Manufacturer and the Buyer are "Related Persons" under the Excise Act
Contention: The petitioner contended that the manufacturer and the buyer are not "related persons" within the meaning of that expression given in the Excise Act.
Analysis:
1. Definition of "Related Person": The expression "related person" is defined in the Excise Act as a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative, and a distributor of the assessee and any sub-distributor of such distributor.
2. Mutuality of Business Interest: The Court examined whether there was mutuality of business interest between the manufacturer and the buyer. It found that the manufacturer only manufactures goods, and the buyer only buys them, indicating a one-way business relationship without mutuality of business interest.
3. Shareholding: The Court noted that the buyer holds only 5% of the manufacturer's shares, and the manufacturer holds no shares of the buyer. This does not satisfy the requirements of a holding company or subsidiary company as defined under the Companies Act, 1956.
4. MRTP Act Declaration: The department's reliance on the declaration under the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) that the manufacturer and the buyer were "inter-connected undertakings" was found to be misplaced. The Court held that the definition given in one statute cannot be used for the purpose of another statute.
5. Conclusion: The Court concluded that the manufacturer and the buyer are not "related persons" within the meaning of that expression given in the Excise Act.
Judgment:
1. The expression "where the buyer is not a related person" used in Section 4 (1) (a) of the Excise Act is ultra vires Article 246 read with Entry 84 in the Union List.
2. The manufacturer and the buyer are not "related persons" under the Excise Act.
Orders:
1. The respondents were directed to cancel their orders and refund the sum collected on the basis that excise duty is leviable on the second price charged by the buyer.
2. The respondents were directed to pay the costs of the bank guarantee incurred by the petitioner and finalize calculations regarding excess payment of excise duty.
3. The operation of the writ was stayed for two months to allow the respondents to approach the Supreme Court for necessary interim orders.
Certification:
The Court granted a certificate of fitness under Article 132 and Article 133 (1) of the Constitution for appealing against the decision to the Supreme Court, as the case involved substantial questions of law of general importance pertaining to central excise and the interpretation of constitutional entries.
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1979 (2) TMI 107
Issues Involved:
1. Maintainability of the plaintiffs' suit under Section 20(1) of the Act.
2. Maintainability of the plaintiffs' suit under Rule 127 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956.
3. Bar of the plaintiffs' suit by the period of limitation prescribed by Section 20(2) of the Act.
4. Liability of the plaintiffs' preparation Codopyrin to excise duty as a patent or proprietary medicine.
Detailed Analysis:
1. Maintainability of the Plaintiffs' Suit under Section 20(1) of the Act:
The Court examined Section 20 of the Act, which bars suits or legal proceedings against the collecting Government or any officer for actions done in good faith. The Court found that this section deals with two subjects: the bar of jurisdiction in respect of certain suits and legal proceedings, and the limitation period for other suits. The Court concluded that Section 20(1) applies only to orders and acts done in good faith under the Act. If an order or act is not done in good faith or not under the Act, Section 20(1) does not apply. The Court held that the orders in question were not passed in good faith as they were based on statutory provisions that did not exist during the relevant period. Hence, Section 20(1) did not bar the plaintiffs' suit.
2. Maintainability of the Plaintiffs' Suit under Rule 127 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956:
The Court analyzed Rule 127, which provides for appeals against orders of officers other than the Excise Commissioner. The Court noted that Rule 127(ii) states that an order passed in appeal is final, subject to the power of revision under Rule 128. The Court held that the Rules made by the Central Government must conform to the statute and cannot oust the jurisdiction of Civil Courts beyond what is provided in Section 20 of the Act. The Court concluded that Rule 127 does not oust the jurisdiction of Civil Courts except for suits falling under Section 20(1). Even if Rule 127 impliedly barred the jurisdiction of Civil Courts, the plaintiffs' suit was maintainable as it fell within the exceptions outlined by the Supreme Court in Dhulabhai's case and other precedents.
3. Bar of the Plaintiffs' Suit by the Period of Limitation Prescribed by Section 20(2) of the Act:
The Court examined the language of Section 20(2), which prescribes a six-month limitation period for suits, prosecutions, or other legal proceedings against the collecting Government or any officer for actions done under the Act. The Court noted significant differences between sub-sections (1) and (2) of Section 20, particularly the absence of the "good faith" requirement in sub-section (2). The Court held that sub-section (2) applies to actions done otherwise than in good faith. Since the orders in question were not passed in good faith, the plaintiffs' suit was not governed by Section 20(2) but by the ordinary limitation period of three years under the Limitation Act, 1963.
4. Liability of the Plaintiffs' Preparation Codopyrin to Excise Duty as a Patent or Proprietary Medicine:
The Court reviewed the impugned orders and found that the authorities had erroneously applied a statutory provision that did not exist during the relevant period. The Court held that Codopyrin, manufactured with the revised formula found in the British Pharmacopoeia, 1958 Edition, was not a patent or proprietary medicine and was not liable to excise duty. The orders were based on a misinterpretation of the applicable statutory provisions and were not passed in good faith. The Court concluded that the plaintiffs' preparation Codopyrin was not liable to excise duty.
Conclusion:
The Court dismissed the appeal, holding that the plaintiffs' suit was maintainable and not barred by Section 20(1) or (2) of the Act or Rule 127 of the Rules. The Court also held that Codopyrin was not liable to excise duty as it was not a patent or proprietary medicine. The Appellants were ordered to pay the costs of the appeal to the first respondents, and the Union of India was to bear its own costs. The first respondents were given liberty to withdraw the amount of security for costs given by the Appellants.
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1979 (2) TMI 106
The High Court of Madras ruled in favor of the petitioners, who were manufacturers of fertilizers, in a case involving Central Excise duty on imported Rock Phosphate. The court held that there is no obligation to correlate the imported material to the ultimate finished product as long as there is complete utilization. The writ petition was allowed, and the department was directed to process the petitioner's application promptly.
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1979 (2) TMI 105
Issues:
Prohibition sought against show cause notice under Central Excise Rules 1944.
Analysis:
The petitioner filed a writ petition seeking prohibition against the respondent from proceeding with the show cause notice dated 12-7-1976. The Senior Central Government Standing Counsel raised a preliminary objection stating that the petitioner should address objections before the authorities, especially since a hierarchy exists. The main argument presented was the lack of jurisdiction in issuing the show cause notice under Rule 9(2) due to the absence of clandestine removal, as acknowledged by the department. The Collector had set aside the original levy under Rule 10A and directed proceedings under Rule 9(2) for collecting differential levy, which cannot be invoked without clandestine removal. Legal precedents were cited to support the argument that there is a total lack of jurisdiction under Rule 9(2) in such cases, emphasizing that the petitioner should not be required to respond to the show cause notice based on these facts.
The show cause notice accused the petitioner of contravening Rule 9(1) of the Central Excise Rules 1944 by not paying the appropriate duty on goods cleared from their factory. The notice detailed the quantities of paper involved and the differential duty amounts to be demanded, along with the history of previous notices and responses from the petitioner. The Assistant Collector had previously ordered the payment of differential duty, which was later set aside by the Appellate Collector. Subsequently, a fresh show cause notice was issued under Rule 9(2) demanding the same differential duty amounts, leading to the current legal challenge.
The judgment highlighted a fundamental error in the show cause notice, specifically in paragraph 5, where there was a misunderstanding of the legal provisions under Rule 9(2). It was emphasized that Rule 9(2) pertains to the payment of duty upon demand for goods removed in contravention of Rule 9(1), which was not the case here as excise duty was collected after proper removal procedures. The notice's request for differential duty under Rule 9(2) was deemed legally incorrect, showcasing a lack of basic legal knowledge. As a result, the lack of jurisdiction under Rule 9(2) was established, justifying the issuance of a writ of prohibition to prevent the petitioner from being compelled to respond to an invalid show cause notice. The objection raised by the department was overruled, and the writ petition was allowed with costs awarded to the petitioner.
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1979 (2) TMI 104
Issues involved:
The issue involved in this case is whether the appellant's claim for refund of excess import duty, based on a notification reducing the duty rate, is time-barred under Sec. 27 of the Customs Act, 1962.
Comprehensive details of the judgment for each issue involved:
1. The appellant, a manufacturer of hospital equipment, imported stainless steel sheets under a license for actual use. Subsequently, it discovered that the imported stainless steel qualified for a lower duty rate under a customs notification. The appellant filed a refund claim after the expiry of the six-month time limit prescribed by Sec. 27 of the Customs Act, 1962. The claim was rejected by the authorities on the grounds of being time-barred and not filed under protest.
2. The appellant's appeal to the Appellate Collector of Customs and revision to the Government of India were unsuccessful, with both authorities upholding the rejection of the refund claim as time-barred under Sec. 27. A writ petition filed by the appellant was dismissed at the admission stage by a Judge.
3. The appellant challenged the rejection of the refund claim in a writ appeal, arguing that Sec. 27(1) should not apply as the assessment of the imported goods was incorrect. The appellant contended that the assessment of the goods as stainless steel sheets instead of strips was without jurisdiction.
4. The appellant cited the Supreme Court's decision in Patel India v. Union of India to support the argument that the limitation under Sec. 27 should not apply when excess duty is collected without authority of law. The appellant's counsel also referred to a case where a court issued a mandamus for refund despite the claim being time-barred under Sec. 27.
5. The Court considered the applicability of Sec. 27 in cases of incorrect assessment and excess duty collection. It noted that if the import duty collection was contrary to statutory notifications, the limitation under Sec. 27 may not apply. However, as the authorities had not examined the merits of the appellant's contention regarding the assessment, the Court could not issue a writ of Mandamus without such a finding.
6. The Court held that if the collection of import duty was contrary to statutory notifications, Sec. 27 may not apply, and relief could be granted under Art. 226 of the Constitution. The Court quashed the order rejecting the refund claim and directed the authorities to reconsider the claim in light of the statutory notifications.
7. The appeal was allowed, and a rule was issued for further consideration of the refund claim. No costs were awarded, and the revisional authority was instructed to expedite the disposal of the refund claim.
End of Judgment
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1979 (2) TMI 103
The High Court of Delhi quashed the impugned notice of demand and orders related to determining wholesale cash price for excise duty calculation. Respondents were granted liberty to determine the price after giving the petitioner an opportunity. No costs were awarded. (Case citation: 1979 (2) TMI 103)
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1979 (2) TMI 102
Whether the lands were assessed to land revenue, in the United Provinces or they were subject to local rate or cess assessed and collected by an officer as required under s. 2(a) of the U.P. Agrl. I.T. Act, 1948?
Held that:- The returns were submitted by the two companies on the basis of their respective income. In the circumstances, it cannot be said that the tax authorities were in error in assessing tax on the returns submitted by the two companies. The plea, therefore, that the assessment on the two companies, in the absence of proceedings against the firm of which the companies were partners, is not legal cannot be upheld.
On a consideration of all the relevant facts the assessing authority came to the conclusion that the agreement in favour of the companies provided for payment of land revenue and the word " rent " used in the leases has to be considered in relation to the original agreements and as such it is seen that the agreement provided for payment of land revenue. The learned counsel appearing for the respondents was unable to challenge the correctness of the finding of the assessing authority. On a consideration of all the facts that were placed before the assessing authority, we do not see any reason for not accepting the conclusion arrived at by the authority. This issue also we find against the assessee. Thus the High Court was in error in coming to the conclusion that the assessment proceedings against the respondent were unsustainable. Appeal allowed.
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1979 (2) TMI 101
Issues Involved:
1. Taxability of payments received from privy purse by the adopted son.
2. Taxability of payments received from privy purse by the daughter-in-law.
Detailed Analysis:
1. Taxability of Payments Received from Privy Purse by the Adopted Son:
The primary issue was whether the payments received by the adopted son from the Maharaja of Porbandar's privy purse were taxable as income. The Income Tax Officer (ITO) sought to tax these amounts, but the assessee argued that there was no legally enforceable right to these payments. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, but the Tribunal reversed it, concluding that the payments were not taxable as they were not received by virtue of any custom, usage, or statutory obligation. The Tribunal emphasized that the payments varied and were dependent on the Maharaja's discretion, indicating they were not income but rather voluntary payments.
2. Taxability of Payments Received from Privy Purse by the Daughter-in-Law:
Similarly, the daughter-in-law received payments from the Maharaja, which were also sought to be taxed by the ITO. Her argument mirrored that of her husband, asserting no legally enforceable right to these payments. The AAC and ITO's decisions were overturned by the Tribunal, which followed the reasoning in the husband's case, ruling that these payments were also not taxable.
In-depth Details:
Legal Framework and Exemptions:
The judgment highlighted that under Article 291 of the Constitution and the Indian Income Tax Act, 1922, and 1961, privy purses were exempt from income tax. The Maharaja's privy purse was intended to cover all expenses of the ruler and his family. The key question was whether the payments made by the Maharaja to his adopted son and daughter-in-law were taxable in their hands.
Tribunal's Findings:
The Tribunal found no evidence of a legally enforceable right to the payments, and the varying amounts indicated they were at the Maharaja's discretion. The Supreme Court's decision in CIT v. Sitaldas Tirathdas was cited, distinguishing between income diverted before reaching the assessee and income applied after reaching the assessee. The payments were considered applications of income by the Maharaja, not diversions before reaching him.
Conclusion:
The High Court upheld the Tribunal's decision, ruling that the payments were not taxable as income in the hands of the adopted son and daughter-in-law. The payments were deemed voluntary and dependent on the Maharaja's discretion, thus not constituting income. The court emphasized that the exemption of the privy purse itself did not affect the character of the payments received by the assessees. The questions referred were answered in favor of the assessees, and the Commissioner was ordered to pay the costs.
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1979 (2) TMI 100
Issues Involved:
1. Determination of capital gains with reference to the amount of compensation paid by the Land Acquisition Officer.
2. Applicability of section 52(2) of the Income-tax Act to the transfer in the case of the assessee.
3. Direction to the Income-tax Officer to adopt the revised value of compensation as and when determined by the Land Acquisition Authorities.
Summary:
Issue 1: Determination of Capital Gains
The Tribunal held that capital gains should be determined with reference to the amount of compensation paid to the assessee by the Land Acquisition Officer. The High Court affirmed this, referencing the decision in Topandas Kundanmal v. CIT [1978] 114 ITR 237 (Guj), which stated that the right to income in the nature of compensation arises only when the amount is judicially determined. The Court noted that any enhanced compensation determined later by judicial authorities would be taxed in the year the possession was taken, as per s. 45 of the I.T. Act, 1961. The Court also highlighted the relevance of s. 155(7A) for recomputation of capital gains when compensation is enhanced.
Issue 2: Applicability of Section 52(2)
The Court found that s. 52(2) could not be invoked in land acquisition cases. The section applies when the fair market value exceeds the declared consideration by at least 15%, but in land acquisition, the compensation awarded by the Land Acquisition Officer is merely an offer, not a final determination of market value. Therefore, the assessee's declaration of the compensation amount could not be considered below market value. The Court ruled in favor of the assessee, stating that s. 52(2) was not applicable.
Issue 3: Direction to Income-tax Officer
The Tribunal had refused to direct the Income-tax Officer to adopt the revised value of compensation as and when determined by the Land Acquisition Authorities. The High Court agreed, noting that under s. 153(3)(ii), the limitation period does not apply to assessments made to give effect to any court order. Therefore, the Tribunal's refusal to issue such a direction was justified, as the question of limitation would not arise. The Court ruled in favor of the assessee on this issue as well.
Conclusion:
The High Court answered all questions in the affirmative, favoring the assessee and against the revenue. The Commissioner was directed to pay the costs of both references to the assessee.
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1979 (2) TMI 99
Issues Involved:
1. Applicability of Section 10 of the Estate Duty Act, 1953.
2. Definition and scope of "property" under Section 2(15) of the Estate Duty Act.
3. Interpretation of the term "property taken under any gift".
4. Nexus between the gifted cash amount and the purchased property.
5. Judicial precedents and their relevance to the present case.
Issue-wise Detailed Analysis:
1. Applicability of Section 10 of the Estate Duty Act, 1953:
The core issue was whether Rs. 69,000, gifted by the deceased, should be included in the taxable estate under Section 10 of the Estate Duty Act, 1953. Section 10 stipulates that property taken under any gift is deemed to pass on the donor's death if the donee did not assume bona fide possession and enjoyment of it immediately and did not retain it to the exclusion of the donor. The court analyzed this provision, noting the Supreme Court's interpretation in George Da Costa v. CED, which emphasized that the donee must exclude the donor from both the property and any benefit from it.
2. Definition and Scope of "Property" under Section 2(15) of the Estate Duty Act:
The Assistant Controller and Appellate Controller argued that the term "property" should include converted property as per Section 2(15) of the Act. However, the Tribunal and the High Court disagreed, stating that Section 10's context circumscribes the meaning of "property." The court emphasized that Section 10 applies only to the property initially gifted, not to any converted property.
3. Interpretation of the Term "Property Taken Under Any Gift":
The High Court agreed with the Tribunal that the subject-matter of the gift was the cash amount of Rs. 69,000, not the house property purchased later. The court stated, "We have to consider what was the property in question at the time of gift." It concluded that the legislative intent of Section 10 is clear, and the term "property" should not be interpreted to include converted property.
4. Nexus Between the Gifted Cash Amount and the Purchased Property:
The court observed that there was no obligation for the donee to purchase immovable property with the gifted cash. Even assuming a nexus between the cash gift and the house property, the court held that this does not change the subject-matter of the gift from cash to the house property. The court emphasized, "It is common ground that under the gift of the cash amount by the deceased, there was no obligation attached that the donee had to purchase an immovable property."
5. Judicial Precedents and Their Relevance to the Present Case:
The court reviewed relevant precedents, including the Kerala High Court's decision in T.O. Hydrose v. CED and the Allahabad High Court's decision in CED v. T. N. Kochhar. It concluded that these cases support the view that the gifted property should be considered in its original form, not in its converted state. The court noted, "On a plain reading of s. 10, we are of the opinion that no other interpretation is possible."
Conclusion:
The High Court upheld the Tribunal's decision, ruling that the value of Rs. 69,000 was not includible in the principal value of the deceased's estate under Section 10 of the Estate Duty Act, 1953. The court answered the reference in the affirmative, favoring the accountable person and against the Controller of Estate Duty. The Controller of Estate Duty, Gujarat, was ordered to pay the costs of the reference to the accountable person.
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1979 (2) TMI 98
Issues:
1. Deductibility of agricultural income-tax liability in wealth-tax assessment.
2. Allowance of loan secured on tea crop in computing net assets for wealth-tax assessment.
Analysis:
Issue 1: Deductibility of agricultural income-tax liability in wealth-tax assessment:
The case involved the question of whether agricultural income-tax liability could be deducted in wealth-tax assessment. The assessee, a partner in a firm that owned a tea estate, claimed deduction for agricultural income-tax liability and loans on hypothecation of tea crops from the assessment of net wealth. The WTO rejected the claim, stating that agricultural income-tax was exempt from wealth-tax and therefore not deductible. The AAC of Wealth-tax allowed the deduction, holding that agricultural income-tax liability was a debt and admissible deduction. The Tribunal upheld the AAC's decision, stating that agricultural income-tax was a charge on agricultural income but not specifically secured on agricultural assets only. The High Court held that agricultural income-tax, being a debt incurred in relation to assets exempt from wealth-tax, was not deductible under section 2(m)(ii) of the Wealth-tax Act. The Court also noted that the agricultural income had not been paid within one year from the date of assessment, further disallowing the deduction.
Issue 2: Allowance of loan secured on tea crop in computing net assets:
Regarding the loan secured on tea crop, the assessee claimed deduction of the entire loan liability, including the portion secured on exempted assets. The WTO estimated that a portion of the loan referable to exempted assets could not be allowed as a deduction. However, the AAC allowed the deduction of the entire loan liability, including the portion secured on tea crop. The Tribunal upheld the AAC's decision, stating that the loan secured on tea crop was allowable in computing net assets. The High Court analyzed the provisions of the Wealth-tax Act, particularly section 2(m)(ii), which disallows deductions for debts secured on assets exempt from wealth-tax. The Court held that since the loan was secured against assets not included in the definition of assets under the Act, section 2(m)(ii) applied, disallowing the deduction of the loan secured on tea crop.
In conclusion, the High Court answered the questions in Wealth-tax References in the negative, disallowing the deduction of agricultural income-tax liability and the loan secured on tea crop in wealth-tax assessment. Each party was directed to bear their own costs.
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1979 (2) TMI 97
Issues Involved:
1. Whether the payment of Rs. 5,95,000 and Rs. 5,96,000 by the assessee represented capital expenditure and was therefore not deductible in arriving at the income of the assessee.
Issue-wise Detailed Analysis:
1. Nature of Expenditure:
The primary issue in both I.T.R.C. No. 116 of 1974 and I.T.R.C. No. 117 of 1974 was whether the sums of Rs. 5,95,000 and Rs. 5,96,000 paid by the assessee, Indian Telephone Industries Ltd., Bangalore, towards acquiring technical know-how under agreements with the Government of India and foreign entities, constituted capital expenditure or revenue expenditure. The Income-tax Appellate Tribunal held these payments as capital expenditure, thus not deductible under s. 37 of the I.T. Act.
2. Tribunal's Reliance on Previous Case Law:
The Tribunal's decision was based on the precedent set in Mysore Kirloskar Ltd. v. CIT [1968] 67 ITR 23 (Mys), which was later overruled by a Full Bench of the same court in Mysore Kirloskar Ltd. v. CIT [1978] 114 ITR 443 (Mys), following the Supreme Court's ruling in CIT v. Ciba of India Ltd. [1968] 69 ITR 692. Thus, the Tribunal's reliance on the first Mysore Kirloskar's case was misplaced as it was no longer good law.
3. Tests for Determining Capital vs. Revenue Expenditure:
The Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 laid down the tests to distinguish between capital and revenue expenditure. These tests consider whether the expenditure is for acquiring an asset or advantage of an enduring benefit (capital) or for running the business to produce profits (revenue).
4. Application of Supreme Court's Ruling in Ciba's Case:
In CIT v. Ciba of India Ltd. [1968] 69 ITR 692, the Supreme Court held that payments for acquiring technical know-how were revenue expenditure if the assessee merely obtained access to the technical knowledge for a limited period without acquiring any enduring asset. The assessee in the present case, similar to Ciba, acquired the right to use technical know-how for a limited period without transferring any asset or enduring advantage.
5. Undisputed Facts and Analysis:
The court noted the following undisputed facts:
- The assessee was already in the business of manufacturing telephone exchange equipment.
- The agreements provided the right to use technical know-how for manufacturing and selling "Pentaconta" cross-bar exchanges.
- The agreements were valid for seven years, with no right to transfer the know-how to third parties.
- The technical know-how was subject to rapid obsolescence due to ongoing research and development in telecommunications.
Based on these facts, the court concluded that the payments were for acquiring technical know-how to improve business prospects and meet transitional requirements, not for acquiring an enduring asset.
Conclusion:
The court held that the Tribunal erred in categorizing the expenditure as capital. The payments were revenue in nature and thus deductible under s. 37 of the Act. The question was answered in the negative and in favor of the assessee, allowing the deduction of the sums paid.
Costs:
The court ordered that each party bear its own costs.
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1979 (2) TMI 96
Issues Involved:
1. Justification of the Appellate Tribunal's finding on the maintenance of books of account and the adoption of the mercantile method of accounting.
2. Legality of the Tribunal's finding that interest accrues to the assessee on the date of the award or decree and becomes income only on that date.
3. Justification of including the entire amount of interest for the period from 1962 to 1969 in the total income for the assessment year 1970-71.
Issue-Wise Detailed Analysis:
1. Justification of the Appellate Tribunal's Finding on the Maintenance of Books of Account:
The court examined whether the Appellate Tribunal was justified in holding that the assessee did not maintain books of account, thereby negating the adoption of the mercantile method of accounting. The Tribunal's finding was based on the absence of any material evidence showing that the assessee maintained such books. The court upheld this finding, stating it was warranted by the facts of the case.
2. Legality of the Tribunal's Finding on Interest Accrual:
The court analyzed whether the Tribunal's finding that "the interest accrues due to the assessee on the date of award or decree of court and, therefore, it becomes income of the assessee only on that date and not prior to it" was justified in law. The court referred to Section 5(1) of the I.T. Act, which defines the scope of total income, including income that "accrues or arises" or is "deemed to accrue or arise" in India during the year. The court also examined relevant provisions of the Land Acquisition Act, particularly Sections 11, 18, 28, and 34, which deal with the award of compensation and interest.
The court cited the Supreme Court's decision in E. D. Sassoon & Co. Ltd. v. CIT, which clarified that income accrues when the assessee acquires a right to receive it, even if the actual receipt is later. The court concluded that the right to interest on excess compensation accrues only when the court decrees such interest while awarding excess compensation. This interpretation was consistent with the principles laid down in previous judgments, such as CIT v. Sampangiramaiah and Khan Bahadur Ahmed Alladin & Sons v. CIT.
3. Justification of Including the Entire Interest Amount in the Total Income for the Assessment Year 1970-71:
The court addressed whether the entire interest amount of Rs. 10,322 (for the period from 1962 to 1969) should be included in the total income for the assessment year 1970-71. The assessees argued that only a proportionate amount of interest referable to the accounting year should be assessed, while the revenue contended for the inclusion of the entire amount.
The court reviewed several precedents, including T. N. K. Govindarajulu Chetty v. CIT and CIT v. Dr. Sham Lal Narula, which dealt with the accrual and apportionment of interest on compensation. The court found that the right to interest on excess compensation does not arise on the date of dispossession but only when the court decrees such interest. Consequently, the entire interest amount received during the assessment year 1970-71 was correctly included in the total income for that year.
Conclusion:
The court answered all the questions referred in the affirmative, in favor of the revenue and against the assessee. The judgment emphasized that the right to interest on excess compensation accrues only when the court decrees it, and the entire interest amount received during the relevant assessment year should be included in the total income for that year.
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1979 (2) TMI 95
Issues:
1. Interpretation of provisions of s. 145(1) of the I.T. Act regarding assessment of profit.
2. Whether the price of stores supplied by the Government should be included in applying the flat rate to the assessee's contract receipts.
Analysis:
The judgment involves a reference made by the Income-tax Appellate Tribunal regarding the assessment of profit for a military contractor during the accounting period relevant to the assessment year 1964-65. The Income Tax Officer (ITO) assessed the profit by applying a flat rate of 10% on total receipts due to lack of supporting vouchers for the expenditure. The Appellate Assistant Commissioner (AAC) allowed the appeal of the assessee, stating that no rate of profit could be applied to the value of stores supplied by the Government. The Tribunal upheld this decision, leading to the question of whether the Tribunal was justified in confirming the AAC's order regarding the inclusion of the price of stores supplied by the Government in applying the flat rate to the contract receipts.
A Division Bench referred to conflicting views by different High Courts on the issue. The Full Bench judgment highlighted a recent decision by the Supreme Court in Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524, which reversed the earlier judgment and held that the assessment should exclude the cost of material and stores received for use in the contractor's works. The parties' counsels agreed that the Supreme Court's decision governs the present case, leading to the Full Bench's decision in favor of the assessee and against the revenue.
The judgment clarifies the correct interpretation of the law in such cases, resolving the conflict of judicial precedent and establishing the exclusion of the cost of material and stores supplied by the Government in assessing profit for contractors. The decision aligns with the Supreme Court's ruling and sets a precedent for similar cases, providing clarity on the treatment of such costs in the assessment of profits for contractors.
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1979 (2) TMI 94
The court ruled in favor of the assessee on all three questions: allowability of Mandir, Gaushala, and Dharmada payments; expenditure of Rs. 2,000 on renovation; and construction of bath rooms, urinals, and fitting of a gate. The Tribunal held that the expenditure was an admissible deduction under section 37 of the Income Tax Act, 1961. The assessee was awarded costs of Rs. 200.
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1979 (2) TMI 93
The High Court of Karnataka ruled that the expenditure incurred by a banking company on serving coffee and tea to customers during business hours does not constitute entertainment expenditure under section 37(2B) of the Income-tax Act, 1961. The court held in favor of the assessee, stating that serving coffee and tea was a matter of courtesy and incidental to the business. The revenue's appeal was dismissed, and no costs were awarded.
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1979 (2) TMI 92
Issues Involved:
1. Constitutionality of Chapter XX-A of the I.T. Act, 1961.
2. Conditions precedent for the initiation of proceedings u/s 269C.
3. Material and reasons for the belief that the fair market value exceeded the apparent consideration by more than 15%.
4. Method of valuation of the property.
Summary:
1. Constitutionality of Chapter XX-A of the I.T. Act, 1961:
The petitioners contended that Chapter XX-A containing sections 269A to 269S was unconstitutional as it violated their fundamental rights and imposed unreasonable restrictions on their right to hold and dispose of property, and also violated Article 14 of the Constitution. However, the court did not find it necessary to express a view on this aspect, noting that the Division Bench of the Delhi High Court in Mahavir Metal Works P. Ltd. v. Union of India [1974] 95 ITR 197 had upheld the constitutional validity of Chapter XX-A, finding the presumptions under sections 269C(2)(a) and (b) to be rebuttable.
2. Conditions precedent for the initiation of proceedings u/s 269C:
The court emphasized that before initiating proceedings u/s 269C, the competent authority must record reasons, have material for such reasons, and believe that the property was transferred for a consideration less than its fair market value with the object of tax evasion or concealment of income. The court found that the IAC's reasons were based on an estimation of land value without considering that the property was fully tenanted, which was a material aspect.
3. Material and reasons for the belief that the fair market value exceeded the apparent consideration by more than 15%:
The IAC estimated the value of the land at Rs. 30,000 per cottah, concluding that the fair market value exceeded the apparent consideration by more than 25%. However, the court noted that the IAC did not consider the rental method of valuation, which was appropriate for tenanted properties. The court found that the IAC did not have sufficient material to form the belief required by the Act.
4. Method of valuation of the property:
The court highlighted that the property was fully tenanted and should be valued on the rental method, as per the prevalent view and several Supreme Court decisions. The IAC's estimation based on land value alone was not appropriate. The court noted that the IAC did not consider the rental method or the fact that the property was tenanted, which was a relevant factor in determining the fair market value.
Conclusion:
The court quashed the proceedings initiated u/s 269D(1) on the 23rd April, 1973, and restrained the respondents from proceeding further, as the conditions precedent for the initiation of the proceedings were not fulfilled, rendering the proceedings without jurisdiction. The rule was made absolute, with no order as to costs.
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1979 (2) TMI 91
Issues involved: The issue in this case is whether the income of the assessee, a co-operative society engaged in the supply of sugarcane, from interest in Government securities is exempt under clause (c) of section 80P(2) of the Income Tax Act for the assessment year 1973-74.
Judgment Summary:
Issue 1: Interpretation of clause (c) of section 80P(2)
The court examined whether the income of the co-operative society, derived from investments in Government securities as mandated by statutory provisions, is exempt under clause (c) of section 80P(2) of the Income Tax Act. The court referred to the decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC), where it was held that the expression "attributable to" is broader than "derived from," indicating that receipts from sources other than the actual business operations may be covered. The court found that the investment in Government securities was a condition for conducting the business of supplying sugarcane, and the profits from such investments were connected with the business activity. Therefore, the court upheld the Tribunal's decision that the income from Government securities was attributable to the activity carried on by the assessee, thus exempt under clause (c) of section 80P(2).
The court answered the question in the affirmative, in favor of the assessee and against the department. As there was no representation from the assessee, no costs were awarded in the matter.
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