Monday, June 30, 2014

Room rent and food/beverage charges aren’t includible in value of convention services, if they are raised separately


Bills of room rent, food and beverages raised separately in a convention service cannot be included in value of convention service.

Facts:


a)The assessee, a provider of convention services, was paying service tax under that category. Participants of such convention normally book rooms for lodging purpose.

b)The department was of the view that room rent and charges for food provided to participants were required to be included in value of convention services.

c)Since the assessee did not pay tax on such charges, revenue initiated proceedings for recovery of tax short paid and confirmed demand.

On appeal, the CESTAT held in favour of assessee as under:

1)In case of Ram Bagh Palace Hotels (P.) Ltd. v. CCE [Final Order No. ST/A/18/1012-Cus, dated 21-12-2011], it was held that renting of hotel rooms could not be held to be covered by the definition of ' Mandap Keeper' as the hotel had an identity, personality and function quite distinguishable from that of a Mandap.

2)It was also held that definition of Mandap Keeper nowhere covers the temporary occupation of hotel rooms for the purpose of boarding and temporary residence. Since bills of room rent, food and beverages were raised separately, they could not be held to be a part of value of convention service.

3)Thus, the case decided (Supra) on issue of Mandap Keeper’s Service was equally applicable to convention service. Hence, if bills were raised separately against room rent and food supply charges then they could not be included in value of convention service. - CHOKHIDHANI RESORTS (P.) LTD. V. CCE [2014] 46 taxmann.com 20 (New Delhi – CESTAT)

Saturday, June 28, 2014

No disallowance of lawful exp. merely due to non-compliance with provisions of Companies Act


If the expenditure was otherwise lawful and neither amounted to offence nor any law prohibited it, but the procedural provisions attached to it were not complied with, no doubt irregularity would creep in, but such irregularity would not make the expenditure itself as unlawful under section 37(1).

Facts:


a)The Assessing Officer (‘AO’) noticed that the assessee had made payment of job work charges to a related party without obtaining prior approval of the Central Government in accordance with the provisions of section 297 of the Companies Act, 1956.

b)He, accordingly, made additions on the ground that Explanation to Section 37(1) was triggered as on the day of payment of such expenditure there was no prior approval of Central government.

c)On appeal, the CIT(A) sustained the disallowance. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The offence or prohibition referred to in the Explanation to section 37(1) had to be judged with reference to the 'purpose' of the expenditure on a standalone basis divorced from the fulfillment of procedural formalities attached with it and necessary for the incurring of such expenditure.

2)The Explanation to section 37(1) provided for disallowance of any expenditure incurred for 'any purpose’, which was either an offence or prohibited by law. If, however, the purpose of the expenditure was neither to commit an offence nor any law prohibited it, then there could be no question of disallowance.

3)If the expenditure was otherwise lawful and neither amounted to offence nor any law prohibited it, but the procedural provisions attached to it were not complied with, no doubt irregularity would creep in, but such irregularity would not make the expenditure itself as unlawful so as to be brought within the scope of the Explanation to sec. 37(1). – JAI SURGICALS LTD. V. ACIT [2014] 46 taxmann.com 246 (Delhi - Trib.)

Friday, June 27, 2014

Declaration under Service tax Amnesty Scheme is maintainable if issues therein aren’t pending before authorities


As long as in respect of particular period, subject matter of declaration under service-tax amnesty scheme is not pending or determined, main part of Section 106 would prevail and its second proviso would not apply.

Facts:


a)The assessee was providing vocational training for Air Hostesses/Stewards and in the hospitality and management sector. It claimed exemption for the period prior to 27-2-2010 but said matter was in dispute before Tribunal.

b)With effect from 27-2-2010, law was amended and, accordingly, assessee started paying service tax for period upto 31-3-2012. But due to some reasons, for period from 1.4.2012 to 31.12.2012, assessee did not deposit the service tax.

c)Accordingly, for the said period it applied for service tax Voluntary Compliance Encouragement Scheme, 2013 (‘VCES’). The Department rejected the said application on the ground of existence of the dispute concerning the previous period between 10-9-2004 to 27-2-2010 before CESTAT.

d)Thus, the issue before High Court was: Whether declaration under Service Tax Voluntary Compliance Encouragement Scheme would be admissible ?

The High Court held in favour of assessee as under:

1)The VCES was introduced to give benefit of one time amnesty or relief to service tax defaulters or those who had not paid their dues fully. Keeping in mind the spirit of the Scheme, certain safeguards and conditions had been indicated.

2)One of the conditions of VCES was that in respect of the subject matter there had to be no issues pending or determined before any of the tax authorities or Tribunals for adjudication (Second proviso to Section 106). The objective is to avoid multiplicity and reopening of settled matters.

3)The main provision, i.e., section 106 enables the filing of the declaration subject to the pre-condition of a pre-deposit. It is settled law that a proviso merely carves an exception out of the operation of the main provision.

4)The second proviso to section 106 (1) is no exception to that rule. This proviso when it alludes to 'any issue' must, therefore, mean that the issue as to service tax liability or quantum of liability itself for a particular period must be pending before the Tribunal or some of the tax authorities or should have been determined.

5)Thus, as long as in respect of a particular period, subject matter of declaration or application is not pending or determined, main part of section 106 would prevail and second proviso would not apply. Hence, declaration in this case was maintainable – FRANKFINN AVIATION SERVICES (P.) LTD. V. ASSISTANT COMMISSIONER, DESIGNATED AUTHORITY, VCES, SERVICE TAX [2014] 46 taxmann.com 39 (Delhi)

Thursday, June 26, 2014

AO is to abide by SetCom's order; he can only raise consequential demand to give effect to same, says HC


The Assessing Officer cannot go beyond order passed by Settlement Commission and he could only raise a consequential demand while giving effect to order passed by Settlement Commission.

Facts:


a)The assessee-company filed the Settlement application. The Settlement Commission (‘SetCom’) passed the final order on the issues raised by the assessee.

b)The Assessing Officer (‘AO’) had calculated tax and interest payable by assessee after giving effect to the order passed by the SetCom. The assessee disputed period of interest under section 220(2) and submitted the miscellaneous application before SetCom which was rejected by it.

c)Thereafter, the assessee submitted the application under section 154 before the AO which was dismissed by him.

d)Further, the appeal filed before the CIT(A) and ITAT were dismissed. The aggrieved-assessee filed the instant appeal.

The High Court held in favour of revenue as under:

1)It was not in dispute that the Assessing Officer originally passed the order considering the order passed by the Settlement Commission under section 245D(4). Therefore, as such the Assessing Officer had given effect to the order passed by the SetCom.

2)The AO could not go beyond the order passed by the SetCom and he could only raise a consequential demand after giving effect to the order passed by the SetCom under section 245D(4).

3)Thus, no substantial question of law arose in the instant case. Hence, the instant case was to be dismissed.- MAHAVIR ROLLING MILL (P.) LTD. V. ITO [2014] 45 taxmann.com 431 (Gujarat)

Wednesday, June 25, 2014

CBDT notifies new Wealth-tax return form– Mandates e-filing except for those individuals or HUFs who not liable to tax audit


Earlier return of wealth-tax was required to be filed by individuals, HUFs and Companies in paper format alongwith certain documents(in specific cases) in Form BA. The CBDT has now notified new Form BB for filing of wealth-tax returns. The new provisions for filing of Wealth-tax return shall be as under:

a)E-filing of wealth tax returns: Taxpayers shall file return of wealth-tax electronically in new Form BB from Assessment Year 2014-15. However, individuals or HUFs can still file return in paper format if they are not liable for tax audit under Section 44AB of Income-tax Act, 1961.

b)Paperless return – Requirement as to furnishing of following documents alongwith return of wealth-tax has been dispensed with:

• Statement showing computation of tax payable;
• Proof of tax and interest paid;
• Any document or copy of any account, and
• Form of report of valuation by Registered Valuer.

Tuesday, June 24, 2014

No registration to a trust if its financing activities weren’t carried out for furtherance of its objects


Principal activities of metropolitan development authority were to be ascertained before denying it registration under section 12A on account of financing and rental activities.

Facts:


a)The assessee, a city metropolitan development authority under section 12, was established under a State Act, viz., MMRD Act. The assessee was claiming exemption under section 11.

b)It earned interest on sums lent to various organizations and lease rental of its property. The DIT(E) cancelled/withdraws its registration under Sec. 12A on the ground that activities carried out by it were commercial in nature.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)There was no finding that interest and rent receipts were integral to the assessee's functioning or its principal objects, so as to be considered as arising on account of activities necessary for the furtherance of the objects of assessee.

2)There ought to have been some principal activities for financing and rental activities to be considered as necessary and incidental thereto. The physical and/or functional correlation between the two would decide this aspect of the matter.

3)Such a finding was necessary to satisfy conditions stipulated under section 12AA(3). Thus, as the issue of applicability of section 12AA(3) in the instant case being factually indeterminate, the case was to be restored to the DIT(E) for passing a speaking order in accordance with law. - MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY V. DIT(E) [2014] 45 taxmann.com 354 (Mumbai - Trib.)

No business income if shares held as investments were sold within short span for better returns


Merely because assessee liquidated its investments within a short span, which had given better overall earning to assessee, it would not lead to conclusion that assessee had no intention to keep on funds as investment in equity shares, but was actually intending to trade in shares.

Facts:


a)The assessee was engaged in the activity of investing in shares and showed the said shares as investments in the audited balance-sheet. Consequently, as and when the shares were sold, profit arising thereon was offered as capital gains.

b)However, during the year under consideration, the Assessing Officer did not treat the gain on sale of investment as 'capital gains' and instead treated it as 'business income'.

c)On appeal, the CIT(A) allowed assessee's claim. The Aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The treatment given by the assessee in its books of account was one of the decisive factors to find out whether the shares were held as investments or stock-in-trade. If the shares were bought with the intention of earning capital gains and dividend by keeping it as investment, the gain arising therefrom was to be treated as capital gains.

2)On the other hand, if the shares were purchased with the intention to earn profit thereon and the same was treated as stock-in-trade in the books of account, the profit arising on their sales would be liable to be treated as business income.

3)Merely because the assessee liquidated its investment within a short span of time, which had given better overall earning to the assessee, it would not lead to the conclusion that the assessee had no intention to keep them as investments.

4)The assessee had been consistently investing in shares and income arising from transactions of sale and purchase of shares had been shown as capital gains. Analysis of balance sheet of assessee reflected holding of shares as investments.

5)In the instant case, the assessee had made investment in shares with an intention to earn dividend income. Therefore, it could not be said that the assessee was doing business. Thus, resultant gains on sale of shares were to be taxed as capital gains instead of business income.- DY. CIT V. E-CAP PARTNERS [2014] 45 taxmann.com 342 (Mumbai - Trib.)

Friday, June 20, 2014

Even genuine transactions go through rigours of sec. 50C; provision applicable if stamp value exceeds actual price


Stamp duty value shall be deemed to be full value of consideration where consideration stated by assessee is less than stamp duty value and section 50C would operate, whatever may be the problems faced by an assessee.

Facts


a)The assessee sold her property below the market value adopted by the Registration Authorities . By invoking provisions of Section 50C, the Assessing Officer (‘AO’) had brought the difference (i.e., difference between actual price of property and value adopted by registration authorities) to tax.

b)The assessee substantiated her claim on the ground that the property was sold for lesser price on account of pending litigations with the tenants. On appeal, the CIT(A) deleted addition made by AO. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)Section 50C states that the stamp duty value shall be deemed to be the full value of the consideration where the consideration stated by the assessee is less than the stamp duty value. Being a deeming provision of Section 50C, it has to be strictly applied without widening its scope.

2)If the assessee had not been satisfied with the value adopted for the stamp duty purposes, the assessee could request the Assessing Officer to refer the matter to the DVO for valuation but assessee had not done so.

3)The misfortunes happened to the assessee or the difficulties faced by the assessee or the matter of distress sale, etc. could not be a ground to modify the valuation. If such extraneous factors were relied upon, the deeming provision of law stated in section 50C would be contravened.

4)Being so, the Assessing Officer had to complete the assessment as per the provisions of section 50C and whatever problem might have been faced by assessee, in reality; those reasons could not be permitted to go beyond the scope of section 50C- ITO V. SMT. CHITTI PARVATHA VARDHANAMMA [2014] 45 taxmann.com 327 (Hyderabad - Trib.)

Thursday, June 19, 2014

ITAT finds objective of development and propagation of Islam as ‘charitable’; registration allowed


Facts:

a)The assessee-Waqf (Shia Dawoodi Bohra Jamaat Waqf) was created vide indenture dated 9-7-1920 and was duly constituted waqf under Waqf Act, 1995.

b)It applied for registration under section 12AA. The DIT(E) denied registration on ground that assessee was not brought into existence either as trust or society.

c)The Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The object of assessee-Waqf was as under:

a)To advance, promote, propagate and preach the religion of Islam amongst the Dawood Bohras,

b)To develop, expand, renovate and maintain masjids, madresa, jamatkhanas, etc.

2)Waqf was created by Customs and tenants of Dawoodi Bohra community well before the enactment of the Income Tax Act, 1961. As the Waqf was existing prior to Income-tax Act, 1961, the object beneficial to a section of the public was an object of "general public utility".

3)To serve as a charitable purpose, it was not necessary that the object must be to serve the whole mankind or all persons living in a country or province. Even if a section of the public is benefited, it cannot be said that it is not a trust for charitable purpose in the interest of public.

4)For granting registration it would be sufficient if the object was beneficial to a section of the public, who were Muslims. Thus, there was no merit in the order of the DIT(E) for denial of registration under section 12AA. - SHIA DAWOODI BOHRA JAMAAT WAQF V. DIT(E) [2014] 45 taxmann.com 340 (Kolkata - Trib.)

Wednesday, June 18, 2014

TARC key recommendations –Abolition of post of Revenue Secretary, merger of CBDT-CBEC and no retro amendments


Key Recommendation of TARC is as under:

1)Merger of CBDT and CBEC: Taxpayer service delivery will be located under one umbrella for large taxpayers, i.e., the CBDT and CBEC will jointly function for large taxpayers through Principal DG (LBS). For other taxpayers, i.e., medium and small, the operations of the CBDT and CBEC will continue in separate chains;

2)Pre-filled tax returns: Pre-filled tax returns should be provided to all individuals. The taxpayer will have the option to accept the tax return as it is or modify it. In either event, the filing process would be completed with the submission of the tax return electronically.

3)Abolition of post of revenue Secretary: The post of revenue secretary should be abolished. The present functions of the Department of Revenue should be allocated to the two Boards. This would empower the tax departments to carry out their assigned responsibilities efficiently

4)Dispute management: Following recommendations made for dispute management: a)Retrospective amendment should be avoided as a principle.

b)The current practice of raising demands irrespective of merits should be discontinued.

c)The jurisdiction of AAR should be made available for domestic cases also. More benches of AAR should be established at specified locations.

5)Widening the use of PAN: The present PAN should be developed as a Common Business Identification Number (CBIN), to be used by other government departments also such as customs, central excise, service tax, DGFT and EPFO.

6)One Registration for excise and service-tax: Both central excise and service tax should be covered under a single registration as both the taxes are administered by the same department and cross utilisation of credit is permitted between central excise and service tax under the CENVAT credit rules.

7)Filing of return:

a)I-T returns should also include wealth tax return so that the taxpayer need not separately file wealth tax returns. These returns should also be processed together in the CPC at Bengaluru.

b)The disclosures in the return should include a brief mention of the issues on which there has been an on-going litigation between the tax administration This is to protect taxpayers from allegation of non-disclosure, suppression, escapement of income, etc., which often results in the initiation of penal provisions.

8)Constitution of centralized processing units of CBEC: The CBEC should set up centralized processing units in line with the CPC, Bengaluru, and CPC-TDS at Ghaziabad for processing central excise and service tax returns.

9)Single return for service tax and excise: There should be a common return for excise and service tax.

10) TDS:

a)The insistence on manual filing of TDS certificates before AO for verification of refunds claim should be done away with.

b)The CPC-TDS should allow correction in the name of the deductees to avoid multiple submissions of TDS forms.

c)Once TDS is deducted from a payment, TDS should get credited to the taxpayer’s account. This should be like an account with running balance, to be utilized by the taxpayer at his option to set off his tax liabilities.

11)Refund

a)Refunds sanctioned should be paid along with the applicable interest automatically as is done in the case of income tax and not on demand by the taxpayers.

b)As in the case of direct taxes and customs duty drawback, the refund and interest payment should be directly credited to the bank account of the taxpayer.

c)The rate of interest on refunds should be the same as the interest charged by the tax department. This would ensure equity between the two interests and would not disadvantage the taxpayer unduly.

12)Foreign Tax credit (‘FTC’): The CBDT should come out with clear FTC guidelines, which should also cover the timing differences between different tax jurisdictions.

Tuesday, June 17, 2014

Interest earned from investment of grant isn’t taxable if it is repaid to grantor or reduces future grants


Interest earned on investment of grant could not be said to have accrued to assessee if the Govt. had given instruction that such interest had either to be refunded back to it or had to be adjusted against future grants.

Facts:


a)The assessee-company was a Special Purpose Vehicle (‘SPV’), created for implementing the projects funded under the Industrial Infrastructure Up-gradation Scheme (IIUS) by the DIPP, Ministry of Commerce.

b)It had received grant from the Govt. and kept said amount in short-term deposits in bank. It earned interest income on such deposits. During assessment, the Assessing Officer (‘AO’) treated the impugned interest as income from other sources. On appeal, the CIT(A) upheld the order of the AO.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)The Central Government, through DIPP, had issued a letter to all the SPVs implementing the IIUS projects, giving certain instructions. The Government had given a clear instruction that interest on short-term deposits either had to be refunded back to the Government or had to be adjusted against the future grants to be released for implementing the project.

2)The interest earned on fixed deposits would be reduced from the grants. Therefore, the interest on short-term deposits would partake the character of grants, unless it was refunded back to the Government.

3)In either case, interest earned on short-term deposits could not be said to have accrued as income to the assessee. The instruction issued by the Government also made it mandatory that the SPV would not utilize the interest earned on the grant for any purpose.

4)The interest earned on short-term deposits could not be treated as income of the assessee, when the assessee had no domain over such income. If the interest income was adjusted against future grant, it would partake the character of the grant itself and it could not be treated as income of the assessee.

5)The AO was required to decide the instant issue after verifying whether the interest earned on short-term deposits had been refunded to the Government or had been adjusted against any future grant.- HYDERABAD PHARMA INFRASTRUCTURE & TECHNOLOGIES LTD. V. ADIT (International Taxation) [2014] 45 taxmann.com 339 (Hyderabad - Trib.)

Monday, June 16, 2014

No capital gains when revaluation reserve is credited to partner’s capital account; not taxable under sec. 45(4)


Where revaluation of assets of partnership firm and credit of revalued amount to capital account of partners in their respective profit sharing ratio did not entail any transfer as defined under section 2(47), gains on revaluation could not be brought under tax net.

Facts:


a)The assessee was a partner in Cable TV advertising business. The partnership firm had revalued network rights and corresponding credit in respect thereof was given to the partners including the assessee.

b)After revaluation of network rights, revaluation reserve was credited to partners' capital account and the assets account was debited in the books of the partnership firm. The Assessing Officer (‘AO’) held that the revalued sum was to be charged to tax as the assessee had earned short-term capital gain.

c)On appeal, the CIT(A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal

. The Tribunal held as under:

1)Crediting the amount of revaluation reserve to partner's capital account does not amount to transfer of partnership firm's assets to the individual partner. As per settled principle of law of partnership, during continuation of partnership, partners do not have separate rights over the assets of firm in addition to interest in the share of profits;

2)After revaluation also, there would neither be division of assets nor any realization of assets. Networking rights were property of partnership firm until date of its conversion into a company as per Part IX of Companies Act. Provisions of Section 45(4) would not be applicable to firm or to partners as there was no official dissolution of firm and distribution of assets of firm among partners.

3)Revaluation of assets of partnership firm and credit of revalued amount to capital account of partners in their respective profit sharing ratio would not entail any transfer as defined under section 2(47), hence, gains on revaluation could not be brought under tax net

4)Thus, there was no merit in the action of the lower authorities in bringing gains on revaluation under the tax net. – RAVINSHANKAR R. SINGH V. ITO [2014] 45 taxmann.com 359 (Mumbai- Trib.)

Saturday, June 14, 2014

Sum paid to unrelated party via banking route after deduction of tax at source couldn’t be treated as bogus


The sums paid to unrelated parties could not be treated as bogus if they were paid through banking channel after deduction of tax thereon.

Facts:


a)The Assessing Officer disallowed consultancy charges paid by assessee by treating them as bogus expenditure.

b)He made the disallowance on ground that consultancy was not provided by parties, as no reply was received from them in respect of letters issued to them.

c)On Appeal, the CIT (A) deleted such additions. Further, the Tribunal held in favour of assessee. The Aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)The Tribunal, after taking into account substantiating material produced before it, rightly concluded that it was difficult to believe that any assessee would claim such bogus expenditure, when it was eligible for 100% deduction under section 80IA;

2)In addition, even otherwise, the services rendered by Consultants were not found to be doubtful. The doubt was only with regard to the quantum of services rendered by them;

3)However, when payment was made to unrelated parties through the baking channel after deduction of tax, the appellate authorities had rightly addressed the instant issue;

4)Thus, the sums paid to unrelated parties could not be treated as bogus if it they were paid through banking channel after deducted of tax thereon. – CIT V. MUNDRA PORT AND SEZ LTD [2014] 45 taxmann.com 361 (Gujarat)

Friday, June 13, 2014

Sums collected by society for area development was for specific social purposes which couldn’t be held taxable


Where, assessee, a co-operative sugar factory, deducted certain Sum from bills payable to members and non-members towards supply of sugarcane on account of 'Area Development Fund', in view of fact that said sum was impressed with an obligation to spend it for specified social purposes approved in AGM, it could not be brought to tax in assessee's hands as income.

Facts:


a)The assessee, a co-operative sugar factory, was engaged in the business of manufacturing and sale of sugar.

b)It deducted certain sum from the bills payable to the members and non-members towards the supply of sugarcane and the said deduction was shown under the head 'Area Development Fund' (ADF).

c)The Assessing Officer (‘AO’) held that the sum collected by the assessee towards the ADF was to be assessed as income in the hands of the assessee. On appeal, the CIF (A) confirmed the order of AO. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The ADF was used for giving incentive to primary schools, wrestlers, road developments, medical assistance and assistance for group marriages, etc. Initially the assessee was collecting funds on his own discretion and spending it on the different projects undertaken in the area of operation but, subsequently, the collection and use of fund were regulated by the Govt.

2)The assessee had maintained separate accounts in respect of ADF and it was seen that the assessee had been utilizing it on different projects as per the approval given in the annual general meeting (AGM).

3)It was not the case of the revenue that any money was diverted by assessee towards any other purpose other than approved in the AGM of the members. Merely because the sum collected was not kept separately in the bank account, the character of the amount would not change.

4)The assessee was required to submit the auditor's report to the Director of sugar, Govt. of Maharashtra, each year showing the opening balance of the ADF, amount collected and utilized during the year.

5)Therefore, the collection made by assessee towards the ADF was impressed with an obligation to spend it for the specified purposes approved in AGM and the members paying contribution to ADF were aware for what purposes the assessee was collecting the said fund and where the fund would be utilized. The assessee's role was like a trustee of the 'ADF'. The AO was, thus, directed to exclude the amount of 'ADF' from the income of assessee. - LOKNETE BALASAHEB DESAI SAHAKARI SAKHAR KARKHANA LTD. V. DY. CIT [2014] 45 taxmann.com 366 (Pune - Trib.)

Thursday, June 12, 2014

Family pension received from UK based bank would fall under residuary Article 23 of India-UK DTAA - taxable in UK only


Where the assessee received family pension from the employer of the deceased wife, i.e., from RBS, UK on which tax was deducted in the source country (i.e., UK), said income could not be taxed for a second time in India.

Facts:


The issue before the Tribunal was:

Whether family pension received by assessee from the employer of his deceased wife (i.e., RBS, UK) on which tax was deducted in source country (i.e., UK) could be taxed again in India?

The Tribunal held as under:

1)Article 20 of India-UK DTAA (‘treaty’) was related to pensions, which means that the payment received by the employee in consideration of past employment. It had no relevance to the family pension, which is generally received by the spouse or family members or legal dependent of the deceased employee from the employer of deceased family member.

2)The Article 23(3) of treaty is related to the items of income which are not included in the foregoing articles of the treaty. Such income arising in the other contracting State may be taxed in that other State. Thus, 'family pension' which was not within the ambit of foregoing articles of India-UK Treaty and arose in the other contracting State, could be taxed in other state.

3)The expression ‘may be taxed’ mentioned in Article 23(3) of treaty authorizes only the State of source to tax such income. Accordingly, the family pension received by the assessee from the employer of his deceased wife was rightly taxed at source in UK and no amount of family pension was, thus, taxable in India.

4)In the instant case, the source country had deducted tax on family pension and, consequently, assessee had received amount after deduction of tax. Thus, the same income could not be taxed second time in the other contracting State, i.e., in India. – ACIT V. KARAN THAPAR [2014] 46 taxmann.com 46 (Delhi - Trib.)

Wednesday, June 11, 2014

Conveyance allowance received by LIC employee to develop insurance business is exempt from tax


Conveyance allowed paid by LIC to its Development Officer for performance of his duties and development of insurance business is exempt under section 10(14).

Facts:


a)The assessee, a Development Officer of LIC, had received certain amount towards conveyance allowance from the LIC.

b)Though the same was part of the salary certificate but the contention of the assessee was that the said amount had been incurred in development of LIC’s business to receive the premium on account of various policies and the said amount was entirely exempt under section 10(14).

c)The AO rejected assessee's contention and made addition of impugned sum as income of the assessee. On appeal, the CIT(A) held in favour of assessee. Further, the Tribunal upheld the order of CIT(A). The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)The conveyance allowance was paid to the Development Officers for meeting actual expenditure incurred by them in discharge of their field duties and, thus, necessarily and exclusively for meeting of such expenditure, the allowance was being exempt.

2)The LIC was sanctioning conveyance allowance to the Development Officers considering the expenditure incurred by them for procuring the business and it was fixed by a general formula having reference to the parameters of the business. Thus, the impugned allowances were reimbursement of the actual expenditure incurred by the Development Officers on account of conveyance in relation to the performance of their duties.

3)The said expenditure had a close nexus to the performance of the duties and development of the insurance business, inter alia, by way of meeting several persons, to enroll new life insurance agents, to meet the customers for encouraging them to take insurance policies etc. Thus, in such circumstances, expenditures had to be incurred towards conveyance. Therefore, the Tribunal was justified in upholding the exemption granted by the CIT(A). – CIT V. MADAN GOPAL BANSAL [2014] 45 taxmann.com 301 (Rajasthan)

Tuesday, June 10, 2014

Holy Cow! No revocation of registration of trust working for welfare of cows if it made profit from sale of milk


Where assessee-trust was established for purpose of cow breeding and protection of cows and oxen, incidental income earned by it from sale of milk could not be regarded as carrying on activity of trade or commerce within meaning of proviso to section 2(15).

Facts:


a)The assessee-trust was established for cow breeding, protection of cows and oxen. It got registration under section 12AA.

b)The DIT(E) found that income of assessee from sale of milk was far in excess of prescribed limit under proviso to section 2(15).

c)He, thus, opined that assessee was doing regular activities which were in the nature of business by way of sale of milk and was directly hit by the proviso to section 2(15). He, accordingly, cancelled the registration of trust. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The dominant purpose of the trust was to provide asylum for old, sick, weak, disabled and stray animals and birds, more particularly cows and other cattle and to bring about improvement in breeding of cattle for the beneficial promotion, upkeep, maintenance and propagation of cows.

2)It could not be denied that milk needs to be procured from cows, otherwise it will be detrimental if the milk is not procured from time-to-time. The milk so procured was distributed free of charge to children, hospitals, schools, etc., and, thereafter, the remaining milk was distributed to public at large at a very nominal rate. This activity could not be deemed as business, trade or commerce.

3)The assessee-trust was engaged in multifarious activities of diverse nature but the primary and the dominant activity was “panjrapole”. This predominant object had been held as charitable purpose by the Gujarat High Court in case of CIT v. Swastik Textile Trading Co. (P.) Ltd. [1978] 113 ITR 852 (Guj.)

4)The assessee-trust would not loose its character of charitable purpose merely because some profits arose from the activity of the sale of milk. Such activity could not be carried on in such a manner that it would not result in any profit.

5)There was no material available on record, which could suggest that the assessee-trust was conducting its affairs solely on commercial lines with a motive to earn profit only. The proviso to section 2(15) was not applicable to the instant case and the assessee deserved continuance of registration under section 12AA. Accordingly, the order of the DIT(E) was to be set aside.- SHREE NASHIK PANCHVATI PANJARPOLE V. DIT (E) [2014] 45 taxmann.com 220 (Mumbai - Trib.)

Monday, June 9, 2014

Temporary transfer of copyright in films doesn’t amount to sales; levy of ST on it is constitutionally valid: HC


Variant modes of business transactions between producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) are not "sale or deemed sale of goods" and, therefore, levy of service tax on Temporary transfer of copyright in film under section 65(105)(zzzzt) is constitutionally valid.

Facts:


a)The assessee challenged the vires of Section 65(105)(zzzzt) of the Finance Act, 1994 on ground that ‘temporary transfer of copyright’ amounted to 'sale' or 'deemed sale' of goods.

b)The assessee argued that temporary transfer of copyright was a "transfer of right to use goods" which was to be deemed as sale in terms of Article 366(29A), read with Entry 54 of List II of the Constitution and, therefore, it was not a service.

c)The revenue argued that clause (29A) of Article 366 of the Constitution was inserted to give extended meaning to the definition of sale and that Parliament had not divested its power to levy service tax.

d)The issue before the High Court was: Whether section 65(105)(zzzzt) levying service tax on the temporary transfer or permitting the use or enjoyment of copyright was ultra vires the Constitution?

The High Court held in favour of revenue as under:

1)Variant modes of business transactions between producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) were not "sale of goods" to fall under Entry 54 List II or Entry 92A List I;

2)By resorting to Entry 97 of List I Residuary Entry to levy service tax, Parliament was within its legislative competence to levy service-tax on residual items and Section 65(105)(zzzzt) was not ultra vires the Constitution;

3)Temporary transactions of copyrights or permission to use or enjoyment of copyright could not be brought either under Entry 54 of List II or Entry 92A of List I;

4)In case producer of films grants a few prints of film to distributor for exhibition purposes and distributor is not free to use prints for other purposes, viz., satellite, TV, etc., then, there is temporary transfer of copyright in films, which is a service; it does not amount to sale or deemed sale under 'transfer of right to use goods';

5)Temporary transfer of copyright in film amounted to rendering of service, thus, levy of service tax on it under section 65(105)(zzzzt) was constitutionally valid – AGS ENTERTAINMENT (P.) LTD. V. UNION OF INDIA [2014] 46 taxmann.com 92 (Madras)

Saturday, June 7, 2014

50% of additional depreciation allowable in 1st year and balance in next year on usage of asset for less than 180 days


In terms of section 32(1)(iia), there is no restriction on assessee to carry forward additional depreciation. Thus, where only 50 per cent of additional depreciation was allowable in year of purchase of machinery, as it was put to use for less than 180 days during said year, balance additional depreciation could be claimed in subsequent assessment year.

Facts:


a)The assessee claimed additional depreciation in respect of new machinery and plant acquired after 30-9-2005. The Assessing Officer (‘AO’) allowed 10 per cent of the additional depreciation for the assessment year 2006-07. The assessee claimed the remaining 10 per cent of the depreciation during the year under consideration.

b)The Assessing Officer rejected the claim of the assessee on the ground that there was no provision for carry forward of any additional depreciation. The DRP confirmed order of Assessing Officer.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)Section 32(1)(iia) provides that in case a new machinery or plant is acquired and installed by an assessee, who is engaged in the business of manufacture or production of an article or thing, then a sum equal to 20 per cent of the actual cost of the machinery and plant shall be allowed as a deduction.

2)The assessee had already claimed 10 per cent of additional depreciation in the earlier assessment year since the machinery was used for less than 180 days and the balance 10 per cent was claimed in the year under consideration.

3)Section 32(1)(iia) does not prescribe the year in which the additional depreciation has to be allowed. It simply provides that the assessee is eligible for additional depreciation at 20 % of the cost of the machinery, provided the machinery is acquired and installed after 31-3-2005.

4)As per proviso to section 32(1)(iia) if the machinery is put to use for the purpose of business for less than 180 days, the assessee is entitled to 50 per cent of the prescribed rate of additional depreciation. The Act is silent on the allowance of the balance additional depreciation in the subsequent year;

5)This issue was considered by the Delhi Bench of this Tribunal in the case of Dy. CIT v.Cosmo Films Ltd. [2012] 24 taxmann.com 189 (Trib.), wherein it was decided that when there was no restriction in the Act to deny the benefit of balance 50 per cent, the assessee was entitled to balance additional depreciation in the subsequent assessment year.

6)Thus, in view of the decision in case of Cosmo Films (supra), balance 50 per cent of the depreciation had to be allowed in the subsequent year. Therefore, the orders of the lower authorities on this issue were to be set aside. – APOLLO TYRES LTD. V. ACIT [2014] 45 taxmann.com 337 (Cochin - Trib.)

Friday, June 6, 2014

Delay in filing of appeal due to resignation of key employee dealing with case was condonable


Where assessee directed its CA to file appeal before Tribunal but its manager resigned at crucial stage and CA delayed filing of appeal, delay could not be said to be entirely on account of assessee and, hence, was to be condoned

Facts:


a)The AO made assessment on assessee under section 143(3) and made additions to its income. On appeal, the CIT(A) confirmed the additions.

b)Further, the Tribunal rejected appeal of assessee against the order of the CIT(A) on the ground that there was delay of forty five days in filing the appeal. The aggrieved-assessee filed the instant writ.

The High Court held in favour of assessee as under:

1)The assessee could not be held entirely responsible for the delay. It had engaged a firm of Chartered Accountants to represent it. It had prosecuted the appeals for the other three years duly and diligently and, in fact, successfully. 2)It instructed the CA to file the said appeal prior to the last date

for filing the same. Even if there was any delay, it was not on account and certainly not on account of the assessee. The assessee's manager had resigned at a crucial stage was another factor in its favour.

3)The assessee had been put to incur considerable expenses and effort merely to obtain a hearing on merits. The assessee could, by no stretch of imagination, be said to have waived off its rights. This was clear from the fact that the assessee had duly and diligently prosecuted the appeals in respect of the three other assessment years.

4)But for the unfortunate circumstances, this appeal would also have been heard on merits in the normal course. The assessee was not entirely at fault for the delay and negligence in prosecuting the fourth appeal. Thus, there was no justification in denying the assessee an opportunity of having its appeal considered on merits. Even assuming that there was some negligence on its part, the same had caused the revenue no prejudice whatsoever. - BAJAJ BHAVAN OWNERS PREMISES CO-OP. SOCIETY LTD. V. ITAT [2014] 45 taxmann.com 231 (Bombay)

Thursday, June 5, 2014

Liability to pay interest under IT Act remained intact even if assets of assessee were attached under other Act


Even a notified person whose properties were attached under Special Court (Trial of Offences relating to Transaction in Securities) Act, 1992 would be liable to pay interest under sections 234A, 234B and 234C.

Facts


a)The assessee was notified under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992. The assets and properties of the assessee were attached by operation of the statute.

b)Interest for default in making payment of advance tax was levied on the assessee. The assessee submitted that its assets and properties were statutorily attached and permission to deal with the same, sought from the Special Court, was rejected and, thus, it was prevented from discharging the liability to pay the advance tax.

c)The Tribunal held that the provisions of sections 234A, 234B and 234C were not applicable to the notified persons and therefore, they were exempted from the liability to pay interest.

On appeal, the High Court held in favour of assessee as under:

1)The Tribunal had erred in taking a view that the assessee being a notified person under the Special Court (Trial of Offences relating to Transaction in Securities) Act, 1992 was not liable to pay interest under sections 234A, 234B and 234C.

2)Thus, merely because the assets and properties had been attached, it did not mean that the liability to pay interest would not arise. - CIT v. Cascade Holdings (P.) Ltd [2014] 45 taxmann.com 228 (Bombay)

Wednesday, June 4, 2014

Forced staying period in India on impounding of passport is excludible to determine residential status in India


In order to determine residential status of assessee in India during relevant assessment years, number of days of his forced stay due to untenable impounding of passport was to be excluded.

Facts:


a)Consequent to search operations carried out on assessee, the department had found evidence that assessee was getting huge amount of commission from the companies outside India which was brought into India in the form of FDI.

b)Accordingly, the AO had made additions to the income of assessee in respect of unexplained investment. The assessee contending that for relevant assessment years his status in India was that of non-resident as his stay in India had exceeded 182 days during the year because of illegally impounding of his passport by the Govt. agencies.

c)The CIT(A), however, confirmed the order of AO. He, however, partly deleted the additions made by the AO on merits. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The assessee's over stay in India was neither attributable to his volition nor free will and was because of untenable actions of impounding of his passport by executive orders which were quashed by the highest Court.

2)In these circumstances, the literal meaning of the provisions led to a manifest absurdity in as much as by untenable actions of executive, a taxpayer was exposed to the perils of losing his valuable right under taxation law, i.e., retaining his NRI status.

3)The legislature in its wisdom might not have envisaged such a situation wherein a person was forced to become a resident due to wrongful restraint in absence of eligibility to travel outside India.

4)Therefore, assessee's case was fit where doctrine of forced meajure might be applied as it was impossible for the assessee to move out of country and, therefore, doctrine of impossibility of performance was also applicable.

5)The stay of assessee was to be calculated after exclusion of days of wrongful impounding of his passport, which constituted forced stay in India. Thus, assessee's residential status was to be held as 'non-resident'. – SURESH NANDA V. ACIT [2014] 45 taxmann.com 269 (Delhi - Trib.)

Tuesday, June 3, 2014

Sec. 54F stipulates deposit of unutilized sum within due date specified under sec. 139(1) and not sec. 139(4)


'Due date' mentioned under section 54F is due date for filing return under section 139(1) and not under section 139(4).

Facts:

a)The assessee had claimed exemption under section 54F. The Assessing Officer held that the assessee had not deposited the unutilized sale consideration in the capital gain account scheme within the due date for filing the return of income under section 139(1). He accordingly, denied section 54F benefit to the assessee.

b)On appeal, the CIT(A) allowed Section 54F exemption to the assessee. The aggrieved-revenue filed the instant appeal.

c)Thus, the question that arose for consideration of the Tribunal was: Whether Section 54F provided for deposit of unutilized gains within due date specified under Section 139(1) and not under Section 139(4)?

The Tribunal held as under:

1)The Section 54F provides that the assessee is entitled to exemption in case he/she constructs a residential house within a period of three years after the sale of the capital asset. However, sub-clause (4) of section 54F provides that the unutilized portion of the net sale consideration shall be deposited in the capital gain account scheme within the period of due date for filing return of income under section 139.

2)The Apex Court in case of Prakash Nath Khanna v. CIT [2004] 135 Taxman 327 (SC), had an occasion to interpret the term ‘due date’ provided under Section 54F and it held that due date means the due date for filing the return under section 139(1) and not under section 139(4);

3)When the Legislature had specifically referred only to section 139(1) and omitted to refer to section 139(4) in Section 54F, making a reference to section 139(4) was not proper;

4)Thus, the case to be reconsidered by the AO in the light of the judgment of the Apex Court (Supra). Accordingly, the orders of the lower authorities were to be set aside and the issue of exemption under section 54F was to be restored to the file of the AO. – ITO V. SMT. ROSAMMA KORAH [2014] 45 taxmann.com 153 (Cochin - Trib.)

Monday, June 2, 2014

Payments of commission for services rendered in relation to securities are out of ambit of sec. 194H; no TDS


Services rendered in relation to securities are excluded from express definition of 'brokerage or commission' and, thus, excluded from purview of section 194H.

Facts


a)The assessee received certain amount from Mutual fund houses and paid commission to TPL on account of brokerage for motivating potential investors to invest through the assessee in Mutual funds. According to agreement entered into by the assessee, TPL canvassed and marketed various Mutual fund schemes to potential investors after collecting details from the assessee.

b)The Joint Commissioner passed an order under section 144A directing disallowance of the commission paid to TPL.

c)The Assessing Officer disallowed the commission paid by the assessee to TPL under section 40(a)(ia) on the ground that tax was liable to be deducted at source under section 194H, but had not been deducted.

d)On appeal, the CIT(A) set aside the disallowance holding that services rendered in relation to securities are excluded from the express definition of 'brokerage or commission' and, thus, excluded from the purview of section 194H. Further, the Tribunal upheld the order of the CIT(A). The aggrieved- revenue filed the instant appeal.

The High Court held in favour of assessee:

1)The Joint Commissioner was in error in holding that while TPL had motivated investors to subscribe to Mutual Funds, it had no connection whatsoever with 'securities' as defined in Explanation to section 194-H. Explanation (iii) to section 194-H specifically states that the expression 'securities' will have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulations) Act, 1956.

2)Once it was an admitted position that TPL had motivated potential investors to invest through the assessee in Mutual Funds, it had to be held that these services were rendered in relation to a transaction in 'securities' and would be excluded from the definition of 'brokerage or commission' under section 194-H.

3)The CIT(A) was justified in coming to the conclusion that the services were rendered by TPL were in relation to 'securities'. Consequently, the disallowance under section 40(a)(ia) was not warranted.

4) Thus, there was no reason to hold that the Tribunal was in error. The appeal by the revenue had not given rise to a substantial question of law - CIT V. TANDON & MAHENDRA [2014] 45 taxmann.com 183 (Allahabad)