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TMI Tax Updates - e-Newsletter
January 21, 2012
Case Laws in this Newsletter:
Income Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Highlights / Catch Notes
Income Tax
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Vodafone's case - Transfer of the foreign holding company’s share off-shore, cannot result in an extinguishment of the holding company right of control of the Indian company nor can it be stated that the same constitutes extinguishment and transfer of an asset/ management and control of property situated in India..... - SC
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Section 9 has no 'look through provision' and such a provision cannot be brought through construction or interpretation of a word ‘through’ in Section 9. In any view, 'look through provision' will not shift the situs of an asset from one country to another. Shifting of situs can be done only by express legislation.
.... - SC
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Section 195, would apply only if payments made from a resident to another non-resident and not between two nonresidents situated outside India. .... - SC
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Status of Trust - individual or association of persons - while determining the total income of a trustee who is an individual, the individual trustee is entitled to deduction under Section 80L of the Act..... - HC
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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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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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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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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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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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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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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
Service Tax
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'Input' or 'input services' - landscaping services cannot be treated as having been used in or in relation to the manufacture of final products, namely, the safety valves..... - AT
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Liability of pay service tax - the non-residents provided services to the appellant outside India - in respect of services provided by the non-residents, the appellant is required to pay service tax on the amount charged by the service providers.... - AT
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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
Central Excise
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Change in rate of duty after manufacture but before removal - taxable event is the manufacture and the payment of duty is related to the date of removal of such article from the factory. Thus duty will be paid at the enhanced rate in force at the time of removal..... - SC
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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
Case Laws:
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Income Tax
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2012 (1) TMI 52
Scope of total income - Revenue seeks to tax the capital gains arising from the sale of the share capital of CGP on the basis that CGP, whilst not a tax resident in India, holds the underlying Indian assets. - Held that:- Applying the look at test in order to ascertain the true nature and character of the transaction, we hold, that the Offshore Transaction herein is a bonafide structured FDI investment into India which fell outside India s territorial tax jurisdiction, hence not taxable. The said Offshore Transaction evidences participative investment and not a sham or tax avoidant preordained transaction. The said Offshore Transaction was between HTIL (a Cayman Islands company) and VIH (a company incorporated in Netherlands). The subject matter of the Transaction was the transfer of the CGP (a company incorporated in Cayman Islands). Consequently, the Indian Tax Authority had no territorial tax jurisdiction to tax the said Offshor Transaction. FDI flows towards location with a strong governance infrastructure which includes enactment of laws and how well the legal system works. Certainty is integral to rule of law. Certainty and stability form the basic foundation of any fiscal system. Tax policy certainty is crucial for taxpayers (including foreign investors) to make rational economic choices in the most efficient manner. Legal doctrines like Limitation of Benefits and look through are matters of policy. It is for the Government of the day to have them incorporated in the Treaties and in the laws so as to avoid conflicting views. Investors should know where they stand. It also helps the tax administration in enforcing the provisions of the taxing laws. As stated above, the Hutchison structure has existed since 1994. According to the details submitted on behalf of the appellant, we find that from 2002-03 to 2010-11 the Group has contributed an amount of ₹ 20,242 crores towards direct and indirect taxes on its business operations in India. Transfer outside India - held that:- On transfer of shares of a foreign company to a nonresident off-shore, there is no transfer of shares of the Indian Company, though held by the foreign company, in such a case it cannot be contended that the transfer of shares of the foreign holding company, results in an extinguishment of the foreign company control of the Indian company and it also does not constitute an extinguishment and transfer of an asset situate in India. Transfer of the foreign holding company s share off-shore, cannot result in an extinguishment of the holding company right of control of the Indian company nor can it be stated that the same constitutes extinguishment and transfer of an asset/ management and control of property situated in India. Section 9 has no look through provision and such a provision cannot be brought through construction or interpretation of a word through in Section 9. In any view, look through provision will not shift the situs of an asset from one country to another. Shifting of situs can be done only by express legislation. Capital gains are chargeable under Section 45 and their computation is to be in accordance with the provisions that follow Section 45 and there is no notion of indirect transfer in Section 45. - Section 9(1)(i), therefore, in our considered opinion, will not apply to the transaction in question or on the rights and entitlements, stated to have transferred, as a fall out of the sale of CGP share, since the Revenue has failed to establish both the tests, Resident Test as well the Source Test. Deduction of TDS u/s 195 - Territorial jurisdiction - Article 246 of the Constitution gives Parliament the authority to make laws which are extra-territorial in application. Article 245(2) says that no law made by the Parliament shall be deemed to be invalid on the ground that it would have extra territorial operation. Now the question is whether Section 195 has got extra territorial operations. It is trite that laws made by a country are intended to be applicable to its own territory, but that presumption is not universal unless it is shown that the intention was to make the law applicable extra territorially. Section 195, in our view, would apply only if payments made from a resident to another non-resident and not between two nonresidents situated outside India. In the present case, the transaction was between two non-resident entities through a contract executed outside India. Consideration was also passed outside India. That transaction has no nexus with the underlying assets in India. Order of Bombay High Court set aside - decided in favor of assessee.
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2012 (1) TMI 48
Preemptive purchase by the Central Government u/s 269 UD (1) - apparent consideration appeared to be understated - petitioner(transferee) argued for rebate to be allowed in the value of property determined by appropriate authority on following grounds - Appropriate authority, has ignored the encumbrances, suits and disputes with regard to the property – Held that:- Disputes with third party could have a depressing effect on the fair market value of the property. In present case disputes and suits were between the transferors and the petitioner which were ultimately settled , and not between transferors and third parties. Therefore value for a property has been rightly determined which was free from any disputes or suits. No title deeds to the property are available - absence of the title deeds to the property depresses its value – Held that:- Appropriate authority were informed about the loss of the original title deed to the subject property and the issue of a public notice in the newspaper regarding the loss of the original title deed was directed by this Court. No claim was made or dispute raised by any person on the subject property in response to the notice in the newspaper. Therefore, such loss of the original title deed cannot be said to have had any adverse impact on the fair market value of the property. Subject property was wrongly compared with another property - properties, considering their widely different locations, cannot be compared – Held that:- properties appear to be located in substantially comparable locations, both having quick access to schools, commercial areas, markets, etc. Further, petitioner has also not been able to bring on record any sale instance in the vicinity of the subject property. There are 9 transferors involved in the property - Held that:- Since no merit is found in the first argument of the petitioner, this limb of the argument also is rejected. Authority should record a finding of understatement of the sale consideration in order to justify the pre-emptive purchase of the property – Held that:- No requirement is laid down that the appropriate authority must record a finding of actual understatement. In present case, Petitioner has been informed of the sale instance of another property & its proposed comparison in the show cause notice. Thus a prima facie case of understatement of the true sale consideration was made out . Petitioner has been given full liberty of rebutting the allegation of under-statement of the apparent consideration which he has not attempted . Therefore the presumption has been rightly drawn about understatement. - Decided against the petitioner.
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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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2011 (12) TMI 174
Transfer Pricing – dis-allowance of royalty payment - Revenue contending assessee to be contract manufacturer – assumping that specific goods were manufactured for AE therefore, no royalty was needed to be paid - whether the royalty paid @ 3% of the net sale price stands justified - Held that:- Assessee has placed on record various evidences to prove that royalty payment at 8% on export and 5% on domestic sales has been referred as a reasonable payment. However, TPO failed to bring any material on the record which can suggests that payment of royalty @ 3% was excessive, and not at arm's length price. Further, only a fraction of goods manufactured by the assessee have been sold to the AE. Bulk of sales are to uncontrolled parties. Thus, the assessee is not a captive manufacturer supplying all manufactured goods to the AE. In fact, the technology has been used for manufacturing and supplying goods to independent parties also. Therefore, it cannot be said that the assessee is a contract manufacturer.– Decided against the Revenue.
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2011 (12) TMI 173
Re-opening of assessment invalidated on the ground that service of notice u/s 148 by affixture is not a valid service – service made by registered post and by affixture in the presence of two witnesses at the address of the assessee - consideration not paid to incorrect claim of deduction claimed u/s 80-O – Held that:- the purpose of the statute will be better served, if the date of issue of notice is considered as compliance of the requirement of proviso to Section 143(2) of the Act. Thus, decided in favor of the Revenue. Since, neither the Commissioner nor Tribunal has examined the merits of the assessment proceedings, the matter is remitted back to the CIT for fresh decision in accordance with law.
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2011 (12) TMI 172
Unexplained Investment – Investment in capital account of partnership firm alleged to be out of undisclosed income – Held that:- There is no material to establish that amount received by the assessee, from partners in the said partnership firm, can be treated as assessee's undisclosed income. The Tribunal has also recorded that the partners are income tax assesses and the copies of balance sheet in the requisite details have been placed on record. The revenue authorities have not been able to rebut the correctness of such documents.- Decided against the Revenue.
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Central Excise
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2012 (1) TMI 42
Plea for restoring penalty imposed in the original order – shortage of inputs found during search - duty has been paid along with admissible interest – CESTAT upheld order of Commissioner(Appeals) reducing penalty - Held that:- Discretion exercised by the CESTAT does not suffer from any jurisdictional error nor it violates any provision of law. Further, Revenue has not been able to point out anything from the record for taking a view different than the one taken by the CESTAT and the Commissioner (Appeals). - Decided against the Revenue.
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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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2011 (12) TMI 170
Appeal and stay application preferred before Commissioner (Appeals) – Department initiated steps for recovery of the demand while appeal and stay application is pending – Held that:- Direction is issued to Department to not recover the disputed demand till the Commissioner (Appeals) decides the application for stay. It is open to the Commissioner (Appeals) to take up the application for stay expeditiously. - Decided in favor of assessee.
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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
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2012 (1) TMI 47
Doctrine of restitution - Sales Tax incentive under the Government of Gujarat "Capital Investment Incentive to Premier/Prestigious Unit Scheme, 1995-2000" being opted by Essar – commencement of commercial production got delayed due to writ petition in the nature of PIL filed before the High Court - Government extended the time upto 15.08.2003 – request for further extension by company got denied - writ petition filed by company in High Court on ground that delay in commencement of commercial production was on account of the injunction granted by the High Court - High Court extended the time limit for commencement of commercial production from 15.08.2003 to 02.04.2007 - firstly on the principle of restitution and secondly, that the company cannot be made to lose the benefit under the Sales Tax Waiver Scheme, for an act of Court – Government argued that impugned judgment is not by consent – Held that:- The concept of restitution is a remedy against unjust enrichment or unjust benefit. Equity demands that if one party has not been unjustly enriched, no order of recovery can be made against that party. In present case, the State has not at all gained or received any benefit as a result of the stay orders passed by the High Court on the second PILs. Therefore, the principle of restitution cannot be applied against the State. The judgment of the High Court to that extent is erroneous. Regarding second principle that the company cannot be made to lose the benefit, for an act of Court - Held that:- Mere mistake or error committed by Court cannot be a ground for restitution. This Court held that the principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee, does not apply to the construction of an exception or an exempting provision, as the same have to be construed strictly. Further this Court also held that a person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision and in case of doubt or ambiguity, benefit of it must go to the State. Therefore, judgement of High Court is set aside.
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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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