Thursday, September 12, 2013

Proviso to sec. 206C providing for immunity on TCS default in tax neutral situation has retro effect, rules SB

The first proviso to section 206C(6A) introduced by the Finance Act, 2012 with effect from 1-7-2012 relieves the assessee from consequences of assessee-in-default for non-collection of TCS based on proof of “no loss to Revenue” in the form of a CA’s certificate certifying specified matters.

As the said proviso seeks to rationalize TCS provisions and is also beneficial in nature in the sense that it seeks to provide relief to collectors of taxes from consequences of short collecting TCS after ensuring that Revenue’s interest is well-protected. Said proviso shall apply retrospectively even to pending matters also, though it is expressed to be applicable with effect from 1-7-2012 – Bharti Auto Products v. CIT [2013] 37 37

Child birth is a natural process, an act of god, and not illness; sec. 10(23C) relief denied to maternity hospital

Section 10(23C) benefit can't be granted to maternity hospital as child birth is a natural process of God which in no way could be said to be any illness as contemplated under section 10(23C)(iiiae)

The Tribunal held as under:

1) The child birth is the natural process of God and it certainly is the God's grace which is extended to sustain us through it. It is the act of God who designs a child conceived in the womb to be born into this world;

2) In olden days deliveries of children were perfectly conducted by midwives at home, but in the modern age, it is only because the anxiety of people that they would not be able to manage the discomfort or pain during labour, they choose to take better facilities in the hospitals in presence of Doctors for this purpose;

3) Thus, the assessee's maternity hospital had been facilitating the deliveries, i.e., a natural process of God, which in no way could be said to be any illness to be treated in the hospital as envisaged under section 10(23C)(iiiae);

4) The CIT(A) rightly disallowed the claim of assessee as the ingredients of section 10(23C)(iiiae) were not fulfilled – Dy. CIT v. Nehru Prasutika Asptal Samiti [2013] 37 1 (Agra - Trib.)

Assessee's contract couldn't be deemed as composite contract if all its activities were identifiable separately

Where activities undertaken by assessee were identifiable separately, such activities couldn’t be termed as 'composite contract'

In the instant case the assessee was involved in the activity of "Construction of Civil Work" as well as "Erection, Commissioning and Installation Services" for setting-up of the power plant.   It outsourced the 'Civil Work' on which it did not take any Cenvat credit of input services or capital goods and the sub-contractor had paid the service tax on that activity. For the activity of 'Commissioning and Installation', assessee took the Cenvat credit and discharged its service tax liability accordingly without claiming the benefit of Exemption Notification Nos. 15/2004 or 19/2005 or 1/2006. However, the Department argued that assessee's contract was a composite contract taxable in its entirety under "Erection, Commissioning and Installation Services" and it was liable to pay service tax on entire value.

The Tribunal allowed the stay application with the following observation:

In the case of CCE v. BSBK Pvt. Ltd. [2010] 26 STT 263 (New Delhi - Cestat) the Tribunal held that when the activities undertaken by the applicants were identifiable separately, , the whole of the activity couldn’t be termed as "composite contract". In the instant case also the activities undertaken by the appellants could be identified separately, therefore, following the decision in the case of BSBK Pvt. Ltd. (supra), it was held that the assessee had made out a prima facie case for 100 percent waiver of service tax, interest and penalty. – Bharat Heavy Electrical Ltd. v. Commissioner of Service Tax [2013] 36 366 (Chennai - CESTAT)

No TDS on sum paid to banks for utilization of credit card facilities; they are in nature of bank charges & not commission

Payments to banks for utilization of credit card facilities are in nature of bank charges, and not commission, and, therefore, no tax is deductible at source from said payments under section 194H

In the instant case the assessee-company was engaged in the business of aviation, i.e., transportation of passengers and cargo by air. During assessment the AO held that assessee ought to have deducted tax at source on amounts retained by the banks in respect of air tickets booked through credit cards. The AO further stated that as per the agreement between the banks and the assessee, the banks were supposed to provide the assessee with the facility of their credit card internet payment gateway to enable the assessee to collect the payments made by the customers. Therefore, such payments were squarely covered by the definition of "commission or brokerage" as contemplated by section 194H. The CIT(A) reversed the order of AO. The aggrieved revenue filed the instant appeal.

The Tribunal held as under:

1) Section 194H is applicable where any commission has been paid by the principal to the commission agent. This was not a commission payment but a fees deducted by the bank. If there was an agreement, that was between the credit cardholder and the bank. It was not the case that banks had advised the assessee to sell their goods to its customers then he would pay them commission;

2) The provisions of section 194H of the Act were not applicable as the banks were making payments to the assessee after deducting certain fees as per the terms and conditions in the credit cards and it was not a commission but a fee deducted by the banks;

3) Payments made to the banks on account of utilization of credit card facilities would be in the nature of bank charges and not in the nature of commission within the meaning of section 194H of the Act and, hence, no TDS was required to be deducted under section 194 H of the Act.  Thus, the order of CIT(A) was to be upheld – ITO v. Jet Airways (India) Ltd [2013] 36 379 (Mumbai - Trib.)

TP adjustment for controlling premium upheld; transfer of shares as per SEBI Regulation can’t be deemed to be at ALP

TP adjustment for control premium upheld as it is only the seller who can demand control premium in case he is selling the controlling stake. Even price charged for transfer of shares is as per SEBI Regulations, it can't be deemed to be at ALP

In the instant case the assessee belonged to Lanxess (‘L’) Group which was engaged in the chemical business globally. It held 50.97% shares of L in which RA Group also held 18.33%. The assessee sold its entire shareholding in L group to the INEOS ABS at a negotiated price of Rs. 196.36 per share, whereas the RA group had been paid at Rs. 201 per share. The INEOS ABS was a joint venture of L group and INEOS group in which the holding company of the assessee had 49% share shareholding. Since assessee had not been paid anything towards control premium though it had sold the controlling stake in the company, the TPO proposed adjustment on account of control premium at 25% of share value. The AO made adjustment consequent to order passed by TPO.

The Tribunal held as under:

1) The TPO referred to the report of Phillip Sounders Jr. PHD ('Phillip') (who gave a finding that control premium varied from 30% to 50% of the public unquoted price) to estimate the control premium;

2) The TPO/AO had compared price paid to the assessee with the price paid to RA Group who held only 18.83% share which was not a controlling stake. The RA Group was a good internal CUP as both the assessee and RA Group had sold the shares of the same company and buyer was also the same. Therefore, the transaction was identical except the fact that the assessee had sold the controlling stake;

3) Thus, only what was required to be considered was adjustment on account of controlling stake transferred by the assessee by estimating the price for the controlling stake. The report by Phillip which was based on research undertaken in respect of several public quoted companies could be used as reliable material. Considering this the adjustment of 25% of the share value made by AO/TPO on account of controlling premium was justified;

4) The argument of the learned AR that the assessee was selling the business and, therefore, could not expect control premium, had no merit. In fact, it was only the seller who could demand control premium in case he or she was selling the control stake;

The ld. AR for the assessee had also argued that the general public shareholders had also been paid at the rate of Rs. 201 per share as per SEBI Regulation no. 20(4). But the SEBI regulations does not in any way state that price negotiated by the assessee with the buyer is at arm's length price. Thus, order of AO was to be upheld - Lanxess India (P.) Ltd. v. ACIT [2013] 36 350 (Mumbai - Trib.)

Payment for delay in completion of buy back process under open offer to be deemed as cap gains and not interest

Interest received by assessee for delay in completion of the process of buy-back of shares under open offer to be deemed as capital gain and not interest income

In the instant case the assessee, a company incorporated in Mauritius, had obtained registration with the SEBI as a registered FII. It was holding the shares of Castrol India Ltd. which was a subsidiary of Castrol Ltd. UK ('Castrol UK'). The Castrol UK announced open offer for acquisition of issue capital of Castrol India Ltd. The assessee tendered certain equity shares under open offer. It received compensation from Castrol UK for delay in payment of shares tendered under the open offer. The AO treated the said compensation as interest income and taxed the same. The CIT(A) upheld the action of the AO. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) It was clear that the payment of interest was directed by the SEBI and, therefore, it was not a penalty but the payment of interest on account of failure to make the payment by the acquirer as per the time schedule prescribed under the SEBI regulations;

2) However, in the instant case the interest received by the assessee was for the period prior to the tendering of shares and acceptance of the same, therefore, the interest related to the delay in completing the process of buy-back of shares under an open offer;

3) If the interest would have been paid for delay in making the payment then it couldn't be treated as part of consideration. In the instant case, the delay for which the interest had been received by the assessee was in the process of buy-back of shares in the open offer after announcement of the intention of acquiring of shares;

4) It was not a case of delay in making the payment of the determined consideration after the transaction of purchase of sale was over. Thus, this additional amount received by the assessee being interest was part of sale consideration and, accordingly, would be treated as part of capital gain and not the income from interest - Genesis Indian Investment Co. Ltd. v. CIT(A) [2013] 36 300 (Mumbai - Trib.)