TMI Tax Updates - e-Newsletter
April 12, 2012

Case Laws in this Newsletter:

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

Articles

1. Analysis of company bill 2011.

   By: ajay singh

News

1. Request for New PAN Card or/And Changes or correction in PAN Data.

2. 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.

3. 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.

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

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

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

7. Constitution of a Committee on Corporate Governance.

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

Notifications

Customs

1. CORRIGENDUM - dated 11-4-2012 - Cus (NT)

Corrigendum of Notification no. 31/2012- Custom (N.T.).

2. 32/2012 - dated 11-4-2012 - Cus (NT)

Amends Notification No.12/97-Customs (N.T.) - Inland Container Depots for loading and unloading 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. Draft circular [F. No. 137/22/2012 - Service Tax] - dated 4-4-2012

Harmonisation of Service Tax and Central Excise Registration.

Income Tax

3. 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

4. 105 - dated 10-4-2012

Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR .

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

CONSOLIDATED FDI POLICY EFFECTIVE FROM 10-04-2012.

Highlights / Catch Notes

Income Tax

• Assessees must deduct tax on bus hiring payments u/s 194C, not Section 194I, of the Income Tax Act.

  Case-Laws - AT : Hiring of the buses would not be akin to taking of any plant and machinery on lease - assessee would be liable to deduct the tax on such payment under sec. 194C of the Act and not under sec. 194I of the Act - AT
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• High Court Rules Redemption Premium on Debentures is Revenue Expenditure, Not Capital Expenditure.

  Case-Laws - HC : Premium paid on redemption of debentures – capital expenditure vs revenue expenditure -actual premium paid upon the redemption of the debentures would have to be classified as revenue expenditure - HC
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• Debenture Redemption Reserve Not a Reserve Under Explanation (b) to Section 115JA, High Court Upholds Tribunal Decision.

  Case-Laws - HC : MAT - The mere fact that a Debenture Redemption Reserve is labeled as a reserve will not render it as a reserve. Consequently, Tribunal was correct in holding that the Debenture Redemption Reserve is not a reserve within the meaning of Explanation (b) to Section 115JA - HC
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• Section 194-I mandates TDS on rent to expand the tax base, ensuring compliance and transparency in rental income reporting.

  Case-Laws - HC : TDs on rent - On a reading of the Section 194-I and the scope and effect elaborated by the Board it is clear that Section 194-I was inserted to bring more persons in the tax net and it also helps in the reporting of correct income by way of rent - HC
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• High Court Rules PPF Lottery Income Not Taxable u/s 2(24)(ix) of Income Tax Act.

  Case-Laws - HC : Income from 'lottery' in response to investment in PPF - amount realised would not fall within the provisions of Section 2(24)(ix) and cannot be brought to tax - HC
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• Seized Assets Can Offset Tax Liabilities and Penalties; No Return Before Penalty Imposition Required by Statute.

  Case-Laws - HC : Return of seized assets - When statute recognizes the entitlement of the department to apply the asset seized towards the tax liability determined,which includes penalty, it is puerile to contend that the statute obliges the respondents to return the same on determination of the tax liability and before levying the penalty - HC
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• High Court: Section 11 Exemption Requires Adding Back Depreciation for Accurate Income Reporting in Charitable Asset Acquisitions.

  Case-Laws - HC : Exemption u/s 11 - if the assessee treats expenditure on acquisition of assets as application of income for charitable purposes under Section 11(1)(a) and claims depreciation then in order to reflect its true income, the assessee should write back in the accounts the depreciation amount to form part of the income - HC
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• Non-deduction of TDS doesn't apply u/s 40(a)(ia) unless deduction claimed u/ss 30-38 of Income Tax Act.

  Case-Laws - AT : Disallowance due to non deduction of TDS - unless a deduction is claimed in respect of the said amount, under sections 30 to 38, the disallowance under section 40(a)(ia) cannot come into play at all - AT
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• 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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Customs

• Corrigendum Issued for Notification No. 31/2012-Custom (N.T.) to Amend and Clarify Customs Regulations and Compliance Procedures.

  Notifications : Corrigendum of Notification no. 31/2012- Custom (N.T.). - Ntf. No. CORRIGENDUM Dated: April 11, 2012
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• Amendment to Notification No. 12/97-Customs (N.T.): Streamlining Procedures for Inland Container Depots' Goods Handling Operations.

  Notifications : Amends Notification No.12/97-Customs (N.T.) - Inland Container Depots for loading and unloading of goods . - Ntf. No. 32/2012 - Customs (N.T.) Dated: April 11, 2012
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FEMA

• India-USSR Deferred Payment Protocols Updated in 2012 Circular; Compliance Under FEMA Addressed.

  Circulars : Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR . - Cir. No. 105 Dated: April 10, 2012
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• 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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Indian Laws

• New PAN Card Request or Existing PAN Data Update for Accurate Tax Records and Compliance Under Indian Tax Laws.

  News : Request for New PAN Card or/And Changes or correction in PAN Data.
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Wealth-tax

• Commercial Properties Excluded from Wealth Tax Asset Definition Under New Regulation.

  Case-Laws - AT : Wealth-tax - any property in the nature of commercial establishments or complexes is excluded from the definition of assets liable for wealth tax - AT
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Service Tax

• Cenvat credit valid on debit notes without invoice title if service tax is charged and paid.

  Case-Laws - AT : Cenvat credit on the strength of debit notes - title of the duty paying documents, i.e. 'debit note' instead of 'invoice, bill or challan' does not make a difference more so when the service tax has been charged and paid into the Govt, exchequers account - AT
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• 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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Central Excise

• Packing Medicaments into Cartons from Retail Packs is Not Manufacturing, Repacking from Bulk Not Applicable Here.

  Case-Laws - AT : Manufacture - Packing of assorted medicament into a single carton by taking small quantities of retail packs of various medicines from different cartons and writing the names and quantities of such medicament over the carton were done as per the requirements of the customer. Aforesaid does not amount to manufacture, as well as question of repacking from bulk pack to retail packs also does not arise - AT
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• Greenhouse Attached to Foundation Classified as Immovable Property, Not Excisable Goods Under Tax Law.

  Case-Laws - AT : Once the greenhouse comes into existence, it is attached to the earth/foundation and becomes immovable goods and hence it cannot be said that the appellant has manufactured an excisable goods at the site - AT
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Case Laws:

• Income Tax

• 2012 (4) TMI 233
  Reduction of Written Down Value of block of assets by the amount of loan waived by the Central Government - Explanation 10 to Section 43(1) - depreciation on reduced written down value – Held that:- unable to accept the contention of the assessee that the case is not covered by the main provisions of Section 43(1) because of the treatment given by the assessee in its books of account. - in the books of account, the assessee had actually reduced the cost/WDV of the assets by the amount of the loans waived by the Government of India - It is true that the manner in which entries are made in the books of account is not conclusive of the question, which has to be resolved on a true interpretation of the provisions of law. However, the real nature of a transaction can be understood by reference to the contemporaneous act of the parties, which would throw considerable light on their true intention and their understanding of the transaction. The assessee’s case is caught within the mischief of Section 43(1) itself and in this view of the matter it may not be necessary to examine the impact of Explanation 10 to the Section inserted with effect from 1.4.1999. The judgment of Apex Court in the case of PJ Chemicals Ltd. (1994 (9) TMI 1 - SUPREME Court) distinguished. The case of the assessee may not, therefore, fall under Explanation 10, but having regard to the facts as found which we have alluded to earlier, the waiver of the loan amounted to the meeting of a portion of the cost of the assets under the main provisions of Section 43(1) of the Act. The waiver of the loan is not a mere quantification of a subsidy granted generally for industrial growth. It was granted specifically to the assessee and the assessee in its books of accounts reduced the cost of the assets by the amount waived. This reflected a contemporaneous understanding of the purpose of the grant of the loan on the part of the assessee. As already mentioned earlier, the assessee is a public sector undertaking and the loan and the later waiver were from the Government of India. The loans under the SDF were specifically for meeting the capital cost of the assets, on which depreciation was being claimed. - Decided against the assessee.

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• 2012 (4) TMI 230
  Disallowance made u/s.40(a)(ia) for the failure to deduct TDS u/s.194C – assessee undertakes contract work of transportation of oils through oil tankers to various locations of BPCL - sub-contract – Held that:- the contract for carrying out the work was between the BPCL and the appellant the appellant alone had risk and responsibility for carrying out the contract work as per the agreement -there is no material on record to suggest that there was any contract or sub-contract whether written or oral with the outside tank owners and the appellant, whereby the risk and responsibility which is associated with a contract has also been passed on to these outside parties - once the CIT (Appeals) has accepted the fact that the outside tank owners do not had any responsibility or liability towards the principal, then it cannot be held that these outside parties were privity to the contract - thus the payment made to the outside parties do not come or fall within the purview of section 194C, as the "carrying out any work - the appellant was not liable to deduct TDS u/s. 194C(1) for payments made to the outside parties and consequently the disallowance made u/s.40(a)(ia) by the authorities below are deleted. The appellant thus gets relief of Rs. 56,03,210/-.

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• 2012 (4) TMI 229
  Instruction No.3 of 2011 dated 9th February, 2011 - Appeal shall not be filed in the High Court under section 260A of the Income Tax Act where the tax effect does not exceed a sum of Rs.10 Lacs.– assessee submits that the appeal has been filed prior to the issuance of circular dated 9th February, 2011, therefore, the circular does not apply to the present case – Held that:- the circular has a retrospective operation and instructions contained in the circular would apply even to the pending cases as decided in Commisisoner of Income Tax V/s Smt. Vijaya V. Kavekar -2007 - TMI - 71366 - ITAT PUNE-A – held against assessee the appeal has a cascading effect and should be entertained – Held that:- the matter was adjourned once to enable assessee to point out whether similar question is involved in any other appeal. Till today, the learned counsel was unable to point out a single other case in which similar question is involve - Appeal is accordingly dismissed.

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• 2012 (4) TMI 228
  Search & Seizure - Writ petitions prayed for directions of certiorari to quash the illegal search and seizure operation and also prayed for releasing the cash and jewelery found and provide copy of computer data containing medico legal records, and title deeds of property already disclosed in the income tax return - held that:- Director after visiting the clinic in 2005 on four occasions along with decoy patients, and having examined the income tax returns and balance sheets in which negligible income was returned, authorised the search. There was no illegality in recording the satisfaction note by the competent authorities based on relevant and credible evidence collected by the department. The satisfaction that the doctor couple was disclosing only the part of their income and that they had amassed huge wealth by receipts of crores of rupees every year, does not suffer from any error of law. Notice under Section 131 (1A) confers power on the authorities as mentioned in Section 131 (1), if he has reason to suspect that any income has been concealed or is likely to be concealed. It is only an enabling power and does not in any way affect the search and seizure operations carried out under Section 132 of the Act. Section 132 is an independent code in itself. The exercise of powers under Section 131 (1A) is contemplated in a situation anterior to the exercise of power under Section 132. Before authorsing an officer, the officer referred to in Section 132 (1) would exercise power under Section 131 (A) of the Act. Section 131 (1A) operates in different field than Section 132. - writ petitions dismissed.

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• 2012 (4) TMI 227
  Challenge in these proceedings under Article 226 of the Constitution - application before the Settlement Commission seeking a settlement of a "case" including the grant of a waiver of penalty for Assessment Years 2008-2009 and 2009-2010 which was pending before the AO - The petitioner made a disclosure of income to the extent of Rs. 10 lacs each for the two Assessment Years in question - The Commission has come to the conclusion that a total amount of Rs. 6.18 Crores represents the additional income which is to be taxed in hands of the petitioner of which an amount of Rs. 4.26 crores relates to Assessment Year 2008-09 and Rs. 1.92 Crores for Assessment Year 2009-10 - assessee stated the Settlement Commission would have no jurisdiction to travel beyond the subject matter of the application - a penalty under Section 271(1)(c) is contrary to law since the Settlement Commission did not furnish a notice to show cause to the petitioner before the penalty was imposed – Held that:- The assessee had offered an amount of Rs. 10 lacs in each of the Assessment Years in question based on a story of having earned income for which no records were available - Settlement Commission complyied with the principles of natural justice and after furnishing to the assessee an opportunity of being heard specifically on the issue of penalty - Settlement Commission has imposed a penalty of Rs. 2.75 crores u/s Section 271(1)(c) where the assessee has mis-stated or concealed the particulars of his income - penalty shall not be less than the amount of tax sought to be evaded but shall not exceed three times the amount of tax sought to be evaded - total income tax demand in the present case, according to the petitioner, which has been arrived at on behalf of the Revenue works out to Rs. 1.96 crores for AY 2008-09 and Rs. 82.40 lacs for AY 2009-10. The total penalty of Rs. 2.75 crores has been clarified by a corrigendum issued by the Settlement Commission to be on a pro rata basis as an amount of Rs. 1.92 crores for AY 2008-09 and Rs. 82.50 lacs for AY 2009-10 - The penalty which has been imposed is thus commensurate with the provisions of Section 271(1)(c) – no merit in the challenge to the order on the aspect of penalty – against assessee.

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• 2012 (4) TMI 226
  Dis-allowing deduction U/s. 80IB(3) of the I.T. Act - AO denied availment of such exemption as it is available to only those SSI unit as per Section 80(3)(ii) having investment in plant and machinery of less than Rs. 1 crore whereas the assessee company exceeds such limit – assessee contented investment in plant and machinery would be less than Rs. 1 crore if items such as tools jigs, dies, moulds, spare parts for maintenance and cost of consumable stores considered as per Notification No.857 dated 10-12-1999 issued u/s 11B of IDR Act are excluded – Held that:- vehicles have to be excluded while determining the value of plant and machinery for the purpose of determining the status of industrial undertaking as an SSI - following the ITAT order in assessee's own case A.Y 2003-04 moulds, dies, jigs, fixtures, patterns, tools, consumables, factory equipments AO shall recomputed the value of the plant and machinery installed in the industrial undertaking - the AO is directed to exclude the cost of equipments while determining value of plant and machinery in order to ascertain the status of industrial undertaking of the assessee. As regards computers software, we restore the matter to the file of AO with the direction to ascertain as to whether or not all the computers are installed in office – in favour of assessee. Not allowing Royalty payment of Rs. 74,63,975/- being computation of arms length price in relation to international transactions though explained – the TPO observed that no royalty was charged by other group entites and accordingly the Arms Length Price for royalty charges was inferred as nil – assessee contented that the technical know-how was provided to the assessee and the same was not comparable with other entities of the group. The assessee had not made the one-time payment but making the continuous payment to the know-how provider - Held that:- for a transaction to come u/s 92 of the Act, it is necessary to establish that the course of business between resident and non-resident is so arranged that the business transacted between them provides to the resident either no profits or less than ordinary profits which might be expected to arise in the business - the payment of royalty is not hit by the provisions of Section 92 and there is no reason to hold that the expenses should not be allowed u/s.37(1) of the Act, since the expenditure has been incurred by the assessee during the course of business and is having the nexus with the business of the assessee - in favour of assesee not allowing Royalty payment of Rs. 1,15,32,819/- being claimed as expenses U/s 40(a) for the year under consideration relates to A.Y. 2003-04 – assessee replied before the AO saying that the TDS could not be deposited within the prescribed time-limit and assessee deposited the same during the year relevant to A.Y. 2004 - Held that:- There is no finding in the relevant assessment year to what amount royalty payment pertains to which assessment year and whether TDS thereon was paid by the assessee during the relevant period i.e. A.Y. 2004-05. Accordingly, the issue is restored to file of AO with direction to decide the issue afresh in the light of decision.

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• 2012 (4) TMI 225
  AO/DRP applied the provisions of Rule 8D of the Income Tax Rules - AO noticed that the assessee has received a dividend income - assessee submitted that as investments were made out of own funds, there were no interest costs involved - DRP directed the AO to recompute the disallowance by adopting average value of investments as also total assets - DRP has issued directions in tune with Godjrej & Boyce Mfg Co Ltd. (2010 -TMI - 78448 - BOMBAY HIGH COURT) that a reasonable disallowance can be made even for the earlier assessment years – Held that:- The AO applied rule 8 D for assessment prior to assessment years 2008-09 on the ground that this is the basis on which reasonable disallowance can be made, but then this approach is clearly directly contrary to the decision of Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. case (supra) - no finding about the expenses incurred directly or indirectly for the purpose of earning the tax exempt income – in favour of assessee. disallowing provision on special discount – assessee submitted that as per correct accounting principles, liabilities attached to the sales of the current year, which can be determined with a fair degree of reasonableness, are required to be provided for in the current year itself - in the event of provision not being allowed as a deduction, the same should be allowed on payment basis – Held that:- Once the DRP holds that the provision has been made on a reasonable basis, a finding which cannot be challenged by the Assessing Officer, and is allowable in principle, its quantum can not be reduced solely on the ground that in the subsequent year the entire payment is not made – in favour of assessee and direction to AO to delete the impugned disallowance. disallowing the provision for sales return – AO was of the view that since sales returns have actually been made in the subsequent year, the same should have been accounted in the subsequent year itself - Held that:- there is no point in first taking into account income on sales, which never reached finality, and then accounting for loss on sales return in the subsequent year , thus the approach of the assessee is in consonance with the well settled accountancy principles and the Assessing Officer was not justified in rejecting the same – in favour of assessee. the assessee was remunerated on cost plus arm's length mark up price of 15% by the AEs of Rs. 83,75,217 on a cost of Rs. 5,58,34,783. - The assessee adopted certain comparables to demonstrate that mean margin is 13.86% and the margin of 15% adopted by the assessee is an ALP margin – DRP rejecting the mark up of 15% as not an arm's length price, an ALP adjustment is made of 54,27,141 – Assesee contented that Engineers India Ltd, a PSU dealing in engineering consultancy, is not at all engaged in low risk contract research work and it cannot be a valid comparable for this purpose and once EIL is excluded from the list of comparables, the arithmetic of mean of the remaining comparables will be within 5% range of the ALP margin – Held that:- the impugned ALP adjustment is deleted for the reason that EIL is not a valid comparable for contract research work and that once EIL is excluded, the mark up by the assessee is within 5% range of comparables finalized by the DRP – in favour of assessee.

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• 2012 (4) TMI 224
  Fringe benefit tax –The AO opined that expenditure incurred towards maintenance of residential quarters provided to its employees on rental basis constituted fringe benefit tax and tax was levied at 30% of the maintenance expenditure on the employer - Held that:- for the reason that the charge under Chapter XII-H of the Act is on the value of the fringe benefit extended by an employer to its employees, unless such fringe benefits enjoyed in the hands of the employee is quantified, there is no question of leaving fringe benefit tax on the employer at 30% of the tax levied and enjoyed by the employer – appeal of revenue dismissed.

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• 2012 (4) TMI 223
  Validity of revisionary powers exercised by CIT u/s 263 – assessee claimed deduction u/s 80-IC in respect of income derived from assembly of colour TV which was claimed to be "manufacturing activity" - CIT dis-allowed deduction on ground that no manufacturing activity is carried on – Held that:- Tribunal while holding that exercise of revisionary jurisdiction by the Commissioner was not called for, upheld the view that producing of TV sets by purchasing items like cabinet, chassis, IC picture tube could be held to be manufacturing. Moreover, High Court in various cases have held that when a new and different article emerges having distinctive name, character and use, the process could be held to be manufacturing - order of the Tribunal cannot be held to be erroneous – Decided in favor of assessee.

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• 2012 (4) TMI 222
  Validity of revisionary powers exercised by CIT u/s 263 – exemption u/s 54F for LTCG on sale of shares granted by A.O. – shares purchased on 21.04.2000 for Rs. 19,536 sold on 02.05.2001 for Rs. 6,36,640 – increased price of more than 30 times in one year – CIT suo-moto assumed jurisdiction on ground that AO failed to make any enquiry while accepting genuineness of the share transaction – Tribunal set aside order of CIT - Reference to Larger bench - Held that:-An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being ‘erroneous’. Non-application of mind and omission to follow natural justice is in same category and are not beyond the scope of Section 263. Assumption of jurisdiction by CIT is justified. See CIT vs Daga Entrade P. Ltd (2009 (2) TMI 431 - GAUHATI HIGH COURT), Malabar Industrial Co. Ltd. vs. CIT (2000 (2) TMI 10 - SUPREME Court) – Decided in favor of Revenue.

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• 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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• Corporate Laws

• 2012 (4) TMI 221
  Winding up Petition - respondents are unable to pay their admitted debts and as such are liable to be wound up - the petitioner stated that the respondent did not pay the amount due but in this regard issued a confirmation letter – respondent contented that the confirmation is not to the effect that the respondent-company is due to pay the said amount - the respondent-company stated that the Iron ore Fines delivered is not due to the bilateral contract between the petitioner and respondent-company but also the role of other parties have relied on the agreement entered into between the respondent company and DMRIPL and the petitioner is not a party to the said agreement - the investment ratio as contended at 80:20 by the respondent-company and DMRIPL and with regard to the payment terms by the buyer and the investment of respondent against realisation from export sales – Held that:- Though the petitioners have placed heavy reliance on the purchase order, invoice and the confirmation of balance and documents relied on by the respondent-company and also keeping in view that the documents relied upon by the respondent-company would indicate the involvement of 'other parties in the transaction, who are not respondents in the instant petition the dispute requires detailed investigation of facts and evidence so as to understand the terms and conditions agreed to between the parties relating to the transactions – winding up application cannot be allowed.

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• Service Tax

• 2012 (4) TMI 232
  Levy of Service Tax- providing taxable services under the category ‘Transportation of goods through pipelines’ – AO found income collected for supply of pipes, measuring equipments etc. at the time of providing new gas connection thus appellant should have paid the Service Tax treating the service as 'Supply of tangible goods' – assessee contented that merely supplying, installing, maintaining the measuring equipment to facilitate determination of quantum of gas there is no service element involved in this supply – assessee stated that the ownership of equipment remains with the appellant at all time and used the equipment for their own purpose – Held that:- the customer never has a right of possession since it would never become his own property at all - the Company has the right to repossess the meter and other equipment at any time and whenever it is disconnected, the meter will become the property of the Company - therefore, the supply of goods is without transfer of right of possession - the customer cannot also obtain meter and other equipment from any other source -there is no doubt that the customer also has a use of measuring equipment - the conclusion is that the appellants have provided the service and are liable to Service Tax - appellants have not been able to make prima facie case in their favour hence should deposit 25% of the Service Tax demanded in the impugned order within 8 weeks of Order date – against assessee.

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• 2012 (4) TMI 231
  Demand - In the impugned order, submission that service tax was not liable prior to 09.7.2004 has been accepted and service tax demand has been confirmed for the period from 09.7.2004 to 31.03.2005 - Held that: appellant paid service tax for the period Oct 2004 to March 2005, prima-facie appellant seems to have accepted the liability. Once the liability is admitted, the appellant should have paid the tax for the period from July to Sept 2004 also - Decided against the assessee

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• 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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