TMI Tax Updates - e-Newsletter
July 18, 2013

Case Laws in this Newsletter:

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

Articles

1. INVOICE FOR SERVICE TAX

   By: Dr. Sanjiv Agarwal

2. OBLIGATION OF REGISTRAR OF TRADE MARKS TO SEND COMMUNICATION OF OBJECTIONS TO THE APPLICANT FOR REGISTRATION OF A TRADE MARK

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. To Promote Skill Development Direct Taxes Incentives Given; Guidelines for Weighted Deduction @ 150% of the Expenditure Incurred on skill Development Under Section 35ccd of the Income-Tax Act, 1961 Issued

2. RBI Reference Rate for US $ and Euro

3. Ministry of Finance Constitutes A Forum Chaired by Dr. Parthasarathi Shome

4. Central Banking in Emerging Economies Emerging Challenges (Speech delivered by Dr. Duvvuri Subbarao, Governor, Reserve Bank of India at the European Economics and Financial Centre, London on July 17, 2013)

5. Approval of Research and Development programme in water sector for the XII Plan period

6. Approval of the Plan scheme 'Development Communication and Information Dissemination' for the 12th Five Year Plan (2012-17)

7. Additional allocation of 50 lakh tonnes of foodgrains for the Below Poverty Line (BPL) families at BPL prices during 2013-14

Notifications

Income Tax

1. 54/2013 - dated 15-7-2013 - IT

Income-tax (10th Amendment) Rules, 2013 - Insertion of Rule 6AAF, 6AAG, 6AAH AND FORM NO.3CQ, 3CR

Circulars / Instructions / Orders

FEMA

1. 13 - dated 17-7-2013

Exim Bank's Line of Credit of USD 35 million to the Government of the Republic of Ghana

Highlights / Catch Notes

Income Tax

• Society with Multiple Purposes Can Qualify for Tax Exemption if It Exclusively Pursues Education u/s 10(23C)(vi).

  Case-Laws - HC : Exemption u/s 10(23C)(iv) - even though the aims and objects of the society may contain several objects but if it has been proved by material on record that the society is not perusing any other activity apart from eduction then in such case, the society will qualify for grant of approval u/s. 10(23C)(vi) - HC
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• Assessing Officer Challenges Capital Gains Assessment Over Factory Land Transfer Without Evidence; Construction Activities Cited.

  Case-Laws - HC : Capital gain - AO has interfered without any evidence that possession of factory land was given to assessee in the subject assessment year on the basis that construction activity had started - HC
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• Re-assessment Notice: Initial Assessment Indicates Assessing Officer's Satisfaction and Fully Formed Opinion on Claim Validity.

  Case-Laws - HC : Notice of re-assessment - If a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. - HC
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• High Court Confirms Eligibility for Both Section 80G Deduction and Section 10A Exemption under Income Tax Act.

  Case-Laws - HC : Deduction u/s 80G - Exemption also granted u/s 10A - Double deduction - the debiting of donation in the first instance and adding it back subsequently makes no difference - assessee is entitled to the said benefit - HC
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• High Court Allows Traffic Signal Installation Costs as Business Expense Deduction u/s 37 for CSR Efforts.

  Case-Laws - HC : Installation of traffic signal - A.O. held deduction can only claimed u/s 80G - in order to discharge their CSR which also facilitates their business if the employees were to reach the place early, they thought of incurring the expenditure for installing the traffic signal - Deduction u/s 37 allowed - HC
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• Tax Avoidance Motivation Doesn't Make a Genuine Transaction a Colorable Device; No Disqualification Needed.

  Case-Laws - HC : Once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable devise and consequently earn any disqualification. - HC
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• Donations to scientific research or rural development not deductible u/s 80GGA if they cause business income loss.

  Case-Laws - AT : Donations for scientific research or rural development - loss under the head income from business or profession - in view of the specific bar created u/s 80GGA, assessee is not entitled to avail deduction u/s 80GGA - AT
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• Forfeiture of Share Application Money Not Taxable: Capital Nature Exempts from Income Taxation, Supported by Case Law.

  Case-Laws - AT : Addition on account of forfeiture of shares application money - since the amount is capital in nature the same cannot be brought to tax. - AT
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• Interest on Interest u/s 154: Allowable, Yet Too Debatable for Rectification in Income Tax Act.

  Case-Laws - AT : Rectification u/s 154 - issue of grant of interest on interest is a highly debatable and rather allowable claim in favour of the assessee - debatable issue cannot be rectified u/s 154 - AT
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• Foreign Visit Expenses for Buyer Meetings Disallowed Due to Lack of Direct Nexus with Manufacturing Activity.

  Case-Laws - AT : Export promotion expenses - foreign visits for the purpose of meeting with the buyers have no direct nexus with the manufacturing activity of the assessee - expenses disallowed - AT
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Service Tax

• Provisional Attachment u/s 73C of Finance Act 1994 Not Appealable Before Tribunal.

  Case-Laws - AT : Order u/s 73C - Provisional attachment to protect revenue in certain cases. - Order passed under section 73C of the Finance Act, 1994 is not appealable to this Tribunal - AT
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Central Excise

• Case Highlights: Uniform Retail Pricing Required for Goods; MRP Alteration for Tax Purposes Not Allowed Under Central Excise Laws.

  Case-Laws - AT : Alteration in MRP - There cannot be different Retail Price for the purpose of CVD and for the purpose of Excise duty in respect of the same goods - prima facie case is against the assessee. - AT
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• Refund Claims on Education Cess for Exempted Goods Deemed Non-Entertainable; No Refund Allowed Under Current Tax Rules.

  Case-Laws - AT : Refund claim of education cess and S&H education – exempted goods - refund claim of education cess and S&H education was not entertainable - AT
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• Application for Appeal Restoration Filed 16 Years Late; Procedural Rules Require Submission Within Three Months of Dismissal.

  Case-Laws - AT : Application for restoration of appeal filed after almost 16 years - Application for restoration is to be made within three months from the dismissal of the appeal - AT
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• Compounded Levy on Fabrics Suffices; No Additional Duty Required Under AED (T&TA) for Assessees.

  Case-Laws - AT : Levy of AED (T&TA) in addition of Compounded levy of duty on fabrics - an assessee need not discharge any further duty under AED (T&TA) - AT
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• Information requested without legal backing, if not provided, cannot justify vacating a stay order.

  Case-Laws - AT : Any information sought not having the backing of the law and if not given - cannot be the ground for seeking vacation of the stay - AT
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Case Laws:

• Income Tax

• 2013 (7) TMI 456
  Exemption u/s 10(23C)(iv) - Assessee society running co-education degree college - CIT rejected claiming that society has not been formed with the sole object of imparting education, but its memorandum of association reflects that it has other aims and objects as well - Held that:- society or a trust or other similar body running educational institutions solely for educational purposes and having the overall object of not to make any profit can be regarded as "other educational institution" even if some surplus arises from its activities - Following decision of Aditanar Educational Institution v. Additional CIT [1997 (2) TMI 3 - SUPREME Court] - Decided in favour of Assessee. whether an application can be rejected on the ground that the memorandum of association of the society provides for various other objects apart from educational activities - Held that:- petitioner was a society which had made an application for approval u/s.10(23C)(vi) and its application for approval was rejected on the ground that benefit of section 10(23C)(vi) is available only to an educational institution existing solely for the purpose of imparting education, while the application has been made by a society having many activities that appear to be other than educational such as to make appropriate efforts for upliftment of public in social and cultural field etc. Therein, this court had held that even though the aims and objects of the society may contain several objects but if it has been proved by material on record that the society is not perusing any other activity apart from eduction then in such case, the society will qualify for grant of approval u/s. 10(23C)(vi) - Following decision of C.P. Vidya Niketan Inter College Shikshan Society vs. Union of India and others [2013 (7) TMI 367 - ALLAHABAD HIGH COURT] - Decided in favour of Assessee.

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• 2013 (7) TMI 455
  Capital gain - transfer - Whether ITAT justified in holding that no capital gain will arise in the concerned assessment year as the assessee was restrained by Industrial Court as well as this Court from disposing the factory land - Held that:- no transfer of capital assets by sale of land at Goregaon had taken place - during subject assessment year, no construction activity took place and even commencement certificate was issued in a subsequent assessment year. The amount received by the respondent-assessee was only an advance requiring fulfillment of certain obligations. The agreement itself provides that in case the respondent-assessee is not able to fulfill its obligation, then it was required to refund the amount to the developer. Thus, there was no transfer of land during that assessment year - Assessing Officer has interfered without any evidence that possession of factory land was given to respondent-assessee in the subject assessment year on the basis that construction activity had started. This is erroneous as the commencement certificate was only received from BMC in the next assessment year - Decided against Revenue. Conversion of the land into stock in trade - Whether Tribunal justified in holding that there was conversion of the land into the stock-in-trade during the Financial Year 1991-92 and therefore the expenditure incurred during Financial Year 1999-2000 was work-in-progress without appreciating that there was no conversion in the Financial Year 1991-92 and there being transfer within the purview u/s. 2(47)(v) of the ITAT during the Financial Year 1999-2000, the capital gain was chargeable during the assessment year 2000-01 - Held that:- respondent-assessee decided to convert its factory land at Goregaon into stock-in-trade for the purpose of engaging in the business of real estate development - In 1992, assessee by extra ordinary general meeting took consent from the share holders to enter into business of real estate development and for that purpose converting its factory land into stock-in-trade. Thereafter, the respondent-assessee in furtherance of its objective of developing the factory land at Goregaon, sought permission to shift its factory from Goregaon to Taloja as well as to convert the factory land from industrial zone land to residential zone land. The respondent-assessee also obtained an NOC from the BMC for change of user of the factory land in October, 1993. The respondent-assessee also made various efforts with the Urban Land Ceiling (ULC) authorities, seeking permission for development under Section 22 of the ULC Act, 1976. The necessary permission was obtained in October 1999 - no reason to interfere with the finding of fact arrived at by the Tribunal - Decided against Revenue.

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• 2013 (7) TMI 454
  Violation of Section 40(a)(ia) - TDS not paid in same financial year on Professional payments - Cash system of accountancy followed - Tribunal deleted addition u/s 40(a)(ia) - Held that:- Assessee paid professional payments in March, 2007 and accordingly deducted TDS and the same was deposited within the due date from the date of said deduction in April, 2007. Prior to that, the assessee had deducted TDS on professional charges in February, 2007. TDS on the said amount which was deducted in the month of February was deposited on 7th March, 2007, within the due date - It is an accepted position that in case tax was deductible in March, 2007 the due date of payment was in April, 2007 and before due date payment TDS was paid - it is logical that there would be some time gap between date of deduction of tax at source and when payment is deposited - Therefore provision of Section 40(a)(ia) could not be invoked - Decided against Revenue. Increase in rate of interest - Held that:- Even prior to the amendment made by Finance Bill, 2010, Section 40(a)(ia) had stipulated that in case where the tax was deductable and so deducted during the last month of the previous year but was paid on or before the due date specified in Section 139(1) of the Act, deduction/expenditure will be allowed in the previous year notwithstanding the main Section - The object of introduction of Section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered - Decided against Revenue.

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• 2013 (7) TMI 453
  Unexplained investment - NRI company made share subscription to the capital of respondent - A.O. directed addition of the amount of share subscription to assessee's income due to doubt ob crediworthiness of subscriber company - Tribunal deleted the addition - Held that:- It is not the case of any of the parties that subscriber is a bogus company or a non-existent company and the amount which was subscribed by the said Company by way of share subscription was in fact the money of the respondent assessee - assessee had established the identity of investor who had provided the share subscription and it was established that the transaction was genuine though as per contention of the respondent the creditworthiness of the creditor was also established. If assessee Company having received subscriptions and furnished complete details of the shareholders, no addition could be made under section 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources - Following decisions of Commissioner of Income Tax vs. Lovely Exports (P) Ltd [2008 (1) TMI 575 - SUPREME COURT OF INDIA] and Commissioner of Income Tax vs. Divine Leasing & Finance Ltd. [2006 (11) TMI 121 - DELHI HIGH COURT] - Decided against Revenue.

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• 2013 (7) TMI 452
  Dediction u/s 80IB(8A) - Notice of re-assessment - Petitioner's objection to re-assessment was dismissed - Held that:- When a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment. - If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. If the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim - If a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. In a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition - Following decisions of Gujarat Tea Processors & Packers Ltd. v. Deputy Commissioner of Income-Tax [2012 (12) TMI 899 - GUJARAT HIGH COURT] and CIT v. Usha International Ltd. [2012 (9) TMI 767 - DELHI HIGH COURT] - Decided in favour of assessee.

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• 2013 (7) TMI 451
  Deduction u/s 37(1) - Custody charges paid to NSDL - Whether contribution to NSDL amount as revenue expenditure or capital expenditure - Held that:- if the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring the benefit of the business it is properly attributable to capital and is of the nature of capital expenditure - Without such payment, after the Act came into force, the assessee shall not make public or rights issue or other for sale of securities - The expenditure has helped in reducing the cost of handling physical share certificates - Even if certain benefits go to the shareholders, consequently, the assessee has gained good will - Therefore this expenses incurred squarely falls within the phrase “laid out or expended wholly and exclusively for the purpose of business” and therefore it shall be deducted in computing the income chargeable under the head of profits or gain of business or profession - Following decidion of EMPIRE JUTE CO. LTD Vs. COMMISSIONER OF INCOME TAX [1980 (5) TMI 1 - SUPREME Court] - Decided against the Revenue. Deduction u/s 80G - Exemption also granted u/s 10A - Double deduction - Donation made to Keonics Unit - Held that:- It is not in dispute that the assessee is entitled to the benefit of deduction under Section 80G - As the entire income from the Keonics Unit is exempted from payment of tax, the debiting of donation in the first instance and adding it back subsequently makes no difference - Therefore the deduction under Section 80G is claimed from the total income excluding the income of Kenoics Unit and in law, the assessee is entitled to the said benefit - Decided against the Revenue. Deduction u/s 37(1) - Installation of traffic signal - A.O. held deduction can only claimed u/s 80G - Held that:- If the contribution by an assessee is in the form of donations of the category specified under section 80G, but if it could also be termed as an expenditure of the category falling under section 37(1), then the right of the assessee to claim the whole of it as allowance under section 37(1) cannot be denied - But such money must be "laid out or expended wholly and exclusively for the purpose of business" - If the expenditure has been incurred by the assessee voluntarily, even without necessity, but if it is for promoting the business, the deduction would be permissible under section 37(1) of the Act - It is something which is gone irretrievably, but should not be in respect of an unascertained liability of the future - assessee is having their establishment at Bannerghata Circle. Nearly about 500 employees are working in the said Unit. There was severe traffic congestion. Employees had to wait for longer time to reach the office. It seriously affected the business of the assessee, resulting in delay in completing the project. In order to facilitate its employees to reach their establishment safely and early, the assessee has installed traffic signals at Bannerghata Circle - The assesee also has corporate social responsibility - In this background, in order to discharge their corporate social responsibility which also facilitates their business if the employees were to reach the place early, they thought of incurring the expenditure for installing the traffic signal - Following decisions of COMMISSIONER OF INCOME TAX & ANR Vs. INFOSYS TECNOLOGIES LTD. [2013 (2) TMI 305 - Karnataka High Court] and Season J. David and Co. P. Ltd. v. CIT [1979 (5) TMI 3 - SUPREME Court] - Decided against the Revenue. Deduction on account of warranty provision - Post sales expenses - Held that:- company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provisions for the products should be based on the estimate at year end of future warranty expenses. Such estimates needs reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount - Assessee has not maintained separate account - He is not able to state what is the total amount spent towards this post sale expenses - Matter remitted back.

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• 2013 (7) TMI 450
  Recovery - Stay application u/s 220(6) – Held that:- It would be appropriate to allow the Appellate Commissioner to decide whether and on what conditions the recovery pending appeal should be stayed -the recovery notice was issued even without waiting for the limitation period for filing the appeal to expire - Particularly, when the petitioner was a Government company, we wonder why such extraordinary urgency was shown- Court relied upon the decision of UTI Mutual Fund v. Income-Tax Officer (2012 (3) TMI 333 - BOMBAY HIGH COURT ) in which the demand notice was quashed and recovery was suspended till the appeal is decided. Appellate Commissioner would have the power to grant stay pending appeals - ITAT would have inherent powers to grant stay pending appeal and also relied on section 220(6) of the Income Tax Act, which authorises the Assessing Officer where the appeal is pending on his discretion and subject to such conditions as he may think fit to treat the assessee as not being in default in respect of the amount in dispute in the appeal – petition decided in the favour of the assesse.

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• 2013 (7) TMI 449
  Claim of bad debts on account of interest - loss of interest was not crystallized - Whether Tribunal was justified to reverse the order of CIT(A) in deleting the disallowance made in respect of write off of the interest claim for even though loss of interest was not crystallized during the year - Held that:- The Tribunal has rightly appreciated the law on the subject and allowed the claim of the assesse - Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the assesse - When a bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer – relying upon the decision of CIT Vs. Punjab Agro Industries Corporation (2001 (9) TMI 87 - PUNJAB AND HARYANA High Court) and T.R.F. Ltd. vs. CIT [323 ITR 397], decided against the revenue.

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• 2013 (7) TMI 448
  Capital loss from sale of shares - tax planning versus tax avoidance - colourable device - whether the shares were sold at a correct price or at the price which was artificially arrived at to inflate the loss – Held that:- the transactions would fall within the legitimate tax planning and would not amount to colorable device for tax avoidance. He found that the assessee had relied on the report of the valuer, who had adopted correct parameters. The assessee had sufficient justification for sale of these shares - CIT [A] as well as the Tribunal both had gone to the factual findings pertaining to the methodology adopted by the valuer in valuing the shares - UNION OF INDIA V AZADI BACHAO ANDOLAN & ANR. (2003 (10) TMI 5 - SUPREME COURT) - We have also noticed that the Assessing Officer except for doubting such valuation, on the basis of circumstances, did not have anything concrete at hand to hold that was not the correct price - In the circumstances, we do not find that the Tribunal had committed any error – appeal decided against the department. Once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable devise and consequently earn any disqualification.

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• 2013 (7) TMI 447
  Reassessment - Validity of notice u/s 148 - disallowances of expenses under Section 14A - short payment of fringe benefit tax. - addition of un-utilized CENVAT on raw materials in the valuation of the closing stock – Held that:- The Tribunal correctly held that any attempt on the part of the Assessing Officer to re-examine such issues would only amount to a change of opinion - in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition- the same authority cannot re-examine the issue under reopening- the crucial requirement under proviso to Section 147 of the Act for issuing notice beyond four years from the end of relevant assessment year of income escaping the assessment due to the failure on the part of the assessee to disclose truly and fully all material facts in cases other than in case of non filing of the returns, is absent – appeal decided against the department.

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• 2013 (7) TMI 446
  Reopening of assessment - whether the proceedings u/s 147 can be justified beyond a period of four years with reference to any act or omission on the part of the assessee in effecting the true and full disclosure - Held that:- the course and proceedings pursued by the third respondent are in conformity with the statutory prescription and there is no violation of any legal provisions or binding judicial precedents - no opinion was expressed by the respondent thus it cannot be said that section 147 proceedings have been initiated by change of opinion/by way of review - In any view of the matter, it is more a question of fact and the true state of affairs can be brought to light only on furnishing the export turnover details sought for from the part of the third respondent and the actual fact has to be established by the assesse – petition decided against the assesse.

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• 2013 (7) TMI 445
  Reopening of assessment - donations for scientific research or rural development - disallowance of deduction u/s 80GGA as assessee was having income/loss under the head ”income from business or profession” - Held that:- The assessment order passed u/s 143(3) does not reveal even semblance of enquiry by the AO with regard to claim of deduction u/s 80GGA. No other material was submitted to demonstrate that the AO had conducted any enquiry with regard to claim of deduction u/s 80GGA. When the assessee had made the claim of deduction u/s 80GGA for the first time in the revised return it was incumbent upon the AO to properly examine the allowability of the claim made by the assessee. In view of restriction imposed under sub-section (3) of section 80GGA AO having not at all considered the issue or applied his mind to the claim of deduction u/s 80GGA, there was escapement of income and as such initiation of proceeding u/s 147 is valid - not inclined to accept the contentions of assessee that the reopening of assessment was invalid. Against assessee. Since the assessee during the year had incurred loss from business and had no income chargeable to tax under the head ‘income from business or profession’ sub-section (3) of section 80GGA will not apply such contention is not acceptable for the simple reason that “income” as defined u/s 2(24) is an inclusive definition and also includes loss. As decided in CIT V/s. Hara Prasad & Co. Pvt. Limited (1975 (2) TMI 2 - SUPREME Court) the words “income” or “profit and gains” should be understood as including losses also, so that, in one sense “profits and gains” represent “plus income” whereas losses represent “minus income”. Loss is negative profit. Both positive and negative profits are of revenue character. Both must enter into computation, wherever it becomes material in the same mode of the taxable income of the assessee. Also see Reliance Jute and Industries Limited V/s. CIT (1979 (10) TMI 2 - SUPREME Court) and CIT V/s. Goldcoin Health (P) Ltd. (2008 (8) TMI 5 - SUPREME COURT ). Therefore, in view of the specific bar created under sub-section (3) of section 80GGA, the assessee is not entitled to avail deduction u/s 80GGA - grounds raised by the assessee are dismissed. Deduction alternatively claimed u/s 35AC in case deduction u/s 80GGA is not allowed - additional ground - Held that:- It is an undisputed fact that in the original return of income the assessee had claimed deduction u/s 35AC which was withdrawn in the revised return and claimed deduction u/s 80GGA. The original assessment u/s 143(3) was completed on the basis of the revised return filed by the assessee. Thus, the assessee having given up its claim u/s 35AC in the revised return filed by him, the claim of deduction/s 35AC cannot be allowed on the basis of the original return. See CIT V/s. Mahendra Mills (2000 (3) TMI 3 - SUPREME Court) - Against assessee. Interest u/s 234D levied - Held that:- The provision contained u/s 234D(1) along with Explanation-1 if construed harmoniously would mean that if there is no regular assessment i.e., assessment u/s 143(3) or section 144 in case of an assessee for an assessment year, then an assessment made for the first time u/s 147 or section 153A shall be regarded as a regular assessment. However, in case of the assessee an assessment has already been completed u/s 143(3). Therefore, it cannot be said that the assessment made u/s 147 is a regular assessment in terms with the Explanation-1 to section 234D, thus no interest u/s 234D is leviable on the assessee in the assessment completed u/s 147. See Dredging Corporation of India Ltd. V/s. ACIT (2011 (7) TMI 584 - ITAT VISAKHAPATNAM). In favour of assessee.

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• 2013 (7) TMI 444
  Interest on interest free loans / advances given to subsidiaries and associate concerns - CIT(A) deleted addition - Held that:- It is an undisputed fact that the assessee had granted loans and advances to its associates and the loans and advances outstanding as on 31.03.2001 to its subsidiaries and its associates was same as that on 31.03.2000 except for an increase of Rs. 0.03 lacs, which supports the contentions of the assessee that no new loans and advances have been granted to the aforesaid concern during the year. Further, from the balance sheet as on 31.03.2001, the assessee has demonstrated that it was having sufficient interest free funds at its disposal. Further, the A.O. has not brought out any tangible evidence to support his contention that interest bearing loans taken by the assessee for the purpose of its own business have been used for non business purpose and the nexus between interest bearing loans and interest free advances has not been proved by the A.O. As decided in assessee's own case [2013 (5) TMI 760 - GUJARAT HIGH COURT] there is no diversion of interest bearing funds to interest free advances - disallowance made under section 36(1)(iii) deleted - In favour of assessee. Disallowance u/s.14A - Held that:- It is an undisputed fact that no fresh investments have been made by the assessee during the year. It is also a fact that as per the balance sheet of the assessee, the interest free funds in form of capital, reserves and surplus are to the extent of Rs. 84,45,567/- lacs whereas the investments are to the extent of Rs. 22.707/- lacs. Thus, the share holder funds are far in excess of the investments. See CIT vs. Reliance Utilities & Power Ltd.[2009 (1) TMI 4 - HIGH COURT BOMBAY] & CIT vs. Hero Cycles Ltd. (2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT). In the present case, the A.O. has not given a specific finding with respect to the expenditure incurred by assessee for earning tax free income. Further, the interest free funds available with the assessee are far in excess of investments. Thus no addition u/s. 14A can be made. In favour of assessee.

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• 2013 (7) TMI 443
  Disallowance u/s 14A - Held that:- With reference to investment in Integra Apparel & Textiles (P) Ltd., these amounts are out of advance received thus these amounts also do not call for any disallowance. The investment subsidiary Morarjee International Sri was made out of receipts from sales and further the dividend received from this company is taxable. Therefore, question of invoking section 14A does not arise. Apart from the above, assessee also had sufficient common funds as per the table extracted above so as to make investments in the group companies. Following the principles laid down in the case of Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - HIGH COURT BOMBAY) disallowance of proportionate interest under section 14A also does not arise on the facts of the case. Apart from that, as rightly held in the case of M/s. Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) application of Rule 8D cannot be made in this assessment year. Therefore, the disallowance made under section 14A by the AO and partly confirmed by the CIT(A) does not arise. However, as seen from the order of the AO in A.Y. 2004-05, consequent to the directions of the ITAT the AO disallowed an amount of Rs. 50,000/- as amount in relation to investment activities under section 14A. Therefore, on the facts of the case restrict the disallowance to a part of administrative expenses at Rs. 50,000/-, which is reasonable. Ground is partly allowed. Recalculating the long term capital gains in stead of long term capital loss - assessee purchased shares of its subsidiary & subsequently sold all the shares held as investment at loss - AO was of the opinion that the said sale of shares is not a genuine sale and disallowed the loss on the ground that sale is made to related parties to evade tax redetermining the sale price on the basis of (a) book value, (b) price as mentioned at d-mat Bank A/c of HDFC, and (c) yield method and arrived at an average sale price of Rs. 74.13 per share also invoking provisions of section 2(22B)(i) - Held that:- It seems to be an error in mentioning the value as the said company is a private limited company and there cannot be any market value as it is not quoted in the Stock Exchange. Therefore, part of AO's finding about the value of demat statement is not correct. With reference to the future profit and also adoption of book value there is nothing brought on record by the AO how these amounts were arrived at. Therefore, unable to support the substitution of value even on facts. Be that as it may, first of all, the AO does not have power under the I.T. Act to substitute 'fair market value' for 'full value of consideration'. There are specific provisions for substitution of fair market value for full value of consideration like computation under section 50C and 50D at present but in the relevant assessment year, the AO has no power to adopt the 'fair market value' in place of 'full value of consideration'. This fair market value substitution is applicable only to the situation where the AO is empowered to determine the fair market value under the Act. As far as computation of capital gains on sale of shares are concerned under section 48 it does not empower the AO to substitute the fair market value for the full value of consideration. See CIT vs. George Henderson and Co. Ltd. [1967 (4) TMI 18 - SUPREME Court], CIT vs. Gillanders Arbuthnot & Co. [1972 (9) TMI 13 - SUPREME Court], K.P.Varghese vs. ITO [1981 (9) TMI 1 - SUPREME Court]. Thus no hesitation in allowing the grounds raised by the assessee on the issue and direct the AO to adopt the full value of consideration as received by the assessee and to recompute the long term capital gains or losses accordingly. Adoption of value of shares of PMP Components Pvt. Ltd. - at Rs. 56.03 per share or Rs. 74.13 per share for the purpose of calculating Long Term Capital Gain - Held that:- AO has no powers to substitute the value other than what the assessee has received as full value of consideration. In view of this the ground raised by the Revenue does not survive. Addition on account of forfeiture of shares made by the AO - CIT(A) deleted additions - Held that:- the share application money was a capital receipt when it was received in the initial stage. The share application money was forfeited in order to restructure the capital of the company, then also the nature of the receipt cannot be changed from capital to revenue. It is not correct to say that all sorts of receipt are taxable in the hands of the assessee u/s. 56. Capital receipts are not taxable as Income from Other Sources. Since it is not an income or revenue receipt, section 28(iv) also is not applicable, as only revenue receipt can be taken as income u/s. 28(iv). It is also clear that forfeiture of share application money is not casual or non recurring receipt and hence not taxable u/s. 10(3). Thus since the amount is capital in nature the same cannot be brought to tax. In favour of assessee. Value of leasehold land received by the assessee company - CIT(A) deleted the addition - Held that:- Receipt of leasehold land at Nil value is not an income u/s. 56(1) but a capital receipt in the hands of the assessee. The receipt is on account of leasehold land only as per tri-party agreement with MIDC and MLPL with the assessee. Hence, the nature of receipt is capital in nature and not taxable in the hands of the assessee. The A.O. is directed to delete this addition. Against revenue.

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• 2013 (7) TMI 442
  Rectification u/s 154 - CIT(A) rejeced the plea of the assessee that the AO erred in assuming the jurisdiction u/s 154 in respect of a debatable issue - whether the CIT(A) has erred in not directing the AO to grant interest u/s 244A on 'refund' due - Held that:- It is settled proposition of law that a mistake apparent from the record must be an obvious and patent mistake and not something which can be established by long drawn process of reasoning can be rectified u/s 154.Thus, a mistake cannot be rectified u/s 154 when there is a debatable point of fact or law. In the case of HEG Ltd. (2009 (12) TMI 35 - SUPREME COURT) held that interest component in the refund will partake the character of 'amount due' u/s 244A, it became an integral part of the refund amount which is not paid after the said amount become due and payable.Similarly, in the case of Sandvik Asia Ltd (2006 (1) TMI 55 - SUPREME Court), it was held that once the interest became due it takes the same colour as the excess amount of tax which is refundable on regular assessment. Thus the issue of grant of interest on interest is a highly debatable and rather allowable claim in favour of the assessee. Therefore, a decision on such a debatable issue cannot be passed under the provisions of sec. 154. Accordingly,set aside the impugned order passed u/s 154 being beyond jurisdiction of the AO in the peculiar facts and circumstances of the case - appeal of the assessee is allowed.

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• 2013 (7) TMI 441
  Export promotion expenses disallowed - assessee is a 100% export oriented unit engaged in manufacturing (assembly and test) of Switch Mode Power Supplies (SMPS) used in computer industry and information technology application - Held that:- When the assessee has to manufacture the product as per the specification provided by the QCS, then the only role of the assessee to participate in the joint inspection of the raw material to be supplied by the AE. When the entire finished products was to be supplied to the AE and the assessee is a captive supplier of finished goods to the AE, the visit undertaken by the directors of the assessee cannot be said to be in connection with wholly and exclusively for the business purpose of the assessee. Though, the assessee has produced the details to show that the assessee is in touch with the ultimate buyer of the products and discuss the requirement and specification of the buyer as it is mentioned in the e-mail exchange between the assessee and the buyers however, the foreign visits for the purpose of meeting with the buyers of the assessee's AE/QCS have no direct nexus with the manufacturing activity of the assessee. Against assessee. Transfer Pricing adjustment made by the TPO/AO - CIT(A) included 3 new comparables and thereafter arithmetic means worked out at 5.42% - Held that:- The third comparable included by the CIT(A) is Alpha Transformers Ltd which itself shows that the said company is functionally different from the assessee as in the business of transformers which cannot be said to be in the same business as of the assessee, M/s BCC Fuba India Ltd which is showing persisting loss from year after year and M/s ECE Industries Ltd as evident from the P&L account that an extra ordinary item of income has been shown on account of sale of business, thus all the three cannot be considered as a good comparables of the assessee. Accordingly, these comparables are excluded and therefore, the arithmetic means computed by the TPO is restored. Against assessee. CIT(A) allowed (-)5% deduction to arrive a Arm's Length Price by invoking the 2nd proviso to section 92C - Held that:- On principle, assessee has not disputed the legal proposition that the benefit of +/- 5% as provided under the proviso to sec. 92C(2) is not standard deduction. Even other wise, after the retrospective amendment in sec 92C(2A) whereby an explanation has been inserted, there is no ambiguity on this point that this tolerance range of 5% is not a standard deduction for computing ALP but this is a range and if the assessee's price is within + -5% of the arithmetic means of more than one price of comparable, then no adjustment is required to be made. Hence, the TPO/Assessing Officer is directed to compute the ALP accordingly.Against assessee.

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• Service Tax

• 2013 (7) TMI 460
  Order u/s 73C - Provisional attachment to protect revenue in certain cases. - Whether order passed u/s 73C is appealable to Tribunal - Held that:- Action under section 73C is taken pending any proceedings under section 73 or 73A - During the pendency of the proceedings where service tax liability or penalty has to be adjudged, as a measure of protection of the interests of Revenue, attachment of property has been permitted under section 73C. Section 73C per se does not empower the Commissioner of Central Excise Commissioner or any other officer to determine the service tax liability or penalties. That has to be adjudged under the provisions of Section 73 or 73A or any other provisions of the law as provided for - Order passed under section 73C of the Finance Act, 1994 is not appealable to this Tribunal - Decided against assessee.

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• 2013 (7) TMI 459
  ‘Management Consultancy Service’ - the appellant has been paying service tax on the advisory services under the category of ‘Banking and Other Financial Services' and the department has accepted the same – Hel that:- Department cannot demand service tax for the previous period on the very same activity under the category of ‘Management Consultancy Services' – advisory and due diligence services on acquisition of shares in listed companies rendered to an existing organization cannot be considered to be ‘Management Consultancy Service' in relation to developing or upgrading of any working system in any organization - relying upon the judgement of HSBC Securities & Capital Markets (I) Pvt. Ltd. vs. Commissioner of Service Tax,(2008 (6) TMI 159 - CESTAT MUMBAI). Waiver of pre deposit – strong case in the favour of the assessee – requirement of pre deposit waived – stay granted – appeal decided in the favour of the assessee.

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• 2013 (7) TMI 458
  Refund on Port Services – whether assessee would be entitled for refund on port services - Held that:- The goods in question were exported during the period July 2008 to December 2008, the Port services availed prior to July 2008 cannot be treated as used for export of the goods exported from, July to December 2008 - port services were availed prior to period ending September 2008 - refund is not admissible considering the date of filing of the refund claim - refund of Port services is admissible when said service is received and used by the exporter for the export of said goods – appeal decided against the assessee.

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• 2013 (7) TMI 457
  Rebate Claim - whether the appellant can claim rebate on two transactions of the service tax paid on GTA service used for transportation of goods from their factory to the port of export - Held that:- Appellant is entitled to a rebate on one of the transaction - it is not the case of the department that the lorry receipts did not tally with the export documents in respect of other essential particulars - in other words, a broad correlation is found in the case of the assessee - for the second claim of refund there is no specific reference to the input service on which rebate is claimed, let alone any nexus between the input service and the export of goods - thus the appellant has failed to establish any basis for the rebate claim – appeal decided partly in the favour of the assessee.

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• 2013 (7) TMI 439
  Cenvat Credit - Services used by the appellant as input service were disregarded by the Adjudicating Authority - Service tax paid on such services was not allowed to be set off against excise duty liability in respect of products manufactured by it - Held that:- Not any inquiry done from the end of the service provider to ascertain the nature of service provided and whether such service was consumed either in manufacture or providing output service by the appellant - Service tax levy being destination based consumption tax - necessary for record to see the destination of service so consumed to consider admissibility of Cenvat credit claimed applying relevant tests – Appeal remanded to learned Adjudicating Authority

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• Central Excise

• 2013 (7) TMI 440
  Stay Application – Pre-deposit of amount - alteration in MRP - Applicants made import of automobile parts liable for CVD - for the purpose of CVD - Applicants declared an MRP to the Customs authorities - Goods were assessed and appropriate duty was paid - Applicants availed credit on the CVD paid - Goods cleared to domestic market after repacking amounting to manufacture as per the Chapter Note to Chapter 87 of the Central Excise Tariff by declaring the MRP much less than the MRP declared to the Customs authorities - Held that:- There cannot be different Retail Price for the purpose of CVD and for the purpose of Excise duty in respect of the same goods - Applicants failed to make out a case for waiver of the pre-deposit of the dues - Directed to deposit the amount of duty within eight weeks. Decided against the Assessee.

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• 2013 (7) TMI 438
  Recovery proceedings despite stay order - supply of stay order - Summon to Superintendent by the CESTAT to witness - Certified copy of Stay Order not supplied to the concerned Departmental Officer - Instead of any certified copy of the ad interim stay order dt. 07/03/2013, what was supplied to the Superintendent on 08/03/2013 was Appendix XXVI with the words "Ad interim stay granted" scribbled by the appellant on its left-hand side margin – Held that:- “The Superintendent of Central Excise and Customs, Kakinada came all the way to Bangalore and stayed in the city overnight in order to answer our summons. He is present before us in his official uniform and has been introduced to us by the Commissioner (AR). He has been constrained to keep away from his official duties for two days on account of the reprehensible conduct of the appellant. From the submissions made before us, we are satisfied that the Superintendent's presence in the Court today was not warranted in the correct facts and circumstances of this case” - Appellant to pay costs of the respondent(Department) – Directed appellant to deposit a sum of Rs.10,000/- (Rupees ten thousand only) with the Government under the appropriate head - The witness discharged.

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• 2013 (7) TMI 437
  Refund claim of education cess and S&H education – exempted goods - Held that:- As per Hon'ble Himachal Pradesh High Court in the case of Indo Farm Tractors & Motors Ltd. v. Union of India – [2007 (7) TMI 150 - HIGH COURT, HIMACHAL PRADESH], while interpreting the provisions of Finance Act, 2004 vide which the education cess was levied held that in case the goods are exempted from payment of basic duty, the education cess is leviable - refund claim of education cess and S&H education was not entertainable. Decided against the Assessee.

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• 2013 (7) TMI 436
  Restoration of appeal – Time limit - Application filed after almost 16 years from the order of dismissal – Held that:- Relying upon the decision of the Hon'ble Bombay High Court in Kirtikumar Jawaharlal Shah vs. Union of India reported in [2012 (10) TMI 228 - BOMBAY HIGH COURT ] - Application for restoration is to be made within three months from the dismissal of the appeal - Application for restoration of the appeal is dismissed. Decided against the Assessee.

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• 2013 (7) TMI 435
  Levy of AED (T&TA) in addition of Compounded levy of duty on fabrics - Majority order - Rule 15 of the Central Excise (No.2) Rules, 2001 - Amount of duty fixed under Compounded Levy Scheme Notification No.33/01-CE, dt.28.6.01 is total amount of duty payable and therefore it includes all types of Excise duties - Liablity to pay AED (T&TA) in addition to Excise duty – Held that:- It is undisputed that AED (T&TA) is levied under the special provisions of the Act and these are to be recovered as duty of excise under the provisions of Central Excise Act, is also mandated in the very same Act - Clause 3 of notification No.33/2001-CE specifically reads that such payment shall be in full discharge of his liability or the duty leviable on his production of the embroidery during the said shift. This clause needs to read with the words used in the preamble to the notification, and holistic reading will indicate that an assessee need not discharge any further duty under AED (T&TA) - Decision of the Tribunal in the case of Toyota Kirloskar Motor Pvt. Ltd.- [2007 (5) TMI 464 - CESTAT, BANGALORE] will be applicable – Appeal allowed – Decided in favor of Assessee.

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• 2013 (7) TMI 434
  Legal baking of information sought from the assessee - Application for rejection of Stay – Assessee did not cooperate to give the details as per the annexure 'A' attached to the miscellaneous application - Query as to under which provisions of the law these details are sought from the Assessee, Revenue unable to specify the provisions but tried to convince - stating that these details are being called when the assessee files an application for registration of unit – Held that:- Not a convincing answer of a specific query under which provisions of the law these details are required - Any information sought not having the backing of the law and if not given - cannot be the ground for seeking vacation of the stay – Decided against the Revenue. Extension of Stay Application – Held that:- As per the Larger Bench decision of the Tribunal in the case of IPCL vs. C.C.E., Vadodara [2004 (6) TMI 52 - CESTAT, NEW DELHI] as upheld by the Hon'ble Supreme Court, states that Revenue gets the liberty to bring to the notice of the Tribunal of any change in the circumstances, which can be considered by the Bench before granting extension of stay - There is no change in the circumstances – Extension was granted to the Assessee – Decided in favor of Assessee.

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• 2013 (7) TMI 433
  Manufacturing of special purpose vehicle - Benefit of Notification NO. 6/2002-CE dated 1.3.2002 and subsequent Notification No.06/2006-CE dated 1.3.2006 – Condition for benefit of the Notifications - Duty is payable on the equipments used in the manufacture of Special Purpose Vehicle - Benefit of the Notifications denied on the ground that the appellants have not fulfilled the conditions of the Notifications – Held that:- The exemption (from payment of duty) is available provided excise duty has been paid on the chassis and the equipment used in its manufacture - Excise duty has been paid on the chassis. Excise duty has also been paid on all the inputs used in the manufacture of this vehicle – Incorrect reasoning given by Revenue that ‘equipment used' in the notification refers to the final body manufactured by the appellants - The term ‘equipment' used in the notification necessarily refers to the material and the inputs which have gone into manufacturing the special purpose motor vehicle - Appellants are covered by the exemption notification - Appellants are entitled to the benefit of the exemption notification following the judgment in the case of Hydraulic Industries [2002 (10) TMI 105 - SUPREME COURT OF INDIA] Matter is remanded for de novo adjudication keeping all issues open.

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• CST, VAT & Sales Tax

• 2013 (7) TMI 462
  Validity of stay proceedings - Additional Commissioner stayed 70% of the disputed tax, till disposal of the appeal - Tribunal confirmed Commissioner's order - Held that:- During the pendency of the statutory appeal, the Tribunal is required to look into the prima facie merit of the case as well as financial condition of the applicant. Further, the appellate authority is required to consider the relevant factor like financial hardship and other relevant facts because the condition of deposit will make the purpose of filing of appeal itself nugatory - Order passed by the Tribunal is modified to the extent that disputed tax raised by the Assessing Authority shall remain stayed till disposal of the first appeal - Decided in favour of Assessee.

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• 2013 (7) TMI 461
  Levy of additional sales tax - Tribunal held that Additional Sales Tax cannot be levied if the taxable turnover is less than 100 crores - Held that:- After taking the taxable turnover for the entire year, the taxable turnover upto the date of amendment has to be assessed with reference to the relevant tax rate therein applicable to the period - matter is remanded back to the Assessing Officer to work out the liability based on the decision of this Court. Thus, taking the taxable turnover for the entire year, the taxable turnover up to the period 31st July 1996, has to be worked out to attract the liability at the rates specified therein and beyond that, the liability of the turnover has to be worked out based on the amended provision depending on the taxable turnover crossing Rupees 100 crores for the whole year - Following decision of State of Tamil Nadu Vs. National Time Company [2010 (7) TMI 842 - MADRAS HIGH COURT] - Decided against Revenue.

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