TMI Tax Updates - e-Newsletter
January 20, 2012

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise CST, VAT & Sales Tax

Articles

1. Peak Credit and telescoping theories in assessment proceedings under Income Tax

   By: AMIT BAJAJ ADVOCATE

2. Tax deduction at source (TDS) is desirable on interest paid on income tax refund – as an alternative Central Government may pay interest at reduced rate and make interest tax free.

   By: DEVKUMAR KOTHARI

News

1. ICWAI gets its Name Changed to ICAI and its Members to use ACMA and FCMA.

2. Union Finance Minister holds Pre Budget institutions with Representatives of Banks and Financial institutions; Calls for United Efforts to meet the Current Challenges of Economy.

3. New President and Vice President of ICSI for 2012.

4. National Consumer Helpline Records 13,295 Calls in December 2011.

5. Wholesale Price Indices for Primary Articles and Fuel & Power in India (Base: 2004-05 = 100) Review for the week ended 7th January, 2011 (17 Pausha, 1933 Saka) .

6. States Seek Growth-Centric Budget in Pre-Budget Consultations with union Finance Minister.

7. Anand Sharma Flags off IICF 2012 400 Delegates from 16 Countries Converge at the Event to Promote Coffee.

8. Dr. M. Veerappa Moily calls for Making Country’s Growth more Inclusive 1st National CSR Conclave Generates Enthusiasm for Private Sectors Role.

9. $24.3 Million ADB Loan to boost investment in Maharashtra Agribusiness Infrastructure.

10. Union Finance Minister’s Address at the 84th Annual General Meeting of FICCI.

11. Change in Tariff Value of Gold and Silver Notified.

12. Income Tax Department Directed to Launch Special Drive for Verifying High Value Transactions.

13. Nepal to Fast Track Karnali and Arun Projects Nepal Industry Minister meets Anand Sharma.

Notifications

Customs

1. CORRIGENDUM - dated 17-1-2012 - ADD

Corrigendum of Notification no. 8/2012-Custom (ADD).

2. 04/2012 - dated 17-1-2012 - Cus (NT)

Amends notification no. 36/2001-Cus (N.T.) - Palm oil, Palmolein, Soyabean Oil (Crude) and Brass Scrap (all grades) - Traiff Values

3. 01/2012 - dated 17-1-2012 - Safeguard

Seeks to impose safeguard duty at the rate of 10% ad valorem, on Phthalic anhydride.

Circulars / Instructions / Orders

FEMA

1. 68 - dated 17-1-2012

Risk Management and Inter-Bank Dealings - Commodity Hedging.

Highlights / Catch Notes

Income Tax

• Real Estate Case: Profit from Land Conversion to Stock in Trade Calculated by Sale Price Minus FMV on Conversion Date.

  Case-Laws - AT : Conversion of land into Stock in Trade - Set off of brought forward losses - It was only the profit arising from sale of stock in trade that could be treated as profits of the business of the assessee of real estate development to the extent of difference between the sale price and fair market value of the land on the date of conversion.... - AT
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• Land Conversion to Stock: Taxable as Capital Gains When Sold, Per Income Tax Laws.

  Case-Laws - AT : Conversion of land into Stock in Trade - The profit or gains arising from the transfer by way of such conversion thus was chargeable to tax as the income of the assessee under the head "Capital Gains" of the year under consideration since the said stock in trade was admittedly sold by him in that year...... - AT
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• Court Criticizes Income Tax Department for Costly Newspaper Ads to Serve Notices; Calls for Efficient Methods.

  Case-Laws - HC : Service of notice - service of notice on unserved respondent - public money is unnecessarily wasted by the IT Department by resorting to the paper publication method of service of notice on an assessee as a matter of routine incurring considerable avoidable and unnecessary expenditure towards the cost of advertisement in newspapers.... - HC
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• Sole Proprietorship to Company Transfer: Tax Exemption Available u/s 47(xiv) for Proper Consideration Payment.

  Case-Laws - AT : Transfer of sole proprietorship business to company - exemption u/s 47(xiv) - if the full amount due under the capital account and also the current account of the proprietor have to be clubbed and treated as the consideration payable to the sole proprietary concern on the transfer, then there could be no case of violation of sub-clause (c) of section 47(xiv) of the Act.... - AT
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• Proprietary Sale Deemed Transfer u/s 47(xiv) of Income Tax Act; Surplus Exempt from Tax.

  Case-Laws - AT : Capital gain - sale of proprietary concern - conditions of section 47(xiv) fulfilled - transaction has to be treated as a transfer within the meaning of section 47(xiv) and the surplus over the net worth is held to be exempt from income tax.... - AT
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• AO's Failure to Record Satisfaction Invalidates Notice u/s 158BD in Block Assessment Case.

  Case-Laws - AT : Block assessment - AO has not recorded the satisfaction for issue of notice under section 158BD, prior to completion of assessment, the issue of notice under section 158BD is bad in law.... - AT
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• Rejection of Deduction Claim Doesn't Justify Penalty u/s 271(1)(c); No Automatic Penalty for Disallowed Deductions.

  Case-Laws - AT : Whether rejection of the claim of deduction of expenditure on account of non-commencement of business is justified to levy penalty under section 271(1((c) - held no.... - AT
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Customs

• Tariff Values Updated for Palm Oil, Palmolein, Crude Soybean Oil, and Brass Scrap in Notification No. 04/2012-Customs.

  Notifications : Amends notification no. 36/2001-Cus (N.T.) - Palm oil, Palmolein, Soyabean Oil (Crude) and Brass Scrap (all grades) - Traiff Values - Ntf. No. 04/2012-Customs (N.T.) Dated: January 17, 2012
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• 10% Safeguard Duty Proposed on Phthalic Anhydride Under Notification No. 01/2012-Customs (SG) Dated January 17, 2012.

  Notifications : Seeks to impose safeguard duty at the rate of 10% ad valorem, on Phthalic anhydride. - Ntf. No. 01/ 2012-Customs (SG) Dated: January 17, 2012
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• Corrigendum Issued for Notification No. 8/2012-Custom (ADD), Clarifying and Correcting Details for Regulatory Compliance.

  Notifications : Corrigendum of Notification no. 8/2012-Custom (ADD). - Ntf. No. CORRIGENDUM Dated: January 17, 2012
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FEMA

• Guidelines for Banks on Risk Management and Inter-Bank Commodity Hedging to Ensure Financial Stability.

  Circulars : Risk Management and Inter-Bank Dealings - Commodity Hedging. - Cir. No. 68 Dated: January 17, 2012
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Service Tax

• Sub-contractors exempt from service tax if main contractor pays in full; prevents double taxation on services.

  Case-Laws - HC : Liability of Sub-Contractor to pay service tax when it stands paid by the main Contractor on the total amount inclusive of the service part - the amount of service tax in respect of the same services cannot be charged twice.... - HC
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Central Excise

• Suppliers Avoid Interest Liability When Clearing Excisable Goods from OEM Premises with Differential Duty Payment.

  Case-Laws - AT : Procurement of Excisable Goods at Concessional Rate of Duty - Merely because the supplier has not brought back the goods to his factory to avoid transportation expenses but clears the same on payment of differential duty from the premises of the OEM themselves, it does not create an interest liability on the supplier of the goods..... - AT
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Case Laws:

• Income Tax

• 2012 (1) TMI 40
  Validity of re-opening of assessment beyond the period of four years from the end of the relevant A.Y. 2004-05 - reasons recorded does not allege failure on the part of the assessee to disclose fully all material facts – Held that:- The only reason for re-opening of assessment was that the housing project developed by the petitioner occupied commercial establishment exceeding 5% of the constructed area. Admittedly, clause (d) of section 80IB(10) restricting commercial construction, not to be in excess of 5% was introduced subsequently and does not have retrospective effect. In that view of the matter, there was no scope for reopening the assessment already closed. Further, there is no allegation that the assessee had concealed any material particularly – Decided in favor of assessee.

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• 2012 (1) TMI 39
  Penalty u/s 271(1)(c) – two views were possible regarding taxability in the hands of the members of the A.O.P or in the hands of A.O.P. - matter referred to Special Bench – decided in favor of Revenue - Held that:- There were two views possible inasmuch as the Tribunal itself was in doubt as to which of the two views were to be preferred. And for this very reason, Tribunal required the matter to be considered by a Special Bench. It cannot be said that prior to that date, the assessee could not have had such a doubt in its mind when it had indeed filed its return. It is a settled principal of law that where two views are possible a penalty cannot be imposed on the assessee – Decided in favor of assessee.

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• 2012 (1) TMI 35
  Whether the provisions of section 32 of SICA would override the effect on the provisions of section 43B – BIFR recommended to consider granting exemption from the provisions of Section 43B – Tribunal relied on circular No.523 dated 05.10.1988 and 576 dated 31.08.1990 issued by the BIFR while allowing appeals - Held that:- Circular No.523 dated 05.10.1988 relates to the provisions of section 41(1), 79 and 115J and not section 43B. Thus, such reliance placed is unsustainable. By virtue of the provisions of section 32 of SICA, the scheme framed u/s 18 shall have the effect of overriding the provisions of the Income Tax Act, be it even the provisions of section 43B. Though u/s 43B, the A.O. may not have any discretion to allow any deduction in respect of interest payable, it is the case of the revenue that by virtue of the provisions of section 32 of SICA, the assessee, who has taken over the sick industry, would have the benefit of the provisions of the scheme. Therefore, the substantial question of law is answered in the negative i.e. against the revenue.

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• 2012 (1) TMI 34
  Fund or institution established for charitable purposes - Application for registration u/s 10(23C)(iv) rejected by the Director General of Income Tax(Exemptions) on ground that records and accounts were not properly maintained – Held that:- In the present case, the reasons given in the order do not appear to be germane to the conclusion reached. As indicated the explanation/justification of the petitioner has not been considered. Keeping in view the aforesaid aspects we set aside the order and pass an order of remit and direct the respondent to decide the application for registration u/s 10(23C)(iv) afresh keeping in mind the observations made in the case of American Hotel and Lodging Association Educational Institute vs CBDT & others (2008 - TMI - 4477 - Supreme Court Of India).

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• Customs

• 2012 (1) TMI 31
  Whether claim of refund arising out of final assessment to be made vide an application u/s 27 or the same has to be refunded immediately u/s 18 not requiring assessee to move an application – bill of entries of import were provisionally assessed on 24.08.98 & 02.02.99 and duty was paid – refund arised on final assessment on 21.06.99, 15.06.99 – whether clause of unjust enrichment u/s 27(2) would be applicable - Held that:- The assessee has paid provisional duty which gets reduced on final assessment. The assessee, therefore, becomes entitled to refund which is payable in terms of Rule 9B of the Excise Act, 1944 or Section 18 of the Act. For refund on this account, no application is required to be filed u/s 27 of the Act and therefore, sub-Section (2) relating to unjust enrichment is not applicable. Further, insertions vide sub-sections (3), (4) and (5) to Section 18 are effective from 13.07.06 and obviously are not applicable to the case in hand as they do not have retrospective effect. - Decided in favor of assessee.

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• Service Tax

• 2012 (1) TMI 33
  Whether service provided to the assessee by a non-resident prior to insertion of Section 66A of the Finance Act, 1994, is exigible to service tax – provision introduced on 18.4.2006 - Held that:- The issue is no longer res integra. Any service provided to the assessee by a non-resident prior to insertion of Section 66A of the Finance Act, 1994, was not exigible to service tax. See CCE vs M/s Kansal Hosiery Exports (2012 - TMI - 208473 - Punjab And Haryana High Court ), CCE v. Bhandari Hosiery Exports Ltd. (2009 - TMI - 35335 - Punjab And Haryana High Court ), Indian National Shipowners Association v. Union of India (2008 - TMI - 32013 - High Court Of Bombay)– Decided against the Revenue.

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• 2011 (12) TMI 165
  Liability of Sub-Contractor to pay service tax when it stands paid by the main Contractor on the total amount inclusive of the service part, which was allotted to the assessee by the main Contractors - proof of deposit furnished - request for adjournment on medical ground rejected as the medical certificate has not been attached – plea for waiver of deposit also rejected – Held that:- Revenue was not able to dispute the argument that amount of service tax is payable in respect of the services rendered either by the contractor or by the sub contractor and that the amount of service tax in respect of the same services cannot be charged twice. Further, petitioner has produced the challans in respect of deposit of service tax by the main contractors. In view of this, the direction of the Tribunal to deposit 50% of the amount of the demand raised, is unjustified and untenable. Consequently, the order is set aside and Tribunal is directed to decide the appeal without any predeposit. Further, while seeking adjournment on the medical ground, the medical certificates are not expected to be produced. Statement made by the assessee is expected to be accepted. Thus, there was no reason to decline the request for adjournment.

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• Central Excise

• 2012 (1) TMI 36
  Production capacity based duty – application of Rule 5 of the Hot Re-rolling Steels Mills Annual Capacity Determination Rules, 1997 - manufacturer had made changes in installed machinery or any part thereof after seeking approval of the Commissioner of Excise in terms of Rule 4(2) of 1997 Rules – Period involved 01.09.97 to 31.03.2000 - Held that:- Supreme Court held in case of CCE vs Doaba Steel Rolling Mills (2011 - TMI - 204191 - Supreme Court Of India) that Rule 5 springs into action and has to be given full effect to where annual capacity is determined/ redetermined by applying the formula prescribed in sub-rule (3) of Rule 3. In the absence of any other Rule, sub rule (3) of Rule 3 would be attracted for re-determination of production capacity of a factory, on furnishing of information to the Commissioner as contemplated in Rule 4(2) of the 1997 Rules. Thus, in present case Rule 5 of 1997 Rules would apply and the annual capacity so determined shall be deemed to be actual production during the financial year 1996-97, which is period involved in the present case. - Decided in favor of Revenue.

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• 2012 (1) TMI 30
  Validity of power of Tribunal to grant statutory right to the assessee to deposit the amount of penalty u/s 11 AC of the Central Excise Act - Show-cause notice issued by Assistant Commissioner raising the demand and imposing penalty did not indicate regarding the benefit of depositing the amount within 30 days – Held that:- Once an earlier order was not passed in accordance with the provisions of Section 11 AC of the Act then the Tribunal was fully justified in granting one opportunity to the assessee to pay the amount of penalty in terms of proviso to Section 11 AC of the Act within a period of 30 days by earning the benefit of paying penal amount to the extent of 25% instead of amount equivalent to the amount of duty. - Decided against the revenue.

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• 2011 (12) TMI 166
  Manufacture of “prefabricated structural components - supplied to the Delhi Metro Rail Corporation Limited(DMRC) - production is unique in nature and utility thereof is restricted to the location for which they are designed and not at any other place - exemption under Notification dated 17.02.2011 – Held that:- Said Notification stipulates goods to be manufactured at site and to be used in construction work at such site. In present case, there is no dispute that the goods supplied are used in construction work at site. Insofar as first ingredient is concerned, Circular No. 456/22/99–CX dated 18.5.1999 clarifies that expression 'site' should not be given restrictive meaning and would include any premises made available to the manufacturer of goods falling under the Central Excise Tariff Act. Therefore, both the conditions stipulated in the Notification dated 17.2.2011 stand satisfied. The assessee, for the supplies made, were entitled to exemption under the said notification. - Decided in favor of assessee.

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• CST, VAT & Sales Tax

• 2012 (1) TMI 37
  Exemption u/s 5(2) of the Central Sales Tax Act, 1956 - Sale in the course of import – assessee entered into contract with Canara Bank, Bangalore for sale of Bank Note Processing System BPS-204 – another contract with German manufacturer for import of same – assessee claiming it to be sale in the course of import - Held that:- To claim exemptionu/s 5(2), import should have a direct nexus and should be connected with the transaction of sale in India. In present case, the import was by the appellant in his own name. The appellant had entered into an earlier contract with Canara Bank but for the purpose of said contract the appellant was not the agent of the supplier in Germany. Contract with Canara Bank and contract with the German company, both were on principal to principal basis. They were two independent transactions. Back to back contracts by themselves do not establish and prove that the first part of Section 5(2) is attracted and applicable. The import may have been with the intention to supply the imported goods to the Canara Bank but could have been diverted to another third person, without violation/default of the contract between the appellant and the Canara Bank. Thus, it does not qualifies for exemption under Section 5(2). - Decided against the assessee.

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