Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
April 18, 2016
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Wealth tax
Indian Laws
TMI SMS
Articles
By: Dr. Sanjiv Agarwal
Summary: The article provides a comprehensive overview of the proposed Goods and Services Tax (GST) in India, addressing key aspects through a series of frequently asked questions. It explains the necessity of the Constitutional Amendment to implement GST, which aims to unify the tax structure by allowing both the Central and State Governments to levy GST. The GST system is designed to eliminate the cascading effect of taxes prevalent in the current regime, offering a seamless input tax credit flow and simplifying tax compliance. GST will be levied at every stage of the value chain and is a destination-based tax, with liability arising at the time of supply.
By: Bimal jain
Summary: Effective April 1, 2016, services provided by the government or local authorities to business entities are subject to service tax under reverse charge, with certain exemptions. Amendments to the Finance Act and notifications have expanded the scope of taxable services, replacing "support services" with "any service." Exemptions include services related to sovereign functions, small transactions under 5,000, and specific governmental functions like issuing licenses or registration. The government clarified taxability and provided guidelines for Cenvat credit on service tax paid for using natural resources. These changes aim to clarify the tax implications of governmental services, though some ambiguities remain.
News
Summary: Indian Railways has withdrawn the 10% Port Congestion Surcharge on basic freight to boost industrial growth and attract imported freight traffic, such as containers, coal, and iron ore, back to rail. This decision follows reduced congestion at ports due to a decline in imports of thermal coal, iron ore, and other commodities. The surcharge, imposed in 2014 to offset revenue losses from delays, was criticized for increasing logistics costs and diverting traffic to road transport. The withdrawal aligns with the Railway Budget's freight rate rationalization and accompanies other policy initiatives to enhance rail freight traffic and earnings.
Summary: During his official visit to Washington D.C., the Finance Minister participated in the G-20 Finance Ministers and Central Bank Governors Meeting, advocating for a revised IMF quota formula to better represent developing countries. He emphasized the need for increased infrastructure investment in poor nations and strong measures against tax havens. In bilateral meetings, he discussed enhancing World Bank funding with its President and increasing Indian representation in its management. He also met with finance ministers from Bangladesh and Luxembourg, discussing regional projects and financial cooperation. The visit was part of attending the IMF and World Bank Spring Meetings.
Highlights / Catch Notes
Income Tax
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ZPMC Lacks Permanent Establishment in India Under Article 5(4) of India-China DTAA.
Case-Laws - AT : No agency PE in India under Article-5(4) of the India China DTAA of the non-resident entity-i.e. ZPMC - AT
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Members' Withdrawals from AOP Not Taxable; Section 80IB(10) Deduction Applies to Joint Venture, Not Individual Members.
Case-Laws - AT : Once it is held that the agreement constitutes AOP any amount drawn from the AOP cannot be taxed in the hands of the assessee member. The assessee is also not entitled for any deduction u/s. 80IB(10) and it is the joint venture that is eligible for the deduction u/s.80IB(10) - AT
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Compensation for Power Shortfall Qualifies as Income from Windmill Power, Eligible for Deduction u/s 80IA.
Case-Laws - AT : Compensation on account of shortfall in the power generated by the assessee company vis-a-vis the minimum guarantee rated capacity of production of power is to be held to be derived from the windmill power undertaking engaged in generation of power and is entitled for deduction u/s 80IA - AT
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Interest on Advances for Business Purposes Allowed: Commercial Expediency Validated by Case Law and Tax Regulations.
Case-Laws - AT : Advance made for commercial expediency - No disallowance of interest - AT
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Non-Compete Rights Classified as Depreciable Intangible Assets, Impacting Business Tax Obligations and Income Calculations.
Case-Laws - AT : Non compete right is an "intangible asset" eligible for depreciation - AT
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Licensors' Data Provided Without Technology Access; No TDS Liability for Assessee Under Current Regulations.
Case-Laws - AT : Licensors have only made available the data acquired by them and available with them but are not making available any technology available for use of such data by the assessee herein - No TDS liability - AT
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Company's Share Loss Classified as Speculative u/s 73 Despite Actual Delivery Not Meeting Section 43(5) Definition.
Case-Laws - AT : Loss suffered by a company in share transactions is to be treated as a speculative loss within the meaning of s. 73, notwithstanding the fact that there was actual delivery of scrips of shares and the transaction is not within the purview of the definition of speculative transaction in s. 43(5) - AT
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Trademarks Recognized as Depreciable Intangible Assets for Tax Purposes; Eligible for Depreciation Benefits Under Tax Laws.
Case-Laws - AT : Eligibility for depreciation in respect of the intangible asset by way of trademark allowed - AT
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Court Upholds Taxpayer's Documents, Deletes Additions by Authorities u/s 68 of Income Tax Act.
Case-Laws - AT : Non disapproving the documents furnished by the assessee to discharge the initial burden placed upon it u/s 68 - additions deleted - AT
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Date of Allotment Determines Share Acquisition for Long-Term Capital Gains Tax, Not Demat Credit Date.
Case-Laws - AT : LTCG - Date of allotment is the date of acquisition of the shares in question and not date on which the same were credited to demat account - AT
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Orders u/s 127 Must Inform Assessee About Case Transfer to Ensure Transparency and Fair Process.
Case-Laws - HC : Orders passed under Section 127 for transferring a case should be forwarded to the concerned assessee, if only for the assessee to understand the circumstances in which the transfer takes place. - HC
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New Rules for Assessees: Justifying Deductions with Proper Documentation u/s 44AC of the Income Tax Act.
Case-Laws - HC : Distinction had to be made in respect of assessees covered by Section 44AC between those who would be able to justify the deductions claimed and others who may not stay back for the same or have their books in order for such purpose. - HC
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High Court Rules Challenges to Section 94-A (1) of Income Tax Act, 1961 and 2013 Notification Unfounded.
Case-Laws - HC : Challenges to Section 94-A (1) of the Income Tax Act, 1961, the Notification dated 1.11.2013 and the Press Release dated 1.11.2013 are not sustainable in law - HC
Customs
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Retracted Confession: Timing and Truthfulness Key to Credibility; Remains Binding and Usable in Related Depositions.
Case-Laws - AT : Even if the confession is retracted, the time within which such retraction has been made and the veracity of the retraction play a vital role for believability thereof - Confession binds the author and against whom the deposition has been made. - AT
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Second-hand goods restricted under Foreign Trade Policy, except capital goods; defective shafts classified as non-restricted.
Case-Laws - AT : By virtue of para 2.17 of the hand book of procedures under Foreign Trade Policy, all second hand goods except second hand capital goods, are only restricted - Defective shafts are not restricted goods - AT
Wealth-tax
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Residential Property Use Not Limited to Residence, Exemption if Let Out 300+ Days per Year: Wealth-tax Act Sec 2(ea)(i)(4.
Case-Laws - AT : Section 2(ea)(i)(4) of the W.T Act does not contemplate the usage of residential property only for residential purpose. We find that this section only says the residential property that has been let out for a minimum period of three hundred days in a previous year is eligible for exemption. - AT
Service Tax
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Goods or services for client inputs taxed under business auxiliary service as per Section 65(19).
Case-Laws - AT : Demand - Procurement of goods or services, which are inputs for the client are to be classifiable and taxable under business auxiliary service u/s 65(19) - AT
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Payment Labeled as 'Brokerage' Not Necessarily Taxable Under Service Tax Laws for Corporate Entities.
Case-Laws - AT : Tax liability - Banking and other financial services - Merely because the remuneration is designated as 'brokerage' and because the recipient of that 'brokerage' is a 'body corporate', the transaction cannot be taxable - AT
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Tax on Financial Services Effective from Sept 10, 2004, u/s 65(105)(zm); Applies to Brokers Receiving Fees.
Case-Laws - AT : Banking and other financial services - Tax would be leviable with effect from 10th September 2004 u/s 65(105)(zm), before it was under Section 65(105)(zp), only if a person is a broker dealing in the savings bonds and received brokerage as the fee thereon - AT
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Abatement Allowed for Construction Services to 100% EOU Despite Initial CENVAT Credit Availment Under Notification No. 1/2006-ST.
Case-Laws - AT : Abatement under notification no. 1/2006-ST dated 1.3.2006 - Commercial or industrial construction service rendered to 100% EOU - Denial of substantial benefit of abatement owing to availment of CENVAT credit, does not appear to be equitable particularly as the amount has been made good - Abetement allowed - AT
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Free Supplies Excluded from Gross Amount in Construction Services under Notification No. 15/2004-ST, Amended by 4/2005-ST.
Case-Laws - AT : Inclusion of free supplies values in gross receipts - Commercial or industrial construction service - Value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-ST, including the Explanation thereto as introduced by Notification No. 4/2005-ST - AT
Central Excise
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Dabur Chyawanprash Classified as Ayurvedic Medicament Under CETH 30.03, Includes Awaleha Variants.
Case-Laws - AT : Dabur Chyawanprash (Awaleha Special & Awaleha with Ashtawarg) should be classified as Ayurvedic medicaments under CETH 30.03 - AT
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"TATA INDICOM" Telephones Eligible for SSI Exemption; Use Not Considered Branding Under Para-4.
Case-Laws - AT : Telephones cleared by the appellants bearing the name of “TATA INDICOM” to the telephone service provider does not amount to usage of other's Brand to attract para-4 of SSI notification and we do not find any infirmity in the impugned order to the extent of allowing SSI exemption benefit to the goods cleared bearing the name of “TATA INDICOM”. - AT
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Transporter Records Insufficient for Clandestine Removal Allegations Without Corroborating Evidence.
Case-Laws - AT : Clandestine removal cannot be sustained based merely on transporters records which are not corroborated by any other evidence.- AT
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Conversion of Sand Ores into Concentrates is Manufacturing per Section 2(f)(ii) & Chapter Note 4, Chapter 26, Central Excise Act.
Case-Laws - AT : Processes carried out on sand Ores result into conversion of ores to concentrate accordingly manufacture under clause (ii) of section 2(f) read with Chapter Note 4 to chapter 26 of CETA,1985 - AT
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Iron Ore Processing Now Considered Manufacturing Under Chapter Note 4, Chapter 26, Subject to Excise Duty.
Case-Laws - AT : Application of processes of crushing, grinding, screening and washing and grading of iron ore, converts it into iron ore concentrates and accordingly in view of the chapter note 4 of chapter 26 becomes manufacture and leviable to Excise duty - AT
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Entity Penalized for Not Registering Under Central Excise After Exceeding Rs. One Crore Exemption Limit.
Case-Laws - AT : Non obtaining of Central Excise registration on reaching full exemption limit of Rs. One Crore -Penalty confirmed - AT
VAT
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High Court Rules: Omissions in "D" Form Details Don't Justify Certificate Disallowance.
Case-Laws - HC : Disallowance - Certificates in "D" form - Mere omission to refer to the purchase order or to fill in the date of issue of the form are not the valid grounds to discard the certificate - HC
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Tobacco Products Detained Can Be Released for Transport, Not Sale, with Proper Documentation to Satisfy Authorities.
Case-Laws - HC : Detained of tobacco products as banned products - When the goods are not intended for sale but is intended for transportation then after being satisfied by the revenue on production of the relevant documents by the Transporter, can release the goods - HC
Case Laws:
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Income Tax
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2016 (4) TMI 594
Transfer u/s 127 - Held that:- Section 127 of the Act permits certain classes of officials indicated therein to transfer a case upon affording the concerned assessee a reasonable opportunity of being heard, wherever it is possible to do so, and after recording the reasons for doing so. The provision does not expressly provide for a copy of the order to be made over to the assessee. The order of transfer is also not appellable under the said Act. However, insofar as the provision requires reasons to be recorded in writing, it cannot be said that such reasons would not be justiciable. In order that such condition of the provision is not reduced to a dead letter, it is desirable that orders passed under Section 127 of the Act for transferring a case should be forwarded to the concerned assessee, if only for the assessee to understand the circumstances in which the transfer takes place. Tested on the anvil of what is required under Section 127 of the Act, the reasons indicated in the order impugned dated September 10, 2015, or the complete lack thereof, do not pass muster. Accordingly, the order of transfer dated September 10, 2015 is set aside and the concerned official is requested to reconsider the matter upon affording the petitioning assessee a further opportunity of hearing. The further order of the official should disclose the reasons in brief that would indicate the application of the mind to the matters in issue so that the conclusion reflected therein appeals to the senses.
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2016 (4) TMI 593
Constitutional validity of Section 94-A(1) of the Income Tax Act, 1961 - validity of a Notification bearing No.86/2013 dated 1.11.2013 issued by the Central Government in exercise of the powers conferred under Section 94-A(1), specifying Cyprus as a notified jurisdictional area for the purposes of Section 94-A(1) - Held that:- We agree that from the point of view of linguistics, the words "sum" and "amount" are synonyms. But under the Income Tax Act, each of the words "sum", "amount", "income" and "payment" have different connotations. But the argument advanced on the basis of the same, to assail the Press Release dated 1.11.2013, does not hold water. Sub-Section (5) of Section 94-A uses the words "sum", "income" and "amount" with the disjunction "or" in between. But all these three words are preceded by the expression "any". While Sub-Section (5) of Section 94-A is worded from the point of view of the recipient of any sum, income or amount, the Press Release is worded from the point of view of the person making the payment. When we speak from the point of view of the recipient of an amount, the word "payment" will not normally be used. The Press Release is not a legal document, but a note intended for the benefit of the common man. Therefore, the words and expressions used therein cannot be tested on the strength of Law Lexicons. Moreover, as rightly pointed out by Mr.T.Pramod Kumar Chopda, learned Standing Counsel for the Department, the Supreme Court made it clear in para 44 of the report in Azadi Bachao Andolan that though the Circulars issued by CBDT under Section 119 of the Act, have statutory force, the Press Releases issued by CBDT for the information of the public, do not have the same force. Therefore, the question of assailing the Press Release does not arise. Clause 6.4 of the Securities Purchase Agreement reads as follows:- "6.4 Skyngelor represents, warrants and covenants that the First Tranche Securities are being transferred hereunder at a loss and, thus, there is no obligation on the Buyers to withhold any Tax on the First Tranche Consideration being remitted to Skyngelor for the transfer of the First Tranche Securities. If despite such representation, any tax should be levied, the same shall be borne and paid by Skyngelor." The above Clause in the Securities Purchase Agreement, exposes the frivolity of the contentions of the petitioners. After having taken care to indicate that if a tax is levied, it should be borne by the Cyprus company, the petitioners appear to have indulged in an adventure in making remittances in full. Actually the petitioners should have deducted tax at source in terms of Clause 6.4 of the Securities Purchase Agreement and thereafter fought a legal battle with the Department for refund. If the petitioners had taken a calculated risk by making the payments, they cannot later turn around and find fault with the statutory prescription and with the Notification and Press Release. Therefore, we are of the considered view that the challenges to Section 94-A (1), the Notification dated 1.11.2013 and the Press Release dated 1.11.2013 are not sustainable in law. The ordinary dictionary meaning of the word "haven"is "harbour or anchorage". By extension, the word also denotes a place of safety, a refuge or sanctuary. In association with the word "tax", the word "haven" has assumed different connotations in the recent past and Panama appears to have followed Cyprus. Therefore, Section 94A was the need of the hour and we do not find the same to suffer from unconstitutionality. Hence, all the writ petitions are dismissed. However, there will be no order as to costs. Consequently, connected Miscellaneous Petitions are closed.
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2016 (4) TMI 592
Validity of Sections 44AC and 206C - Held that:- The minor premise of the ratio decidendi was that a distinction had to be made in respect of assessees covered by Section 44AC of the Act between those who would be able to justify the deductions claimed and others who may not stay back for the same or have their books in order for such purpose. It is the same rule that needs to be applied to Section 44D(b) of the Act in similar circumstances as the rule was applied to Section 44BBA thereof in the case of Royal Jordanian Airlines [2015 (11) TMI 1454 - DELHI HIGH COURT ]. Nothing regarding the possible availability of the option to an assessee covered by Section 44D(b) of the Act to claim permissible deductions, will affect the obligation of the resident assessee while making the relevant payment to a foreign company, whether under Section 195 of the Act or otherwise. The resident assessee making a payment in respect of a matter covered by Section 44D(b) of the Act to a foreign company will be obliged to withhold the tax on presumptive basis and deposit the same with the department. However, it will be open to the concerned foreign company to subject itself to assessment by claiming the permissible deductions, notwithstanding Section 44D(b) of the Act, whereupon the burden, as always, will be on the foreign company to establish the permissibility of the deductions that it claims. The option to claim deductions cannot be denied to a foreign company covered by Section 44D(b) of the Act; but as to whether it can establish the deductions that it claims, is an entirely different matter. WP is disposed of by reading down Section 44D(b) of the Act and by holding that notwithstanding the machinery of presumptive tax being provided thereunder, a foreign company would be entitled to claim deductions under the applicable provisions of the Act upon establishing its entitlement in such regard on the basis of the material that it may produce. Usually, such exercise would imply a claim for refund as the tax on presumptive basis would already have been deducted at the time of remittance by the resident assessee and deposited with the department.
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2016 (4) TMI 591
Depreciation on the windmill - whether the windmill was not commissioned and put to use during the relevant Assessment Year for the A.Y. 2003-04 ? - Held that:- As the assessee company has brought on record cogent and clinching material and evidences in support of its claim including from the government authorities which conclusively proved beyond shadow of any doubt that the windmill of the assessee company with the capacity 1.25 MW was duly installed , commissioned and put to use on 30-03-2003 and was also connected to 33kv Khuri Feeder on 30-3-2003 and the assessee company has also supplied net-energy being 98KWH to RVPNL in March 2003 which was duly paid by RVPNL , which has not been controverted and demolished by the Revenue. We ,there-fore, hold that the installation , commissioning and put to use of the windmill no. J-208 at Soda-Mada- Jaisalmer, Rajasthan with capacity of 1.25 MW of the assessee company was completed on 30-03-2003 i.e. during the previous year 2002-03 relevant to the assessment year 2003-04 which is duly established and proved conclusively by the assessee company with cogent material and clinching evidences which has remained un-controverted and/or demolished by the Revenue and reliance of the Revenue on the survey report of 05-04-2006 is misconceived and is not backed by the cogent material and evidences but rather the same survey report dated 05-04-2006 which is not only technically defective due to reasons as detailed above but was also drawn on the basis of conjectures, surmises , assumptions and presumptions without backing of any cogent material/evidences, which is alien to the Act and is not sufficient for fastening liability on the assessee company . In view of our above findings and reasoning detailed above, we find no infirmity in the well reasoned and detailed order passed by the CIT(A) which we decline and refuse to interfere and hence, we confirm the orders of the CIT(A) - Decided in favour of assessee Reopening of assessment - claim of deduction u/s 80IA disallowed - Held that:- the completed assessments u/s 143(3) of the Act in the instant case has been reopened u/s 147/148 of the Act without having any new tangible material coming to the possession of the A.O. after conclusion of the assessment u/s 143(3) of the Act on 17-12-2009 which could warrant reopening of assessment u/s 147/148 of the Act rather the AO while recording reasons for re-opening has clearly stated that on verification of assessment records , the claim of the assessee company u/s 80IA was wrongly allowed in the scrutiny assessment framed u/s 143(3) of the Act meaning thereby the AO is attempting to review his own decision taken in concluded regular assessment u/s 143(3) of the Act which is not permissible as per mandate of Section 147/148 of the Act. Thus in our considered view, the reopening in the instant case u/s 147/148 of the Act is bad in law liable to be quashed and thus, re-opening of the concluded assessment in the instant case u/s 147/148 is hereby quashed. Since we have quashed the reopening u/s 147/148 of the Act, we refrain from commenting on the merits of the case Addition u/s 68 - Held that:- A.O. has not brought on record any cogent material/record to prove that the assessee company has failed to comply with the ingredients of section 68 of the Act or to demolish the evidences filed by the assessee company or explanation offered there-to during assessment or remand report proceedings, rather the entire case of the Revenue is based on conjectures, surmises and assumptions which is not permissible under the Act while the assessee company has satisfied the ingredients of Section 68 of the Act by uncontroverted cogent documentary evidences and explanations offered during assessment and appellate proceedings. The said Mr Nimesh G. Chandak , the ultimate investor of the investing group was produced by the assessee company before the CIT(A) .The assessee company also offered to produce said Mr Nimesh G. Chandak before the AO during remand report proceedings but the AO failed to avail the opportunity to examine him and /or record his statement and/or to cross examine him to strengthen his case to bring , the transaction of share subscription of Rs. 5.10 crores by BWGL in the assessee company , within fold of chargeability to tax under Section 68 of the Act. The said Mr. Nimesh G Chandak has also filed duly attested affidavit stating the entire details of investment of Rs. 5.10 crores in the assessee company , the contents thereof has also not been demolished by the Revenue and had remained uncontroverted. In our considered view, the CIT(A) has passed a very detailed and well reasoned order dated 12.03.2012 accepting the contentions of the assessee company with which we concur , agree and uphold the same. Foreign investments undisclosed - Held that:- In the instant case, the investing company has duly explained the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction of investing Rs. 5.10 crores in the share capital ( including share premium) of the assessee company by bringing on record the cogent evidences and material and satisfactory explanation not only relating to the investing company , but of its web of completed chain of ultimate holding company and holding companies all registered in Hong Kong , till the ultimate investor Mr Nimesh G Chandak who ultimately is the owner of the business group investing in the assessee company, meaning thereby source of the transaction is proved by the assessee company including chain of flow of funds from the investor Mr. Nimesh G Chandak and ultimately it reaches the assessee company through his corporate structure of holding and subsidiary companies. It is totally irrelevant on part of the Revenue to contend that these foreign companies do not have owned funds or there are no business activities of these foreign companies, so long the assessee company is able to establish and substantiate with cogent material and evidences, identity of the creditor, creditworthiness of the creditor and genuineness of the transaction , which in our considered view, the assessee company has duly proved by clinching and conclusive evidences to satisfy the mandate of provisions of Section 68 of the Act, The Revenue has not brought on record any plea or contention backed with evidences that these web of chain of holding and subsidiary companies so created by Mr. Nimesh G Chandak were with dubious purposes and objectives with an intention to evade taxes to defraud revenue or the transaction per-se is undertaken with an intention to evade taxes to defraud revenue warranting lifting of corporate veil. - Decided against revenue Deduction u/s 80IA - adjusted losses/depreciation against income from other businesses - assessee company has chosen the ‘initial assessment year’ for claiming the deduction u/s 80IA with effect from assessment year 2007-08 as per Section 80IA(2) and 80IA(5) - Held that:- Manner of determining the quantum of deduction, a reference has been made to the term ‘initial assessment year’. The clear mandate provided under Sub-Section (2) which allows a choice to the tax-payer for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. An taxpayer who is eligible to claim deduction u/s 80IA of the Act has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. Thus, the term ‘initial assessment year’ would mean the first year opted for by the tax-payer for claiming deduction u/s 801A of the Act. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. As already adjusted losses/depreciation against income from other businesses in the earlier years (i.e. up-to assessment year 2006-07 as the assessee company has chosen assessment year 2007-08 as the ‘initial assessment year’ for claiming deduction u/s 80IA of the Act )by the assessee company cannot be brought forward notionally to be adjusted against the claim of the deduction u/s 80IA of the Act for the impugned assessment year as there existed no brought forward un-adjusted losses/depreciation in the hands of the assessee company as per facts emanating from records . Entitled for deduction u/s 80IA - Held that:- As the amount received by the assessee company from M/s Suzlon Energy Ltd. on account of specific performance being compensation on account of shortfall in the power generated by the assessee company vis-a-vis the minimum guarantee rated capacity of production of power assured by Suzlon Energy Limited is to be held to be derived from the windmill power undertaking engaged in generation of power and is entitled for deduction u/s 80IA of the Act. Disallowance u/s 14A - Held that:- The main pleas raised by the assessee company before the authorities below were that the entire interest on packing credit which is utilized for export business was considered for disallowance by the AO. The said interest on packing credit has no nexus with earning of exempt income. The assessee company had also submitted that entire bank charges and commission is considered as interest for disallowance while the said bank charges and commission has no nexus with tax-free income and as the afore-stated pleas raised by the assessee company were not adjudicated by the authorities below properly and no reason’s have been given in their orders for their rejection, this matter need to be set aside to the file of the AO for de-novo determination of the disallowance of expenditure u/s 14A of the Act on merits in accordance with law after considering all the pleas of the assessee company as may be raised by the assessee company before the AO.
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2016 (4) TMI 590
TDS u/s 195 - payments to non-resident entities - Taxability in India - withholding tax - payments made to Liftech as Royalty / Fees for Technical Services under Article12(3)(a) /12(4) of the India-USA Double Tax Avoidance Agreement ('DTAA') - Held that:- The definition of royalty under the DTAA under art. 12(3) useed the expression "or for information concerning industrial, commercial or scientific experience",that there was no parting of information concerning industrial, commercial or scientific experience by GIA when it issued the grading certificate,that under sub-cl. (4) the payments received must be in consideration for services of managerial, technical or consultancy nature,that it would include the application or enjoyment of the right, property or information,that it was not making available technical knowledge, experience, skill, etc.to enable the person acquiring the service to apply the technology contained therein,that GIA was not imparting its technical knowledge, experience, skill, etc. to its customers,that when there was no transfer of right to use, payment cannot be treated as royalty within the meaning of art. 12 of the DTAA,that payment received by the petitioner a Singaporean company, as a subparticipant of GIA’s network from Indian clients for collecting and shipping diamonds and certification thereof by GIA did not fall within the expression royalty. Respectfully following the judgment of Diamond Services International (P)Ltd. (2007 (12) TMI 182 - BOMBAY HIGH COURT ),we reverse the order of the FAA.We hold that the payment made to Liftech was not royalty or FIS or FTS and the assessee was not supposed to deduct tax at source for making the payment to Lifetech and therefore cannot be treated as assessee in default. - Decided in favour of the assessee. Existence of PE in India - AO held that part of the basic installment and purchase agreement included element of service contract also,that the job done under the basic agreement could be termed FIS - Held that:- Dervices rendered in setting up of machine could not be treated as personal service even if the agreement for rendering the services was embodied in a separate agreement,that the German Company had no PE in India,that in view of the Indo-German DTAA no income had accrued in India,that there was no liability to deduct tax source.Finally,we would like to refer to the order of the Special Bench of the Chennai Tribuanl,delivered in the case Prasad Production Limited (2010 (4) TMI 784 - ITAT MADRAS-B).In that matter the assessee had purchased Considering the above,we hold that the FAA was not justified in holding that services rendered in pursuance of the purchase agreement can be taxed as FIS/FTS. FAA had held that UBCB had performed activities on behalf of ZPMC, that it was an agent of Chinese co. in India, that UBCB constituted agency PE of ZPMC in India.It is found that UBCB was sub contractor of ZPMC,but it had no authority to conclude any contract on behalf of ZPMC,that it had rendered services relating to the installation and commissioning of crane not only to assessee but to other parties also.Therefore, in our opinion there was no agency PE in India under Article-5(4) of the India China DTAA of the non-resident entity-i.e. ZPMC. - Decided in favour of the assessee.
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2016 (4) TMI 589
TDS u/s 195 - Royalty receipt - nature of the payment made by the assessee to M/s. GX Technology Corporation, USA and M/s. GGS Spectrum Limited, UK - tds liability - Indo-US DTAA - Held that:- All that is provided by the licensor is the Data relating to the geophysical and geological information about the east and west coast of India and is not responsible for the accuracy or usefulness of such Data. Thus, it is clear that licensors have only made available the data acquired by them and available with them but are not making available any technology available for use of such data by the assessee herein. The decisions relied upon by the Ld. Counsel for the assessee, for the cases discussed above are clearly applicable to the facts of the case before us and the payments made by the assessee to GTX and GGS is not in the nature of ‘Royalty’ as per the respective DTAA’s and therefore, the provisions of Section 195 are not applicable. - Decided in favour of assessee
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2016 (4) TMI 588
Eligibility of deduction u/s.80IB(10) - denial of claim in the hands of the AOP - Held that:- Since in their own action the revenue in A.Yrs. 2011-12 and 2012-13 has accepted the status of the assessee as AOP and allowed the claim of deduction u/s.80IB(10), therefore, we do not find any reason as to why the claim of the assessee that the agreement between Darode Jog and Associates and Lagad Brothers Developers constitutes an AOP should not be allowed. In view of our above discussion we hold that the agreement between Darode Jog and Associates and Lagad Brothers Developers did constitute an AOP and not a mere Development Agreement. Therefore, the assessee has rightly claimed the status of the assessee as AOP. In view of the above, we set aside the order of the CIT(A) and direct the AO to accept the status of the assessee as AOP. As we have already accepted the grounds raised by the assessee by holding that the Agreement between the Darode Jog and Associates and Lagad Brothers Developers constitute an AOP and not a Development Agreement. Once it is held that the agreement constitutes AOP any amount drawn from the AOP cannot be taxed in the hands of the assessee member. It is only the Joint Venture that has to pay the tax and the assessee is not liable to pay any tax on the amount withdrawn from the Joint Venture. The assessee is also not entitled for any deduction u/s. 80IB(10) and it is the joint venture that is eligible for the deduction u/s.80IB(10). We therefore set aside the order of the CIT(A) and direct the AO to accept the return of income filed.
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2016 (4) TMI 587
Disallowance of depreciation on acquisition of trade mark - Held that:- CIT(A) has raised an issue about the trademark not being actually used by the assessee is difficult to understand, much less approve, his inference. When the business is transferred on a going concern basis and the trademark is an integral part of the business transferred, and the assessee has carried on the business as such, there is no reason to even suspect, much less infer, that the trademark was not in use. In any case, it was not the case of the Assessing Officer nor was the assessee put to notice in this respect even in the appellate proceedings. We are unable to see any legally sustainable merits on this objection either. There has also not been any dispute with regard to valuation of the trademark and the valuation is supported by a valuer’s report. Thus we are of the considered view that the assessee was indeed eligible for depreciation in respect of the intangible asset by way of trademark. The Assessing Officer is, therefore, directed to grant the depreciation on the trademark. - Decided in favour of assessee.
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2016 (4) TMI 586
Treatment of shares purchased - LTCG - holding period - claim exemption under section 10 (38) - Held that:- Date of allotment is the date of acquisition of the shares in question and not date on which the same were credited to demat account. It has come on record that assessee’s holding period in question is of more than one year. Acquisition of Equity shares can be from public issue, purchase from the market or preferential allotment as per Sebl guidelines. Mature of acquisition of shares will not change the characters of Equity shares. Since assessing officer denied appellant the said exemption only on the ground that assessing officer did not sale Equity shares, such denial of exemption is based on wrong interpretation of facts and accordingly not sustainable. Equity shares allotted on preferential basis will not become preference shares. Preference shares are separate class of shares as per company's act and the same cannot be confused with preferential allotment of Equity shares. Accordingly the very basis of assessing officer's action of denying exemption to the assesse is wrong, therefore it is held that appellant is entitled to claim exemption under section 10 (38) since what was sold was Equity shares. Accordingly the addition made by the assessing officer is deleted. See Aditi J. Vyas [2011 (7) TMI 1201 - ITAT AHMEDABAD]. The Revenue is unable to draw a distinction on facts or law. We accordingly decide the issue in assessee’s favour on merits.
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2016 (4) TMI 585
Additions made u/s 68 - Held that:- The assessing officer has not disproved the documents furnished by the assessee to discharge the initial burden placed upon it u/s 68 of the Act. - Decided in favour of assessee.
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2016 (4) TMI 584
Treatment to share trading loss - whether treated as deemed speculation loss? - Held that:- We find that the ratio laid down by the Hon’ble Calcutta High Court in the case of RPG Industries Ltd. (2011 (3) TMI 656 - CALCUTTA HIGH COURT ) clearly supports the conclusion of the CIT(A) as laid down s laid down that by Explanation to s. 73, a legal fiction has been created whereby loss suffered by a company in share transactions is to be treated as a speculative loss within the meaning of s. 73, notwithstanding the fact that there was actual delivery of scrips of shares and the transaction is not within the purview of the definition of speculative transaction in s. 43(5). It was laid down that by virtue of Explanation to s. 73, even the transactions which are not speculative transactions within the meaning of s. 43(5) are deemed to be speculative transactions. The Hon’ble Court has explained that if the contention of the assessee that the provision of s. 43(5) of the Act defining speculative transaction should prevail even if the case comes within the purview of the Explanation to s. 73 is accepted, effect cannot be given to the Explanation at all and it would be rendered meaningless and that it was the intention of the legislature that if the assessee is a company indicated in the Explanation to s. 73, there shall be a different definition of speculation business than the one applicable to other types of assessees. The Hon’ble Court further held that there is nothing illegal for the legislature to enact two different definitions of speculation business for two different categories of assessees. The Hon’ble Court has explained that although ordinarily the object of an Explanation is not to enlarge the scope of the original section that it is supposed to explain, if on a true reading of an Explanation it appears that it has widened the scope of the main section, effect should be given to the legislative intent and that only one interpretation of the Explanation to s. 73 is possible and that goes against the assessee and therefore there is no question of adopting a view which is favourable to the assessee. CIT(A) treating the share trading loss as deemed speculation loss confirmed - Decided against assessee Genuity of trading loss - Held that:- CIT(A) rightly held that the loss in question had to be regarded as genuine loss. The identity of the companies from where purchase of shares was made by the Assessee stood established as the said company were assessed to income tax and their IT acknowledgement for the relevant AY was also filed. Bank statement evidencing payments through banking channels were filed . The demat statement evidencing actual transfer of shares was also filed. The sale and purchase contract notes were produced. The brokers were registered brokers with the Stock Exchange. In these circumstances, the loss in trading of shares had to be regarded as genuine. - Decided against revenue
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2016 (4) TMI 583
Eligible for claim of depreciation on non-compete fee - Held that:- In the case of Ind. Global Corporate Finance Pvt. Ltd. [2013 (9) TMI 600 - ITAT MUMBAI ] held that the non compete fee is not a deductible expenditure since it is capital in nature. However, the non compete right is an "intangible asset" eligible for depreciation under the Income-tax Act, 1961. - Decided in favour of assessee Disallowance on interest - Held that:- The purpose for which advance were made is covered by the principle of commercial expediency, therefore, following the decision of Hon’ble Supreme Court in the case of S.A.Builders (2006 (12) TMI 82 - SUPREME COURT ), we direct the AO to allow the same. - Decided in favour of assessee Disallowance of foreign travel expenses - Held that:- CIT(A) deleted the disallowance in respect of visit to subsidiary company in Sri Lanka and expenditure incurred on travelling for machinery inspection, however, the CIT(A) confirmed the disallowance in respect of visit to USA where the assessee has not done any export. The CIT(A) has given due justification for the disallowance so made. Accordingly, we do not find any justification for interfering in the order of CIT(A). Addition invoking provisions of Section 41(1) - Held that:- Remission or cessation of a liability is pre-requisite for invoking the provisions of section 41(1) of the Act. In the absence of any such remission/cessation, the liability on the part of the appellant towards a creditor continues to persist, notwithstanding pendency of any dispute . Merely because a liability is outstanding for more than 3 years, the same cannot be added back as the income of the appellant, invoking the provisions of section 41(1) of the act. In this view of the matter the addition in this behalf is deleted. - Decided in favour of assessee MAT computation - Excluding the provisions made for redemption of debentures while calculating book profit u/s.115JB - Held that:- Sum appropriated by the assessee in the P&L account towards @ debentures redemption reserve cannot be held to a reserve within the meaning of clause (b) or amount set apart to meet unascertained liabilities within the meaning of clause (c) of the Explanation to Section 115J(1), and as such the said amount was not to be added to the net profit as computed by the assessee to arrive at the book profit for the purpose of Section 115J.
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2016 (4) TMI 582
Addition of unexplained cash credit - Held that:- Advance has been given by the trust to the assessee on or before the date of deposit in bank account. The assessee has also filed receipt corresponding to these advances from pages 65 to 68 of the paper book. The trust has also confirmed the above advances which has been field at page no. 15 of the paper book. On verification of the balance-sheet of the trust which is filed, we find that the trust has advanced money to its ‘Karyakarta’ (i.e. volunteers) including the assessee, for different purposes of the trust, thus the name of the assessee was appearing as debtor in the books of account of the trust and, therefore, the contention of learned Sr. Departmental Representative that it was not appearing as debtor in the books of account of the trust is not correct. The assessee submitted all the documents in support of identity, creditworthiness and genuineness of the transaction. However, the Assessing Officer merely made addition without any evidence in support of his claim. Once the assessee filed all the documents, the burden of proof shifted on the Revenue and if the Revenue was unable to carry out inquiry even after request of the assessee to summon the creditors, the Assessing Officer failed to discharge his burden of proof and unable to establish that the credit of the deposit of Rs. 14,55,575/- in the bank account was from undisclosed sources - Decided in favour of assessee.
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2016 (4) TMI 581
Validity of assessment u/s 153 - period of limitation - extension of period of audit - Held that:- There was no application for extension of period of audit and therefore order u/s 142(2C) of the Act dated 13.7.2006 granting extension till 17.7.2006 was not a valid order. In view of the above the only conclusion emerges that audit was to be completed by 7th of July’2006 and, as such the period from 17.02.2006 to 07.07.2006 is to be excluded in terms of Explanation to section 153 of the Act. Further, after considering the period of 60 days, as provided in the proviso to Explanation 1 to section 153(1) of the Act, the period of limitation expired on 6.09.2006; whereas the instant assessment had been framed on 14.09.2006 and therefore, the assessment order is barred by the limitation - Decided in favour of assessee.
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2016 (4) TMI 580
TDS u/s 194J - expenditure incurred on payments made to M/s A.B. Hotels Ltd. under the memorandum of understanding with M/s A.B. Hotels Ltd - non deduction of tds - disallowance u/s 40(a)(ia) - Held that:- The assessee was not to receive any serviced from AB Hotels Ltd. AB Hotels owned the brand namely, “The Great Kabab Factory”, which was to be promoted by the assessee through providing franchises to various persons in India. The assessee was to charge fees from various persons who wanted to use this brand as an authorised franchise and the fee was to be shared between the assessee and M/s. AB Hotels in the manner specified above. The sharing of the revenue clearly demonstrates that no services were to be rendered by M/s.AB Hotels to the assessee. In fact it was assessee who had undertaken to promote the brand and assessee received various payments from the persons who got into franchise agreement with assessee and all such payments to the assessee were made after deducting TDS by such franchises. Thus, the year under consideration under the aforesaid MOU, assessee earned a total sum of Rs. 1,78,75,045/- and in accordance with the aforesaid letter dated 23.20.2007, an amount of Rs. 44,68,763/- paid to M/s A.B. Hotels Ltd. was in the share of revenue of M/s A.B. Hotels Ltd. and as such, tax was not required to be deducted in terms of section 194J of the Act and such disallowance made under section 40(a)(ia) is unwarranted and unsustainable in law. - Decided in favour of assessee
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2016 (4) TMI 579
Addition on account of unexplained cash deposits in bank account - Held that:- Only a photocopy of agreement cannot be held as sufficient corroborative evidence for the explanation. During the course of hearing ld. Counsel on queries contended that the possession of plot was given at the time of agreement after receiving the cash from Mangilal Jalan of Gauhati. Though sale transaction was completed capital gains were not offered in the return as assessee assumed that sale was not liable for capital gains. Thereafter, assessee has lost track of close relative who has never legally demanded registration of sale deed. Since the assessee received sale amount of plot no further efforts or care was taken. It is contended that except copy of agreement here is no other correspondence, evidence or exchange of any letters between relatives for sale deed registration or mutation of title. In my considered view the assessee’s explanation is bereft of any credible corroboration of evidence, surrounding circumstances, human conduct and preponderance of probabilities which are sine qua non of the income tax proceedings as held by Hon’ble Supreme Court in the case of Sumati Dayal [1995 (3) TMI 3 - SUPREME Court ] . The explanation canvassed by assessee defies logic and fails to invoke any confidence. In view of the foregoing have no hesitation to hold that assessee failed to discharge burden cast by I T Act in this behalf. - Decided against assessee
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2016 (4) TMI 578
Registration u/s.12AA - entitled for exemption claimed u/s 11 - Held that:- We direct the Director of Income-tax (Exemption) to grant registration to the assessee trust for the assessment year under dispute, subject to the following conditions, namely; “i) The registration U/S.12AA (1)(b)(i) of the Income Tax Act, 1961 does not automatically exempt the income of the Trust/Institution. The question of taxability of the income of the Trust/Institution shall be examined and decided upon by the Assessing Officer at the time of assessment based on the conduct of the activities, compliance with various statutory and other requirements, etc., as referred to in Sections 2(15), 11, 12 & 13 of the Income Tax Act, 1961, without prejudice to the fact of granting merely in principle registration by DIT(E). ii) With effect from the Assessment Year 2009-10, the advancement of any object of general public utility other than relief of the poor, education and medical relief as defined in section 2(15) of the Income Tax Act shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. iii) Amendments to the Deed/Memorandum, Rules and Regulations, if any, of the Trust / Institution shall be made only with the prior approval of the Commissioner of Income Tax(Exemptions) or any other prescribed authority under the Income Tax Act,1961. iv) The registration may be withdrawn on violation of any of the stipulations laid down in the Income Tax Act, 1961, v) The SOCIETY/TRUST shall regularly file its Income Tax Return.” - Decided in favour of assessee
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2016 (4) TMI 577
Levy of penalty u/s 271(1)(c) - Transfer pricing adjustment - Held that:- As the adjustment made and confirmed by the Tribunal on account of arm’s length price in respect of interest free loan provided by the appellant to its wholly owned subsidiaries has been admitted by the Hon’ble High Court, so is clearly a debatable issue and so penalty levied cannot be sustained, so we order deletion of it. - Decided in favour of assessee
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2016 (4) TMI 576
Disallowance of long term capital loss - assessment u/s 153A - Held that:- Addition made by the AO by disallowing long term capital loss was not based on any incriminating material found during search operation. Accordingly, the addition is held to be not sustainable in law and so directed to be deleted.- Decided in favour of assessee.
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2016 (4) TMI 575
Addition on account of unexplained share capital, share application money and share premium received - CIT(A) deleted the addition - Held that:- According to provision of section 68 it is primary onus of the assessee to prove identity, creditworthiness and genuineness of the transaction. In this case the assessee has submitted extensive details about each of the creditors and despite that addition has been made u/s 68 of the Act. AR has also submitted a chart which also shows that some of the credit entries which are converted into allotment of share capital are credited in the books of account of the assessee in previous year. When the assessee has given the full details stating the name, address, PAN no, details of bank account, Income Tax return, bank statement and confirmation of those parties, we agree with learned Commissioner of Income-tax (Appeals) that addition u/s 68 cannot be made. Further the pattern observed by the AO may be relied upon if there have been a detailed enquiry made by the AO regarding cash deposit by the person and then transfer entries given about the such deposits to the assessee’s depositors. No such Inquiries have been done. Therefore in view of the above we confirm the order of learned Commissioner of Income-tax (Appeals) on this ground and in result the appeal of the revenue is dismissed. - Decided in favour of assessee
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2016 (4) TMI 574
Addition on account of alleged statement recorded at the time of survey - Addition on unexplained purchases - Held that:- Find merit in the contentions of the ld. DR and find that these deliberate lapses are attributable to assessee due to distortion of facts as he failed to intimate the adverse order for the assessment year 2003-04 to successor CIT(A). Such non-disclosure may have been one of the reason for the successor CIT(A) to delete the additions. Similarly nonfiling of appeal by the Department being attributable to low tax effect cannot be held as a finality of the merits of the case. In view thereof, I find no infirmity in the order of the ld. CIT(A) in dismissing the appeal of the assessee.
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2016 (4) TMI 573
Penalty under section 271(1)(c) - Held that:- The addition has been made only on the ground that assessee has not been able to produce the evidence in favour of the payments made by the assessee by way of DDs to the proprietary concern of Mr. Chetan P. Shah i.e., Amit Enterprises. There is nothing on record such as documents found during the course of search in the case of Mr. Chetan P. Shah, to show that the payments made by the assessee were fictitious. The only evidence in possession of the Revenue was that Mr. Chentan P. Shah was in the business of issuing accommodation entries. There is nothing on record also to show that all the entries of Mr. Chetan P. Shah including the entries pertaining to the assessee are fictitious. Further, the assessee has submitted his explanation that the assessee is not in possession of the relevant documents due to passage of time and this has not been found to be false by any of the authorities below. The penalty under section 271(1)(c) of the I.T. Act is leviable where the assessee does not file his return of income or does not file explanation to the show cause notice for levy of penalty or where the explanation is found to be not bonafide. None of these circumstances exist in the case before us. In view of the same, we are of the opinion that the penalty under section 271(1)(c) of the Act, is not leviable in the case of the assessee in the absence of any of the above conditions. - Decided in favour of assessee
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Customs
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2016 (4) TMI 608
Confiscation and imposition of penalties - Import of Defective shafts - Classified the same under Customs Tariff Heading 84831099 as capital goods - Held that:- on perusal of the provisions of Foreign Trade Policy, all second hand goods except second hand capital goods, are only restricted. In the present case, it is not disputed by the Revenue that the imported goods are not capital goods being shafts of ships. By virtue of the wordings of para 2.17 of the hand book of procedures under Foreign Trade Policy, the goods imported by the appellant were thus not restricted. Even if it is considered that the shafts were cut into small pieces of different sizes then also the same has to be considered as scrap for which no license is required. Therefore, defective shafts imported by the appellant were not prohibited/restricted goods. Accordingly, the confiscation of goods and imposition of penalties upon the appellant were not justified. - Decided in favour of appellant with consequential relief
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2016 (4) TMI 607
Whether guilty of fraud - Export of red sander, prohibited goods - Mis-declaration as gypsum board - Held that:- evidence gathered under section 108 of the Customs Act, 1962 is not from an accused or accused person. The words ‘accused’ or ‘accused person’ is used only in a generic sense in law. Recording of the proceeding by customs being pre-accusation stage that is not extracted from an accused. Therefore, customs officer is not a police officer as is defined under Evidence Act and Code of Criminal Procedure. Accordingly, appellant's plea that the exculpatory statement of the appellant has credence in evidences does not sound well when he had pre-meditated design to commit fraud against Revenue. The statement made by Alexander inculpating the appellant could be used against him as substantive evidence following the ratio laid down by the Hon'ble Supreme Court in the case of Naresh J Sukhawani Vs. Union of India [1995 (11) TMI 106 - SUPREME COURT OF INDIA]. The 108 statement resulted in confiscation of the red sanders discovered from the cavity on the gypsum boards was sufficient a proof which could be instrumental to trace the appellant. It is also settled principle of law that even if the confession is retracted the time within which such retraction has been made and the veracity of the retraction play a vital role for believability thereof. Confession binds the author and against whom the deposition has been made. The contravention of law and the offence committed in the organized manner was under absolute secrecy which was proved from the discovery of red sander from the cavity made in the gypsum board to hide the same. If the appellant is granted any leniency, that shall be bonus to smuggling. So also unchecked smuggling when upsets the economy, appellant fails to deserve any leniency. All these can be said following the principles of law laid down in the case of KI Pahavunny Vs. Assistant Collector (HQ), CX, Collectorate of Cochin [1997 (2) TMI 97 - SUPREME COURT OF INDIA]. The evidence on record having probative value it is the objective evaluation thereof applying relevant test, finding has been reached. There is neither any surmise nor suspicion that can be attributed to investigation. They made their story very successful. No fancible reason has been assigned by them. The issue germane from the root of the matter and has been well tested by the investigation. Reason being soul of the law they have tried to establish the truth of the clandestine deal by a detailed investigation. Man may be prone to speak falsehood but circumstantial evidence will not. Falsity are routed from man's proclivity. Flattering when it is tested on the anvil of the circumstantial evidence, truth trans and scanning evidence going through the reasoning of the learned adjudicating authority it imbibes a feeling that investigation result is not false. Therefore, evidence gathered by Revenue unambiguously proved that the appellant was contributory to the fraud committed against customs. It is established principle of law that fraud and justice are sworn enemies. The smuggling racket perpetuated smuggling for many years in the past as is revealed from their conduct. - Decided against the appellant
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2016 (4) TMI 606
Seeking cross-examination of witnesses - Seizure of 6150 kgs of Red Sanders Wood - No cross examination of certain witnesses asked for was extended to the appellant - Held that:- the Adjudicating authority cannot brush aside the request for cross examination of the relied upon witnesses / investigating officers. If for any reason the cross examination of witnesses cannot be extended then the Adjudicating authority has to intimate the appellant about such rejection by a separate letter as is now a settled legal position. So, the appellant should give a specific list of persons / witnesses to be cross examined and adjudicating authority should make efforts to provide the cross examination of such witnesses. - Matter remanded back
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Service Tax
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2016 (4) TMI 599
Demand of Service tax - Banking and other financial services - Revenue stated respondent to be a broker who had filed some applications on behalf of intending purchasers of bonds, designated as 6.5% Savings Bond, issued by the Reserve Bank of India and have received a brokerage for the bonds that were issued against these applications. Held that:- the subscriber to the bond issue is, quite possibly, a regular customer of M/s JM Financial Services Pvt Ltd as a broker of securities. Such a relationship or equation does not, for that reason alone, attract tax burden on other transactional activities of the two. It is noticed that there is no allegation of receipt of any consideration from the subscriber of the bond issue. It is from the Reserve Bank of India that designated intermediaries receive payment. However, as Reserve Bank of India is not the seller of the said bonds, it cannot be a customer of a broker and the payment it makes cannot be considered to be brokerage. Reserve Bank of India undertakes the management of the issue as an agency function for the Central Government in exercise of a statutory responsibility. Clearly, there is no brokering of securities in the disputed transaction. The fee paid to 'receiving offices' and 'brokers' for their role in the bond issue is not 'brokerage' but commission. The foundation for confirmation of the demand in the impugned order is seen to totter. As per decision of Hon'ble Supreme Court in the case of Morgan Stanley Mutual Fund v Kartick Das [1994 (5) TMI 168 - SUPREME COURT OF INDIA], prior to allotment, "shares do not exist". Accordingly, handling of application forms for an intending subscriber cannot constitute brokering in securities because the securities do not exist at that stage. The foundation for the demand in the impugned order no longer totters but collapses. So the taxing of a transaction merely because the remuneration is designated as 'brokerage' and because the recipient of that 'brokerage' is a 'body corporate' is not sustainable in the light of intent to tax the activity of 'banking and other financial services' without a clear finding that the bond is a tradeable security and that the recompense flows to M/s JM Financial Services Pvt. Ltd from a buyer or seller under a 'brokering' contract. The impugned order fails that test of coverage under section 65(105) of Finance Act as a 'taxable service.' - Decided against the revenue
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2016 (4) TMI 598
Demand of Service tax - Scientific or technical consultancy service and business auxiliary service - providing material procurement assistance and technical knowhow as per agreement - Appellant contended that their activity is not covered by the definition of 'scientific or technical consultancy' - Held that:- the appellant has been procuring material for M/s. Doctors' Organic Chemicals Ltd under an agreement and the period for which that activity was undertaken predates the incorporating within the structure of the appellant. Section 65(19) of Finance Act, 1994 incorporates procurement of goods or services, which are inputs for the client as 'business auxiliary service'. The claim of appellant that this has reference to a third party is not acceptable as, in the present instance, the client is M/s Doctors' Organic Chemicals Ltd. Hence, the taxability of amounts charged form the client is not in doubt. Therefore, the impugned order is upheld only to the extent of Rs. 9,19,094/- for rendering 'business auxiliary service' with interest thereon. The demand of tax for rendering 'scientific or technical consultancy service' does not survive. Penalties are set aside - Appeal disposed of
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2016 (4) TMI 597
Short payment on service for the period from July to September 2006 and disallowance of abatement under notification no. 1/2006-ST dated 1 st March 2006 - Commercial or industrial construction service rendered to 100% EOU - Appellant contended that tax of Rs. 20,60,881 had been paid for the period from July to September 2006 which is more than the tax due of Rs. 20,44,791 as determined in the impugned order - Held that:- as contended by the appellant, the TR6 challans shows the same. The allegation that CENVAT credit of Rs. 3,20,481/- had been utilized is incorrect as the amount was a mere of Rs. 8,233/- which was also reversed. Therefore, there has been an erroneous computation in the impugned order leading to the incorrect conclusion that there is a shortfall in tax paid by the appellant. We do not find any short-payment of tax. Denial of the substantial benefit of abatement owing to availment of CENVAT credit of a mere of Rs. 8,233/- does not appear to be equitable particularly as the amount has been made good. Hence, the reversal is sufficient to render the availment to be non-existent. Consequently, appellant is entitled to abatement as computed at the time of discharge of service tax in march 2006 followed by decision of this Tribunal in the case of BG Shirke Technology P Ltd v Commissioner of Central Excise, Pune II [2012 (6) TMI 522 - CESTAT, MUMBAI]. - Decided in favour of appellant
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2016 (4) TMI 596
Demand of differential tax - Commercial or industrial construction service - non-inclusion of free supplies values in gross receipts before applying abatement of 67% allowed in notification no. 15/2004-ST, dated 10.9.2004. Held that:- there is no doubt that the value of free supplies has not been included for computing tax liability by the appellant. The logic of essentiality of the material so supplied by the recipient of service is not comprehensible; the terms of supply are merely matters of commercial agreement between the supplier and recipient of service. That its inclusion is mandated by the reference to 'gross amount' in section 67 of Finance Act, 1994 also does not find favour. 'Gross amount' is a much misused term in taxation of services arising from the convenient uncoupling from the qualifying phrase i.e. 'for taxable service'. We do not intend to delve deeply into this misconception; suffice it to say, that the use of 'gross receipts' is intended to enable coverage of non-monetised consideration. Mutually agreed upon compensatory payments that are not reflected in invoices are intended to be captured for computing tax liability. Service Tax (Determination of Value) Rules, 2006 flows from the legislative empowerment in section 67 of Finance Act,1994 and the tax collector does not have the authority to read beyond the Rules and to adapt the provisions of section 67 for devising a formula that is, in his mind, compatible with his sense of equity and harmony. The issue is squarely covered by the decision of this Tribunal in Bhayana Builders (P) Ltd v. Commissioner of Service Tax, Delhi [2013 (9) TMI 294 - CESTAT NEW DELHI (LB)], value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-ST, including the Explanation thereto as introduced by Notification No. 4/2005-ST. - Decided in favour of appellant
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Central Excise
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2016 (4) TMI 605
Clandestine removal - lack of investigation - whether the main appellant has indulged in clandestine manufacture and clearances of finished goods? - whether revenue is able to make out a case of clandestine removal and whether penalties are to be imposed on the appellants? - Held that:- The position with regard to the demand which is based on the copies of Truck Destination Register maintained by another transporter, namely M/s Akola Goods Transporter, Chandrapur, is no different. Here again, no investigation seems to have been conducted at the end of the alleged consignees whose name appear in the said Truck Destination Register. The actual receipt of the goods by the consignees is thus not established. No investigation was undertaken to bring on record the author of the said truck destination register. The said statement of Mr. Shakheel Khan shows that M/s Akola Transport Co was only acting as a commission agent and were merely arranging for transportation rather than actually transporting the goods themselves in their own trucks. No investigations have been conducted with the actual transporters engaged by M/s Akola Transport Co. The Books of Account of M/s Akola Transport Co have also not been examined to find out the names of the actual transporters. In any case it is settled law laid down by the Hon'ble High Court of Patna in CCE v. Brims Products (2008 (9) TMI 603 - PATNA HIGH COURT ), that allegation of clandestine removal cannot be sustained based merely on transporters records which are not corroborated by any other evidence. Even in regard to the smaller demand of Rs. 10.58 lakhs based on the alleged shortage of raw materials/finished goods, the explanation given by the appellant on the very next day of the Panchnama wherein the shortages were disputed have not been countered or dealt with in the notice. Further the Panchnama as clearly record that the stock positions have been worked out based on theoretical calculations by assuming the length, breadth, width of the raw materials/finished goods. Such theoretical calculations cannot be the basis for foisting demand on account of shortages. In short, the investigation has failed to establish the case of clandestine removal. - Decided in favour of assessee
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2016 (4) TMI 604
Non obtaining of Central Excise registration on reaching full exemption limit of Rs. One Crore - Imposition of penalty under Section 11AC and a separate penalty on partner under Rule 26 of the Central Excise Rules, 2002 on Appellant No.2 - Held that:- We find that the appellant has violated the terms of the said declaration and had not intimated the Central Excise authorities on crossing the exemption limit of Rs. 1 Crore. They had not obtained the Central Excise registration on reaching full exemption limit of Rs. One Crore and had cleared goods without payment of duty. We find that they continued to clear the goods without payment of duty from 01.01.2005 to 07.03.2005 (till the visit of the officers). We do not agree with the contention of the learned Consultant that they had time till the end of March 2005 to file the Central Excise Returns and pay Central Excise duty. The said time limit is for a Central Excise Registered Licensee. If the appellant had intimated the Central Excise authorities on crossing the exemption limit, and followed the procedures prescribed in this regard as they themselves had solemnly declared to do, such contentions would have had some merit. We find that they were aware of the exemption limit and the procedures to be followed. Therefore, we find force in the contention of the learned Authorised Representative for Revenue that the ingredients for invoking extended period under Section 11A and for imposition of penalty under Section 11AC are present in the subject case. We find no reason to interfere with the order of the lower authorities imposing penalty under Section 11AC on the Appellant No.1. However, we find that the adjudicating authority had not extended the option of payment of 25% of the duty under Section 11AC and therefore, extending the same to the appellant by the Commissioner (Appeals) in the impugned order is justified. We also find force in the arguments of the learned Consultant that separate penalty should not be imposed on Appellant No.2 who is partner of the firm, as penalty has already been imposed on the partnership firm. See Pravin N. Shah vs. CESTAT [2012 (7) TMI 850 - GUJARAT HIGH COURT ]
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2016 (4) TMI 603
Manufacture - assembling of imported and indigenous telephone parts - SSI exemption - adjudicating authority demanded excise duty and allowed SSI exemption benefit cum duty benefit and the cenvat credit on the inputs - Held that:- It is seen that the assessee supplied the Basic wired telephones to the “TATA INDICOM” who isonly a Telecom service provider and not engaged in manufacture of any excisable goods with Brand name and not registered under Central Excise. The telephone sets supplied by the appellant are not traded or sold to customers but are only rented to the customers while giving telephone connections to their customers. Further the Hon'ble Supreme Court decision of Kohinoor Elastics Pvt. Ltd. (2005 (8) TMI 115 - SUPREME COURT OF INDIA) relied by the revenue pertains to the Brand name of goods per se when the goods are sold and the Brand name / Trade name has connection with goods and the persons in the ordinary course of trade. In the present case TATA INDICOM is the name of the Telephone Service Provider and does not relate to any excisable goods sold by the service provider in the ordinary course of trade. Therefore, the Apex Court's decision is distinguishable and does not relate to the present case. Whereas we find that, the Boards Circulars dated 27.10.1994, 1.9.1994, 18.1.2000 are validly existing during the disputed period and the adjudicating authority rightly relied on the Circular dated 27.10.2014 wherein it is clarified that so long as the goods are supplied to the customer for further manufacture are not “traded”, the benefit of SSI exemption should not be denied, merely on the ground, that it contains brand name of another unit. The said Circular was valid till 1.9.98 and is binding on the Revenue during the material period and the adjudicating authority rightly followed the said circular. It is pertinent to state that after the apex Court's decision in Kohinoor Elastics Pvt. Ltd. case the government amended the SSI notification vide Notification 47/2008 dt.1.9.2008 allowing SSI benefit to specified goods bearing the brand name of others. In effect, the Board's circular has been brought in the statue itself. Therefore, there is no merit in the impugned order in allowing SSI exemption benefit on the goods bearing the name of TATA INDICOM. Further the appellants imported all the parts of telephone set including the outer cover, packing materials and the said parts already bearing the name of “TATA INDICOM”. This confirms that the appellant, have not affixed the brand name “TATA INDICOM” while clearing the said goods and the revenue's plea that the overseas supplier embossed the name as per the direction of the appellants is not relevant and not acceptable. Therefore, the Honble Supreme Court's decision in the case of Collector Vs Vimal Printery [ 1999 (9) TMI 957 - SUPREME COURT] is squarely applicable to the present case and the adjudicating authority has rightly relied on the above judgement in his order. In view of the above facts, we hold that the Telephones cleared by the appellants bearing the name of “TATA INDICOM” to the telephone service provider does not amount to usage of other's Brand to attract para-4 of SSI notification and we do not find any infirmity in the impugned order to the extent of allowing SSI exemption benefit to the goods cleared bearing the name of “TATA INDICOM”. The revenue appeal is liable to be rejected. Denial of SSI exemption on the goods bearing the name of “SANTEL” is a brand name of other manufacturers or not - Held that:- The appellants are entitled to SSI exemption benefit on the goods cleared with brand name of "SANTEL". Having held that the appellants are eligible for SSI exemption for the goods bearing “SANTEL” and “TATA INDICOM”, we find that the value of clearance for the years 2002-2003 to 2005-06 are well within the SSI exemption limit, therefore demand of Excise duty does not arise. Consequently the imposition of penalty goes. Accordingly the impugned order is liable to be set aside.
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2016 (4) TMI 602
Manufacture - application of processes of crushing, grinding, washing, grading etc. to Iron Ores - whether the processes of crushing, grinding, screening, grading etc. resulted into 'manufacture' as defined under Sec2(f)(i) of CEA,1944 as no new commercial commodity came into existence as a result of such process? - Held that:- It is relevant to adopt the meaning of concentration and Levy of royalty under the Mines and Minerals(Regulation and Development Act),1957 and the Rules made thereunder to arrive at the conclusion that processes resulted into manufacture and the resultant product is "iron Ore concentrate" and chargeable duty. On the contrary, it is safe and prudent to look into the meaning of the concentrate in the HSN than to Mines and Minerals(Regulation and Development Act),1957 and the Rules made thereunder in view of the principle laid down by the Hon'ble Supreme Court in a catena of cases including in the case of Commissioner of Customs & Central Excise, Goa vs. Phill Corporation Ltd. (2008 (2) TMI 3 - Supreme Court of India) that for classification of the manufactured goods, HSN is a safe guide. Therefore, since the processes undertaken by the appellant on ores, and the resultant satisfies the meaning of 'concentrate' as explained in the HSN, hence in our considered opinion, it should be considered as "manufacture" as per Sec.2(f)(ii) of CEA,1944 in view of the chapter note 2 of Chapter 26 of CETA,1985 and the resultant Iron Ore concentrate is dutiable. There is a significant difference between clause(i) and clause(ii) of the definition of 'manufacture laid down under sec.2(f) of CEA,1944. The processes which are considered not manufacture in the ordinary sense under clause (i), if mentioned in the relevant Section or chapters of CETA,1985 as amounting to manufacture, such processes will fall under the definition of 'manufacture'. The broad and detail tariff entry has been introduced with effect from 2005-06 classifying ores having different Fe content assigning different sub-headings. Therefore, in absence of an increase in the Fe content by benefication or any other method, if there cannot be a manufacturing process, the chapter note 4 inserted with effect from 01.3. 2011 defeat the very purposes and becomes otiose. Such a situation, in our opinion, cannot be the intention of the legislature. Therefore, in our considered opinion application of processes of crushing, grinding, screening and washing and grading of iron ore, converts it into iron ore concentrates and accordingly in view of the chapter note 4 of chapter 26 becomes manufacture and leviable to Excise duty.
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2016 (4) TMI 601
Manufacture - washing, magnetic separation, gravity separation to remove unwanted matters on sand ores - whether various processes undertaken by the Appellant result into manufacture in view of chapter note 4 to chapter 26 of CETA,1985 inserted w.e.f 01.03.2011,accordingly leviable to duty CETA, 1985? - Held that:- The processes carried out by the Appellant are also included in explaining the term ‘concentration’ under HSN. It is laid down that the physical or physico-chemical operations include crushing, grinding, magnetic separation, gravimetric separation, floatation, screening etc. which are normal to the preparation of the ores for the extraction of metals. While explaining the meaning of concentration, it is also mentioned that ores are seldom marketed before preparation for subsequent metallurgical operations. Hence, the Ores are to be subjected to special treatment. iIdown by the Hon’ble Supreme Court in a catena of cases including in the case of Commissioner of Customs & Central Excise, Goa vs. Phill Corporation Ltd. (2008 (2) TMI 3 - Supreme Court of India) that for classification of the manufactured goods, HSN is a safe guide. Therefore, since the processes undertaken by the appellant like washing, magnetic separation, gravity separation to remove unwanted matters on sand ores, and the resultant satisfies the meaning of ‘concentrate’ as explained in the HSN, hence in our considered opinion, it should be considered as ‘manufacture’ as per Sec.2(f)(ii) of CEA,1944 in view of the chapter note 2 of Chapter 26 of CETA,1985 and the resultant ‘Ore concentrate’ is dutiable. There is a significant difference between clause(i) and clause(ii) of the definition of ‘manufacture’ laid down under sec.2(f) of CEA,1944. The processes which are considered not manufacture in the ordinary sense under clause (i), if mentioned in the relevant Section or chapters of CETA,1985 as amounting to manufacture, such processes will fall under the definition of ‘manufacture’. Thus the processes carried out on sand Ores result into conversion of ores to concentrate accordingly manufacture under clause (ii) of section 2(f) read with Chapter Note 4 to chapter 26 of CETA,1985 . The eligibility of benefit of exemption notification 63/ 95 CE dt.16.03.95 be examined by the adjudicating authority.
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2016 (4) TMI 600
Classification - whether two products of Dabur Chyawanprash (Awaleha Special & Awaleha with Ashtawarg) should be classified as Ayurvedic medicaments under CETH 30.03, as claimed by the appellant, or the same should be classified under CETH 21.07/21.08 as decided by the Adjudicating authority - Held that:- An interpretation that Chyawanprash, also having health tonic capabilities will be classifiable only under chapter 21 of CETH, will be an absurd interpretation when the same product manufactured by the same appellant elsewhere in the country, and similar Chyawanprash manufactured by the competitors of the appellant, is being classified as Ayurvedic medicament under CETH 30.03. It is now a well settled legal proposition that interpretation of a statute should be done in such a way to avoid absurdity. In view of the above appeal filed by the appellant is required to be allowed by holding that the impugned products are classifiable as Ayurvedic Medicaments under CETH 30.03. The confirmation of demands, imposition of penalties and confiscation of goods was thus not justified. It is made clear that this bench has not gone into the time barred aspect of the demands because on merits, the case has been decided in favour of the assessee.
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CST, VAT & Sales Tax
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2016 (4) TMI 612
Disallowance of certificates in "D" form - Forms were undated and there was no reference to any purchase order therein - omission to fill in the date of issue of the form - Held that:- Once the relevant forms specified the invoices or bills or cash memoranda, including the dates thereof, and the Assessing Officer or the authorities did not have any material to detract from the particulars indicated in the "D" form issued by some other Government, at least the Board should have taken a rational view of the matter without being hyper technical in insisting that every 'i' should be dotted or every 't' be crossed. That does not imply that the Board would be reckless to accept whatever "D" form is submitted by a dealer since the same would have emanated from one Government or the other. It is only to emphasize that a rational approach should be adopted in assessing a shortcoming in the form of the present kind and unless there are additional grounds for suspecting the transaction, the mere omission to refer to the purchase order or to fill in the date of the issue of the form should not prompt the Board to discard the certificate. Therefore, the impugned order is set aside and the petitioner is given an opportunity to submit the same "D" forms before the Assessing Authority who shall take cognizance thereof and give due credit therefor to the petitioner. - Decided in favour of petitioner
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2016 (4) TMI 611
Seeking release of 100 bags of Hans Chhap tobacco products detained - Goods Transport Operator - Goods to be transported from Delhi to Puducherry and not within the state of Tamil Nadu - Held that:- 3rd respondent is directed to consider the grievance of the petitioner by permitting him to produce all the relevant documents pertaining to the transportation of tobacco to Puducherry and on production of such documents, if the 3rd respondent, after verifying the documents, satisfied with the same, he shall allow the petitioner to transport the tobacco to Pondicherry. - Petition disposed of
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2016 (4) TMI 610
Constitutionality of Rule 3(2)(i-1) of KVAT Rules - Taxability in the hands of whom - Whether consideration paid by the main contractor to the sub-contractors formed part of the subcontractors turnover liable to tax in the hands of subcontractors and does not form part of the contractors turnover - Engaged in execution of infrastructure projects involving work contracts which are got executed through sub-contractors - Appellant contended that Joint Commissioner of Commercial Taxes has not referred to the decision of the Apex Court at all. He has simply laid the entire emphasis on Rule 3(2)(i-1) of KVAT Rules - Held that:- The Joint Commissioner has ignored the principle of law enunciated in the judgment of the Apex Court in the case of STATE OF ANDHRA PRADESH & OTHERS Vs. LARSEN & TOURBO LIMITED AND OTHERS [2008 (8) TMI 21 - SUPREME COURT] and has merely focused his attention on Rule 3(2) of KVAT Rules. Now that petitioner has produced several documents to show that the sub-contractor has indeed included the amount received by him from the petitioner in his returns filed and that the same has been reflected in the assessment orders later on passed, copy of which has been also produced, without going into the constitutional validity of Rule 3(2)(i-1) of KVAT Rules, the matter is remanded to the Joint Commissioner of Commercial Taxes for fresh consideration in accordance with law keeping in mind the principle of law enunciated in the case of LARSEN & TOURBO LIMITED AND OTHERS and also in the case of BUILDERS ASSOCIATION OF INDIA Vs. UNION OF INDIA [1989 (3) TMI 356 - SUPREME COURT OF INDIA] and the purpose and object behind Rule 3(2)(i-1) of KVAT Rules. - Decided partly in favour of petitioner
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2016 (4) TMI 609
Waiver of pre-deposit - Pre-deposit asked to grant stay of recovery of 70% disputed amounts - Manufacture of defence producta - Held that:- it would be serving the purpose of both the State and the petitioner if a compromise could be arrived at in the petitioner being directed to deposit atleast 10% of the demand amount before 31st March 2016 and furnishing of a bank guarantee for the remaining 20% of the demand, subject to the result of the appeal. Accordingly, the Appellate Authority is directed to receive the same and proceed in accordance with law. - Petition disposed of
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Wealth tax
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2016 (4) TMI 595
Eligibility of exemption within the meaning of section 2(ea)(i)(4) of the W.T Act on residential property of the assessee - property given on rent for more than 300 days in a year for commercial purposes - Held that:- We find from the copy of lease deed that the property in question has been let out on rent to M/s. Eli Lily & Co. (India) Pvt. Ltd w.e.f 1-6-2002, which is more than 300 days in a year. Accordingly, we hold that the assessee is entitled for exemption u/s. 2(ea)(i)(4) of the W.T Act 1957. We find that the date reckoned by the ld.AO as 13/06/2002 is only the date of payment/credit mentioned in the TDS Certificate, which in our opinion should not be the determining factor for deciding the date of letting out of the property. Section 2(ea)(i)(4) of the Act does not contemplate the usage of residential property only for residential purpose. We find that this section only says the residential property that has been let out for a minimum period of three hundred days in a previous year is eligible for exemption. We also find lot of force in the arguments of the ld.AR that the ld.AO having concluded that the subject mentioned property loses its status/character as residential property and gets converted into commercial property, in view of the fact that it has been let out for commercial purpose, the ld.AO ought to have granted exemption to the assessee in terms of provisions of section 2(ea)(i)(5) of the Act. In view of the aforesaid facts and circumstances of the case, we hold that the assessee is eligible for exemption u/s. 2(ea)(1)(4) as well as u/s 2(ea)(i)(5) of the Act - Decided in favour of assessee
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Indian Laws
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2016 (4) TMI 613
Cognizance and issuance of summons in a case under Section 138 of the Negotiable Instruments Act, 1881 - Held that:- We have already noted earlier that the Order Sheet does not disclose any application of mind either to the issue of delay or to the requirement of Section 202, Cr.P.C. Since the order of the Magistrate issuing summons is clearly without due application of mind to the issue of delay, we have not gone into the detailed consideration of the correctness of submission based upon Section 202 of the Cr.P.C. and as to whether such requirement of enquiry or investigation is attracted even for offences under the Act. This question of law is therefore left open. But on the ground of non application of mind to the issue of delay and considering that the High Court has passed a summary order without even noticing the contentions advanced on behalf of the appellant, we set aside the impugned order of the High Court as well as the order of cognizance summoning the accused passed by the learned Magistrate. The Magistrate is directed to re-consider the relevant facts of the Complaint Case including the issue of delay and its condonation in accordance with law as well as the requirement of enquiry etc. under Section 202 of the Cr.P.C. and pass fresh orders in accordance with law. The appeals stand allowed to the aforesaid extent.
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