TMI Tax Updates - e-Newsletter
April 28, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise Indian Laws

News

1. Banking Licence.

2. Pre-Payment Penality on Home Loans.

3. Norms of ECB and FDI.

4. Recovery of IT.

5. Inflation Rate.

6. Anand Sharma Inaugurates International Business Lounge at Pragati Maidan.

7. Declining Growth in Core Sectors.

8. Interest Free Loans to Farmers.

9. Mini-ATMs in Villages.

10. Policy on Phone Banking.

11. Hacking of Websites

12. Government is not Considering any Stamp Scheme for Providing Subsidy on Fertilisers

13. Prices of Imported Drugs

14. Representation of Women

15. Guidelines for Women Employees

Notifications

Customs

1. 38/2012 - dated 26-4-2012 - Cus (NT)

Rate of exchange of conversion of each of the foreign currency with effect from 1st May, 2012

Highlights / Catch Notes

Income Tax

• High Court Reviews Assessment Reopening u/s 148 of Income Tax Act for Accommodation Entries Commission.

  Case-Laws - HC : Notice to re-open the assessment u/s 148 - providing accommodation entries for commission. - the material gathered by the Investigation Wing provides required nexus - HC
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• Court to Decide if Interest Paid to Noida Authority for Land is Revenue or Capital Expenditure for Tax Purposes.

  Case-Laws - HC : Revenue expenditure or capital expenditure - Claim of interest paid to the Noida Authority on account of purchase of land - HC
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• Court Rules on TDS Applicability for Payments to Franchisees u/s 194C of Income Tax Act for Study Centers.

  Case-Laws - HC : TDS u/s 194C on running a study centre through various licensees or franchisees - HC
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• High Court Reviews Alleged Irregularities by Chief Income Tax Officer in Eight Cases Favoring Assessees.

  Case-Laws - HC : Proceedings against CIT - alleged lapses/irregularities in eight cases - extension of favor to assessee - HC
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• High Court Clarifies Inclusion of First Day in Holding Period for Short-Term Capital Gains Calculation.

  Case-Laws - HC : STCG or STCG - Determination of period of holding of 12 or 36 months - inclusion or exclusion of first day of acquisition - HC
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• Late Tax Payment Penalty Imposed: Cheques Deposited on Time, Realized Late u/s 234C.

  Case-Laws - AT : Interest under section 234C - cheques were realized after the due dates for payment of advance tax even though the assessee had deposited the cheques in the bank within time - AT
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• High Court Clarifies Rectification of Book Profit Errors u/s 115JA for Minimum Alternate Tax Compliance.

  Case-Laws - HC : MAT - Rectification of mistake - Deduction of prior period items from book profit - section 115JA - HC
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• High Court Reviews if Penalty u/s 158BFA of Income Tax Act is Mandatory or Discretionary in Block Assessments.

  Case-Laws - HC : Block assessment - Penalty u/s 158BFA - whether mandatory or discretionary - HC
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• High Court Upholds Denial of Waiver for Interest u/ss 234A, 234B, 234C of Income Tax Act.

  Case-Laws - HC : Denial of waiver of interest, levied under Section 234A, B and C of the Income Tax Act - HC
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• Dispute Over Rs. 1,78,562: Determining the Previous Year Liability Crystallized for Prior Period Adjustments.

  Case-Laws - AT : Disallowance of Rs.1,78,562 being prior period adjustments - The entire dispute thus hinges on the question as to the previous year in which liability to pay has crystallized and there is no dispute about admissibility of the claim per se - AT
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• Appellant Challenges Asset Sale Classification u/s 50B; Claims Itemized Sale, Not a Slump Sale.

  Case-Laws - AT : Invoking the provisions of section 50B to sale of assets of the M Seal Division of the Appellant - assessee contented that it was an itemized sale - Slump sale - AT
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• Trust Found in Default for Not Deducting Tax at Source u/s 194J for Hospital Payments via MOUs.

  Case-Laws - AT : Assessee in default - TDS u/s 194J - Trust directly makes payments to various hospitals as per the MOUs it entered with such hospitals. - AT
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• High Court Clarifies Manufacturing Start Date for Section 80IB Tax Deductions, Impacting Business Tax Liabilities and Incentives.

  Case-Laws - HC : Deduction u/s 80IB - Date of commencement of manufacturing activity - - HC
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• High Court examines tax deduction denial u/s 80-I(9) due to close relations with foreign buyer; burden of proof debated.

  Case-Laws - HC : Deduction u/s 80-I - denial of deduction u/s 80-I(9) - Close relations between the assessee - company and the foreign buyer - burden of proof - Deduction u/s 10A read with section 80-I(9) - maintenance of separate books - HC
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• Expenses Disallowed for Non-Deduction of TDS on Subcontractor Payments for Tippers and Excavators u/s 40(a)(ia.

  Case-Laws - AT : Disallowance u/s 40(a)(ia) - Sub contractor - Non deduction of TDS under Section 194C - hiring charges - tippers and excavators- AT
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• Assessing Officer Can Scrutinize Accounts for Compliance with Companies Act, 1956 u/s 115JB MAT Provisions.

  Case-Laws - AT : MAT - 115JB - AO has powers to go behind the accounts and see whether same have been prepared in accordance with the requirements of Part II and Part III of Schedule VI of the Companies Act, 1956. - AT
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• Section 10(33) Excludes Transfer of Capital Assets from Taxation, Not Just Capital Gains, for Economic Reasons.

  Case-Laws - AT : The economic reasons for insertion of Sec. 10(33) of the Act clearly shows that the source viz., transfer of capital asset being units of US 64 itself that has been excluded by the will of the Legislature and not the capital gain alone.- AT
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• Petitioner Challenges Seizure of Rs. 1,60,000; Claims Funds Not Considered Advance Tax Per Section 132B(4).

  Case-Laws - HC : Search and seizure - Claim of interest under section 132B(4) - The petitioner claims that an amount of Rs. 1,60,000 seized from him was neither appropriated nor treated as advance tax - HC
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Customs

• Customs Notification No. 38/2012 sets new foreign currency exchange rates for customs duties effective May 1, 2012.

  Notifications : Rate of exchange of conversion of each of the foreign currency with effect from 1st May, 2012 - Ntf. No. 38/2012- Customs (N.T.) Dated: April 26, 2012
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• Customs Valuation and Penalties Imposed on Imported Used Rubber Tyres; Redemption Fine Applied Instead of Confiscation.

  Case-Laws - AT : Import of old, used and discarded rubber tyres – Department enhanced value of tyres, imposition of redemption fine in lieu of confiscation and penalty - AT
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• Debate on Using MRP vs. Transaction Value for Countervailing Duty on Imports: Legal Insights and Case Laws.

  Case-Laws - AT : Valuation of imported goods - MRP based valuation or transaction value - CVD - AT
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Service Tax

• Service Tax Imposed on Sewage Pipeline Projects for Nashik Municipality Under 'Works Contract Service' Classification.

  Case-Laws - AT : Service tax on laying of commissioning of sewage pipeline and other civil works for Nashik Municipal Corporation - ‘works contract service’ – AT
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• CENVAT Credit Eligibility for Service Tax on Employee Insurance Policies Under Review: Impacts on Company Tax Strategies.

  Case-Laws - AT : CENVAT credit on service tax paid on insurance services relating to Group Medical Claim and Group Personal Accident Policies - AT
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• Court Analyzes Whether Service Tax Applies to Respondents' Activities: Service to Buyers or Own Construction?

  Case-Laws - AT : Whether the respondents were doing any service for the prospective buyers or were doing the construction activity for themselves - AT
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• A refund claim was denied based on Clause 2(f) of Notification No.17/2009-ST, dated July 7, 2009.

  Case-Laws - AT : Claim of refund rejected on the ground that according to the Clause 2(f) of Notification No.17/2009-ST, dt.7.7.09 - AT
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• Eligibility for Refunds under Notification No.41/2007-ST: Criteria and Case Laws for Port and Transport Services.

  Case-Laws - AT : Eligibility of refund under Notification No.41/2007-ST, dt.06.10.2007 -Port services, Terminal Handling Charges, CHA services, GTA services, Wharfage charges - AT
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Central Excise

• Cash Discounts and Excise Duty Valuation: Legal Changes Before and After July 1, 2000 Impact Business Tax Compliance.

  Case-Laws - AT : Cash Discount - Deduction from Central Excise Valuation - for the period prior to 01/07/2000 and for the period post 01/07/2000. - AT
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• Court to Decide if Mango Avakai Pickles Valuation Should Use Transaction Value (Section 4) or MRP (Section 4A.

  Case-Laws - AT : Transaction value based valuation or MRP based valuation - Section 4 or section 4A - Supply of mango avakai pickles to M/s Nestle - AT
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• Polymer and Crumbled Rubber Modified Bitumen Not Classified as Bituminous Mixtures for Tax Purposes Under Chapter 27150090.

  Case-Laws - AT : Polymer Modified Bitumen (PMB) and Crumbled Rubber Modified Bitumen (CRMB) cannot be treated as Bituminous mixtures falling under Chapter sub-heading No.27150090 - AT
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• Tribunal Rules on Interest for Delayed Cenvat Credit Refunds u/r 5 of Cenvat Credit Rules, 2002.

  Case-Laws - AT : Claim of interest on refund as Rule 5 of CCR, 2002 - AT
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VAT

• Supply of Goods to Atomic Energy Units: Stock Transfer or Inter-State Sale Under CST Act? Tax Implications Explored.

  Case-Laws - HC : whether supply of goods to other units of the Department of Atomic Energy would constitute stock transfer or are inter-State sales liable to tax under the CST Act - HC
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• Court Reviews Nutralite Margarine Classification Under MVAT: Vegetable Oil Status Affects Tax Rate.

  Case-Laws - HC : Classification - MVAT - Whether the product, nutralite table margarine, manufactured by the respondent-assessee is a vegetable oil covered under Schedule C, entry 100 or Schedule C, entry 102 or not - HC
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Case Laws:

• Income Tax

• 2012 (4) TMI 442
  Valuation of property - ITAT considered AO was not justified in making the addition of Rs 75 lakhs being the difference between the apparent consideration and the real value of the assets of Company formed by HUF – Held that:- Agreement dated 30.11.2002 executed between Khandelwals and Shri Sunil Bedi all the requisite clearances were obtained by the seller - vide second MoU M/s Fashion Flair International Private Limited agreed to pay Rs.6.35 crore to M/s Span Properties Private Limited for purchase of its entire shareholding subject to obtaining necessary approval for construction of a commercial building on the land in question, and that there was no material produced by the assessee to indicate that the market value of the land had gone down between December, 2000 and November, 2002 - Since the entire share holding of Khandelwas in Span Properties Private Limited was transferred to Shri Sunil Bedi, he, on account of his ownership of the entire share holding of Span Properties Private Limited, also acquired ownership of the land in question. Hence, it would be difficult for us to accept that the value of the entire share holdings of Khandelwas in Span Properties Private Limited could have been less than Rs 6.35 crore minus the liabilities of the company - AO was justified in making the addition being the difference between the apparent consideration and real value of the assets – against assessee.

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• 2012 (4) TMI 441
  Notice to re-open the assessment as income chargeable to tax has escaped assessment - Writ petition by assessee on validity of the re-opening of the assessment – Held that:- the material gathered by the Investigation Wing provides required nexus by the reference to the names of at least three companies in which Mukesh Gupta was a Director, through which, inter alia, he was admittedly carrying on the business of providing accommodation entries for commission. These companies had subscribed for the shares issued by the assessee - assessee is linked to the business of Mukesh Gupta which leads to conclusion that income chargeable to tax had escaped assessment because of the failure of the petitioner company to furnish fully and truly all material particulars necessary for its assessment – against assessee.

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• 2012 (4) TMI 440
  Addition to income on account of non-deduction of TDS in terms of section 40(a)(ia) – Held that:- The tenor and purport of the terms of the agreement were that it was not a case where the licensee was doing any work for the assessee even within the wider meaning of the term “any work” as defined in Section 194C - assessee running a study centre through various licensees or franchisees and the agreement is not for making any payment to the licensee for any work done for the assessee and that it was a case of sharing of fees for carrying out respective obligations under a contract – in favour of assessee. Claim of interest paid to the Noida Authority on account of purchase of land -allowable as revenue expenditure u/s 36(1)(iii) of the Act – Held that:- In order to claim allowance in respect of interest, there should be borrowing of capital and that unpaid purchase price of an asset does not amount to borrowing of capital, though a debt may be created - the interest was paid to Noida Authority not in respect of any capital borrowed from that Authority, but on the price of the plot remaining unpaid as per the provisions of the lease deed - there being no “capital borrowed”, the interest is not allowable as a deduction u/s 37(1) – against assessee. ITAT deleted addition made by the AO on account of disallowance of bonus paid to the Directors in terms of Section 36(1)(ii) – Held that:- It was observed in the Bombay High Court case Metplast Pvt. Ltd vs DCIT (2011 (12) TMI 320 - Delhi High Court ) that so long as the bonus or commission is paid to the directors for services rendered and as part of their terms of employment it has to be allowed and sec.36(1)(ii) does not apply – in favour of assessee. Claim of Non-compete fee payable as revenue expenditure solely on the basis of agreement period and the mode of payment – Held that:- The period for which the assessee sought to eliminate competition was only 12 months which was too short a period to be considered as conferring an enduring benefit to the assessee and the non-compete fee was to be paid to the two persons in equal installments over a period of time – in favour of assessee.

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• 2012 (4) TMI 438
  Long term capital gains on Sale of two mutual fund - the expression “not less than” - AO treated the two gains as short term capital gains as the instruments had not been held for a period of more than 12 months immediately preceding the date of transfer – Held that:- To qualify as a short term capital asset, the capital asset should be held by the assessee for 12 or 36 months, but the moment the said time limit is crossed the assessee continues to be the holder/owner of the said asset, the same is to be treated as a long term capital asset - the date on which the asset is acquired is not to be excluded because the holding starts from the said date. There is nothing in the said Section to show and hold that the time period would not include fraction of a day. The expression “not more than” clearly in this case would refer and include the date on which the asset is first held or acquired. Thus, an asset acquired on the 1st of January would complete 12 months at the end of the said year, i.e., on 31st of December and if it is sold next year and if the proviso to Section 2(42A) applies, it would be treated as a long term capital gains. - in favour of assessee.

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• 2012 (4) TMI 435
  Entitlement to assessee to reduce interest paid on bank overdrafts from the interest received on FDRs and exclude profit from the sale of EDP receipts under the duty remission scheme while calculating deductions u/s 80HHC – Revenue appeal - Held that:- Ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head “Profits and Gains of Business or Profession”, is to be deducted under clause (1) of Explanation (baa) to Section 80-HHC for determining the profits of the business” as per clause (1) of Explanation (baa) to Section 80-HHC – in favour of assessee.

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• 2012 (4) TMI 434
  Whether penalty can be imposed on the assessee where additions are made under the normal provisions of the Act but actually the taxable income of the assessee is assessed under Section 115JB and there is no addition for book profits – Held that:- Though there was concealment but that had its repercussions only when the assessment was done under the normal procedure - it is the deemed income assessed under section 115JB of the Act which has become the basis of assessment as it was higher of the two and tax is paid on the income assessed u/s 115JB - the concealment did not lead to tax evasion at all - Penalty not to be imposed – in favour of assessee.

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• Customs

• 2012 (4) TMI 437
  No MRP declared on Import of Energy Efficient Lighting Fixtures - differential duty as per MRP declared by main customer of applicant on the final product which is sold in the open market - goods confiscated – Held that:- On the condition that the applicant shall execute a bond of full value of the goods and a bank guarantee of 25% of the differential duty release the goods on compliance of the above conditions within 7 days.

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• Corporate Laws

• 2012 (4) TMI 436
  Instant application filed by the Official Liquidator under Section 537 to declare the sale held during the petition period as null and void - out of the sale proceeds of Rs. 2,55,000/- a sum of Rs. 1,70,000/- is stated to have been paid by respondent Nos. 1 and 2 to the 4th respondent, who was a secured creditor of the Company-in-liquidation and the balance sum of Rs. 85,000/- has been paid to one of the employees who was working as a Manager prior to the closure of the company – Held that:- Keeping in view and considering the fact that respondent Nos. 1 and 2 have paid amounts from their personal account even subsequent to the date of winding up order and the said amount is much more than the amount for which a direction has been sought for the direction as against respondent Nos. 1 and 2 to refund the same would not arise - the entire amount of Rs. 1,70,000/- in any event cannot be appropriated by the respondent. No. 4 alone to the detriment of any other claims of the secured creditors or employees which would have to be considered on a pari passu basis - a direction is issued to the fourth respondent to bear the advertisement expenses (not exceeding Rs. 10,000/-) for the Official Liquidator to invite claims from any persons who may have claims against the Company-in-liquidation.

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• 2012 (4) TMI 433
  No response to notices in lieu of Procedure for Early Redemption of Bonds - transfer of unpaid dividend account of a company to the fund established IEPF under Section 205C – Writ Petition – Held that:- Section 205 C is a salutary and virtuous provision enacted to ensure that a company does not unjustifiably and unduly enrich themselves, as the depositors have failed to stake claim and have not been paid for a period of seven years from the date the amount became due – no reason to hold that the said provisions are unconstitutional or they violate Article 14 of the Constitution - serious lapses on the part of the petitioner as no intimation of change of address ,hence could not be communicated about the premature redemption and no bother to read the terms and conditions of allotment including the early redemption clause - when a matter either on question of fact or on a question of law decided between two parties in one proceeding and the decision is final either because no appeal was taken to a higher Court or because the appeal was dismissed, neither party will be allowed in a future proceedings between the same parties to canvas the matter again.

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• Service Tax

• 2012 (4) TMI 443
  Demand of Service Tax on ‘works contract service’ – applicants are engaged in the activity of laying of commissioning of sewage pipeline and other civil works for Nashik Municipal Corporation - Held that: - The activity undertaken by the applicant is not for commerce and industry, therefore service tax cannot be demanded - activity undertaken by the applicant is for Nashik Municipal Corporation and as held by this Tribunal in the case of Nagarjuna Construction Co.( 2011 -TMI - 203241 - CESTAT, BANGALORE) that activities, which are concerned with welfare activity for the citizens of this country has been excluded from the liability of Service tax – in favour of assessee.

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• Central Excise

• 2012 (4) TMI 432
  Clandestine removal - computation of quantity – assessee contested that the quantity computed by the Tribunal is based upon surmises and conjectures and there is no concrete evidence or material to hold that 768.03 Mt. or resin CP172SG was clandestinely sold – Held that:- Statement of Director present at the time of search admitted to clandestine removal and sale of resin CP172SG and also stated that he had partly used and consumed the resin in the manufacture of Filler Cords and PVC Tapes - the aforesaid quantum of 768.03 Mt., has been calculated by the Tribunal on the basis of the quantity purchased, less the consumption for production of PVC compound as recorded in the records/books. The Tribunal has given benefit of doubt to the Appellant and other appellants on use of resin CP172SG in the manufacture of PVC Tapes to the extent of 230 Mt - under Rule 15(1) of CCR, 2004, any input or capital goods, in respect of which cenvat credit has been taken wrongly, are liable for confiscation, so the illicitly diverted CP1725Sg resin was liable for confiscation – appellant with other parties who had dealt with the illicitly diverted resin knowingly are liable for confiscation and penalty under Rule 26 of CER, 2002 - upheld imposition of penalty - against assessee.

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• Indian Laws

• 2012 (4) TMI 439
  Proceedings against CIT - alleged lapses/irregularities in eight cases - extension of favor to assessee - Charge-memo, the dissenting note recorded by the Disciplinary Authority and the final order imposing the punishment of compulsory retirement - SCN seeking an explanation regarding alleged lapses/irregularities in eight cases completed by him were pertaining to the period of his service - Held that:- The disciplinary authority had not considered the representation of the Respondent No.1 against the disagreement note - the petitioners is unable to point out any single factor or reason which would show that the dissenting note was tentative nor has been able to show why the representation of the Respondent No.1 was not considered by the Disciplinary Authority before imposing the disproportionate punishment of compulsory retirement in the facts and circumstances - On the seven articles of charges framed against Respondent No.1, the Enquiry Officer came to the conclusion that Articles I, II, IV, and VII not proved while Articles III, V and VI partly proved but the Disciplinary Authority ultimately concluded that the "IO's finding has not been found acceptable and the charge has been viewed as 'proved' or 'fully proved' except for Article VI which was held to be substantially proved while only part (a) of the charge was held to be "not proved" – the charges did not contain any allegations that while passing the various orders or conducting the proceedings the Respondent No.1 had malafide intentions or had passed the order on extraneous considerations - decided in favour of respondent with cost of Rs. 30,000.

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