TMI Tax Updates - e-Newsletter
April 11, 2012

Case Laws in this Newsletter:

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

Articles

1. Analysis of company bill 2011.

   By: ajay singh

2. A MERE IMPROVEMENT IN THE QUALITY DOES NOT AMOUNT TO MANUFACTURE.

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. CBEC Detects a Total Central Excise and Service Tax Evasion Amounting to Rs.3333.28 Crore and Rs.10286.73 Crore Respectively Till February 2012 During 2011-12; DGCEI Detects Case of Service Tax Evasion of About Rs. 10 Crore by ‘Skylark’ Group of Companies.

2. Government to Make Payments Directly to the Bank Account of Payees; Measure to Enhance Transparency and Accountability in Public Dealings of the Central Government and also Usher Green Banking.

3. Anand Sharma Aims for Ten-Fold Increase in Himachal Tea Lays Foundation Stone of the Regional Office of Tea Board at Palampur.

4. Committee Constituted to review the Scheme for Electronic Refund of Service Tax Paid on Taxable Services used for Export of Goods.

5. CCI imposes a penalty of Rs.5.66 crores on Schott glass India Pvt. Ltd..

6. Constitution of a Committee on Corporate Governance.

7. Press Release on ‘Circular 1 of 2012’- Consolidated FDI Policy Document.

8. Spice Board of India to Establish 10 Spice Parks by End of 2012.

Notifications

Customs

1. 20/2012 - dated 4-4-2012 - ADD

seeks to extend the validity of Notification No. 96/2007-Customs dated 29th August, 2007, upto and inclusive of 18th March, 2013.

2. 19/2012 - dated 4-4-2012 - ADD

Seeks to levy definitive ADD on phosphoric Acid of all grades when imported from Israel and Taiwan.

3. 18/2012 - dated 4-4-2012 - ADD

Seeks to rescind the notification no. 04/2012-Customs ADD dated 13-01-2012.

4. 25 /2012 - Customs - dated 30-3-2012 - Cus

Seeks to amend Notification 12/2012 – Customs - Prescribes effective rate of duty on import of goods.

Circulars / Instructions / Orders

Service Tax

1. 156/7/2012 - dated 9-4-2012

Service tax paid on taxable services used for export of goods at the post-manufacture stage — electronic refund through the Indian Customs EDI System -- Notification 52/2011-ST – review -- regarding.

2. 155/6/2012 - dated 9-4-2012

Clarification on Point of Taxation Rules - regarding.

3. Draft circular [F. No. 137/22/2012 - Service Tax] - dated 4-4-2012

Harmonisation of Service Tax and Central Excise Registration.

Income Tax

4. 01/2012 - dated 9-4-2012

Section 203 of the income-tax Act, 1961 - deduction of tax at source - Certificate for tax deducted - Issuance of TDS Certificates In Form No. 16A downloaded from TIN website.

FEMA

5. FDI GUIDELINES - 01/2012 - dated 10-4-2012

CONSOLIDATED FDI POLICY EFFECTIVE FROM 10-04-2012.

Highlights / Catch Notes

Income Tax

• TDS Certificates Must Be Issued in Form 16A from TIN Website as Per Section 203, Income-tax Act, 1961.

  Circulars : Section 203 of the income-tax Act, 1961 - deduction of tax at source - Certificate for tax deducted - Issuance of TDS Certificates In Form No. 16A downloaded from TIN website. - Cir. No. 01/2012 Dated: April 9, 2012
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• Taxpayers Can Double LTCG Deduction by Strategically Investing Rs 50 Lakhs in Bonds Over Two Financial Years, Per Section 54EC.

  Case-Laws - AT : Deduction u/s 54EC – LTCG - Proviso to Section 54EC restricts investment of more than Rs 50 lacs in a F.Y.. However, if assessee transfers his capital asset after 30th September of the F.Y. he gets an opportunity to make an investment of Rs. 50 lakhs each in two different F.Ys. - AT
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• Section 194I Applies to Vehicle Hire for Loading & Unloading; No Work Implied by Contractee for Assessee.

  Case-Laws - AT : Hiring of vehicles to be used for loading & unloading and transportation of products – Merely because the words "loading & unloading" are used in the contract, no one can presume that the contractee has to do any work on behalf of the assessee. The assessee has to make use of the equipment/vehicle made available on payment of hire for his use. Therefore, it is hire of equipment/vehicle simplicitor and Section 194I would be applicable - AT
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• Usance Interest on Raw Materials: Tax Implications u/ss 2(28A) and 9(1)(v)(b) of Income Tax Act.

  Case-Laws - AT : Nature of 'Usance Interest' – The nexus of interest was only with the period from which the purchase price of the raw material became due viz., the date of bill of lading. Therefore, usance interest, is interest within the meaning of sec. 2(28A) and same would be deemed to have accrued and arisen in India in view of the provisions of sec. 9(1)(v)(b) of the Act. - AT
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• Singapore Company Tax Case: Royalty and Fees Taxable on Payment Basis, Affecting Reporting and Payment Methods.

  Case-Laws - AT : Method of accounting or royalty and assessment of reimbursement of expenses by the AO - Singapore based company - royalty and FTS are taxable on payment basis and not on accrual basis. - AT
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• Hospital Construction Costs: Regularization Fee Properly Capitalized, Aligns with Accounting Standards.

  Case-Laws - AT : Capitalization of regularization fee paid - Construction of hospital building - The assessee has rightly booked the payment under the cost of construction of the hospital building - AT
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• Assessee Hired EMPL Equipment for Dredging Work Without Independent Use Rights; Payments Classified as Hire Charges.

  Case-Laws - AT : Payments made by the assessee-company for subcontracting its works contract - payment of hire charges/charter fees to EMPL - the contract given to EMPL was in the nature of sub-contract to undertake on behalf of the assessee's dredging work with the equipment and manpower of EMPL - It is only hiring of the equipment and the assessee did not use the dredger or any part thereof on its own neither it was given any right to use - AT
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• Proprietorship to Corporate: Section 47(xiv) Rules Out Indirect Benefits Beyond Share Allotment in Tax Transition.

  Case-Laws - AT : Succession of the proprietorship business in to a corporate entity - conditions prescribed in section 47 (xiv) - in the present case, it cannot be held that he has received consideration or benefit indirectly other than by way of allotment of shares, only because higher number of shares have been allotted due to revaluation - AT
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• Tax Rule: No Claiming Project Expenses in Future Years if Income Already Taxed in Current Year.

  Case-Laws - AT : Taxability of project - relevant assessment year - held that:- Once the income from the project is taxed, the Assessee will have no occasion to claim expenses relating to that project in a later assessment year. - AT
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• High Court Orders Return of Books Held Beyond 15 Days by Assessing Officer u/s 131.

  Case-Laws - HC : Power u/s 131 - Extension of period of retaining Books of account - Assessing Officer can retain the books of account only for 15 days. - learned single judge was justified in entertaining the writ petition, issuing a direction to return the books of account,- HC
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• Footnotes on Tax Returns: Clarification Only, Cannot Contradict or Influence the Main Content Filed by Assessee.

  Case-Laws - HC : Mentioning of a footnote below the return - a footnote cannot guide or control a return which is filed by an assessee. A footnote if at all can be for the purpose of amplification or for further reference or any such thing, but not to indicate a stand contrary to the main thing - HC
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• Taxpayer Qualifies for Section 54F Exemption Despite Construction Delay Due to Court Stay on Land Purchase.

  Case-Laws - AT : Exemption u/s 54F - land purchased for construction of house but stayed by the court - the entire amount spent by the assessee in purchasing the land should be construed as amount invested in purchase/construction of residential house - AT
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• Goodwill Transfer Treated as Capital Receipt, Not Revenue; Consideration for Assets and Rights, Not Goodwill Itself.

  Case-Laws - HC : Assessee had transferred as per the agreement goodwill to client which AO contested that it cannot be treated as a capital receipt and be treated as a revenue receipt and brought to tax under the head "Profit and Gains of Business' - consideration paid is not for the goodwill but it is for the assets, properties and rights of the transferor hence treated as capital receipt - HC
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• Taxpayer Can Deduct Proportionate Discount on Debentures Over Holding Period for House Property Income Calculation.

  Case-Laws - AT : Allow ability of discount charges in respect of debentures issued by the assessee while computing income from house property - the difference between the issue price and maturity value has to be spread over the debenture holding period and only proportionate amount can be allowed as deduction in a particular year. - AT
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• Tribunal Rules Transfer of Entire Business as Continuation, Not New Creation; Section 10A(2) and 80HHE Apply.

  Case-Laws - HC : Exemption u/s 10A(2) - Deduction u/s 80HHE - Tribunal in the present case has come to the conclusion that where a running business is transferred lock, stock and barrel by one assessee to another assessee the principle of reconstruction, splitting up and transfer of plant and machinery cannot be applied - Reconstruction is of a business already in existence and there must be a continuation of the activities and business of the same industrial undertaking - HC
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• Intangible assets from slump sale qualify for depreciation as "business or commercial rights" u/s 32(1)(ii) Income Tax Act.

  Case-Laws - HC : Depreciation on intangible assets being “business and commercial rights” - pecified intangible assets acquired under slump sale agreement were in the nature of “business or commercial rights of similar nature” specified in Section 32(1)(ii) and were accordingly eligible for depreciation. - HC
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• Charitable Institution Denied Tax Exemption Due to Lack of Approval u/s 10(23C)(iiiad) of Income Tax Act.

  Case-Laws - AT : Charitable Institution - when no approval was granted u/s 10(23C), CIT was not justified in holding that assessee is a charitable institution and eligible for exemption u/s 10(23C)(iiiad) - AT
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• ITAT Overturns Rs. 1.50 Crore Addition by AO; No Payment or Subcontract u/ss 40(a)(ia) & 194C.

  Case-Laws - HC : ITAT deleted the addition of Rs. 1.50 crore made by AO invoking the provisons of Section 40(a)(ia) read with section 194C - Tribunal while deleting the addition made under Section 40(a)(ia) of the Act has made out altogether a new case and accepted the stand of the assessee that they had not paid Rs. 1.50 crores and the said work was not sub-contracted by them to Rishikesh Properties Pvt. Ltd - Decided in favor of revenue. - HC
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• Taxpayers Can Offset Business Losses Against Other Income u/s 71, Despite Section 90(2) Provisions.

  Case-Laws - AT : Set off of business loss ignoring the provisions of section 90(2) - From the prescription of section 71, it is palpable that there is no bar in allowing set off of loss under the head "Profits and gains of business or profession" against income under the head "Income from other sources".
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FEMA

• New FDI Policy 2012: Guidelines for Foreign Investments, Sector Limits, and Procedures to Boost Economic Growth.

  Circulars : CONSOLIDATED FDI POLICY EFFECTIVE FROM 10-04-2012. - Cir. No. FDI GUIDELINES - 01/2012 Dated: April 10, 2012
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Corporate Law

• High Court Rules Company Law Board Wrongly Blocked Company's 7th to 12th Annual General Meetings in 2008.

  Case-Laws - HC : Annual general meeting - the 7th to 12th annual general meetings of the company could not be held. On 28th May, 2008 the company issued notices for holding these annual general meetings on 27th and 28th June, 2008 at diverse timings specified in the notices - The Company Law Board (CLB) fell into great error in altogether preventing holding meetings as mentioned in the above notices. It ought to have permitted them to be held - HC
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Indian Laws

• Employer's Genuine Loss of Confidence Shields Disciplinary Action; Employee Reinstatement Not Allowed for Theft from Cash Chest.

  Case-Laws - SC : Theft from cash chest by an employee - Once the employer has lost the confidence in the employee and the bona fide loss of confidence is affirmed, the order of punishment must be considered to be immune from challenge, for the reason that discharging the office of trust and confidence requires absolute integrity, and in a case of loss of confidence, reinstatement cannot be directed. - SC
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Wealth-tax

• Leased asset included in net wealth as non-business property per Wealth Tax Act section 2(ea), no exemption applicable.

  Case-Laws - AT : Wealth tax - the commercial asset used by the assessee substantially and partly given on lease are not business assets and thus includible into the 'net wealth' u/s 2(ea) - Since the assessee in the instant case has let out a part of its business premises and since the assessee is not in the business of letting out properties, therefore, the said property, in our opinion, is not exempt either u/s. 2(ea)(i)(3) or 2(ea)(i)(5) of the Wealth Tax Act - - AT
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Service Tax

• Service tax refunds for export services at post-manufacture stage now processed electronically via Indian Customs EDI System.

  Circulars : Service tax paid on taxable services used for export of goods at the post-manufacture stage - electronic refund through the Indian Customs EDI System -- Notification 52/2011-ST – review -- regarding. - Cir. No. 156/7 /2012-ST Dated: April 9, 2012
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• Draft Circular Proposes Harmonization of Service Tax and Central Excise Registration to Simplify Compliance and Enhance Efficiency.

  Circulars : Harmonisation of Service Tax and Central Excise Registration. - Cir. No. Draft circular [F. No. 137/22/2012 - Service Tax] Dated: April 4, 2012
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• Clarification on Point of Taxation Rules for Service Tax Issued April 9, 2012; Ensures Uniformity in Tax Application.

  Circulars : Clarification on Point of Taxation Rules - regarding. - Cir. No. 155/6/ 2012 – ST Dated: April 9, 2012
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• Refund Denial on Service Tax for Chrome Concentrate Export Challenged; Case Remanded for Review Under Notification 17/2009-ST.

  Case-Laws - AT : Refund of service tax on taxable services used for export of goods – assessee claimed refund of service tax on taxable services used for export of MT of Chrome Concentrate as per Notification 17/2009-ST dated 7.7.2009 – export made through MMTC - claim denied on ground that the appellant are not the exporter of the goods but the exporter of the said goods was M/s MMTC Ltd., BBSR - Matter remanded back - AT
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• Trade Mark Use of "Hero Honda" on Oil Products Raises Intellectual Property and Service Tax Issues.

  Case-Laws - AT : Intellectual Property Services - Trade marks and brand name - The appearance of the trade mark "Hero Honda" and "Hero Honda 4T plus" on the oil company's products definitely indicates a connection between the said companies and the appellants product. - AT
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• Assessees can choose to avail or not avail Cenvat credit per contract in Commercial and Industrial Construction.

  Case-Laws - AT : Cenvat credit while availing benefit of abatement - Commercial and Industrial Construction - notification no. 1/2006 - there is no stipulation in the notification that the option to avail/non-avail CENVAT credit has to be exercised uniformly in respect of all the contracts executed by the assessee. It is for the assessee to choose which formulation he wants to follow in a given contract. - AT
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• Application u/s 96(C) of Finance Act 1994 Questions Maintainability; Seeks to Avoid Conflicting CESTAT Rulings.

  Case-Laws - AAR : Maintainability of application filed u/s 96(C) of the Finance Act, 1994 – subsidiary of a subsidiary of a Government company - If ruling is given in this case, it will bind only the applicants, this would mean CESTAT is free to render a ruling ignoring what is being ruled by this Authority. Such a situation should be avoided. - AAR
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• Debate on "Business Auxiliary Service" vs. "Business Support Service" Entries; Extended Period Cannot Be Used for Demand.

  Case-Laws - AT : Business auxiliary service - the entries for “Business Auxiliary Service” and “Business Support Service” have different objects. After the introduction of the new entry, there can be argument as to which entry covers the activity more appropriately - in such situations the extended period of time cannot be invoked for raising demand - AT
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• Trademark Use Agreement Not a Transfer; Service Tax Demand Confirmed Under Notification 12/2003-ST.

  Case-Laws - AT : Claim for exemption under Notification 12/2003-ST which was not claimed in adjudication proceedings - When the contract is read as a whole it is indeed a contract for transfer of the right to use the Trademark for limited purposes but on a permanent basis - the impugned contract, in its pith and substance is not a "transfer of right to use" and is more in the nature of permission to use the trademark which continues to be the property of the licensor - Demand of service tax confirmed. - AT
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• Cenvat Credit Eligibility Begins with Manufacturing Preparations, Not Production Start; Credit Denied in Current Case u/r 3.

  Case-Laws - AT : Cenvat credit - Input service distributor (ISD) - The term 'commencing of business' in Rule 3 therefore, cannot be understood in the manner whereby it will apply only to the cases where the actual manufacturing process would start. It would commence from the time the preparation commences for the establishment of manufacturing unit as the party is entitled to avail credit even prior to actual commencement of production. - Benefit of cenvat credit denied - decided against the assessee. - AT
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• Appellant's Record Management Services Exempt from Service Tax; Not Classified as Storage/Warehousing of Goods Under Finance Act 1994.

  Case-Laws - AT : Storage and warehousing - the various old records such as discharged cheques, vouchers, books of accounts in respect of which the service was rendered by the appellant to his clients such as banks and corporate houses for management of the records, cannot be considered as storage and warehousing of "goods" as defined in the Finance Act, 1994 read with section 2(7) of the Sale of Goods Act, 1930 - not liable to pay service tax - AT
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Central Excise

• Tribunal Questions Burden of Proof in Excess Excise Duty Refund Case Beyond Original Notice.

  Case-Laws - HC : Refund of the excess excise duty paid - Tribunal has travelled beyond the show cause notice and has given a reasoning in paragraph 5 of the order passed by the Tribunal that the appellant has not established whether incidence of excess paid duty was not passed to the customer in the form of availment of MODVAT/CENVAT credit. - HC
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• Claim for Duty Remission Denied Due to Lack of Explanation for Tank Burst in Unavoidable Accident Case.

  Case-Laws - AT : Remission of duty - remission of duty is being claimed on the ground that the goods in respect of which the remission of duty has been claimed were a lost/destroyed due to an unavoidable accident - appellant have not been able to explain as to how the bottom of the tank got burst. - AT
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• Rule 6(2) exempts businesses from keeping separate records for waste or by-products in Cenvat credit.

  Case-Laws - AT : Cenvat credit - separate account and inventory of the inputs - requirement of Rule 6(2) - this requirement cannot fulfilled in respect of inevitable waste or by product - AT
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• Debate on Bath Fittings Valuation: Should It Be Based on MRP (Section 4A) or Transaction Value (Section 4)?

  Case-Laws - AT : Valuation u/s 4A based on MRP or u/s 4 based on truncation value - Classification of bath fittings etc. - AT
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• Strict Interpretation of Exemption for Goods from 100% EOUs Cleared to DTA as per Notification No.8/97-CE.

  Case-Laws - SC : Exemption under Notification No.8/97-CE, dated 1.3.1997 - finished goods manufactured by the 100% EOU out of the raw material supplied by another 100% EOU - Clearance to DTA - The notification requires to be interpreted in the light of the words employed by it and not on any other basis. There cannot be any addition or subtraction from the notification for the reason the exemption notification requires to be strictly construed by the Courts. - SC
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• Cenvat Credit Allowed: "Debit Note" Valid as All Details Met Rule 9(2) Requirements, No Grounds for Denial. (2.

  Case-Laws - AT : Cenvat credit - though the document is titled as "Debit Note" the said document contains all relevant details as specified in Rule 9(2) of the Cenvat Credit Rules, 2004 and therefore there is no reason to deny the credit - AT
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• Denial of Cenvat Credit due to invoice details overlooked Rule 9(2) exception to Rule 11, Central Excise Rules 2002.

  Case-Laws - AT : Cenvat Credit denied on the ground that invoices did not contain necessary details as required under Rule 11 of Central Excise Rules, 2002 - The fact that Rule 9(2) is an exception to the provisions of Rule 11 of Central Excise Rules, has not been taken note of by both the lower authoritiest - AT
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VAT

• Court Rules SEZ is Outside India Under SEZ Act Section 53(1); CST Applies to SEZ-DTA Supplies.

  Case-Laws - HC : Supply of goods from SEZ to DTA - Levy of CST - territory outside the territory of India u/s 53 (1) of SEZ Act, - The deeming provision also cannot be inferred from the analogy drawn from different Acts - Decided against the assessee. - HC
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• Voltage Stabilizers Classified as Electronic Goods, Subject to 4% Sales Tax Under Entry No. 74(f) of 1992 Notification.

  Case-Laws - SC : Classification - voltage stabilizers were electronic goods falling within entry No. 74(f) of Notification No. 1223 dated March 31, 1992, passed under the U. P. Trade Act, 1948, and were liable to sales tax under the U.P. Trade Tax Act, 1948, at the rate of four per cent. - SC
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• Notice Issued u/s 22(3) KVAT Act: Laundry Brighteners Classified for 12.5% Tax Rate Under Entry 27 S.R.O. No. 82/2006.

  Case-Laws - HC : AO issued annexure A notice under section 22(3) of the KVAT Act, on the basis that the aforesaid products of the assessee were laundry brighteners and proposing to classify the products under entry 27 of S. R O. No. 82/2006 tax and levy tax at 12.5 per cent - Decided in favor of revenue. - HC
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• Supreme Court Confirms Sales Tax Deferral Scheme Benefits Align with Statutory Provisions; Circular is Legally Binding.

  Case-Laws - SC : Benefit of the sales tax deferral scheme - it is not the case of the Revenue that circular dated May 1, 2000 is in conflict with either any statutory provision or the deferral schemes announced under the aforementioned Government orders. We, therefore, hold that the said circular is binding in law on the adjudicating authority under the TNGST Act. - SC
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• Government Clarifications on VAT and Sales Tax: Non-Binding on Courts, Reflect Interpretation of Statutory Provisions.

  Case-Laws - SC : Clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. - SC
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Case Laws:

• Income Tax

• 2012 (4) TMI 218
  Business expenditure – Settlement charges and legal expenses - assessee owning and conducting hotel handed over bar & restaurant to conductor against payment of royalty – dispute arose between assessee and conductor - settlement charges and legal expenses incurred for getting a Consent Decree from the High Court - Held that:- Tribunal order of allowing such expenditure is upheld since payment was made for resolving disputes and removing the hindrance which was caused in the management and conducting of the restaurant. The conductor was a bare licensee and had no interest by way of tenancy or otherwise in respect of the premises. Consequently, payment was in true sense the revenue expenditure – Decided in favor of assessee.

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• 2012 (4) TMI 217
  Petition for grant of interim stay – Demand imposed under order framed u/s 143(3) – application filed for providing interim stay rejected by Adl CIT and stay petition rejected by CIT – garnishee notice issued u/s 226(3) – Held that:- Mere fact that appeal has been filed is no ground for granting stay particularly when the petitioner- assessee has sound financial position. Huge amount of arrears of tax if not paid would unnecessarily result in the payment of interest by a public body like the assessee-petitioner. No infirmity found in the order – Petition dismissed.

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• 2012 (4) TMI 216
  Addition made on account of Unexplained investment in the property - Appeal by revenue that CIT(A) has erred in deleting the addition made by the AO by attracting the provisions of Section 50C of the Income-tax Act,1961, without giving any opportunity of being heard to the AO - assessee filed return claiming long term loss, on sale of property to be carried forward- AO stated that in respect of the Sale Deed there exists a difference of value adopted for the purpose of Stamp Duty adopted by the Sub Registrar and assessee - CIT(A) held that in the absence of any admissible evidence, valuation done by stamp duty authorities could not be taken as actual sale consideration and the value shown in the sale deed has to be accepted as held in the case of CIT v. Chandni Bhuchar 2010 (1) TMI 502 - Punjab and Haryana High Court – Held that:- the CIT(A) misapplied the ratio of the decision of the jurisdictional High Court, in the case of CIT v. Chandni Bhuchar, as the same has been rendered, in the context of a Purchaser, whereas the present appellant is a 'Seller', which squarely falls u/s 50C of the Act - the findings of the ld. CIT(A) are not legally and factually tenable - the deeming fiction created u/s 50C of the Act, for the purpose of Section 48 of the Act, regarding full value of consideration received or accrued to the seller, cannot be extended to the provisions of Section 69 of the Act, in the case of a purchaser - the issue is restored to the file of the AO, to frame the assessment afresh, after obtaining the valuation report - the provision of Section 50C(2) of the Act, stipulates necessary conditions, for the purpose of making a reference to the Valuation Officer, by the AO - appeal of the revenue allowed.

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• 2012 (4) TMI 215
  Appeal by assessee – profit on 'sale of ships' is not an income derived from the activities of a tonnage tax company referred to in Section 115 V and not to be include in the "Book Profit” and to be excluded in determining the Book Profits u/s 115JB of Income Tax Act - Assessee contented that assessee company was carrying on only one activity of operation of ships and therefore entire income relating to ships as recorded in the profit & loss account was to be taken as profit derived from the activities of tonnage tax company and the same was to be reduced from the book profit for the purpose of sec.115JB – Held that:- assessee has contended that the profits on sale of old ships are covered by clause (i) of sub-section (2) of section 115VI which is liable to be rejected as the profits from core activities as referred to in sub-section (2) forms part of a shipping income of a tonnage tax company and as per clause (i) of sub-section (2) of section 115VI, core activities of a tonnage tax company mean, inter alia, its activities from operating qualifying ships. In our opinion, the activity of sale of old ships cannot be regarded as an activity from operating qualifying ships - against assessee. income from sale of ship is not a capital receipt which has to be included while computing the book profit u/s 115JB as per decision of ITAT Mumbai Bench in the case of ITO v. Frigsales (India) Ltd. [2005] 4 SOT 376 (MUM)." - assessee submitted that profits on a sale of old ship are nothing but a capital receipt in the hands of the assessee and since the profit from such sale is chargeable to tax as capital gains u/s 50, the provisions of section 115JB are not attracted to such profit – revenue contented that what is to be excluded for the purpose of computing book profit u/s 115JB has been specifically provided in Explanation 1 to section 115JB(2) and the same does not cover capital gain or capital receipt relied on the decision of Hyderabad Special Bench of the Tribunal in the case of Rain Commodities Ltd. v. Dy. CIT- 2010 - TMI - 203366 - ITAT HYDERABAD – Held that:- the decision of Special Bench of the Tribunal at Hyderabad in the case of Rain Commodities Ltd. (supra) that the provisions of section 115JB have an overriding effect upon other provisions of the Act and, therefore, the method of computation of book profit provided in the Explanation to section 115JB should be followed while computing the book profit and the normal provisions of computation of profit under any head of the Act shall not be applicable – in favour of revenue.

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• 2012 (4) TMI 214
  Main object of the Assessee is to promote sports and athletic activities - AO denied the exemption claimed under Section 11 treating the Assessee as a mutual concern and the facilities for the promotion of sports are provided to a limited group of people, being the members of the club - Commissioner (Appeals) concluded that the promotion of sports and games fell within the purview of Section 2 (15) since it constituted an advancement of any other object of general pubic utility and directed AO to grant exemption u/s 11 - revenue appeals against the CIT(A) - Held that:- the fact that the membership of the club is open to a section of the community doesn't mean that the club has been constituted for the advancement of any other object of general public utility - AO did not have an occasion to consider the application of the funds as per Section 11, since he had come to the conclusion that the Assessee does not fulfill the charitable purpose as defined in Section 2(15) hence remit the proceedings back to the AO to determine whether the requirements of Section 11 have been duly fulfilled as regards the application of the funds - Appeal of revenue disposed off as the Assessee is a Charitable Institution

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• 2012 (4) TMI 213
  Validity and legality of appeal - Survey - During the survey, it was noticed that the assessee had debited a sum of Rs. 7,55,85,800/- for the assessment year 2006-07, and Rs. 6,46,86,000/- for the assessment year 2007-08 towards the earth filling charges in Kasavanahalli Project - Assessing Authority doubted the incurring of these expenses, the matter was referred to the District Valuation Officer to find out the actual costs of developmental expenses incurred - learned counsel for the Revenue contended that once the admitted tax liability is not paid, the appeal preferred is not maintainable and the Appellate Authority has no jurisdiction to entertain the appeal - If the statute gives a right to appeal upon certain conditions, it it upon fulfilment of those conditions that the right becomes vested in, and exercisable by, the appellant - . As is clear from Clause (b) of Sub-Section (4) of Section 249 of the Act in all cases falling under Sub-Section (4) of Section 249, no discretion is vested with the Appellate Authority - once the conduct of the assessee is not such as to disentitle him to exercise his right of appeal by obeying the law, that is by depositing the admitted tax liability, the Appellate Authority should be liberal in entertaining these applications and hear the appeal on merits and pass appropriate orders, in accordance with law - Appeal is dismissed

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• 2012 (4) TMI 212
  Assessee disclosed the claim made for excise duty refund credited to the profit and loss account as miscellaneous receipts by original as well as the revised returns - such amount was neither received nor accrued to the appellant company and the same cannot be included in the total income - the assessing officer rectified the order and reduced the claim under Section 32AB as against the original claim - tribunal passed the order that the assessing officer had in the guise of rectifying an arithmetical mistake sought to rectify a debatable question of law and re-calculation of the eligible profit under Section 32AB by deleting the expected return of customs duty, which was not included in the computation of income is an error rectifiable under Section 154 of the Income Tax Act -Revenue filed the appeal that Appellate Tribunal being a final fact finding authority, is expected to give reasons supporting its finding - Held that :- the Appellate Tribunal should have considered the materials placed on either side and have independently applying its mind should have come to its own conclusion as to whether any mistake had crept in the the order of the assessing authority or it is a debatable question - the order of the Tribunal is set aside - matter is remitted back to the ITAT to decide the issue within a period of six months - Appeal of revenue allowed.

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• 2012 (4) TMI 211
  Penalty under section 271D and 271E - AO noticed that the assessee has accepted and repaid loan in cash violating section 269SS and 269T - assessee contented that penalty is not leviable when assessee was having reasonable cause as per section 273B - Held that :- It was explained by the assessee before the Revenue authorities that the business of the assessee was such in nature where the expenses have to be incurred in cash immediately whereas the collection of hire charges received after sometime - we find that the expenditure and repayment of temporary loan in cash from the relatives and friends each amounting below Rs. 20,000/- was in accordance with commercial expediency of assessee's business as the nature of business of the assessee is such - as reasonable cause has been proved no penalty will be livable - appeal of assess allowed.

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• 2012 (4) TMI 210
  Non deduction of TDS on the interest paid by the assessee bank to Rajasthan Rural Road Development Agency (RRRDA)- proceedings under section 201(1) and 201(1A) - AO levied interest and penalty - CIT (A) allowed the appeal on merit and was not liable to deduct tax - further appeal Department is challenging that assessee was not liable to deduct tax whereas assessee has challenged the legal ground raised that Additional CIT was not empowered to direct TDS ITO to pass order under section 201(1) and 201(1A) as rejected by ld. CIT (A) - assessee contented that the interest accrued on the funds was not liable to be taxed in the hands of the society as the interest was accrued on account of Ministry of Rural Development and a Notification under section 194A( 3)(iii)(f) was also issued by the Central Government by which various Agencies/Societies were exempted from deducting tax - Held that:- the interest income under consideration is belonging to the Ministry of Road Development / Central Government only, as clearly stipulated in the accounts manual making all arguments of the AO irrelevant, unwarranted and insignificant - provision of TDS sections are not applicable on project funds released by the central government and ownership of interest income belongs to Ministry of Road Development/ Central Government and therefore TDS is not required to be deducted u/s 196 - u/s 194A(3)(iii)(f) any income credited or paid to an institution, association or body which the Central Government notify in the Official Gazette is not liable of deduction of tax at source - rejected the grounds of appeal of the department.

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• 2012 (4) TMI 209
  Lump sum payment received on sale of software - assessee was giving services to various clients all over the world for development of Balance Score Card (BSC) project - A.O. treated it as royalty under Article 12 of Double Taxation Agreement (DTA) between India and Singapore - assessee contented that the amounts received were business profits in view of Article 7 DTA - assessee argue that it did not have any permanent establishment in India and that supply of software and consultancy services were interdependent insofar as development of BSC was concerned - assessee never parted with possession or control over the rights in such software - Held that:- the software used by the assessee cannot be considered independent, but, only as a part of the service rendered by the assessee to its clients with regard to the development of BSC - by means of the Balance Score Card system developed by the assessee, the clients were getting an advantage which went much beyond the period of agreement between the assessee and its clients - assesse made available technical knowledge for meeting the long term targets of the clients and the benefits ran well into the future - the Balance Score Card prepared for each client and system of filling data in such BSC on a continual basis depended on the needs of each client - that the fees received for designing of the management tool called Balance Score Card will definitely fall within the definition of "fees for technical services" as given under sub-clause (iv) of Article 12 of DTA between India and Singapore - A.O. was justified in treating the amount received by the assessee from its clients as income taxable in India in accordance with DTA between India and Singapore - Appeal of assessee dismissed.

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• 2012 (4) TMI 207
  Business loss - loss on sale of shares - genuine transaction or shame transaction - held that:- the transactions have been undertaken in the normal course of business and since the client has refused to take delivery of the shares, the resultant loss incurred by the assessee-company for the sale of the said shares, is required to be allowed as deduction from the business income. - Speculation loss as per Explanation to section 73 - A.O. stated that assessee's business income during the year consisted of brokerage, the loss incurred in purchase and sale of the above shares should be as speculation loss - assessee contented that transaction of purchases and sale of shares resulting in loss do not pertain to the assessee but pertains to the clients and as per Section 73 of the Act it is applicable only if the transactions are pertaining to the assessee in whose case the same are intended to be applied - Held that:- the assessee-company is not engaged in the business of carrying out purchase and sale of shares for its own profit or loss. The above fact is evident from the balance sheet of the company - The said loss being duly supported by documentary evidences and being genuine delivery based loss, the same cannot be treated as speculative loss.

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• 2012 (4) TMI 206
  India-US DTAA - Tax on interest on refund of income tax - AO applied 40% rate of tax - Held that:- the use of the expression "attributable to" in the Indo-USA DTAA has therefore to be understood either as equal to "effectively connected" or as having a narrower meaning than the word "effectively connected" - the said technical explanation is in the context of attribution of profits of the PE and is relevant to taxation of an Indian enterprise having PE in USA - the case of the Assessee would stand squarely covered in favour of the Assessee by the decision of the Special Bench in the case of Asstt. CIT v. Clough Engineering Ltd. 2011 -TMI - 210052 - ITAT, DELHI -- the interest income on income tax refund is to be charged to tax only under Article 11 (2) of the Indo-USA DTAA and not under Article 11(5) thereof - in favour of assessee.

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• 2012 (4) TMI 205
  Assessee was employed with UNICEF - residing outside India and returning to India on his superannuation – remitted the salary in India in foreign exchange amount had been invested mainly in bank deposits - assessee filed return of income claiming tax benefit under Section 115 E and the AO found returns were filed under section 115H where the assessee has not satisfied the procedural and substantive requirements under Chapter XIIA of the Income Tax Act - AO reopened the assessment u/s 147 – revenue stated that the assessee is a "Resident" as mentioned in the return, hence is not entitled to the concession rate of tax under Section 115 E/115 H - Held that:- re-assessment was validly re-opened as held in favour of the Revenue in the case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. (2007 -TMI - 6563 - SUPREME Court) - the assessee had been a 'Non-Resident" for 12 years prior to his return to India - He has been in India only for 323 days during the previous seven years preceding the assessment year - the status of the assessee is "Not Ordinarily Resident" and the real status of the assessee cannot be denied merely the assessee made a wrong declaration when he satisfied all the conditions - is entitled to the benefit of Section 115 E

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• 2012 (4) TMI 204
  Search & seizure – documents seized – one of the document contained working of interest @ 3% per month on total sum of Rs.3 lac - assessee contended that said documents belonged to his father who in turn denied knowledge of papers – addition made for principal and interest on presumption that assessee was involved in the business of financing – Held that:- Findings recorded by the Tribunal are based on appreciation of evidence on record and any reasonable individual, having regard to Section 3 of the Evidence Act, would arrive at the same conclusion. The aforesaid finding cannot be said to be one based on 'No Evidence' nor can that finding be described as a perverse finding of fact – Decided against the assessee

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• Service Tax

• 2012 (4) TMI 219
  Refund Claim - Appellants are engaged in the manufacture of carbon steel/mild steel spirally welded pipes and also - manufacturing polyethylene coating on the ERW steel pipes sent by customers – assessee discharged the service tax liability on polyethylene coating on the ERW steel under the category of "business auxiliary services" – assessee claimed refund on service tax on ground that service tax liability is to be discharged on consideration received for the services provided and not on value by taking into account the value of the bare pipe sent by them to the customers - revenue stated that assessee cannot argue on one hand that they would be eligible for credit in respect of pipes as inputs and on the other hand for payment of service tax value should not be taken into account and they are eligible for refund – Held that:- refund claim was rejected as the appellants have already availed Modvat credit of duty paid on the pipes - the appellants cannot seek double benefit i.e. availment of Modvat credit of duty paid on the pipes as well as not including the value of the pipes in the value of the services to be provided by them - appeal of assessee rejected.

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• Central Excise

• 2012 (4) TMI 202
  Appeal of the department against the order of the Commissioner (Appeals) - original authority had confirmed the demand of duty against the respondent by clubbing their clearances of furniture items with similar clearances made by two other units and denying SSI benefit - the respondent submitted that the appeals filed by the department were found to be defective by reason of no show-cause notice having been issued to the other two units - Held that:- the learned Commissioner (Appeals) did not record a speaking order on the issue agitated before him - chose to make a reference to an order passed by his Chennai counterpart - This kind of orders cannot be upheld as it is incumbent on the appellate authority to discuss the issue and record its decision - allow this appeal by way of remand to the Commissioner (Appeals) with a request to pass a speaking order

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• 2012 (4) TMI 201
  Appeals of the department against grant of CENVAT credit to the respondent in respect of MS plates, angles, channels, HR plates, coils, etc.to have been used for fabrication of capital goods,for repairs and maintenance (reconditioning) of plant and machinery - Held that:- the Second Explanation to the definition appears to work in favour of the respondent - Where the Second Explanation confers inputs status on goods used in the manufacture of capital goods which are further used in the factory, cannot be disputed that such status can be extended to goods used in the replacement of parts of capital goods, which process, in the present case, has been described as repairs and maintenance (reconditioning) - Cenvat Credit allowed. - in favour of respondent. Credit availed for fabricating supporting structures which in turn were used for erection of capital goods – Held that:- the appellant has a valid point in as much as, in the case of Saraswati Sugar Mills - 2011-TMI-204794-SUPREME COURT OF INDIA the Hon ble Supreme Court refused to recognize a structural support as capital goods under Rule 57Q of the erstwhile Central Excise Rules, 1944 - with the result that angles, sheets, plates, etc. in this case cannot be held to have been used as inputs in the manufacture of capital goods – in favour of Department. Whether the respondents are liable to be penalized on the ground of irregular availment of CENVAT credit on sheets, plates, angles, etc. used in fabricating structural support to capital goods – Held that:- is remanded to the original authority for fresh decision having regard to the findings on merits recorded

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• CST, VAT & Sales Tax

• 2012 (4) TMI 220
  Whether restraining the benefit of a concessional rate of duty against the “C” Form to a purchaser situated outside a particular State constitutes violation of the freedom of inter-state trade and commerce – assessee registered under Rajasthan VAT Act, engaged in business of electrical items - participated in e-auction for meter scrap items organized by First Respondent – Clause 7.8 of terms & conditions stipulated that normally sales would be treated as local sale and Sale against 'C' form/CST will not be allowed – Held that:- Court here reiterate two fundamental propositions – (i) Court would not adjudicate upon whether a sale which originates in a State is an inter-State sale or not, since that is essentially a question of fact which is required to be determined by the authorities under the Act. See Zunaid Enterprises vs. State of Madhya Pradesh (2012 (3) TMI 285 - SUPREME COURT OF INDIA) (ii) Tender condition which is imposed by the authority which invites bids is not subject to judicial review. However, said clause in tender document stipulating absolute prohibition of sales against “C” Form/CST will not be allowed. Imposition of such a condition would be arbitrary, ultravires, and violative of Article 14 of the Constitution.

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• Indian Laws

• 2012 (4) TMI 208
  Witness against himself - Issue of summons under section 108 - the petitioner has been formally accused of an offence of smuggling Red Sander Wood to Dubai and to other places, along with certain other accused persons - summons were issued to intimate that attendance of the petitioner is necessary to give evidence and to produce documents or things related to the said acts - petitioner contented that the petitioner has been arrayed as an accused in the criminal case, he cannot be compelled to give evidence in connection with the said case - he further stated that as per clause 3 of Article 20 of the Constitution of India, no person, accused of any offense, shall be compelled to be a witness against himself - no compulsion on the part of the petitioner, to produce the documents and other evidence, which would amount to infringement of the right against self-incrimination - Held that:- it is made clear that the petitioner shall not be compelled by the respondent to give evidence against himself, as he is an accused person in the alleged smuggling activities - However, the evidence obtained during the process of inquiry which had not been obtained by compulsion, could be made use of in the subsequent proceedings initiated against the petitioner or against other persons

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