TMI Tax Updates - e-Newsletter
October 3, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax Indian Laws

Articles

1. REVERSE CHARGE IN SERVICE TAX - SOME ISSUES

   By: Dr. Sanjiv Agarwal

2. Uncertainties about tax laws are increasing by review of Supreme Court judgments - a cause of concern. The CJI is requested to take an objective decision while allowing review.

   By: DEVKUMAR KOTHARI

3. PARTIAL REVERSE CHARGE MECHANISM - APPLICABLE TO GOVERNMENT DEPARTMENTS?

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Statement of the Union Finance Shri P. Chidambaram on Issues Concerning the Life Insurance Industry Following is the text of the Statement on issues concerning the life insurance industry made by the Union Finance Minister Shri P. Chidambaram while addressing the media persons here today:

2. Government of India, World Bank and Government of Himachal Pradesh Sign $100 Million Loan Agreement to Support Himachal Pradesh in Making its Green Growth Agenda Inclusive and Sustainable

3. Advisory for Attending Economic Editors’ Conference-2012

4. India’s Foreign Trade: August, 2012

5. Levy of Service Tax on Railway Passengers Travelling in AC Classes/First Class from tomorrow i.e. 1st October 2012 No Service Tax to be Levied on Tickets Issued Prior to 1st October 2012 In Case of Cancellation of Tickets Issued on or after 1st October 2012, the Applicable Amount Including Service Tax to be Refunded by Railways

Notifications

Income Tax

1. 41/2012 - dated 28-9-2012 - IT

Scientific Research Expenditure - Approved organization shall be utilized for research in social sciences

VAT - Delhi

2. F.7(453)/Policy/VAT/2012/712-22 - dated 1-10-2012 - DVAT

No Security would be required to be furnished by such dealers, who apply for registration with the' Department up to the 31st of December 2012

Circulars / Instructions / Orders

VAT - Delhi

1. F.3(33)/P-II/ VAT/ Misc./2006/701-711 - dated 28-9-2012

DVAT 51 reconciliation return Qtr 1 to 3 of 2011-12 extended to 31/10/2012.

2. F. 469. - dated 10-7-2012

The Centralized Form Cell shall will thus no longer be required and shall stop functioning w.e.f. 12.07.2012.

DGFT

3. 20(RE:2012)/2009-2014 - dated 1-10-2012

AMENDMENT IN APPENDICS 05 - LIST OF INSPECTION AND CERTIFICATION AGENCIES

4. 19 (RE 2012)/2009-2014 - dated 28-9-2012

Amendment in Appendix 4C (List of Agencies Authorized to Issue Certificates of Origin-Non Preferential)–Change in address and contact details of Indian Electrical and Electronics Manufacturers’ Association (IEEMA).

Companies Law

5. 30/2012 - dated 28-9-2012

Filling Of Balance Sheet and profit and loss Account by Companies in Non-XBRL for the accounting year commencing on or after 01.04.2011

6. 31/2012 - dated 28-9-2012

Filing of form 23B by statutory auditor for the accounting year 2012-13.

Highlights / Catch Notes

Income Tax

• Anonymous Donations Require Full Disclosure for Tax Compliance u/s 115BBC(3) of the Income Tax Act.

  Case-Laws - AT : Anonymous donation /undisclosed income - Merely filing list of donors containing names and addresses / incomplete addresses does not satisfy the conditions laid down in section 115BBC(3) - AT
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• Supreme Court Confirms Market Committee's Charitable Status u/s 12AA, Despite Amendments to Income Tax Act.

  Case-Laws - SC : Market Committee - charitable purposes - Even after the amendment of Section 10(20) and Section 10(29), the assessee continues to enjoy the registration u/s 12AA - SC
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• Flat Registration in Semi-Finished State Does Not Affect Deduction Claim u/s 80IB(10) of Income Tax Act.

  Case-Laws - AT : Registration of flat in semi finished condition is not fatal to the claim of the assessee for deduction u/s. 80IB(10) of the Act. - AT
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• Singer's Foreign Income Tax Deduction Denied u/s 80RR Due to Certificate in Son's Name.

  Case-Laws - AT : Deduction u/s 80RR - playback singer - remuneration in foreign currency - deduction allowed where certificate in the name of assessee - deduction disallowed where certificate is in the name of son - AT
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• Derivatives Tax Classification: Long-Term Capital Gains or Business Profits? Depends on Handling of Associated Securities.

  Case-Laws - AT : LTCG or PGBP - derivative by itself cannot be termed as an investment or stock in trade. - dealing with those shares/securities will determine whether an investment is made or stock-in-trade is procured. - AT
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• Section 54 Tax Exemption Applies to Car Parking Space Bought with Flat Purchase.

  Case-Laws - AT : Exemption u/s 54 is available on purchase of car parking space along with flat - AT
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Customs

• Shipping Bill Conversion Under Advance Licence Scheme Faces No Denial from DGFT, Commerce Ministry, or Customs.

  Case-Laws - AT : Denial of conversion of shipping bill - conversion under advance licence scheme has not been denied by the DGFT or Ministry of Commerce or Customs due to any dispute. - AT
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• High Court Rules Crude Palm Oil with Acid Value 9.77 Not Prohibited; Import Allowed Under Specific Conditions.

  Case-Laws - HC : Prohibited goods - import of Crude Palm Oil (Edible Grade) - acid value was 9.77 in the sample - mported goods is not for immediate use as a food item as declared - Customs Authority directed to not to treat the goods as prohibited goods - HC
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Corporate Law

• Statutory auditors required to file Form 23B for 2012-13 as per Companies Law to ensure compliance and avoid penalties.

  Circulars : Filing of form 23B by statutory auditor for the accounting year 2012-13. - Circular
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• Companies Must File Balance Sheets and Profit & Loss Accounts in Non-XBRL for Fiscal Year Starting April 1, 2011.

  Circulars : Filling Of Balance Sheet and profit and loss Account by Companies in Non-XBRL for the accounting year commencing on or after 01.04.2011 - Circular
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Service Tax

• Cenvat Credit Rule 2(l): Landscaping of Factory or Garden Qualifies as Input Service for Modernization and Renovation.

  Case-Laws - AT : Cenvat credit – input services - rule 2(l) - Landscaping of factory or garden certainly would fall within the concept of modernization, renovation, repair, etc. of the office premises - AT
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Central Excise

• Enhanced Duty Rate Timing: Does It Start After Bill Passage or Enactment? No PCTA Declaration Made.

  Case-Laws - AT : Applicability of enhanced rate of duty coming into force with immediate effect after passing of the Bill on 29.04.2008 or on date of enactment as on 10.05.08 - no declaration under PCTA was made - AT
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VAT

• Exemption Notification Requires Strict Interpretation Unless Assessee Clearly Qualifies Under Its Provisions.

  Case-Laws - SC : The exemption Notification requires to be strictly construed and it is only when the assessee falls under that Notification, liberal construction should be placed - SC
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Case Laws:

• Income Tax

• 2012 (10) TMI 28
  Levy of penalty u/s. 271(1)(c) - disallowance of loan pool account and bad doubtful debts - Held that:- The addition of the similar amount had already been made in the earlier assessment year and no transaction of the said amount was conducted in the assessment year under appeal, would clearly establish that even on quantum, the addition was not justified in the assessment year under appeal. Thus, the assessee disclosed all the particulars of income correctly in the earlier year as well as in the assessment year under appeal. Since the figure on the above heads is coming up from the earlier assessment year on account of provision for loan pool account and bad debts, therefore, there is no reason to hold that the assessee furnished inaccurate particulars of income. Therefore, penalty is not leviable in the matter - direction to cancel the penalty - in favour of assessee.

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• 2012 (10) TMI 27
  Anonymous donation/undisclosed income - assessee is a society registered u/s 12AA - Held that:- Merely filing list of donors containing names and addresses/incomplete addresses does not satisfy the conditions laid down in section 115BBC(3). The sub-section (3) of section 115BBC has explained the meaning of anonymous donation clearly that such institution is required to maintain records of identity indicting the names and addresses of the persons making the donations or contributions. Receipt of donation with specific direction - held that:- in view of sub-clause (2) of that section 115BBC it is relevant to note that the assessee has failed to produce any evidence based on which it can be said that the donation was for a specific direction particularly when the donation was found as anonymous donation - against assessee.

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• 2012 (10) TMI 26
  Trust - application of income for charitable purposes - assessee, a Market Committee incorporated and registered under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 - assessee collects fees etc and transfer to Mandi Parishad for utilisation of same for charitable purposes and purposes as guided by State Government or the Board - Revenue contended that amounts transferred by the assessee to Mandi Parishad cannot constitute application of income for charitable purposes within the meaning of Section 11(1)(a) in view of the fact that the assessee [Mandi Samiti] is only a conduit which collects Mandi shulk [fees] whereas utilization of the said Mandi shulk is not by the assessee but is made by another entity, whose accounts are not verifiable Held that:- Even after the amendment of Section 10(20) and Section 10(29), the assessee continues to enjoy the registration u/s 12AA of 1961 Act for the reason that the assessee is a Market Committee statutorily established under Section 12 of 1964 Adhiniyam for the advancement of the object of general public utility in terms of Section 2(15). Moreover, it is always open to the Department to verify and find out whether the Mandi Parishad has utilized the amounts for the purposes of 1964 Act. Under Section 19(2) of 1964 Adhiniyam, all expenditure incurred by the assessee in carrying out the purposes of 1964 Adhiniyam has to be defrayed out of the Market Committee Fund and the surplus, if any, has to be invested in such manner as may be prescribed. This is one circumstance in the 1964 Act to indicate application of income. Similarly under other provisions of 1964 Adhiniyam, assessee is statutorily obliged to utilize the amounts lying to the credit in the Market Development Fund for extending facilities to the agriculturists, producers and payers of market fees. Keeping in mind the statutory scheme of 1964 Adhiniyam, whose object falls u/s 2(15) of 1961 Act, there is no doubt that the assessee satisfies the conditions of Section 11(1)(a) of 1961 Act. Therefore, income has been applied for charitable purposes. Also, Assessing Officer had erred in invoking Section 12(1) since question of “control” may be relevant in the context of Section 11(1)(d) or u/s 12(1). However, in the present case, the question framed deals with application of income u/s 11(1)(a) - Decided against Revenue.

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• 2012 (10) TMI 25
  Disallowance u/s 145A - erroneous claim of Modvat credit on the raw material and packing material on the basis of purchase and not on the basis of consumption - Held that:- As decided in CIT v. Mahalaxmi Glass Works Pvt. Ltd. [2009 (4) TMI 182 - BOMBAY HIGH COURT] it is not appropriate to include the closing Modvat in the figure of closing stock without modifying the figures of purchases, sales and opening stock. As the authorities below have not adjusted all the relevant figures with the amount of tax, duty, cess etc., the impugned order is set aside and restore the matter to the file of A.O. for deciding it afresh - in favour of assessee for statistical purposes. Benefit of 5% margin u/s 92C(2) in determining the Arm's Length Price denied - Held that:- The Finance Act, 2012 with the insertion of sub-section (2A) to section 92C with retrospective effect has been made clear that where the variation between arithmetical mean and price at which the transaction has actually been undertaken exceeds 5% of arithmetical mean, the assessee shall not be entitled to exercise the option. Thus in view of this amendment to section 92C the CIT(A) was justified in not granting standard adjustment of 5% - against assessee.

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• 2012 (10) TMI 24
  Dis-allowance u/s 14A - application of Rule 8D - AY 08-09 - assessee challenges the very application of Section 14 A in absence of AO recording a specific satisfaction to the effect that claim of the assessee, i.e. no expenditure is incurred on earning the tax exempt dividend, is incorrect - Held that:- A plain reading of the statutory provisions of Section 14A(2) and (3) shows that when assessee offers a dis-allowance u/s 14A, the provisions of Section 14A(2) read with rule 8 D cannot be invoked unless the AO is satisfied about incorrectness of the dis-allowance so offered, but when assessee does not offer any dis-allowance under section 14 A on his own, the provisions of section 14A(2) read with rule 8 D can be invoked without there being any need to express satisfaction about incorrectness of such a claim. In view of aforesaid, provisions of Section 14 A r.w.r. 8 D were rightly invoked on the facts of this case - Decided against assessee. Dispute regarding computation of dis-allowance under rule 8D(2)(ii) - Held that:- Rule 8D(2)(ii) allocates “expenditure by way of interest………..which is not directly attributable to any particular income or receipt” and the only categories of income and receipt, so far as scheme of rule 8 D is concerned, are mutually exclusive categories of ’tax exempt income and receipt’ and ‘taxable income and receipt’. However, the definition of variable ‘A’ embedded in the formula under Rule 8D(2)(ii) refers only to interest expenditure directly related to tax exempt income but not to interest expenditure directly related to taxable income. Resultantly, while rule 8D(2)(ii) admittedly seeks to allocate “expenditure by way of interest, which is not directly attributable to any particular income or receipt” it ends up a llocating “expenditure by way of interest, which is not directly attributable to any particular income or receipt, plus interest which is directly attributable to taxable income”. This is clearly incongruous. In Godrej & Boyce Mfg Co Ltd (2010 (8) TMI 77 - BOMBAY HIGH COURT), the department took the stand, to defend the constitutional validity of Rule 8 D, that both, interest directly attributable to tax exempt income as well as interest directly relatable to taxable income would be excluded from the definition of variable ‘A’ in the Rule 8D(ii) formula. Once the Revenue has taken a particular stand about the applicability of the formula in Rule 8 D(2)(ii) based on which the constitutional validity of Rule 8D is upheld, it is not open to the Revenue to take any other stand on the issue with regard to the actual implementation of the formula in the case of any assessee. Accordingly, the correct application of the formula set out in Rule 8D(2)(ii) is, as noted in Godrej and Boyce, that interest expenses directly attributable to tax exempt income as also directly attributable to taxable income have to be excluded from the computation of common interest expenses to be allocated under Rule 8D(2)(ii) - Plea raised by the Assessing Officer is thus rejected in principle but the matter is remitted to the file of the Assessing Officer for verification of factual elements

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• 2012 (10) TMI 23
  Deduction u/s 80HHC - exclusion of interest income while computing the business profits - assessee contesting for inclusion of same on ground that interest need not be from money lending business alone for it to constitute business income and if the source of funds which are invested, is from a business activity, any accretion thereto or in respect thereof, including interest, must be held to be business income - Held that:- Mere fact that an assessee carries on business would not result in an inference that the income which is earned by way of interest would fall for classification as business income. Where an assessee invests its surplus funds in order to earn interest and to obviate its funds lying idle, such income would not fall for classification as business income. This is particularly so in a situation where the business of the assessee does not consist in the investment of funds. Where the assessee engages in an independent line of business, interest earned on deposits cannot be regarded as falling under the head of profits and gains of business or profession. Such income would fall for classification as income from other sources. In applying the provisions of section 80HHC(1), the Legislature has made a specific provision for the deduction of such profits of business as are derived from the export activity. The expression “derived from” has been construed to require a direct and proximate nexus with the business of export. Absent such a nexus, the income which results from the activity would have to be excluded from reckoning for the purposes of the formula prescribed by section 80HHC. It is impossible for this Court to come to the conclusion that interest received by the assessees bears a direct and proximate relationship with their export activity. order of tribunal excluding interest income for computation of business profits for the purpose of section 80HHC is upheld. Further, merely because the Assessing officer did not re-open the assessment u/s 147 r.w.s. 148, the assessee would not be entitled to contend that they were entitled to the benefit of section 80HHC despite the conclusion of this Court that they are not entitled to the same - Decided in favor of Revenue

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• 2012 (10) TMI 22
  Addition made on account of share trading profit on ground that assessee did not furnish details of such business - Revenue contesting order of CIT(A) deleting the addition - Held that:- CIT(A) has deleted the addition by verifying the ledger of the broker indicating regular transaction of sale and purchase of share by the assessee during the year. CIT(A) observed that AO is at a liberty to take further action in the matter as per law in the event of any income by way of capital gain is found to be involved in the transaction. No infirmity found in the directions issued by CIT(A), while deleting the addition. Addition made on account of cash deposited in the Bank account, deleted by CIT(A) - Held that:- CIT(A) is duty bound to give reasons justifying his action for deletion of any addition. Order passed by CIT(A) without justifying or without giving reason for deletion of any admission has no legs to stand. Accordingly, we set-aside the order of CIT(A) on this ground and in the interest of justice, the matter is restored back to the file of Assessing Officer for deciding afresh as per law - Decided partly in favor of Revenue

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• 2012 (10) TMI 21
  Deduction u/s 80I - denial in respect of income of DEPB in view of the decision in the case of Liberty India(2009 (8) TMI 63 - SUPREME COURT) - assessee contended that while computing eligible amount of deduction, the assessee itself has excluded DEPB receipts from eligible profit - Held that:- In the interest of justice, matter restored to the file of AO with a direction to verify computation of assessee’s total income and if he finds that income from DEPB has already been excluded from income of the industrial undertaking on which deduction is claimed u/s 80I, no further dis-allowance is warranted otherwise, same is to be decided as per verdict in case of Liberty India. Dis-allowance u/s 14A - Held that:- It is found from record that no direct expenditure was incurred by the assessee for earning exempt income. Only interest expenditure of Rs. 848/- was shown as indirect expenditure, which was also incurred in respect of vehicle loan availed by employees of the assessee company. Since no expenditure was incurred either directly or indirectly for earning exempt income, no disallowance is warranted u/s 14A - Decided in favor of assessee

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• 2012 (10) TMI 20
  Addition u/s 68 - loan creditors - Held that:- From the record it is found that before the AO, the assessee did not get due opportunity to substantiate the loan creditors appearing in its books of account, therefore, application under Rule 46A was filed before the CIT(A) alongwith all the documentary evidence to satisfy the requirement of loan creditor u/s 68. The detailed finding recorded by the CIT(A) after considering the documents filed clearly establish that the assessee has not only satisfied the condition of identity of the loan creditor but also genuineness of loan transaction and creditworthiness of loan creditor to advance the required amount of loan. CIT(A) rightly deleted the addition. Dis-allowance of expenses on telephone, business promotion, transportation, repairs and maintenance etc - Held that:- It is found that no where AO has pointed out as to which of item of expenses were not supported by bills or respective vouchers nor the AO has pointed out which part of the expenditure were not for the purpose of business. Looking to the volume of business, quantum of expenditure incurred was very much reasonable. CIT(A) rightly deleted the dis-allowance - Decided against Revenue

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• 2012 (10) TMI 19
  Disallowance of deduction u/s. 80IA - sale of complete residential flat versus semi finished flat - held that:- The stand of the Revenue with regard to semi-finished condition of flats is devoid of merit inasmuch as what is sought to be constructed and sold by the assessee is residential units and what is sought to be purchased by the individual buyer is the ownership of a residential unit and registration of flat in semi finished condition is only to facilitate the convenience of the parties and agreement for development and completion of the balance work in relation to the flats registered, is only an incidental formality to protect the interest of the parties which need not be viewed as fatal to the claim of the assessee for deduction u/s. 80IB(10) of the Act. - Ultimately, the entire work from the stage of commencement to the stage of making residential units habitable has been carried out by the assessee only and the Revenue has no dispute whatsoever on this count. - Decided in favor of assessee. Separate books of accounts - held that:- Expenses incurred for the project are known and all incomes, including indirect income arising to the project have been considered. The accounts have also been audited and a certificate, as required, has been filed. This being so, the Assessing Officer has erred in holding that separate accounts were not maintained for the eligible business and that the assessee is, therefore, not eligible for deduction u/s. 80IB(10) of the Act. - In favor of assessee. Disallowance of claim u/s. 36(1)(iii) read with section 14A - Held that:- Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay tax is being incurred and on the other hand, certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carrying any interest is to be disallowed under Section 36(1)(iii) - as the income received from M/s. SMR Builders (firm) is exempted income and as such provisions of section 14A are applicable - against assessee.

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• 2012 (10) TMI 18
  Deduction u/s 80RR - assessee is an individual and is a playback singer - remuneration in foreign currency - denial of deduction on ground that two encashment certificates from Wallstreet Finance Ltd. were not in Form 10H - Held that:- It is observed that RBI, vide its letter dated 31.10.1998 and again vide letter dated 16.06.2006, clarified that in the case of salaries of shipping crew members, the certificate is to be issued in Form 10H against encashment of foreign currency / travelers chaque but in other cases, the certificate should be issued for encashment of foreign currency notes / travelers cheuqes in Form ECF. Walstreet Finance Ltd. an authorised FFMCs issued certificate of Rs 14.34 lacs to the assessee and the said certificate should be accepted as valid to allow deduction to the assessee u/s 80RR. However, the other certificate of Rs.2.4 lacs, is not in the name of the assessee but is in the name of assessee’s son and, therefore, the assessee cannot take benefit for deduction u/s 80RR in respect of same - Decided in favor of assessee restricting the claim of deduction u/s on the basis of the certificate issued by Wallstreet Finance Ltd. Dis-allowance u/s 14A of interest paid to bank on borrowings - nexus of interest payment to the income earned - investment in partnership firm - assessee has neither received interest income, remuneration from the firm and dividend from the companies in which the assessee has used the loan for investment - Held that:- No infirmity found in the order of the Commissioner (Appeals) to confirm the action of the AO in the absence of any documents placed on record. Addition - low withdrawal for household expenses - assessee claimed that his wife’s income from AOP is used for house hold expenses - Held that:- It is observed that there is a withdrawal by way of cheque and no details have been given as to how much amount was contributed by assessee’s wife for household expenses. Further, there is no dispute to the fact that there are no household expenses shown by the assessee in Profit & Loss account filed by him. CIT(A) order of sustaining addition upheld

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• 2012 (10) TMI 17
  Addition u/s 40A(2)(a) on account of excess payment by the assessee to the Parent Company GSK - apportionment of common cost - CIT(A) deleted the addition on ground that the stand taken by the AO in treating the payment made by the assessee as unreasonable was unsustainable and revenue neutral - Held that:- AO has not brought on record any material to prove that payments made to GSK were not genuine or that GSK had not rendered services to the assessee. Comparable facts and figures, based on prevalent market rates, have not been brought on record to establish the basic requirement of invoking the provisions of the section that payments made by the assessee for the services availed were excessive or unreasonable. Hence, CIT(A) rightly deleted the dis-allowance. Dis-allowance for expenditure incurred on account of advertisement - As per AO assessee could not substantiate it why such expenses were necessary particularly when the assessee was paying consignment commission to the GSK for marketing of its products - Held that:- First adjudicating authority has rightly deleted the addition on finding that the expenditure was fully supported by sufficient details, that the asessee had submitted complete details of the advertisement giveaways, that genuineness of incurring this expenditure was well proved. No infirmity found in order deleting the dis-allowance. Dis-allowance u/s 40(A)(2)(a) - marketing commission to parent company GSK - Held that:- FAA has given a categorical finding that a separate agreement was entered into by the assessee with GSK for the purpose of marketing commission. Assessee had incurred the expenditure as per the said agreement. AO had not doubt the genuineness of the agreement. Though AO has held that marketing commission was excessive and justified as per the provisions of Sec. 40 A(2), yet he has not furnished any data for supporting his stand. Mere observing that payment is excessive is not sufficient to disallow the expenditure. It is not a fit case for applying section 40A(2). Deletion of dis-allowance upheld - Decided in favor of assessee

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• 2012 (10) TMI 16
  Disallowance of expenditure incurred on earning exempt income u/s 14A – AO contention that a certain percentage of the expenses claimed by the assessee would be definitely attributable to the tax free income earned - AO, therefore, estimated the ratio of exempt income to total income – Following the decision in case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) computation of disallowance has to be made at a reasonable basis, considering the fact that the assessee has not incurred any expenditure, specifically for the earning of exempt income. Issue remand back to AO Disallowance of bad debts – Held that:- Assessee has not furnished any evidence in support of its claim that the said debt had become ‘bad’. It has not produced anything in respect of its claim that the said party had expressed its inability to make payment. Assessee is bound to explain the measures he has taken before arriving at the conclusion that the debt has become bad. Therefore issue remand back to AO Disallowance of STT – Said expense pertained to client on whose behalf we have executed the saudas and the STT pertaining to those saudas is borne by the assessee – AO disallow the same that expenditure which is specifically prohibited cannot be allowed as an expenditure even if it pertains to someone else – Held that:- In so far as the question of revenue is concerned, there is no revenue loss to the exchequer, because the assessee is making that payment, which in any case, also it would have been the assessee only to make the payment, it is only a simple case of book entry, because neither the STT nor the service tax, though collected under the gross amount has been paid off. It is just a case of alternate book entries, which does not call for any addition on this account. Therefore appeal decides in favour of assessee

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• 2012 (10) TMI 15
  Loss on Forfeiture of Shares is assessed under Capital Gain or PGBP - Partial payment made for allotment of shares was disclosed under the head investment held in stock in trade – Held that:- As concluding from the fact the balance sheet assessee has disclosed the investment for allotment of shares being partly paid up under the head "investment in equity shares". Assessee did not produce any other materials to establish that these partly paid equity shares were held as stock in trade. There are no other materials before us to look beyond the statement of affairs. Therefore, nature of investment of the assessee and income or loss arising out of purchase and sale of the same has to be taxed under the head capital gains. Decides in favour of revenue Profit & Loss on sale of shares, is a business income or capital gain – Investments of shares were disclosed under the head investment - Held that:- As concluded from paper book filed by the appellant it appears that the share are held as stock in trade. Thus it is very clear that the objective of the assessee company in purchasing the shares was to trade in these shares and not for holding the same as investments. Therefore losses on sale of shares treat as business loss. Appeal decides in favour of assessee Transaction in F&O treat as business income or capital gain – Assessee’s ground that loss on sale of shares is assessable under the head capital gains, then profit and gains from the purchase/sales of the derivatives (F&O) of the shares must also be assessed under the head "capital gains" – Held that:- The intention of the assessee for procuring the asset has to be examined to determine whether the asset is to be treated as investment or stock- in- trade. It is very essential to understand the nature of transactions in dealing with derivative. Derivative itself is merely a contract between two or more parties for purchase/sale of securities by taking delivery or by settlement on certain pre-determined terms. Therefore, derivative by itself cannot be termed as an investment or stock in trade. The entire transactions of purchase/sale of securities/shares through derivatives and later on dealing with those shares/securities will determine whether an investment is made or stock-in-trade is procured. It entirely differ from case to case. - Decided against the assessee.

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• 2012 (10) TMI 14
  Addition on account of capitation fee – Assessee is a public charitable trust registered for the purpose of carrying on educational activities - Revenue argues that even assuming that capitation fee is booked under the building fund, the character of the receipt is business income and not that of donation or corpus donation – Held that:- Even if the colour of certain receipts is characterized as capitation fees, if those receipts are applied for the purpose of the assessee trust, the colour attached to the receipts does not vitiate the status of the assessee as a trust eligible for exemption u/s 11. As the assessee has applied the entire such receipts characterized as capitation fees for the purposes of carrying on its educational activities, such receipts cannot be treated as income in the hands of the assessee. Therefore appeal decides in favour of assessee Application of income towards building fund – AO disallow on the basis of that assessee failed to satisfying application of income by capitation fee, the investments of the trust must come out of current year’s income and that has not proved the nexus as per accounts by producing books of accounts, vouchers, etc. - Held that:- Building fund is used only for the purpose of constructing buildings. Therefore, there is no justification in treating the receipts towards building fund in a different way, as they are applied for educational purposes which is to be treated as application for charitable purposes and as such not taxable in the hands of the assessee. Appeal decides in favour of assessee Addition on account of sundry creditors – AO holds that assessee has not proved the creditors before the assessing authority – Held that:- Nothing was brought out in the course of search to show that the sundry creditors reflected in the accounts were not genuine. All the relevant details were submitted before the AO. Therefore, when no adverse materials are found against the assessee, there is no reason to disbelieve the closing credit balances and make corresponding additions. Appeal decides in favour of assessee Addition on account suppression in fee receipts by trust – Assessment has been completed on the basis of receipt shown by assessee as fees from student – Held that:- The fee collection admitted by the assessee in the return of income is more than the gross fee collection reflected in the seized material. Therefore there is no need of any separate addition towards suppression, as the situation has been covered by a higher amount of fee disclosed by the assessee in its return of income. Appeal decides in favour of assessee Addition made against cash found in the course of search Rs. 19 lakhs – The total cash balance available on the date of search was more than Rs. 90 lakhs as per books - The registered office of the trust is the residence of the trustee where Rs. 10 lakhs were found out of Rs 19 lakhs - Held that:- As the assessee trust was only holding funds properly accounted and it was not an application or diversion of funds. The cash found and seized in the course of search is not a ground to make an allegation that the trustees have diverted the funds of the assessee-trust for activities other than its objectives. Appeal decides in favour of assessee Validity of notice u/s 153A on basis of AO’s jurisdiction - Assessee contended that no search warrant against the assessee trust and as such no notice u/s 153A could be issued against the assessee – Search warrant was issued in the name of assessee, who is one of the trustees, and there was no warrant against the name of the assessee trust itself - Office of the assessee trust and the residence of trustee both are the same building – Held that:- As the warrant also reflected the name of assessee as well as the assessee trust. By reading the warrant and Panchanama that the search was meant to cover the assessee trust and its institutions. Therefore, the search carried out in the registered office of the trust itself takes care of the entire institutions. Merely non mentioning of section 158BD by itself would not invalidate the issue of notice. Appeal decides in favour of revenue

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• 2012 (10) TMI 13
  Capital Gain – Indexed cost of acquisition under family arrangement – Which year is used for indexation - PY in which the previous owner first held the asset or the year in which the asset received by assessee as per family arrangement – Held that:- Following the decision in case of Manjula J. Shah (2009 (10) TMI 646 - ITAT MUMBAI) for the purpose of computing long term capital gains arising from the transfer of a capital asset which had become property of the assessee under gift, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as envisaged in Explanation(iii) to section 48 after taking into account the period for which the said capital asset was held by the previous owner. Appeal decides in favour of assessee Capital Gain - Exemption u/s 54 on purchase of car parking space along with flat – Held that:- As the car parking in a society cannot be separately purchase but it is attached with the flat in the society. Therefore, when any flat in the society is purchased along with car parking, then the investment in the flat and car parking will be considered as investment in the residential house. Therefore same is eligible for exemption u/s 54. Appeal decides in favour of assessee Capital Gain – Whether Cost of improvement along with value of flat eligible for exemption u/s 54 - Assessee claimed exemption u/s 54 on the cost of purchase of new flat, car parking and cost of improvement in the new flat – Held that:- As the assessee has duly recorded all the expenditure in the books of account and the payments were made by account payee cheque. Therefore Assessee is entitled to cost of improvement except the air-conditioning plant which cannot he treated as integral part of the flat. Appeal decides partly in favour of assessee Transaction in shares, held as business income or capital gain – Held that:- As concluded from fact the motive of the assessee is not to earn the profit at the earliest possible opportunity available. When the holding period of the shares giving rise to short term capital gain in the majority of cases is more than three months, than it is clear that the intention of the assessee was to earn the gain due to appreciation of value of capital assets. Claim was accepted in the earlier years by the revenue and treated the surplus from sale and purchase of shares as capital gain. Therefore, principle of uniformity and consistency has to be maintained when the facts and circumstances are identical. Appeal decides in favour of assessee

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• 2012 (10) TMI 12
  Transfer Pricing – DRP reject the contention of assessee raised in appeal on the basis that appeal filed by assessee before CIT(A) for previous AY is pending - Held that:- As the draft order of the assessing authority on TP issues without considering the objections and arguments of the assessee. DRP has not followed any of the mandatory provisions contained in the law before disposing of the reference placed before it u/s 144C. Therefore, we find that the DRP was not justified in upholding the draft order framed by the assessing authority. Appeal decides in favour of assessee & remand back to DRP Whether issues on Transfer pricing is decided by DRP and Non Transfer pricing issues are decided by Tribunal – Held that:- The various issues raised in the appeal filed by the assessee for a particular assessment year will be placed before different authorities at different levels, issuewise and groundwise, then it will very difficult for the AO to pass the final order to give effect to the appellate and court directions and it will be difficult for the assessee as well to appear before different authorities for arguing different points. Entire file remit back to DRP

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• 2012 (10) TMI 11
  Assessment in the hands of Beneficiaries of the trust u/s 166 – search – reassessment - alleged that assessees were not declaring their beneficial interest received from the Trust - assessing authority added the beneficial interest received by the assessees and recomputed the tax liability while initiating penalty proceedings – Held that:- Income in question has been included in the returns filed by the trustee under Section 161 of the Act on the one hand and a note to that effect has also been appended along with the returns filed by the assessee under Section 139 of the Act - Escapement is when the income is not disclosed or when the suppressed income is identified etc. - All material particulars have been disclosed by the assessees - There is no concealment. Nor has anything been found during the course of search - in favour of the assessees

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• Customs

• 2012 (10) TMI 10
  Denial of conversion of shipping bill from duty drawback scheme to advance licence scheme - denial made on ground that drawback has already been sanctioned, appellant not covered by Board's Circular No.4/2004-Cus. dt. 16.1.2004 - goods require rigorous examination at the time of export under advance licence scheme - Held that:- With regard to first ground for denial, the appellants are ready to pay drawback availed by them along with interest. Therefore, the claim cannot be denied on this ground. The denial on the ground that the Board's Circular No.4/2004-Cus. dt. 16.1.2004 is not sustainable as the conversion under advance licence scheme has not been denied by the DGFT or Ministry of Commerce or Customs due to any dispute. Therefore, the conversion from drawback scheme to advance licence scheme is available to the appellants. Further, part of the consignment was under advance licence scheme and part of the consignment was under the drawback scheme and at the time of export, the consignment was examined by the Customs authorities as per advance licence scheme. Therefore, conversion can be allowed and cannot be denied on this premise only. Order is set aside - Decided in favor of assessee

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• 2012 (10) TMI 9
  Remission of duty under Section 23 of the Customs Act - 100% export oriented unit - imported various duty free materials - Due to the fire accident on 7-4-2004 in the stores of the assessee’s unit, the entire raw materials had been burnt alongwith certain documents - assessee claiming remission of duty under Section 23 of the Customs Act, 1962 – Held that:- It is nobody’s case that there was any pilferage of these goods. Under these circumstances, when the claim of remission is made under Section 23 of the Act, legal requirements to be fulfilled by the assessee to claim remission stands fully satisfied - Commissioner was wholly in error in denying the said benefit - Remission of duty allowed

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• 2012 (10) TMI 8
  Prohibited goods - import of Crude Palm Oil (Edible Grade) - acid value was 9.77 in the sample - According to the appellant, it has imported Crude Palm Oil and the same has neither been defined under the Prevention of Food Adulteration Act nor is there any prescribed standard of Crude Palm Oil thereunder - samples did not conform to the standards laid down under PFA 1955 due to high acid value and hence, the NOC was not being issued to the Customs Authority for clearance – Held that:- It is not a case where the appellant falsely declared the goods as refined vegetable oil and consequently, a food within the meaning of Food Safety and Standards Act, 2006, but was found to be unfit as a food - imported goods is not for immediate use as a food item as declared - Customs Authority directed to not to treat the goods as prohibited goods and to assess the duty and pass appropriate order in accordance with the provisions of the Customs Act - appellant restrained from utilizing the imported goods as food within the meaning of the Act of 2006 without complying with the requirement of the Prevention of Food Adulteration Rules - Mandamus - Appeal allowed

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• Corporate Laws

• 2012 (10) TMI 7
  Winding up application - nonpayment of creditors - petitioner sent out two Section 434 notices, one dated 10th October, 1992 and other dated 26th March, 1993 - company did not reply to first notice - Held that:- Companies Act, 1956 makes it explicit, that if a winding up notice is not replied to, by the company, immediately a presumption of insolvency is drawn (See Section 434 (1) (a) of the Companies Act, 1956). Further, there is a discrepancy in the defence taken in the reply to the statutory notice and in the Affidavit-in-Opposition. In the reply to the statutory notice it was said that there was full and final satisfaction of the claim of the petitioner. If, there was full and final satisfaction of the claim of the petitioner, there was admission of supply. This is inconsistent with the defence in the Affidavit-in-Opposition that the bills and challans are forged which if substantiated would go to show that no supply was made. There is clear evidence of supply of steel wires and there is no evidence on record to prove that the petitioner was satisfied with payment made and gave up its claim for the balance. Therefore, company has no defence to the claim of the petitioning creditor and winding up application is admitted.

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• Service Tax

• 2012 (10) TMI 33
  Refund claim under Notification No. 41/2007-ST in respect of service tax paid on export goods - Revenue contested refund order on ground that refund of service tax paid on THC, Documentation charges, Repo charges, Examination charges, Customs Clearance charges etc. are not covered under Port Services but under the Business Auxiliary Services, which is not a specified service - refund of service tax on fumigation charges, should not have been allowed in the absence of submission of copy of written agreement between the exporter and the buyer - Held that:- Decision in the case of Ramdev Food Products (2010 (6) TMI 178 - CESTAT, AHMEDABAD ) squarely covers the issue and hence assessee is eligible for refund on THC, Repo charges, Documentation charges etc. However, in the absence of written agreement and in the absence of fulfillment of conditions mentioned in Notification No. 41/2007, refund on fumigation charges cannot be allowed - Decided partly in favor of Revenue

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• 2012 (10) TMI 32
  Cenvat credit – input services - rule 2(l) - Service tax paid on watering of lawns, bougainvilleas, creepers, shrubberies and shadow trees, keeping them neat by regular planting and replanting and trimming and pruning etc. inside of appellant s factory premises. Credit taken by the appellant of the service tax paid on these services has been denied on the ground that the same is not covered by the definition of input service – Held that:- Landscaping of factory or garden certainly would fall within the concept of modernization, renovation, repair, etc. of the office premises - concept of corporate social responsibility is also relevant. It is to discharge a statutory obligation, when the employer spends money to maintain their factory premises in an eco-friendly, manner, certainly, the tax paid on such services would form part of the costs of the final products – credit is allowed - in favour of the assessee

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• 2012 (10) TMI 31
  Service tax demand - cargo handling services - activity of loading, unloading, transportation and stacking of various iron and steel products – alleged that appellant's activity fall under the category of 'cargo handling services' – SCN dtd. 02.04.03 to the appellant raising demand of duty for the period 06.08.2000 to 31.12.2002 - service tax was paid by the appellant prior to the issuance of the SCN – Held that:- The entire facts were in the knowledge of the Revenue and as such extended period was not available for issuance of demand. - demand to be barred by limitation. The activity of transportation and stacking was within the stockyard premises. Number of Tribunal's decisions have held that such activity cannot be held to be covered by the activity of 'cargo handling services'.

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• Central Excise

• 2012 (10) TMI 6
  Applicability of enhanced rate of duty as amended in the manner specified in the Seventh Schedule of the Finance Act, 2008 coming into force with immediate effect after passing of the Bill on 29.04.2008 or on date of enactment as on 10.05.08 - appellant engaged in the manufacture of Portland Pozzolana Cement falling under sub-heading 25232930 of the First Schedule to the Central Excise Tariff Act, 1985 - demand raised arising out of the substitution of tariff rate of Rs.900/- per ton in place of Rs.600/- per ton for the intervening period from 29.04.2008 to 09.05.2008 - Held that:- Section 3 of the PCTA empowers the Government, where a Bill to be introduced on its behalf provides for imposition or increase of a duty of customs or excise , to insert in the Bill a declaration that any provision of the Bill relating to such imposition or increase shall have immediate effect under the Act. Undisputedly, no declaration under PCTA was made with regard to enhancement of duty on cement to Rs.900/- PMT, which was moved by way of amendment to Finance Bill, 2008 by the Finance Minister on 29.04.2008. Therefore, the effective date of the enhancement in the present case would be the date of enactment i.e.10.05.2008. It therefore follows that any proposal for imposition/increase of duty by way of an amendment will not have immediate effect in absence of declaration under the provisions of the PCTA. Order of commissioner set aside - Decided against Revenue

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• 2012 (10) TMI 5
  Demand confirmed on the ground that appellant has used common inputs for manufacturing dutiable as well as exempted goods - appellant engaged in the manufacture of sugar and during the course of manufacturing sugar by-product Pres-mud emerges, which is further processed to result in exempted product Bio-compost - non-maintenance of separate accounts - Held that:- Press-mud is a by-product or waste. In this case, the press-mud and spent wash emerged during the course of sugar have been further processed which resulted in exempted product Bio-compost. Just because the press mud is processed further resulting in exempted product, it cannot be said that the appellant is required to maintain separate accounts. Further, in the case of CCE Visakhapatnam Vs. Sri Sarvarya Sugar Ltd (2009 (7) TMI 670 - CESTAT, BANGALORE ), Tribunal took a view that the appellant was not required to reverse the 10% of the value of press mud under Rule 6 of CENVAT Credit Rules, 2004. In view of aforesaid, impugned order is set-aside - Decided in favor of assessee

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• 2012 (10) TMI 4
  Penalty – Held that:- Appellants had acknowledged while purchasing the goods through suppliers was not prescribed in the aforesaid Notification No. 75/87. Therefore, it appears that the appellants were concerned in acquiring possession of and keeping, concealing, purchasing of the aforesaid goods which they knew and had reasons to believe, were liable for confiscation - penalty upheld Penalty under Rule 209A of the Central Excise Rules – penalty on manager – Held that:- Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty - Where regular orders for purchase of the goods were made by the senior officers, appellants should have fully conversant with the provisions of the Central Excise law. Therefore, penalty imposed against them is sustainable

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• 2012 (10) TMI 3
  Penalty for wrong availment under Rule 15(1) of Cenvat Credit Rules - Cenvat credit – assessee availed Cenvat credit on the basis of certain invoices twice, which on being pointed out by the audit was reversed – Held that:- It is only for imposition of penalty equal to the wrongly availed Cenvat credit under the provisions of sub-rule (2) of Rule 15 read with Section 11AC of the Central Excise Act, 1944, that the mens rea is required to be proved - imposition of penalty equal to the Cenvat credit demand would not be justified and the same has to be reduced

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• 2012 (10) TMI 2
  Clandestine removal – alleged that appellant is not able to explain regarding the clearance of 66,826 pieces of apparels i.e. the difference between the apparels declared and the apparels entered in the RG-1 register - appellant has contended that what they have declared on 26-5-2003 is the stocks as on 1-4-2003. From the above submission, it is clear that the contention of the appellant is that the stock was as on 1-4-2003 and the declaration was made to this effect on 26-5-2003 - Held that:- Charge of clandestine removal is to be established by the department - no efforts have been made by the department to prove the allegation of clandestine removal or to find out any corroborative evidence viz. movement of final product from the factory, receipt of payment or any inculpatory statement etc. The charges of clandestine removal cannot be proved on conjectures and surmises – in favor of assessee

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• 2012 (10) TMI 1
  Denial of cenvat credit - damage to the inputs by fire – Held that:- Settlement made by the Insurance company was communicated on 24-4-2007. The first appellate order was passed on 23-5-2008. Communication of Insurance company indicates that there was damage of stock, plant, machinery & building due to fire. When such a supporting document was available the appellant could have come forward to adduce the evidence before the adjudicating authority who completed adjudication on 31-10-2007 i.e. 6 months after settlement of claim by insurance company - appellant is coming out with fresh evidence at this second appellate stage which is not permissible - appeal is dismissed.

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• CST, VAT & Sales Tax

• 2012 (10) TMI 30
  Exemption from payment of Sales tax to new industrial units in Madhya Pradesh - Writ Petition – benefit of Notification granting exemption from payment of Sales tax to new industrial units in Madhya Pradesh - Clause 5 of the notification – Held that:- Clause 5 of Chapter-1 of the said Notification which specifically states that products, by-products and the waste products, if they are manufactured by an assessee along with the principal products, then only he will be entitled to take the benefit of the exemption Notification - products, that the assessee is manufacturing after diversification, by no stretch of imagination can be termed as additional principal products, by-products and waste products and therefore, the assessee is not entitled to exemption of benefit under the notification. The exemption Notification requires to be strictly construed and it is only when the assessee falls under that Notification, liberal construction should be placed - appeals are dismissed.

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• Indian Laws

• 2012 (10) TMI 29
  Disqualification of five MLAs from effectively functioning as members of the Haryana Vidhan Sabha - whether the High Court was competent to pass interim orders under its powers of judicial review under Articles 226 and 227 of the Constitution when the disqualification proceedings were pending before the Speaker ? - Held that:- the High Court had no jurisdiction to pass such an order, which was in the domain of the Speaker. The High Court assumed the jurisdiction which it never had in making the interim order which had the effect of preventing the five MLAs in question from effectively functioning as Members of the Haryana Vidhan Sabha. The direction given by the learned Single Judge to the Speaker, as endorsed by the Division Bench, is, therefore, upheld to the extent that it directs the Speaker to decide the petitions for disqualification of the five MLAs within a period of four months. The said direction shall, therefore, be given effect to by Speaker. The remaining portion of the order disqualifying the five MLAs from effectively functioning as Members of the Haryana Vidhan Sabha is set aside. The said five MLAs would, therefore, be entitled to fully function as Members of the Haryana Vidhan Sabha without any restrictions, subject to the final decision that may be rendered by the Speaker in the disqualification petitions filed under paragraph 6 of the Tenth Schedule to the Constitution. 49. The Speaker shall dispose of the pending applications for disqualification of the five MLAs in question within a period of three months from the date of communication of this order.

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