TMI Tax Updates - e-Newsletter
January 23, 2012

Case Laws in this Newsletter:

Income Tax Customs Central Excise CST, VAT & Sales Tax

Articles

1. INTEREST ON LOANS AND ADVANCES UNDER BILLS REDISCOUNTING SCHEME FROM BANKS TO WHICH BANKING REGULATION ACT APPLIES IS NOT CHARGEABLE TO TAX.

   By: DR.MARIAPPAN GOVINDARAJAN

2. INFRASTRUCTURE DEBT FUNDS.

   By: DR.MARIAPPAN GOVINDARAJAN

3. THE FIRST PRESIDENTIAL REFERENCE ON INDIRECT TAXATION TO THE APEX COURT

   By: Jayaprakash Gopinathan

News

1. Verification of high value transactions (investments/deposits/expenditure) of persons who are not assessed to income tax

2. Vodafone International Holdings B.V. Versus Union of India & Anr.

3. Need for Appropriate Policy Instruments to Address Areas of Concern in the Economy: FM.

4. Government of India and World Bank Sign an Agreement Worth US $130 Million to Improve Livelihoods for 300,000 Village Households in North Eastern States.

5. Competition Advocacy is a Critical Function of Competition Agencies- Ashok Chawla, Chairman CCI.

6. Filing of Industrial Entrepreneurs Memorandum (IEM).

Notifications

Customs

1. 06/2012 - dated 19-1-2012 - Cus (NT)

Amend Custom Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995.

2. 05/2012 - dated 19-1-2012 - Cus (NT)

Seeks to notify Refund of Anti­-Dumping Duty (Paid in Excess of Actual Margin of Dumping) Rules, 2012.

Highlights / Catch Notes

Income Tax

• Supreme Court: Offshore share transfer by telecom firm doesn't extinguish control over Indian subsidiary. No asset transfer involved.

  Case-Laws - SC : 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 Interpretation: No 'Look Through Provision' for Asset Situs Change Without Legislative Action.

  Case-Laws - SC : 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 Income Tax: Applies Only to Payments from Residents to Non-Residents, Not Between Non-Residents Abroad.

  Case-Laws - SC : 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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• High Court Affirms Trustees as Individuals Eligible for Section 80L Deductions Under Income Tax Act.

  Case-Laws - HC : 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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Customs

• Refund Procedures for Excess Anti-Dumping Duties Under 2012 Rules: Claim Your Refund if Duties Exceed Dumping Margin.

  Notifications : Seeks to notify Refund of Anti­-Dumping Duty (Paid in Excess of Actual Margin of Dumping) Rules, 2012. - Ntf. No. 05 /2012- Customs (N.T.) Dated: January 19, 2012
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• Amendments to Custom Tariff Rules, 1995 Enhance Anti-Dumping Duties for Fair Trade and Local Market Protection.

  Notifications : Amend Custom Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995. - Ntf. No. 06 /2012-Customs (N.T.) Dated: January 19, 2012
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Service Tax

• Landscaping Services Excluded from 'Input Services' in Manufacturing Safety Valves Under Service Tax Rules.

  Case-Laws - AT : '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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• Appellant Must Pay Service Tax for Non-Resident Services Rendered Outside India, Despite External Service Location.

  Case-Laws - AT : 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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Central Excise

• Duty Rate Change Affects Excise Tax Payment: Pay at Enhanced Rate When Goods Are Removed from Factory.

  Case-Laws - SC : 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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Case Laws:

• Income Tax

• 2012 (1) TMI 60
  Transfer Pricing – adjustment in ALP – Working Capital Adjustment to the unadjusted margins of the comparable companies – Held that:- Working capital is a factor which influence the price in the open market and constitutes a subject matter for adjustments in the matters relating to ALP in Transfer Pricing. It is the duty of the TPO to apply the provisions of rule 10B(1)(e). Net profit margin arising out of the comparable uncontrolled transactions should be adjusted to take into account differences, if any between the international transactions and filtered comparables of uncontrolled transactions or enterprises entering into such transactions, which could materially affect the amount of the net profit margin in the open market. Therefore, working capital adjustment is to be allowed while determining the Arm's Length operating Margin of the Comparables. Non granting of adjustments related to import expenses – Held that:- No doubt, a higher import content of raw material by itself does not warrant an adjustment in operating margins, but what is to be really seen is whether this high import content was necessitated by the extraordinary circumstances beyond assessee's control. Therefore, the issue should be set aside to the files of the TPO with direction to examine the claim of the assessee relating to the import cost factor and eliminate the difference if any. Applicability of proviso to section 92C(2) – Held that:- Tribunal in case of Cummins India LTD vs CIT (2011 - TMI - 207660 - ITAT PUNE) has decided in favor of the assessee in support of grant of deduction of 5%, when multiple prices in establishing the arithmetic mean are involved. Thus the assessee's ground on this issue is allowed. Incorrect computation of TP adjustment on the entire manufacturing segment sales instead of computing it sales relatable to the import of the components and spares procured from the AEs only – principle of proportionality - Held that:- TP adjustments are to computed not considering the entity level sales. Rather it should be done ideally considering the relatable sales drawing the quantitative relationship to the imports from the AEs, i.e. controlled cost. Issues related to International transaction pertaining to export of components and spares, short grant of TDS/SA and charging of interest u/s 234B and 234C of the Act – Held that:- Matters are remitted back to file of A.O. to grant necessary relief. Issues being decided in favor of assessee for statistical purpose. We remand these grounds with the direction to the AO to rework the addition.

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• 2012 (1) TMI 59
  Minimum Alternative Tax - computation of Book profit for the purpose of MAT – reduction of book profit by deduction allowable u/s 80HHC (Export Benefit) - whether deduction under clause (iv) of the Explanation to Section 115JB to be computed on the basis of the book profits and not on the basis of profits computed under the provisions of the Act – Held that:- The issue is no more res integra and has been decided in case of Ajanta Pharma Limited versus CIT (2010 - TMI - 77381 - Supreme Court).

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• 2012 (1) TMI 58
  Exemption u/s 10(10C) - ex-gratia payment received under VRS scheme – Revenue contending dis-allowance of exemption on ground that employer itself has not given any exemption U/s.10(10C) to its employees – Held that:- Similar controversy is settled by the two Division Bench decisions of this Court in case of CIT vs Harendra Natah Tripathi and CIT vs Subhash Chand Goyal (2010 -TMI - 208707 - ALLAHABAD HIGH COURT) and their being no decision to the contrary, the present appeal does not raise any question of law which requires to be decided by this Court. Further, relief u/s 89(1) is also admissible in such a case – Decided in favor of assessee.

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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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• 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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• Customs

• 2012 (1) TMI 56
  Power of Commissioner(Appeals) to remand the matter u/s 122A of the Customs Act, 1962 - refund claim – Held that:- The power to remand the matter is specifically withdrawn u/s 122(A) of the Customs Act, 1962 and it is also upheld in case of Mil India Ltd. vs. CCE (2007 - TMI - 1196 - Supreme Court Of India). Thus, the impugned order is not sustainable. It is found that claim of refund was rejected by the adjudicating authority and documents produced before the Commissioner (Appeals) requires verification. Therefore, the matter is remanded to the adjudicating authority who will decide the matter afresh after taking into consideration the documents produced by the respondent. Appeal is disposed of by way of remand.

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• Central Excise

• 2012 (1) TMI 55
  Commissioner (Appeals) dismissed the appeal on ground of time bar - delay of 180 days – Held that:- Section 35F of the Central Excise Act, 1944, provides that appeal is to be filed within 60 days from the date of receipt of the order and the Commissioner (Appeals) is empowered to condone further delay of 30 days. Supreme Court in the case of Singh Alloys held that Commissioner (Appeals) has no power to condone the delay beyond the period prescribed under the Central Excise Act, 1944. In the present case, there is a delay of 180 days in filing the appeal before the Commissioner (Appeals) which is beyond the condonable period. - Decided against the assessee.

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• 2012 (1) TMI 54
  CENVAT credit on own final product returned by buyers – returned goods were remelted by using same machinery and fresh products emerged – duty paid on such goods – Held that:- As per Rule 16, as clarified in Chapter 18 of the Supplementary Instructions issued by CBEC, where the returned goods are subjected to a process amounting to manufacture, the manufacturer shall pay duty at the appropriate rate on the goods so manufactured, and for payment of such duty, the CENVAT credit of the duty paid on the returned goods could be utilized. - Decided in favor of assessee.

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• 2012 (1) TMI 53
  Rejection of application for condonation of delay – consequently dismissal of appeal on ground of limitation by Tribunal – papers of appeal were misplaced by counsel of assessee - Held that:- Tribunal ought to have taken a lenient view in the matter after all the appellant was not going to gain anything by not filing the appeal and the reasons given by the appellant was the mistake of its counsel who had also filed his personal affidavit. Therefore, Tribunal is directed to decide the appeal in accordance with law – Decided in favor of assessee.

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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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• 2011 (12) TMI 175
  Non- requirement of show-cause notice before recovery of excise duty refunds u/s 154 of the Finance Act, 2003 - Section 154 of the Finance Act,2003, retrospectively withdrew the exemption granted u/s 5-A of the Central Excise Act, 1944 - manufacturer of Pan Masala – assessee contending validity of order issued for recovery of the amount of exemption availed by the assessee - Held that:- The correctness and validity of the said order has already been presented before this Court and it was held that absence of show cause notice u/s 11A did not affect the validity of the order dated 6.6.2003. The said judgment has admittedly become final and the finding recorded therein is res- judicata. The same, therefore, cannot be allowed to be re-agitated. No argument whatsoever has been raised by assessee on the issue of interest. - Decided against the assessee.

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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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• CST, VAT & Sales Tax

• 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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