Wednesday, May 29, 2013

Section 13 can’t be invoked to deny exemption if siphoning off of funds by trustee can’t be proved

In absence of material on record showing that difference in cost of construction of building disclosed by assessee-society and estimation made by DVO resulted in siphoning off of money by managing trustee, AO was not justified in denying exemption of income to assessee by invoking provisions of section 13(1)(c)

In the instant case, the assessee-society was running an educational institution. During the assessment proceedings, the AO took a view that there was huge difference in the amount claimed to have been spent by the assessee on construction of building and estimation made by the DVO and it could be concluded that the money was being siphoned out of the society to benefit the managing trustee. The AO held that there was clear violation of section 13(1)(c)(ii) and assessee was not entitled to exemption under sections 11 and 12. The CIT (A) confirmed the order of AO. Aggrieved assessee filed instant appeal.

The Tribunal held in favour of assessee as under:

1) If the person in the prohibited category renders services and in lieu thereof a benefit is provided then the case doesn’t fall in clause (ii) of section 13(1)(c);

2) A benefit would be said to have been given to the persons of prohibited category, if they in return do nothing but only enjoy the fruits of the trust/society and take away the funds/income of the society for their personal benefit or for discharging personal obligations. There was no such situation in the case under consideration;

3) Section 13 carves out an exception to the general exemption granted under sections 11 and 12. The onus lies on the revenue to bring on record cogent material/evidence to establish that the trust/charitable institution is hit by provisions of Section 13;

4) The AO had made out the case on presumption, as he had neither brought on record any evidence nor was able to point out modus operandi, and how was the managing trustee directly or indirectly benefited out of the construction cost of building of the society;

5) Thus, it was held that the AO had erroneously invoked section 13 and withdrawn benefit of section 11, read with section 12. Consequently, the appeal filed by the assessee was allowed - Amol Chand Varshney Sewa Sansthan v. ACIT [2013] 33 taxmann.com 366 (Agra - Trib.)

Expenditure disallowed for default in withholding tax would qualify for sec. 80-IB deductions

Disallowance for non-deduction of TDS liability would increase profit of assessee from business of developing housing projects and ultimate profit would qualify for deduction under section 80-IB

In the instant case, interalia, the issue that arose before the Gujarat HC was as under:

Whether disallowance under section 40(a)(ia) would  qualify for deduction under section 80IB(10) of the Act?

The High Court held as under:

Even if a expenditure incurred by the assessee for the purpose of developing housing project was not allowable by virtue of section 40(a)(ia) of the Act, since the assessee had not deducted the tax at source as required under law, it couldn’t be denied that such disallowance would ultimately go to increase the assessee's profit from the business of developing housing project. So, whatever be the ultimate profit of assessee even after making disallowance under section 40(a)(ia) of the Act, would qualify for deduction as provided for under the law. As no question of law arose, tax appeal was dismissed – ITO v. Keval Construction [2013] 33 taxmann.com 277 (Gujarat)

Method of discounted cash flow can be used for share valuation if other methods of sec. 92C are not applicable

Where assessee-company sold its stake in an Indian company to its foreign associate company, discounted cash flow method could be used for valuation of shares sold, due to non-applicability of other methods prescribed under section 92C(1)

In the instant case, the assessee-company owning 84.97% of shareholding of AITPCL India, entered into a contract with its AE for sale of its stake in AITPCL. The TPO valued the shares using discounted cash flow method and made Transfer Pricing adjustment. The objections filed by the assessee were rejected by the Dispute Resolution Panel. Aggrieved assessee filed instant appeal.

The Tribunal held as under:

1) As per Section 92C, ALP in relation to an international transaction has to be determined by one of the six methods mentioned therein;

2) Re-sale price Method couldn’t be applied in the instant case because the shares sold by the assessee were, in turn, not sold to anybody else. Cost Plus Method couldn’t be applied since assessee had made no value addition to any item. Original cost per share was only its face value, and the cost incurred which resulted in increase of its intrinsic value couldn’t be correctly ascertained. Neither Profit Split Method nor TNM Method could be used. Further, similar companies doing similar share transactions were hard to find;

3) Purpose of transfer pricing rules is to verify whether the prices at which an international transactions have been carried out is comparable with the market value of the underlying asset or commodity or service. This might require some subtle adjustments in the methodology prescribed for evaluation of an international transaction;

4) A water-tight attitude of interpretation of the prescribed methods will defeat the very purpose of enactment of transfer pricing rules and regulations and also detrimentally affect the effective and fair administration of an international tax regime;

5) Interpretation of the word 'shall' need not always be mandatory and could also be read as 'may', is a rule laid down by the Gujarat High Court in the case of CIT v.Gujarat Oil & Allied Industries [1993] 201 ITR 325;

6) Hence, while finding the most appropriate method, it is not that modern valuation methods fitting the type of underlying service or commodities have to be ignored. Fixing enterprise value based on discounted value of future profits or cash flow is a method used worldwide.

Endeavour was only at arriving at a value which would give a comparable uncontrolled price for the shares sold. If viewed from this angle, it couldn’t be said that the discounted cash flow method adopted by the TPO was not in accordance with section 92C(1) - Ascendas (India) (P. )Ltd. v. Dy.CIT [2013] 33 taxmann.com 295 (Chennai - Trib.)

Saturday, May 25, 2013

Services availed for market research and customer’s credit rating are eligible for input credit

Management consultancy service availed by assessee relating to conduct of 'market research' and customers 'credit rating' in international market to improve its market condition abroad is eligible for input service credit

In the instant case, the assessee availed of management consultancy service relating to conduct of market research and customers credit rating in international market to improve its market condition abroad. The Department denied credit on ground that that there was no nexus of these services with manufacture.

The Tribunal held as under:

1. The definition of input services in the inclusive portion clearly includes market research services on which credit is available;

2. Credit rating of customers also relatables to sales promotion and business of manufacture. In any case, as the activity was specifically included in the definition of input services, credit thereof couldn’t be denied -  Gujarat Reclaim & Rubber Products Ltd. v. Commissioner of Central Excise [2013] 33 taxmann.com 276 (Ahmedabad - CESTAT)

Friday, May 24, 2013

Sec. 54F benefit available on sum invested in construction of house nonetheless parts of investment may be from different sources and not from cap gains

Where capital gain is assessed on notional basis under section 50C, whatever amount is invested in new residential house within prescribed period under section 54F would get benefit of deduction nonetheless parts of the investments may be from different sources and not from capital gains

In the instant case, the assessee had sold a house property for Rs. 20 lakhs having registration value of Rs 36 lakhs as fixed by the State authorities under the Stamp Act and had sought exemption under section 54F as he had re-invested Rs. 24 lakh for construction of residential house. The AO had deducted the cost price of land paid by the assessee at Rs. 1.93 lakhs and Rs. 20 lakhs towards investment in construction of residential house from the value of Rs 36 lakhs of the property under section 50C, and determined the long-term capital gain of Rs. 14.06 lakhs.The Tribunal upheld the order of the AO. Aggrieved by the order of Tribunal, assessee filed the instant appeal.

The HC held in favour of assessee as under:

1) The assessee had stated that he has invested Rs. 20 lakhs out of the sale consideration and had made further investment of Rs. 4 lakhs of agricultural income towards construction of the house. The total amount shown to have been invested for construction of house was Rs. 24 lakhs. The benefit of exemption of Rs. 4 lakhs was disallowed, which didn’t appear to be sound and proper;

2) As the ultimate object and purpose of section 50C is to see that the undisclosed income of capital gains received by the assessees should be taxed and the law should not encourage and permit the assessee to peg down the market value at his whims and fancy to avoid tax. In other words, the ultimate object is to curb the growth of black money;

3) When the capital gain is assessed on a notional basis, whatever amount is invested in new residential house within the prescribed period under section 54F, the assessee should get the benefit of deduction, irrespective of the fact that the funds from other sources are utilized for new residential house;

4) In that context, whatever amount was actually invested by the assessee for construction of house should be deducted, irrespective of the fact that parts of the investments were from different sources and not from the capital gains. Thus, full reinvestment made by assessee (i.e., 24 lakhs) in construction of residential house was to be allowed under section 54F - Gouli Mahadevappa v. ITO [2013] 33 taxmann.com 47 (Karnataka)

Tuesday, May 21, 2013

Margin of trading segment can’t be applied to indenting segment; no re-characterization unless facts justify

TPO cannot re-characterize assessee's indenting activity as trading activity unless it can be demonstrated by facts on record that the assessee though calling it a "service provider" was actually acting as a "trader". Absent facts justifying such re-characterization, there was no justification for TPO to apply trading margins to assessee's indenting activity under TNMM

In the instant case, the assessee had two segments-trading and indenting. Indenting was done by the assessee for its overseas AE and bulk of its turnover was from indenting.  Besides, indenting, assessee had small amount of trading with non-AEs. The gross profit margin (commission) for indenting on AE sales was 1.48% while GP margin on trading was 1.81%. TPO applied trading margin of 1.81% to indenting sales and made additions for difference between 1.81% and 1.48%. DRP upheld TPO's additions. Hence present appeal by assessee to ITAT

The Tribunal held as under:

1) As per the contracted terms and the unrebutted stand of the assessee it was merely providing indenting services. At no point of time the title in goods or possession of the merchandise was in assessee's hands. The contract was entered into by SCJ (AE) and Indian customers directly whether for export or import;

2) The negotiations were directly done by AE and the Indian customers, and the assessee merely functions as a facilitator. The assessee doesn’t need to incur cost either for maintaining or storing the inventory or for the transportation as the title in goods was never held by the assessee for its indenting activity as a service provider. Consequently, the assessee was not exposed to any credit risk in maintaining the inventory nor was the assessee exposed to price risk or the risk linked with offering credit sales;

3) It is an accepted economic principle that the trader acting as an entrepreneur is exposed to price risk, cost risk, credit risk, warranty risk etc, which would necessitate the contract being entered into and negotiated by assessee. In its indenting activity these facts were not evident;

4)  The performance of the critical functions, like decisions to enter into contract, to negotiate the terms of the contract, to decide the level and extent of exposure for price risk, credit risk, warranty risk etc are some of the risks to which a trader is exposed. The record shows that at no point of time the assessee was ever exposed to any of those risks as such, the two activities could not be treated at par and thus invited a similar treatment. There was no justification to apply the margins of trading activity to indenting activity in the facts of the present case - Sojitz India (P.) Ltd. v. Dy.CIT [2013] 33 taxmann.com 299 (Delhi - Trib.)

Ambiguous language in Bill can’t be compared with Act ratifying it; SB ruling in Merilyn Shipping’s case not acceptable

The provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date  of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year.

In the instant case, following issue came for consideration of High Court:

“Whether Special Bench ruling in Merilyn Shipping’s case lays down the correct law in respect of interpretation of section 40(a)(ia)”?

The High Court declined to accept the proposition given by the ITAT Special Bench in the case of Merilyn Shipping’s with following observations:

1) The provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and is actually paid within the previous year;

2) Comparison between the pre-amendment and post amendment law is permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment. But the comparison between the draft and the enacted law isn’t permissible. Nor can the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It is the finally enacted law which is the will of the legislature;

3) The Learned Tribunal fell into an error in comparing the wordings of the provisions of Finance Bill and Finance Act for interpretation purposes;

4) The key words used in Section 40(a)(ia) are “on which tax is deductible at source under Chapter XVII –B”. If the question is “which expenses are sought to be disallowed?” The answer is bound to be “those expenses on which tax is deductible at source under Chapter XVII –B. Once this is realized nothing turns on the basis of the fact that the legislature used the word ‘payable’ and not ‘paid or credited’. Unless any amount is payable, it can neither be paid nor credited”;

5) The language used in the draft was unclear and susceptible to giving more than one meaning. By looking at the draft it could be said that the legislature wanted to treat the payments made or credited in favour of a contractor or sub-contractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words “amounts credited or paid” were used only in relation to a contractor or sub-contractor. This differential treatment was not intended. But the language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. Majority views expressed in the case of Merilyn Shipping & Transports are not acceptable - CIT v. Crescent Export Syndicate [2013] 33 taxmann.com 250 (Kolkata)


Actual payment of tax isn’t a precondition to be a resident of partner country, as per India-UAE DTAA

As per Article 4(1) of India-UAE DTAA, to be a resident of contracting State, it isn’t necessary to pay tax there; mere right of contracting State to tax such person by reason of domicile, place of management or incorporation is sufficient

In the instant case, the assessee had challenged the section 40(a)(i) disallowance in respect of professional fee paid  to ‘V’, sole proprietor of KPMG, Dubai. Assessee, contended that these payments were made in pursuance of professional services carried out by KPMG, Dubai as understood in Article 14 of the India-UAE treaty dealing with independent personal services. It was stated that the income was not chargeable to tax in India since ‘V’ was not in India for more than 183 days during the previous year and, therefore, the question of deduction of tax at source didn’t not arise. The AO, on the other hand,  made disallowance on the footing that 'V' couldn’t take benefit of India-UAE treaty, as it couldn’t be treated as a resident of U.A.E. as per Article 4(1) of India-UAE DTAA, as he was not paying tax in U.A.E., which was confirmed by CIT(A). Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) Article 4(1) of India-UAE treaty provides that the term 'Resident' of a 'Contracting State' means any person, who, under the laws of that State (i.e. U.A.E.), is liable to tax therein by reason of his domicile, resident, place of management, place of incorporation, or any other criterion of similar nature. The term ‘liable to tax in the contracting State’ doesn’t necessarily imply that the person should actually pay the tax in that contracting State. Right to tax on such person is sufficient;

2) If a fiscal domicile of a person is in the contracting State, which in the present case has not been doubted was in U.A.E., then he was to be treated as resident of that contracting State irrespective of whether or not that person is actually liable to pay taxes in that country;

3) Liability to tax in the contracting State doesn’t imply that the person was actually liable to tax but would also cover the cases where the other contracting State has the right to tax such person. It is immaterial whether or not such right has been exercised. The basis for deducting the TDS under section 195 by the assessee for making the payment to 'V' was rejected. – KPMG v. JCIT [2013] 33 taxmann.com 23 (Mumbai - Trib.)

Rule of ‘force of attraction’ given in Article 7 of UN Model treaty can’t be imported into Article 7 of India-UK DTAA

Articles 7(1)(b) and 7(1)(c) of the UN Model Convention as well as of the UN Model Convention Commentary can’t be relied upon to come to a conclusion that the connotation of “profits indirectly attributable to permanent establishment” used in Article 7(1) of the Indo- UK treaty incorporated a force of attraction rule

In the instant case, the assessee- a U.K. partnership firm of Solicitors, was engaged in providing international legal services in certain areas and operated through its principal office in UK and branch offices in certain other countries. During the years under consideration, it rendered legal consultancy services in connection with different projects in India. It did not have an office in India. Assessee returned nil income relying on Art 15 of Indo-UK DTAA on the ground that the aggregate period or period of stay of its partners and employees during the said years did not exceed 90 days. Revenue rejected assessee’s claim on the footing that Article 7(1) of Indo-UK DTAA should be interpreted in the light of Article 7(1) of the UN Model Convention to read the force of attraction rule so as to deny assessee the benefit of Article 15 and tax the activities in India applying Article 7.

The Tribunal held in favour of assessee as under:

1) It would not be correct to say that the connotation of “profits indirectly attributable to permanent establishment” in Article 7(1) extend to the two categories of income as specified in clause (b) and clause (c) of Article 7(1) of the UN Model Convention and incorporate a force of attraction rule as held by the Division Bench of this Tribunal in the case of Linklaters LLP;

2) When the connotations of “profits indirectly attributable to permanent establishment” are defined specifically in Article 7(3) of the India-UK DTAA which clearly explains the scope and ambit of the profits indirectly attributable to the PE and the provisions of said article being unambiguous and capable of giving a definite meaning, there was no need to refer to the provisions of Article 7(1) of UN Model Convention which were materially different from the provisions of Article 7(1) of the India-UK DTAA read with Article 7(3) thereof - ADIT V. CLIFFORD CHANCE [2013] 33 taxmann.com 200 (Mumbai - Trib.) (SB)

Tuesday, May 14, 2013

Construction of hostels for educational institutes is deemed to be for non-commercial purpose; ST not leviable

Building constructed as hostel for residence of students studying in an educational institution is a non-commercial/non-industrial building and, therefore, such construction is not liable to service tax under Works Contract Services

The assessee had constructed a Boys and a Girls Hostel for students of educational institutions. It paid service tax thereon under Works Contract Services during April, 2008 to September, 2008 but thereafter it realized that as it was not constructing any building which was being used for commercial purpose therefore it was not liable to service tax, it stopped paying service tax. However, service tax was demanded from assessee.

The Tribunal set aside the service tax demand with the following observations:

1) The building was constructed as hostel for the residence of students studying in medical institute and there was no allegation that the building was used for any other purpose;

2) In above set of facts, the Board Circular No. 80/10/2004-ST, dated 17.9.2004 was applicable and the assessee was not liable to pay service tax. Accordingly, demand was set aside.- Anand Construction Co. v. Commissioner of Central Excise [2013] 33 taxmann.com 59 (Mumbai - CESTAT)

Monday, May 13, 2013

No exemption for ‘LTC’ spent on overseas journey even if part of journey is performed in India

LTC is exempt from tax only when employee has utilized LTC for travel within India. Nothing in Rule 2B provides assessee with a liberty to claim exemption where part of his package is spent on his overseas travel and part of his journey has been performed within India

In the instant case, the assessee had claimed exemption of LTC received from his employer under section 10(5) of the IT Act. The AO disallowed the LTC exemption claimed by assessee after noticing that leave travel package covered Singapore and Malaysia also, on the footing that section 10(5) doesn’t allow exemption for overseas travel. Further, the CIT(A) upheld the order of AO. Aggrieved assessee filed the instant appeal to Tribunal.

The Tribunal held in favour of revenue as under:

1) The provisions of the Act are in relation to LTC for proceeding on leave to any place in India;

2) LTC is exempt from tax only when employee has utilized LTC for travel within India;

3) Nothing in Rule 2B provides assessee with at liberty to claim exemption where part of his package is spent on his overseas travel and part of his journey has been performed within India. Thus, assessee’s exemption claim under section 10(5) was rejected - OM PARKASH GUPTA V. ITO [2013] 33 taxmann.com 169 (Chandigarh - Trib.)

Merilyn shipping’s case – Gujarat HC rejects interpretation made by ITAT’s special bench

Section 40(a)(ia) covers not only the amounts which are payable as on 31st March of a particular year but also amounts payable at any time during the year. The language used in such provision doesn’t convey that such amount must continue to remain payable till the end of the accounting year.

In the instant case, the AO disallowed the entire expenditure incurred by assessee under section 40(a)(ia) on the ground that the assessee had, admittedly, not deducted the tax at source. CIT(A) dismissed assessee's appeal against such disallowance. On further appeal, the Tribunal deleted the entire disallowance, relying on the decision of the Special Bench of the Tribunal (Visakhapatnam) in the case of  M/s. Merilyn Shipping & Transports v. ACIT [2012] 20 taxmann.com 244 (Viskhapatnam). Revenue filed the instant appeal against the order of Tribunal.

The HC held in favour of revenue as under:

1) The term used in section 40(a)(ia) is interest, commission, brokerage, etc., payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used doesn’t convey that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading into words which the Legislature has not used;

2) The Courts in India have been applying the principle of deliberate or conscious omission. Such principle is applied mainly when an existing provision is amended and a change is brought about;

3) The Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, there was serious doubt whether such principle could be applied by comparing the draft presented in the Parliament and ultimate legislation which might be passed. Secondly, the statutory provision was amply clear.

4)
Section 40(a) (ia) covers not only the amounts which are payable as on 31st March of a particular year but also amounts payable at any time during the year, of course, as long as the other requirements of the said provision exist. Thus, revenue's appeal was allowed – CIT v. Sikandarkhan N Tunvar [2013] 33 taxmann.com 133 (Gujarat)

Thursday, May 9, 2013

Distribution of channels and their pricing regulated by TRAI; making JV for such purpose isn’t anti-competitive

Where distribution of channels and their pricing by broadcasters/aggregators was totally regulated by TRAI Regulations and market share of joint venture (JV) formed by opposite parties (‘OPs’), i.e., channel owners, was only 10 per cent, conduct of OPs was not anti-competitive

In the instant case, informant-subscriber had filed information under Section 19 (1)(a) of the Competition Act, 2002 (“the Act”) against opposite parties (‘OPs’), i.e., Zee and Star channels, alleging that proposed JV of OPs in sale and distribution of channels would strengthen their position by adversely affecting competition in relevant market. According to informant, players in market would suffer due to undue advantage available to JV and consumer’s interest would suffer as consumers would be deprived of prices available in market and also would not be able to get competitive rates for channels subscribed to by them.

The Commission held as under:

1) Due to TRAI Regulations distribution of channels and their pricing by broadcasters/aggregators are totally regulated and, therefore, allegations that market power of JV would affect ability of Multi System Operators in bargaining were not substantiated ;

2) OPs could not be said to have violated section 3(3) of the Act in forming a JV. Since market share of JV formed by OPs was 10 per cent only and JV had not affected operations of other broadcasters or aggregators in any way, JV formed by OPs was not a dominant player in relevant market of services of aggregating and distribution of TV channels in case of Multi-system operators, Direct to Home Operators and Internet Protocol Television Operators in India and, therefore, there was no abuse of dominant position. Thus, opposite parties had not contravened provisions of sections 3(3) and 4 of the Act and proceedings in instant case were to be closed - Yogesh Ganeshlaji Somani v. Zee Turner Ltd. [2013] 33 taxmann.com 2 (CCI)

Support services provided by local authorities to business entity are liable to ST

Support services by way of off-street parking or other facilities provided by local authorities to any business entity would be liable to service tax

The local authorities operating off-street parking facilities were not subjected to VAT/service tax in Ireland whereas commercial operators engaged in that activity were liable to VAT/service tax. The Commission of European Communities brought a suit for declaration that said exemption to local authorities was violative of Council Directives.

European Court of Justice held as under:

1) Services provided by Government or local authorities were excluded from charge of service tax to extent specified in negative list under section 66D(a);

2) Such negative list entry, being an exception to charge, was to be strictly construed;

3) Exclusions from negative list provided in clauses (i) to (iv) of section 66D(a) have to be liberally construed, as they were intended to restore general principle of charge of service tax on all services;

4) Therefore, support services by way of off-street parking or other facilities provided by local authorities to any business entity would be liable to service tax - Commission of the European Communities v. Ireland [2013] 30 taxmann.com 234 (ECJ)

Monday, May 6, 2013

CA lost his membership for having two wives; ‘Bigamy’ comes within the meaning of moral turpitude


Moral turpitude means anything contrary to honesty, modesty or good morals. It means vileness and depravity. As the appellant married another woman, while the first marriage was subsisting, and acted contrary to the law and against expectation of his "estranged wife", the offence of bigamy had been committed within the meaning of "moral turpitude"
In the instant case, matrimonial dispute arose between the appellant, a qualified Chartered Accountant, and his wife, which had resulted in granting of divorce decree by the first Additional Family Court, Chennai. The said divorce decree was confirmed by Madras High Court. On a complaint by his estranged wife, under Section 21 of the Chartered Accountants Act, 1949, appellant's name was removed from the Register by the ICAI on the grounds of bigamy charges.   The appellant contended that the allegation of bigamous marriage would not come within the meaning of moral turpitude. Therefore, the disqualification attached to Section 8 of the Act would have no application to the facts of his case. Thus, appellant filed the instant writ to quash the order passed by the ICAI.
The HC dismissed appellant’s writ with following observations:
  1. The appellant and his estranged wife were Hindus, governed under the provisions of the Hindu Marriage Act, 1955. Section 17 of the Act states that marriage between two Hindus is void if two conditions are satisfied, viz., (a) the marriage is solemnized after the commencement of the said Act, and (b) at the date of such marriage, either party has a husband or wife living and the provisions of Sections 494 and 495 shall apply accordingly. Thus, it is evident that if a Hindu marries with a person having a spouse living or he or she has a spouse alive and, marries any person, he would be liable for bigamy charges.
  2. The expression "moral turpitude" isn’t defined anywhere. But it means anything done contrary to justice, honesty, modesty or good morals. It implies depravity and wickedness of character or disposition of the person charged with the particular conduct. If the individual charged with a certain conduct he owes a duty, either to another individual or to the society in general, to act in a specific manner. If he acts contrary to it and does so knowingly, his conduct might be held to be due to vileness and depravity.
  3. In fact, the conviction of a person in a crime involving moral turpitude and impeaches upon his credibility as he would be deemed to have indulged in shameful, wicked and base activities. The offence of bigamy comes within the meaning of "moral turpitude". The appellant had married another woman, while the first wife was alive, he had acted contrary to the law and to expectation of his "estranged wife";
  4. The appellant had attracted disqualification by operation of law, viz., Section 8 of the Chartered Accountants Act, 1949, due to his committing an offence involving moral turpitude. For the foregoing reasons, the writ appeal was dismissed - P. Mohanasundaram v. President, ICAI [2013] 33 taxmann.com 80 (Madras)

Transportation of passengers via ropeway isn’t covered under tour operator’s service

Leasing of a ropeway installed by Municipal Board and operating it to entertain tourists by carrying them from road to hills and back doesn't amount to Tour Operator's services

In the instant case the assessee had leased a ropeway installed by Municipal Board and was engaged in operating it to entertain tourists by carrying them from road to hills and back. The Department sought to levy service tax on the assessee under Tour Operator's services.

The Tribunal held in favour of assessee as under:

1) By a licence deed, the assessee was allowed to operate the ropeway. In terms of section 65(115) to call a person as "Tour Operator" he should be either a planner of tour or an organizer or arranger thereof. So, scheduling tour brings the service provider to the category of tour operator. Meaning of the term "tour" is given by section 65(113) of the Act. "Tour" means journey from one place to another, irrespective of distance from such place;

2) The tourists are not governed by any planning, scheduling, organising or arranging for their journey and are not dependent on the licensee-assessee for such planning, scheduling, organizing or arranging for their tours but only avail the facility of ropeway provided by assessee-licensee during working hours on payment of fees prescribed in licence deed. They are not beneficiaries of any planning, scheduling or arranging of tours, since tour to be taxable has to follow activities enumerated under section 65(115);

3) Accordingly, the assessee had not acted as "tour operator" within the meaning of Section 65(115) for which the taxing entry 65(105)(n) thereof was not attracted. Consequently, the assessee was not liable to service tax - SHAIL SHIKHAR ASSOCIATES V. COMMISSIONER OF CENTRAL EXCISE [2013] 32 taxmann.com 269 (New Delhi - CESTAT) (TM)

HC upholds transfer of order under sec. 127 for co-ordinated investigation; recommends US like ‘restatement of law’

Order of transfer of cases under section 127(2) is administrative and not quasi-judicial merely because assessee is required to be heard before the order is passed. The word 'coordinated investigation' is not vague. It has a definite meaning. The transfer order can’t be set aside merely on the ground that the transfer has been done on vague terms.

In the instant case, following issues arosed before Chattisgarh HC:

A. Whether the power of transfer under Section 127(2) of the Income Tax Act, 1961 is not a judicial power?

B. Order of transfer under sec. 127(2) can’t be passed when there is denial of reasonable opportunity to the assessees?

C. Whether the word 'co-ordinated investigation' is vague and the transfer order can be set aside merely on the ground that the transfer has been done on vague terms?

Deliberating on these issues, the HC held as under:

1) Section 127(2) of the Act provides that transfer can be done only if opportunity is afforded to an assessee and after recording reasons. But merely for this reason it cannot be said to be quasi-judicial in nature;

2) The transfer order does not decide the rights of the parties in the assessment;

3) The ultimate order deciding the right is the order of the assessment which decides the basis and the tax to be paid. This order is a judicial order. The transfer order is merely for administrative reason and it cannot be said that nature of power is judicial;

4) It was not disputed that the search took place in the premises of Mahamaya group of companies, as well as residential and official premises of its directors and its employees, at different places, where incriminating documents were seized;

5) The documents were inter-connected and affected the assessment of the parties. It was necessary to see their overall effect on the assessments. It could only be done after analyzing and investigating into all the documents found at different places and not separately, for which a co-ordinated investigation was necessary. Thus, the words 'coordinated investigation' were not vague;

6) The notice had indicated the reason for transfer as 'centralisation' for 'co-ordinated investigation'. It was for this reason that order for transfer were made. There was no denial of reasonable opportunity to the assesses.

In addition to the aforesaid findings, the HC also recommended adoption of US-like 'restatement of law'

The submissions raised by the party should have been considered before arriving at the decision. But more often than not, there was an insistence on dealing with every case that was cited. Perhaps, such insistence, even if the decisions were inapplicable or irrelevant, was misplaced. It might not be proper to record in the judgement that a counsel had cited irrelevant, or inapplicable, or overruled, or already distinguished case. It would be of real help to our jurisprudence if we also adopted an approach similar to the US, about 'Restatement of Indian law' – CIT V. UNION OF INDIA [2013] 32 taxmann.com 320 (CHHATTISGARH)

Pune ITAT allowed claim of jeweller for business loss incurred due to confiscation of its silver stock

In the instant case, during search conducted in the business premises of assessee, a jeweller, certain stock of silver was confiscated by customs officials. Assessee claimed deduction on account of loss occurred due to confiscation of silver in relevant assessment year. Said claim was disallowed by the AO as well as the CIT(A).

The Tribunal held in favour of assessee as under:

The business loss on account of confiscation could be claimed and allowed in the year in which the assessee prima facie loses the hope for recovery of the goods. Thus, the assessee’s claim of loss was crystallized in the year under consideration when assessee received the order of CEGAT. Therefore, the loss incurred due to confiscation of silver stock was to be allowed as assessee was in the business of silver trade and loss had been suffered during the course of its business - RAJMAL LAKHICHAND v. ACIT [2013] 32 taxmann.com 248 (Pune - Trib.)

CBDT mandates e-filing of audit report and return with 5 lacs income; no more ITR 1 if Sec. 10 benefit exceeds 5k

Audit report to be filed electronically; threshold limit for e-filing of return reduced to Rs. 5 lakhs; return can’t be filed in ITR-1 if assessee earns exempt income which exceeds 5,000.
Income-tax (3rd Amendment) Rules, 2013 redefines the conditions and eligibility to choose from a variety of Income-tax return forms. In addition, certain important amendments are also being brought in, which are as follows:

1) Return in ITR 1 can’t be filed if assessee incurs losses under the head ‘Income from other sources’.

2) Return in ITR 1 can’t be filed if assessee claims tax relief or has any income which is exempt under Chapter III i.e. section 10, 10A, 10AA, etc.

3) Return in ITR 4S can’t be filed if assessee claims tax relief or has any income which is exempt under Chapter III i.e. section 10, 10A, 10AA, etc.

4) Mandatory e-filing of audit reports.

5) Mandatory e-filing of return if income exceeds Rs. 5,00,000 or if assessee claims tax relief.

Prosecution in ST matters can’t be continued if assessee has been acquitted in adjudication proceedings on merit

If assessee has been exonerated on merits in adjudication proceedings from charge of misrepresentation and suppression, criminal prosecution on same set of facts and circumstances cannot be allowed to be continued

The Department initiated adjudication proceedings and criminal prosecution against the assessee alleging wilful misrepresentation and under-valuation. In adjudication proceedings, Tribunal held in favour of assessee on merits. The Assessee filed a writ petition challenging continuance of prosecution proceedings. Department made an application that assessee's writ petition was premature on ground that it had challenged order of Tribunal.

The High Court quashed the criminal proceeding against the assessee with the following observations:

1) Application filed by Department seeking rejection of writ petition on ground of being pre-mature was a gross abuse of the processes of law;

2) Although there is no automatic closure or quashing of the criminal complaint, in the event, there is a favourable verdict in the departmental or the adjudicatory proceedings in favour of an accused but in case the adjudicatory proceedings culminate into a favourable order in favour of the accused on merits and the criminal complaint is in sum and substance based on the same facts then, obviously, it would be a gross abuse of the processes of law to continue with the criminal complaint;

3) Mere contemplation by Department to assail the order of Tribunal before the Apex Court or before any other appellate forum where they have a right to do so, couldn’t result in deferring the decision in the present petition;

4) Since the assessee had been exonerated in the departmental adjudicatory proceedings regarding both the allegations of mis-declaration and under-valuation, there was no point in continuing with the criminal trial as it was resulting in abuse of the process of law - Dinesh Aggarwal v. DRI [2013] 32 taxmann.com 337 (Delhi)

Input service distributer may distribute credit of ST even if it has been paid prior to registration

There is no restriction under CENVAT Credit Rules with regard to period for availing CENVAT credit of service tax paid; hence, Input Service Distributor (‘ISD’) may distribute credit of service tax paid prior to its registration as ISD

The assessee had registered itself as ISD with effect from 04.10.2008. Thereafter, it had distributed the credit of service tax paid on common input service to its various units in respect of services received during the period February, 2008 to October, 2008. The department denied Cenvat credit on ground that the services were received prior to registration as ISD and the taxes were also paid on those services prior to that date.

The Tribunal held in favour of assessee as under:

1) There was no restriction under the CENVAT Credit Rules, 2004, with regard to the period for availing CENVAT credit of service tax paid. In other words, a manufacturer/input service provider could avail CENVAT credit of the service tax paid irrespective of any time limitation;

2) The only condition to be satisfied was that they should have paid the service tax prior to availing the credit. So long as this condition was satisfied, there was no time limit prescribed in the Rule within which the CENVAT credit had to be taken. If that be so, there was no reason why in the case of input service distributor alone, a restriction should be placed with respect to availment of CENVAT credit, i.e., input service distributor was permitted to distribute only taxes paid on or after registration. Such a restriction was totally unwarranted and was not provided for in the law;

3) Hence, credit was held validly distributed - Dagger Forst Tools Ltd. v. Commissioner of Central Excise [2013] 32 taxmann.com 353 (Mumbai - CESTAT)

Arithmetic Mean of ALPs to be determined even if actual price exceeds one of the ALPs determined by TP method

Proviso to section 92C(2) requiring calculation of arithmetical mean of multiple ALPs (more than 1 ALP) determined as per Most Appropriate Method doesn’t become inapplicable where one of the ALPs determined as per Most Appropriate Method is less than the price indicated by assessee

In the instant case, the most appropriate method, as accepted by both, the assessee and revenue, was the Transactional Net Margin Method. The dispute that arose was with regard to the following observation of the Tribunal:

Where one of the prices determined by the most appropriate method is less than the price as indicated by the assessee. Then there would be no need to adopt the process of taking the arithmetical mean of all the prices arrived at through the employment of the most appropriate method.

The High Court held as under:

1) When more than one price is thrown up by the most appropriate method, the statute requires that the arm's length price shall be taken to be the arithmetical mean of such prices. This is the plain and simple meaning of the proviso to section 92C(2) of the said Act;

2) The Tribunal was wrong in holding that if one profit level indicator of a comparable, out of a set of comparables, was lower than the profit level indicator of the taxpayer, then the transaction reported by the taxpayer was at an arm's length price;

3) The proviso to section 92C(2) is explicit in that where more than one price is determined by most appropriate method, the arm's length price would be taken to be the arithmetical mean of such prices – CIT v. Mentor Graphics ( Noida) (P.) Ltd. [2013] 32 taxmann.com 300 (Delhi)