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TMI Tax Updates - e-Newsletter
March 6, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Central Excise
Articles
By: Pradeep Jain
Summary: The article outlines expectations from India's Budget 2012-13, amid economic instability and the European Union crisis. Key suggestions include removing excise duty on branded garments, allowing refunds for duty rate differences between inputs and finished goods, and not imposing excise on additional commodities. It advocates expanding the ACES online facility, stopping AG audits of private assessees, and increasing the service tax threshold. The article also discusses aligning threshold exemptions with Point of Taxation Rules, revising abatement rules, increasing SSI exemption limits, and addressing issues with the proposed negative list of services and service tax on imports.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: Loss of confidence is a valid ground for employee dismissal when an employer can prove a bona fide loss of trust. The Supreme Court of India has established criteria for determining such loss, emphasizing the importance of objective facts over subjective management opinions. Even if no financial loss occurs, an employee can be dismissed if trust is compromised. In a notable case, an employee involved in theft was dismissed, despite being acquitted in a criminal trial. The Supreme Court upheld the dismissal, highlighting that acquittal in criminal proceedings does not negate the findings of departmental inquiries, especially in cases involving loss of confidence.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: The article discusses the legal principle "impossibilium nulla obligatio est," meaning the law does not require the impossible. It examines a case where an assessee sold property, invested the proceeds in new land, but was legally prevented from constructing a house within the required three years to claim tax exemption under Section 54F of the Income Tax Act. Despite the mandatory nature of the provision, the Tribunal acknowledged the impossibility of compliance due to a court injunction and ruled in favor of the assessee, granting the exemption by considering the land purchase as a sufficient investment.
News
Summary: The Indian government announced the establishment of the country's first Infrastructure Debt Fund (IDF) through a public-private partnership to address long-term infrastructure funding needs. ICICI Bank, Bank of Baroda, Citi Bank, and Life Insurance Corporation of India signed a Memorandum of Understanding to form the IDF as a Non-Banking Finance Company. The IDF aims to raise capital from both domestic and international sources, investing in infrastructure projects under the Public-Private Partnership model. This initiative is expected to attract significant private sector investment and reduce withholding tax on interest payments to encourage offshore funding.
Summary: The Ministry of Corporate Affairs has clarified that companies or LLPs intending to engage in professions such as chartered accountancy, cost accountancy, architecture, or company secretarial work must obtain in-principle approval or a no-objection certificate from the relevant regulatory or professional bodies before they can be incorporated. This requirement also applies to businesses in banking and insurance sectors. The directive was issued by the Ministry in a circular dated March 1, 2012, and aims to ensure compliance with professional standards and regulations.
Notifications
DGFT
1.
105 (RE-2010)/2009-2014 - dated
5-3-2012
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FTP
Grant of export benefits / incentives to export proceeds realized even in Indian rupees Exports to Iran regarding.
Summary: The Government of India has amended the Foreign Trade Policy 2009-2014 to allow export proceeds from specific exports to Iran, realized in Indian rupees, to qualify for export benefits and incentives. This amendment, under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, adds a new sub-paragraph to Para 2.40 of the policy. The change ensures that export transactions with Iran settled in Indian rupees receive the same benefits as those settled in freely convertible currencies.
2.
104 (RE 2010)/2009-2014 - dated
5-3-2012
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FTP
Exemption of Bhutan from the application of export bans by India on export of Milk Powder, Wheat, Edible Oils, Pulses and Non Basmati Rice.
Summary: The Government of India has exempted Bhutan from export bans on milk powder, wheat, edible oils, pulses, and non-basmati rice under the Foreign Trade Policy 2009-2014. This amendment to Notification No. 87(RE-2010)/2009-14 specifies annual export limits for Bhutan: 1,600 metric tonnes of milk powder, 24,000 metric tonnes of wheat, 2,400 metric tonnes of edible oil, 1,200 metric tonnes of pulses, and 21,200 metric tonnes of non-basmati rice. The term "annual" refers to the calendar year, meaning the limits apply from January 1 to December 31 each year.
3.
103 (RE-2010)/2009-2014 - dated
5-3-2012
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FTP
Amendment in the subject of Notification No. 99 (RE-2010)/2009-14 dated 23.02.2012.
Summary: The Government of India has amended the subject of Notification No. 99 (RE-2010)/2009-14 dated 23.02.2012. Initially, the subject was titled "Permission for export of wheat through Land Custom Stations (LCS) on Indo-Bangladesh and Indo-Nepal border," which inaccurately described the notification's contents. To prevent misinterpretation, the subject has been revised to "Re-notification of Sl. No. 46 A of Chapter 10 of ITC(HS) Classification of export & import items" for wheat export. This amendment ensures the subject header more accurately reflects the notification's contents.
4.
102 (RE-2010)/2009-14 - dated
5-3-2012
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FTP
Prohibition on export of cotton(Tariff Codes 5201 and 5203).
Summary: The Government of India, through the Ministry of Commerce & Industry, has prohibited the export of cotton under Tariff Codes 5201 and 5203, effective immediately. This decision, enacted under the Foreign Trade (Development & Regulation) Act, 1992, nullifies prior transitional arrangements and invalidates previously issued registration certificates for cotton exports. The export policy now requires prior registration of contracts with the Directorate General of Foreign Trade (DGFT) for cotton, both carded and not carded. This prohibition will remain in place until further notice, as per Notification No. 102 (RE-2010)/2009-14.
Highlights / Catch Notes
Income Tax
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Deemed dividends apply only if a company has accumulated profits when a loan is given, impacting tax treatment.
Case-Laws - AT : Deemed Dividends - Advance from Company - for applicability of deemed dividends accumulated profits should exist on the date of loan - AT
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Share Transfer from Uncle to Nephew Not Covered by Section 79 Proviso; AO Denies Set-Off of Business Losses.
Case-Laws - AT : Business Income Set off against Brought forward loss - Change in shareholding pattern loss not allowed - Share transfer by uncle to nephew is not covered by proviso to Section 79, AO justified in not allowing the set of of less - AT
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High Court Rules Section 10(26AAB) Income Tax Act, 1961, Non-Retrospective, AMCs' Income Taxable Pre-April 2009.
Case-Laws - HC : Whether Sec. 10(26AAB) of the IT Act, 1961 exempts income of Agricultural Market Committees (AMCs) from the levy of income-tax under the Act, inserted by the Finance Act, 2008 w.e.f. 1st April, 2009 is retrospective in operation - held no - HC
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Section 50C of the Income Tax Act Excludes Transfer or Surrender of Tenancy Rights from Consideration Provisions.
Case-Laws - AT : Surrender of leasehold rights Provisions of Section 50 C will apply on receipt of consideration on transfer of a property, being land or building or both, and not in case of transfer or surrender of tenancy rights. - AT
DGFT
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DGFT Notification Allows Export Incentives for Indian Rupee Transactions with Iran, Boosting Trade Despite Currency Issues.
Notifications : Grant of export benefits / incentives to export proceeds realized even in Indian rupees Exports to Iran regarding. - Ntf. No. 105 (RE-2010)/2009-2014 Dated: March 5, 2012
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India Exempts Bhutan from Export Bans on Milk Powder, Wheat, Edible Oils, Pulses, and Non-Basmati Rice.
Notifications : Exemption of Bhutan from the application of export bans by India on export of Milk Powder, Wheat, Edible Oils, Pulses and Non Basmati Rice. - Ntf. No. 104 (RE 2010)/2009-2014 Dated: March 5, 2012
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DGFT Amends Trade Policy Notification No. 99 from 2012 with Notification No. 103, Effective March 5, 2012.
Notifications : Amendment in the subject of Notification No. 99 (RE-2010)/2009-14 dated 23.02.2012. - Ntf. No. 103 (RE-2010)/2009-2014 Dated: March 5, 2012
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Export Ban on Cotton Under Tariff Codes 5201 & 5203 Announced by DGFT in 2012 Trade Policy Update.
Notifications : Prohibition on export of cotton(Tariff Codes 5201 and 5203). - Ntf. No. 102 (RE-2010)/2009-14 Dated: March 5, 2012
Indian Laws
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Supreme Court Affirms Cess Act Levy as a 'Fee', Not a 'Tax', Clarifying Its Legal Implications Under Indian Law.
Case-Laws - SC : Constitutional validity of the Cess Act - Tax versus Fee - Building and Other Construction Workers Welfare Cess - The levy by the impugned Act is in effect a fee and not a tax - SC
Service Tax
-
High Court Rules Against Commissioner for Unjustified Use of Suo Motu Powers in Service Tax Penalty Case.
Case-Laws - HC : Penalty proceedings - Commissioner is not justified in exercising his suo motu powers to interfere with a discretionary order passed by the original authority to impose penalty - HC
Central Excise
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Party Takes Suo-Motu CENVAT Credit Without Filing Refund Claim; Credit Deemed Ineligible Under Relevant Rules.
Case-Laws - AT : Differential duty paid wrongly - no refund claim filed - suo-mottu credit of cenvat is ineligible. - AT
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Rule 8 Cost Plus 10% Valuation Not Applicable for Job Work Under Central Excise, Clarifies Court Decision.
Case-Laws - AT : Job work - valuation - Provisions of rule 8 i/.e cost plus 10% not applicable. - AT
VAT
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Credit Notes Issued Post-Sale Qualify as Trade Discounts u/r 9(a) for VAT/Sales Tax Turnover Deduction.
Case-Laws - SC : Sales Tax / VAT - allowability of discount provided vide credit notes under rule 9(a) discount given by means of credit notes issued subsequent to the sale is as much a trade discount admissible to deduction in determining the turnover of a dealer. - SC
Case Laws:
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Income Tax
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2012 (3) TMI 82
Taxability of income from licence fee and parking rent - Assessee claims it as income under the head income from house property and CIT (A) held it as income from other sources assessee pleading rule of consistency - Held that:- Rule of res judicata is not applicable to the income-tax proceedings except where, there are no fresh facts and perpetuation of bonafide mistake made earlier is also not permitted by law. Further, reliance of the assessee that TDS had been deducted u/s 194I, applicable to the TDS on rent is also of no help. Since nowhere section 194I provides that it is applicable only to the rental income chargeable u/s 22 of the Act. Certain types of rent are also taxable u/s 56 "Income from other sources" . Therefore, order of CIT (A), is upheld Decided against the assessee.
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2012 (3) TMI 81
Provision for Contingent liability not made by way of debit to P&l A/c - passed in the books of account of transferee company at the time of take over of assets and liability as per the scheme of the arrangement Revenue invoking Section 41(1) Held that:- In present case, provision was made by increasing investment and creating provision for contingency by corrosponding amount, i.e. routed through balance sheet only and not by way of debit to P&L A/c. Thereby, assessee had not obtained any benefit in earlier A.Y. Hence, order of Tribunal holding inapplicability of Section 41(1) is upheld Decided against the Revenue. Dis-allowance u/s 14A Held that:- Since ITAT has remitted the matter to the A.O. therefore it is directed to A.O. to compute in light of judgement in case of Maxopp Investment Ltd. vs. CIT (2011 - TMI - 208569 - Delhi High Court).
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2012 (3) TMI 80
Deduction u/s 54F in respect of building under construction despite the same having not being fully constructed within the stipulated period of three years for availing of the benefit Held that:- The essence of the said provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee from the said benefit. See CIT v. Sardarmal Kothari (2008 - TMI - 30187 - MADRAS HIGH COURT) In present case, assessee had invested in residential property within twelve months from the date of realization of sale proceeds of shares. Further, substantial construction was completed within three years period. Hence Tribunal was justified in extending the benefit of section 54F to assessee Decided against the Revenue.
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2012 (3) TMI 79
Whether pending allotment of NCSD would qualify as "commodities" u/s 43(5) whether its sale is Speculative transaction or Capital loss - PCD issued to existing shareholders entitlement to get equity shares and NCD under finance scheme bank offered to pay for portion of PCD and buy NCD portion at discounted price assessee accounted for difference in price of NCD and price paid by bank as capital loss Revenue contending it to be speculative transaction as no delivery is effected - Held that:- In present case, it was only NCSD, which is part of the PCD allotted in favour of the existing shareholder and then transferred to the bank, because the amount paid by the bank was treated as a loan to the existing shareholders and the said loan is treated as satisfied by issue of the NCSD to the bank.Therefore, the Tribunal has correctly held that there is an actual delivery and constructive delivery and they will not come within the purview of the "speculative transaction". Further, NCSD cannot be purchased or sold before allotment. Hence, pending allotment, non-convertible portion does not exist as such as commodities Decided against the revenue.
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2012 (3) TMI 78
Plea for waiver of interest u/s 234A delay in filing Return Of Income A.Y. 1993-94 and 1994-95 - books of accounts/documents seized during search conducted in August 1993 assessee allowed to obtain photo copies of the seized books of accounts and documents from February 1994 - long time consumed in obtaining photocopies - prayer for waiver of interest to CIT disposed by him after long delay on 07.04.2008 Held that:- It is apparent that the petitioner has been making payment to the respondents from time to time. Amounts paid, it appears have been adjusted first towards the interest due and then towards the principal amount. However, at the same time petitioner have not been able to show and establish that the entire delay in filing of the returns can be attributed to failure to permit inspection and photocopy of documents/records. Therefore, we are inclined to direct that the petitioner will be entitled to waiver of interest to the extent of 30% in the two assessment years Decided partly in favor of assessee.
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2012 (3) TMI 77
Fee paid to Registrar of Co. & Stamp Duty claimed as deduction - Penalty Proceedings Initiated - Held That:- Penalty can be levied for inaccurate particulars and not inaccurate claim. Further order was passed without taking into consideration reply dated 31.8.2006 filed by the assessee. An order passed in oblivion of, or without considering, the pleadings brought on record, amounts to an order passed without application of mind and such an order is a non est order lacking legal validity and force. Decided against revenue.
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2012 (3) TMI 76
Apportionment of Expenses - Real State Business & Textile Business - Site development expenses, conversion charges, infrastructure development charges, shown under Work-in-progress Depreciation dis-allowed - Held That:- The entire items of plant and machinery, office equipments, furniture and fixtures and vehicles have been used by the assessee in the course of carrying out of its business during the period under consideration. Depreciation allowed. Sale of Share and Mutual Fund - "Capital Gain OR Business Income" - Held That:- Investment out of its own fund and not borrowed fund - In books and balance Sheet the same were disclosed as Investments - The investment has not been rotated frequently as all the shares / mutual funds purchased by the assessee were not sold, rather the same were held for quite number of days - Dividend Income Earned. Sale/purchase liable to tax as Capital Gain.
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Customs
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2012 (3) TMI 70
Petitions preferred u/s 482 Cr. P.C. for quashing of the Complaint against petitioners and summoning order accusation u/s 132, 135 of the Customs Act - allegations against the petitioners are of assisting in availing duty drawback fraudulently by preparing belated Bills of Lading - non-mentioning of date of taking charge of the goods on the Bills of Lading prepared - manipulating the export date on the documents and getting them negotiated in the Bank Held that:- The department has recorded statements of many witnesses and a search was conducted at the official premises of the accused where various incriminating documents and false seals of various enterprises were found. The material on record prima facie shows involvement of the petitioners in the offence alleged against them. Denying the chance of a trial to the prosecution will be against the spirit of law Petition dismissed.
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Central Excise
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2012 (3) TMI 69
Denial of exemption under Notification No.175 /86-CE dated 1.3.1986 on ground of value of clearance exceeding 30 lacs - value of the clearance of goods falling under Heading 84.37 though exempt from payment of duty under Notification No.111 /88 dated 1.3.1988 taken into account while computing the value of clearances for the purpose of Notification No.175 /86 on ground of non-availing of exemption by assessee - manufacturer of goods falling under CH 32 and 84 Held that:- In our view, merely because the assessee, maybe, by mistake pays duty on the goods which are exempted from such payment, does not mean that the goods would become goods liable for duty under the Act. Secondly, merely because the assessee has not claimed any refund on the duty paid by him would not come in the way of claiming benefit of the Notification No.175 /86-CE dated 1.3.86. Therefore, Order of the Tribunal is set aside and adjudicating authority is directed to apply the Notification dated 1.3.86 in the assessee's case without taking into consideration the excess duty paid by the assessee under the Notification dated 1.3.1988 - Decided in favor of assessee.
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